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, 2003



/  /

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)



Maryland

68-0306514

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)



270 Lafayette Circle

Lafayette, CA

94549

(Address of principal executive offices)

(Zip Code)



Registrants telephone number, including area code:

(925) 283-8910



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

Name of each exchange

Title of each class

on which registered

Common stock, par value $0.02 per share

New York Stock Exchange

Pacific Exchange



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. [  ]



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 30, 2003 was approximately $428,666,192. The number of shares of registrants common stock, par value $0.02 per share, outstanding as of February 27, 2004 was 16,498,159.



DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants proxy statement to be mailed to the registrants stockholders in connection with the annual meeting of the registrants stockholders, scheduled to take place on May 13, 2004, are incorporated by reference in Items 10 through 14 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.







|INDEX   
|--------
|        
|PART I  
|        
|Item 1. 
|Item 2. 
|Item 3. 
|Item 4. 
|        
|PART II 
|Item 5. 
|Item 6. 
|Item 7. 
|Item 7A.
|Item 8. 
|Item 9. 
|Item 9A.
|        
|PART III
|Item 10.
|Item 11.
|Item 12.
|Item 13.
|Item 14.
|PART IV 
|Item 15.
|        

Forward-Looking Statements



When used in this Form 10-K, the words believe, expect, intend, anticipate 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 our 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 because 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.



We are the successor to 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, 2003, we owned and operated 92 properties totaling approximately 7.8 million rentable square feet. Of these 92 properties, 61 are industrial properties and 31 are suburban office properties. As of December 31, 2003, the 92 properties were leased to 504 tenants with an average occupancy rate of approximately 93%. The properties are located in California, Arizona, Washington, Colorado and Nevada.



CORPORATE OBJECTIVE AND STRATEGIES



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. To achieve this objective, we focus on four strategies:



-

Occupancy:  aim to maintain an occupancy rate of 90% or more for the properties in our portfolio;

-

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

-

Share Repurchases:  repurchase our common stock on an opportunistic basis; and

-

Management of Capital Expenditures:  monitor capital expenditures.

1



Occupancy



As of December 31, 2003, our portfolio was 93% occupied.  We expect that the properties in our portfolio will be exposed to higher than usual lease expirations during 2004 and 2005. In anticipation of such lease expirations, we have placed an emphasis on the objective of retaining or, if required, replacing our tenant base. In order to retain good credit tenants in the current market, we have engaged in a strategy to negotiate lower rental rates with tenants whose rent is substantially above market in exchange for extended lease terms, which we refer to as blend and extend leases. We expect to continue to execute these blend and extend leases when it is economically feasible to do so. We have continued to emphasize the importance of protecting occupancy in training and planning sessions with our regional and property managers.



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:



-

the experience of our management team;

-

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

-

our relationships with private and institutional real estate owners;

-

our relationships with real estate brokers; and

-

our integrated asset management program.



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



-

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

-

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

-

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



We have, however, in the past acquired, and in the future we may acquire, properties that do not meet one or more of these criteria. This may be particularly true with the acquisition of a portfolio of properties that 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 process also includes an evaluation of the local market, including competitive properties and relevant economic and demographic information. Typically, 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. After their evaluation and endorsement of a potential acquisition property, the proposed acquisition is presented either to the investment committee of the board of directors for acquisitions under $25,000,000, or to the full board of directors for all other acquisitions, for their review and approval prior to our commitment to acquire the property.



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 Peter Bedford. For these services, BAI earned a success fee in an amount equal to 11⁄2% of the gross amount of the aggregate price of the property for acquisitions and dispositions, up to 11⁄2% 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 amount of

2



approved expenses not to exceed actual costs incurred by BAI through the time of such acquisition, disposition, loan, or development. In July 2002, we terminated our agreement with BAI and subsequently hired its former employees.



Share Repurchases



In July 1998, our board of directors approved a share repurchase program of 3 million shares of our common stock, 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.



In November 1998, we implemented our share repurchase program when we believed our stock price traded at a discount to our estimated net asset value, which was calculated based on our current capitalization rate and earnings estimates. From November 1998 through the end of 2000, we repurchased 5,738,837 shares (or 71% of our repurchased shares) at an average cost of $17.49 per share. From 2001 through 2003, 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 on an opportunistic basis. Since November 1998, we have repurchased and retired approximately 8 million shares at an average price of $18.74 per share. This represents 35% of the shares outstanding at November 30, 1998 when we implemented our share repurchase program.  During the year ended December 31, 2003, we repurchased 497,730 shares of our common stock under our share repurchase program at an average price of $26.12 per share.



Management of Capital Expenditures



We expect higher than usual lease expirations in our portfolio during 2004 and 2005. As a result, we expect to incur higher capital expenditures, including the costs of leasing commissions and tenant improvements, related to renewing or replacing the expiring leases. In several instances, these lease expirations may occur in markets that have experienced considerable weakness due to job loss and excess inventory. This market weakness, combined with a higher level of lease expirations, may require us to incur more capital expenditures to renew or re-lease these spaces then we have experienced historically.



In addition, we anticipate renovating several older properties that are currently leased by tenants who may not renew their leases. We believe that these renovations are necessary to render the properties competitive in their respective markets.



The combination of these two situations will require that we manage our capital resources carefully. We intend to closely monitor these situations and continually assess our actual expenditures against our planned expenditures. We believe that we will have sufficient funds to meet the needs of these situations.



TRANSACTIONS AND SIGNIFICANT EVENTS DURING 2003



Acquisitions



During 2003, we acquired 658,711 square feet of commercial real estate assets for a total contract price of $85,125,000, which consisted of the following:



-

We purchased a 151,830 square-foot R&D complex in Tempe, Arizona for $7,805,000 or approximately $52 per square foot. The four-building property is fully leased and is expected to generate a first-year cash yield in excess of 9%.

-

We purchased a 98,334 square-foot service center flex complex in Las Vegas, Nevada for $10,955,000 or approximately $112 per square foot. The property, a two-building complex, was 87% leased at the time of the acquisition and is expected to generate a first-year cash yield in excess of 9%.

3



-

We purchased a 205,077 square-foot office building in Foothill Ranch, California for $41,750,000 or approximately $204 per square foot. The property is fully leased and is expected to generate a first-year cash yield in excess of 9%.

-

We purchased a 77,261 square-foot service center flex complex in Mesa, Arizona for $6,800,000 or approximately $88 per square foot. The two-building property is fully leased and is expected to generate a first-year cash yield in excess of 9%.

-

We purchased a 126,209 square-foot service center flex complex in North Las Vegas, Nevada for $17,815,000 or approximately $141 per square foot. The six-building property was 90% leased at the time of the acquisition and is expected to generate a first-year cash yield in excess of 9%.



Development and Redevelopment



In response to decreasing demand for office and industrial space, our development activities over the past two years have been limited to our Jurupa Business Center project in Ontario, California. As of February 2004, the 41,726 square-foot phase I was 100% leased, and the 41,390 square-foot phase II, which was shell complete in December 2002, was 76% leased. Our board has authorized us to move forward with the final two phases, with construction of phases III and IV expected to commence in early 2004. Both phases will be constructed concurrently over an expected 7-month period, taking advantage of the project momentum generated with the recent leasing activities of phases I and II. We estimate the total cost of construction of these two phases, including the purchase price of the land, to be approximately $6.9 million.



In February 2003, one of our larger tenants informed us that it did not intend to renew its lease upon expiration on February 28, 2004. This tenant occupies the entire 334,000 square feet of our five-building facility in Renton, Washington. We are currently planning the redevelopment of this property and expect to commence construction in March 2004 when the tenant vacates. We expect the construction process for site work, shell enhancement, construction of lobbies and the upgrade of common areas to take place over a 48-month period. The construction will be completed in phases, with the completion and leasing of some of the buildings occurring prior to the end of the 48-month period. We expect to incur costs between $18 and $22 million to renovate and re-tenant the project.



Marketing Programs



In response to soft market conditions and increasing lease expirations in several locations, we initiated a marketing program early last year. The program received the highest priority within the organization. We designed the program to accomplish three broad objectives:



-

improving our vacant spaces to move-in condition;

-

ensuring that our external communications were high quality and emphasized the power of the Bedford brand; and

-

creating internal recognition programs to recognize contributions at all levels of the organization.



By year-end, we had developed tools to accomplish each of the objectives. Our vacant spaces have been renovated and improved with a standard tenant improvement package. We believe that this provides us with a competitive advantage, particularly in the softer markets in which we operate. We also developed and implemented external recognition programs, including brokered deal recognition and incentives to the brokerage community, which we hope will result in increased leasing opportunities.



4



We redesigned and improved our web-based marketing initiatives, ensuring that all of our vacant spaces are accurately posted and available to the tenant brokerage groups with whom we work. Our marketing publications were revised to reflect consistent graphics and information so as to enhance and emphasize our brand image in our markets. Finally, we created internal recognition programs to recognize both transactions and more general contributions to our marketing objectives throughout the organization. We have made numerous awards highlighting new leases, new tenant-relations ideas, and administrative accomplishments. We believe that these steps have helped to communicate a sense of our mission throughout the company.



As mentioned above, we expect a relatively larger number of lease expirations in our portfolio during the next two years. In an effort to address the upcoming challenges and to increase our chances of retaining as many of our tenants as possible, we have selected a group of our tenant base and given it high focus within our management team. We call this group our mighty-ninety, and it consists of 90 of the larger tenants in our portfolio. Our regional managers have developed strategies for the retention of each of these tenants. Our plan is to ensure that each prospective renewal in the group is given the best planning and attention that we can provide. In this way, we hope to move successfully through a period of higher lease expirations without a significant reduction in our retention rate.



Operating Performance



For the year ended December 31, 2003, we reported income from continuing operations of $27,665,000 on rental revenues of $107,954,000, compared with net income from continuing operations of $31,682,000 on rental revenues of $99,740,000 for the year ended December 31, 2002. Rental revenue of $2,162,000 was classified as income from operating properties sold, net for the year ended December 31, 2002. Gain on sales of real estate investments for the year ended December 31, 2002 was $3,575,000. Our funds from operations (FFO) for the year ended December 31, 2003 was $49,723,000 as compared to $50,083,000 for the year ended December 31, 2002. We provide a definition of FFO in Item 6 of this report and present a reconciliation of our FFO to our net income in Item 7 of this report.



Increase in Dividends on Common Stock



In September 2003, we announced a 2% increase in our quarterly common stock dividend from $0.50 per share to $0.51 per share, or $2.04 on an annualized basis. The higher dividend rate commenced with our dividend for the third quarter of 2003. The dividends declared for the four quarters in 2003 totaled $2.02, a 3% increase compared to the dividends declared for the four quarters in 2002 of $1.96.



Long-Term Debt



Taking advantage of the low-interest rate environment and anticipating rising interest rates in the future, we undertook a concerted effort to convert floating-rate debt to fixed-rate debt. The net effect of this financing effort was a decrease in our variable-rate debt from 50.3% of our total debt at the beginning of 2003 to 19.6% at year-end.



In March 2003, we obtained a $48,500,000 mortgage from Teachers Insurance and Annuity Association of America. The loan has a ten-year term and carries a fixed interest rate of 5.60%. Proceeds from the mortgage financing were used to pay down a portion of the outstanding balance of our lines of credit and to replace an $18,000,000 mortgage from Prudential Insurance Company of America, which matured in March 2003 and carried a fixed interest rate of 7.02%.



5



During the fourth quarter of 2003, we obtained the following mortgage financings:



-

Two ten-year mortgages with Bank of America for $9,900,000 and $11,400,000 with fixed interest rates of 5.45% and 5.55%, respectively. The mortgages call for interest only payments for the first two years and principal and interest payments for the remainder of the loan term.

-

A ten-year mortgage with JPMorgan Chase Bank for $25,000,000 with a fixed interest rate of 5.74%.

-

Three seven-year mortgages with John Hancock for an aggregate amount of $27,900,000 with fixed interest rates of 4.95%. These three mortgages call for interest only payments for the first four years and principal and interest payments for the remainder of the loan term.

-

Three five-year mortgages with John Hancock for an aggregate amount of $11,800,000 with fixed interest rates of 4.60%. These three mortgages call for interest only payments for the first three years and principal and interest payments for the remainder of the loan term.



Proceeds from these mortgages were used to finance property acquisitions and to pay down a portion of our secured credit facility. Proceeds of approximately $4,300,000 were used to pay off the remaining balance of a Union Bank loan that had a floating rate, which was 6.00% at the time of the payoff.



In November 2003, we assumed two mortgages with Sun Life Assurance Company in connection with the acquisition of a property. The mortgages had remaining outstanding balances of approximately $1,659,000 and $1,469,000 at the date of the acquisition with interest at fixed rates of 7.00% and 7.25%, respectively. Both of the mortgages have a maturity date of April 1, 2009.



In August 2003, we paid off the remaining balance of $22,000,000 on the $40 million unsecured bridge facility with Bank of America, which carried an interest rate of LIBOR plus 1.55%.



Sale of Preferred Stock



On August 5, 2003, we issued and sold 805,000 shares of our 8.75% Series A Cumulative Redeemable Preferred Stock at a price of $50.00 per share for a total of $40,250,000. The private offering was made only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In December 2003, the shares of the preferred stock sold in the private offering were registered with the Securities and Exchange Commission. The shares of the Series A preferred stock have no stated maturity, are not subject to any sinking fund or mandatory redemption, and are not convertible into any other securities. The shares are redeemable at our option beginning in August 2008, or earlier if necessary in limited circumstances to preserve our status as a REIT.



We used the net proceeds of approximately $39 million from the sale of the Series A preferred stock to finance a portion of the $85 million in property acquisitions during the third and fourth quarters of 2003.



DIVIDENDS



Common Stock 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 seventeen times since, ranging from $0.10 per share in the second quarter of 1993 to $0.51 per share in the fourth quarter of 2003.



6



Preferred Stock Dividends



We pay cumulative dividends on the shares of our Series A preferred stock at the rate of 8.75% of the $50.00 liquidation preference per share per year, which is equivalent to $4.375 per share per year.  Dividends on the shares of our Series A preferred stock are payable quarterly in arrears.  We declared dividends of $685,000 on the outstanding shares of our Series A preferred stock on October 1, 2003 and paid them on October 15, 2003.



TENANTS



Based on rentable square feet, as of December 31, 2003, our suburban office properties and industrial properties were approximately 93% occupied by a total of 504 tenants, of which 140 were suburban office property tenants and 364 were industrial property tenants. Our tenants include local, regional, national, and international companies engaged in a wide variety of businesses.



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 re-letting of space, repayment of indebtedness, share repurchases, development of properties, and dividends from:



-

cash flow from operations;

-

borrowings under our credit facility and, if available, other indebtedness, which may include indebtedness assumed in acquisitions;

-

the sale of certain real estate investments; and

-

preferred stock issuance.



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 contamination from hazardous materials and mold. We carry insurance for terrorism losses as defined under the Terrorism Risk Insurance Act of 2002 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 limit 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 properties located in California, as well as excess earthquake coverage with an aggregate limit of $10 million for properties 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 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.



7



Our real estate investments are located in markets in which we face significant competition for rental revenues. Many of our investments, particularly 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 properties in the east side market in Seattle, Washington. This market has been negatively affected by job loss in that region and there is considerable inventory available. In addition, we own properties in Phoenix, Arizona and Denver, Colorado. In both of these cities, weak demand has resulted in excess direct and sublease inventory, which provides tenants with more choices and weakens our negotiating strength.



We believe that our competitive strengths may enable us to lessen the adverse impact of these negative factors. These competitive strengths include 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.



GOVERNMENTAL 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 and regulations. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state, and local laws, ordinances, and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. These laws and regulations 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.



EMPLOYEES



As of December 31, 2003, we had 43 full-time employees, including the 11 employees that we hired from BAI in 2002.



OTHER INFORMATION



Copies of our corporate governance guidelines, audit committee charter, compensation committee charter, nominating and corporate governance committee charter, code of ethics, and code of business conduct and ethics are available on our website.  These documents are also available in print to any stockholder who requests them by calling (925) 283-8910.  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 made. 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, 2003, our real estate investments were diversified by geographic region and by product type as follows (dollars in thousands):



|                                | Number of
Properties | Investment
Cost | % of Total
Investment Cost
|------------------------------- | -------------------- | --------------- | --------------------------
|Industrial buildings            |                      |                 |                           
|Northern California             | 30                   | $205,497        | 26                        
|Arizona                         | 18                   | 108,872         | 13                        
|Southern California             | 9                    | 59,535          | 7                         
|Northwest                       | 2                    | 14,230          | 2                         
|Nevada                          | 2                    | 26,258          | 3                         
|                                |                      |                 |                           
|Total industrial buildings      | 61                   | 414,392         | 51                        
|                                |                      |                 |                           
|Office buildings                |                      |                 |                           
|Northern California             | 6                    | 31,565          | 4                         
|Arizona                         | 5                    | 36,460          | 4                         
|Southern California             | 5                    | 65,803          | 8                         
|Northwest                       | 6                    | 117,247         | 15                        
|Colorado                        | 8                    | 111,312         | 14                        
|Nevada                          | 1                    | 13,457          | 2                         
|                                |                      |                 |                           
|Total office buildings          | 31                   | 375,844         | 47                        
|                                |                      |                 |                           
|Land held for development       |                      |                 |                           
|Northern California             | 4                    | 5,866           | *                         
|Arizona                         | 1                    | 637             | *                         
|Southern California             | 3                    | 2,477           | *                         
|Northwest                       | 1                    | 1,142           | *                         
|Colorado                        | 2                    | 3,949           | *                         
|                                |                      |                 |                           
|Total land held for development | 11                   | 14,071          | 2                         
|                                |                      |                 |                           
|Total                           | 103                  | $804,307        | 100%                      



* Less than 1%



9







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, 2003. 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, 2003.



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

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



|Property                                                                                       | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                              
|---------------------------------------------------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | -------------------------------------------------------------------------------------
|INDUSTRIAL BUILDINGS
Northern California
Building #3 at Contra Costa Diablo Ind. Park, Concord | 100% 1
$7.80      | 100% 1
$8.04      | 100% 1
$8.28      | 100% 1
$10.20     | 100% 1
$10.51     |  | Television cable service.                                                            
|Building #8 at Contra Costa Diablo Ind. Park, Concord                                          | 100% 1
$6.72      | 100% 1
$11.61     | 100% 1
$11.61     | 100% 1
$11.61     | 100% 1
$11.61     |  | Storage of medical supplies.                                                         
|Building #18 at
Mason Ind. Park, Concord                                                       | 100% 2
$7.22      | 100% 2
$7.54      | 100% 2
$8.49      | 100% 2
$8.76      | 100% 2
$9.47      |  | Warehouse of scaffolding materials and construction supplies; roofing contractor.    
|Milpitas Town Center, Milpitas                                                                 | 100% 4
$12.74     | 100% 3
$14.36     | 100% 3
$14.62     | 100% 3
$15.92     | 70% 2
$10.68      |  | Manufacturer of blood glucose meters; manufacturer of vacuum pumps and related parts.
|598 Gibraltar Drive, Milpitas                                                                  | 100% 1
$10.44     | 100% 1
$19.20     | 100% 1
$19.97     | 100% 1
$20.77     | 100% 1
$21.60     |  | Electronic computer component manufacturer.                                          
|Auburn Court, Fremont                                                                          | 68% 3
$11.25      | 100% 4
$16.13     | 100% 4
$16.86     | 68% 3
$18.62      | 59% 2
$18.83      |  | Computer software developer; high-performance fiber optic components supplier.       
|47650 Westinghouse Drive, Fremont                                                              | 100% 1
$10.20     | 100% 1
$10.80     | 100% 1
$10.80     | 100% 1
$11.40     | 100% 1
$11.40     |  | Electronic personal computer board assembly.                                         
|410 Allerton,
So. San Francisco                                                                | 100% 1
$7.20      | 100% 1
$7.80      | 100% 1
$9.60      | 100% 1
$9.89      | 0% 0
0            |  | N/A.                                                                                 

10



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

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



|Property                                                                                          | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                                                                                                                        
|------------------------------------------------------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|INDUSTRIAL BUILDINGS
(continued)
Northern California (continued)
400 Grandview,
So. San Francisco | 100% 4
$7.95      | 100% 4
$8.27      | 100% 4
$7.72      | 100% 4
$10.85     | 100% 4
$11.23     |  | Radiology research and developer; freight forwarding companies; retail display company.                                                                                                                        
|342 Allerton,
So. San Francisco                                                                   | 100% 4
$9.13      | 100% 4
$10.40     | 100% 4
$12.95     | 100% 4
$13.63     | 100% 4
$12.82     |  | Freight forwarding companies; food broker.                                                                                                                                                                     
|301 East Grand,
So. San Francisco                                                                 | 75% 2
$6.90       | 100% 3
$7.42      | 100% 3
$7.79      | 100% 3
$8.04      | 30% 1
$5.61       |  | Distributor of MRI equipment.                                                                                                                                                                                  
|Fourier Avenue, Fremont                                                                           | 100% 1
$8.99      | 100% 1
$8.99      | 100% 1
$10.67     | 100% 1
$10.67     | 100% 1
$10.67     |  | Manufacturer of testers and equipment for semi-conductors.                                                                                                                                                     
|Lundy Avenue,
San Jose                                                                            | 100% 2
$14.40     | 100% 2
$14.51     | 100% 2
$15.60     | 82% 1
$15.60      | 100% 2
$15.14     |  | Testing and distribution of semi-conductors and other related electronic components; data and network storage services.                                                                                        
|115 Mason Circle, Concord                                                                         | 100% 5
$6.78      | 100% 5
$7.21      | 100% 5
$7.60      | 83% 4
$8.00       | 100% 5
$7.78      |  | Manufacturer and distributor of pipeline; distributor of fund raising products; distributor of water purifying systems; manufacturer and sales of woman and childrens pajamas; wholesale lighting distributor.
|47600 Westinghouse Drive, Fremont                                                                 | 100% 1
$10.92     | 100% 1
$11.28     | 100% 1
$11.64     | 100% 1
$12.00     | 100% 1
$12.36     |  | Research and development assembly and testing related to the semi-conductor/electronics industry.                                                                                                              
|860-870 Napa Valley Corporate Way, Napa                                                           | 88% 2
$9.90       | 94% 2
$11.06      | 100% 2
$11.72     | 100% 2
$12.52     | 94% 2
$12.02      |  | Winery; content management and remittance processing provider.                                                                                                                                                 







11



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

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



|Property                                                         | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                                                                        
|---------------------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|INDUSTRIAL BUILDINGS
(continued)
Northern California (continued) |                   |                   |                   |                   |                   |  |                                                                                                                                                                
|47633 Westinghouse Drive, Fremont                                | 100% 1
$12.06     | 100% 1
$12.31     | 100% 1
$12.55     | 100% 1
$12.80     | 0% 0
0            |  | N/A                                                                                                                                                            
|47513 Westinghouse Drive, Fremont                                | 100% 2
$14.92     | 100% 2
$15.52     | 100% 2
$16.12     | 100% 2
$16.72     | 100% 2
$9.51      |  | Manufacturer of semi-conductor equipment; manufacturer and designer of arterial balloon catheters and other related devices.                                   
|Bordeaux Centre, Napa                                            | 89% 4
$6.57       | 100% 5
$7.06      | 100% 5
$7.26      | 100% 5
$7.47      | 100% 4
$7.64      |  | Cork manufacturer; marine electronics distributor; wine storage and distributor for online and wine club sales; research and development of packaging material.
|OToole Business Park, San Jose                                  | 100% 0
$14.38     | 100% 1
$17.16     | 84% 1
$22.09      | 77% 2
$19.53      | 71% 1
$19.51      |  | Biotech company.                                                                                                                                               
|6500 Kaiser Drive, Fremont                                       | 100% 1
$9.60      | 100% 1
$10.20     | 100% 1
$10.20     | 100% 1
$10.80     | 100% 1
$10.80     |  | Research and development, manufacturer of computers.                                                                                                           
|Bedford Fremont Business Park, Fremont                           | 97% 1
$16.39      | 97% 1
$17.97      | 97% 1
$20.23      | 94% 1
$17.65      | 94% 1
$16.60      |  | Administration and testing of samples for managed care organizations.                                                                                          
|Spinnaker Court, Fremont                                         | 100% 2
$8.25      | 100% 3
$14.72     | 100% 3
$20.93     | 75% 2
$25.41      | 100% 3
$21.07     |  | Design-to-distribution of computing solutions; developer of broadband products and related components; storage and warehouse of computer equipment.            
|2277 Pine View Way, Petaluma                                     | 100% 1
$7.25      | 100% 1
$7.25      | 100% 1
$7.61      | 100% 1
$7.61      | 100% 1
$7.99      |  | Manufacturer and distributor of eyeglass lenses for world-wide distribution.                                                                                   
|The Mondavi Building, Napa                                       | 100% 1
$5.17      | 100% 1
$5.17      | 100% 1
$5.42      | 100% 1
$5.42      | 100% 1
$5.70      |  | Wine storage and administration.                                                                                                                               





12



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

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



|Property                                                         | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                           
|---------------------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | ------------------------------------------------------------------------------------------------------------------
|INDUSTRIAL BUILDINGS
(continued)
Northern California (continued) |                   |                   |                   |                   |                   |  |                                                                                                                   
|Parkpoint Business Center, Santa Rosa                            | 100% 3
$15.68     | 95% 3
$16.50      | 98% 3
$17.03      | 80% 1
$17.87      | 100% 2
$18.67     |  | Mortgage broker; medical office.                                                                                  
|2180 S. McDowell Blvd., Petaluma                                 | 81% 1
$11.20      | 69% 1
$8.28       | 100% 2
$8.71      | 100% 2
$8.94      | 100% 2
$9.22      |  | Manufacturer of high-end, commercial grade sound equipment; valve and regulator automation sales and manufacturer.
|2190 S. McDowell Blvd., Petaluma                                 | 100% 2
$8.39      | 100% 2
$8.89      | 100% 2
$9.13      | 100% 2
$9.64      | 100% 2
$9.82      |  | Bread distributor; distributor of paper and packaging products.                                                   
|So. San Francisco Business Center,
So. San Francisco             | N/A
N/A           | N/A
N/A           | N/A
N/A           | 96% 2
$20.38      | 92% 2
$19.70      |  | U.S. postal office retail store; manufactures and leases copiers.                                                 
|Philips Business Center, San Jose                                | N/A
N/A           | N/A
N/A           | N/A
N/A           | 100% 1
$18.16     | 100% 1
$18.72     |  | Manufactures semiconductors and related components.                                                               
|                                                                 |                   |                   |                   |                   |                   |  |                                                                                                                   
|Arizona                                                          |                   |                   |                   |                   |                   |  |                                                                                                                   
|Westech Business Center, Phoenix                                 | 96% 0
$9.97       | 95% 0
$10.37      | 94% 0
$10.66      | 81% 1
$10.96      | 90% 1
$10.36      |  | Administrative services for University.                                                                           
|Westech II, Phoenix                                              | 100% 2
$8.87      | 100% 2
$9.63      | 100% 2
$9.78      | 94% 2
$10.06      | 100% 3
$9.68      |  | Administrative services for University; travel agency; engineering firm.                                          
|2601 W. Broadway, Tempe                                          | 100% 1
$7.14      | 100% 1
$7.43      | 100% 1
$7.72      | 100% 1
$8.03      | 100% 1
$8.35      |  | Wireless phone service provider.                                                                                  
|Phoenix Airport Center #2, Phoenix                               | 100% 1
$7.80      | 100% 1
$7.80      | 100% 1
$10.50     | 100% 1
$10.50     | 100% 1
$10.50     |  | Electronic parts sales and customer service.                                                                      
|Phoenix Airport Center #3, Phoenix                               | 100% 1
$7.02      | 100% 1
$7.02      | 100% 1
$9.18      | 100% 1
$9.78      | 100% 1
$9.78      |  | Cosmetic manufacturer and distributor.                                                                            
|Phoenix Airport Center #4, Phoenix                               | 100% 1
$7.80      | 100% 1
$8.36      | 100% 1
$8.36      | 100% 1
$8.36      | 100% 1
$8.36      |  | Package delivery/service call center.                                                                             





13



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

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



|Property                                             | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                                                                                                            
|---------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|INDUSTRIAL BUILDINGS
(continued)
Arizona
(continued) |                   |                   |                   |                   |                   |  |                                                                                                                                                                                                    
|Phoenix Airport Center #5, Phoenix                   | 100% 1
$8.68      | 100% 1
$9.56      | 100% 1
$9.56      | 100% 1
$8.46      | 100% 1
$8.80      |  | Healthcare maintenance organization corporate office.                                                                                                                                              
|Butterfield Business Center, Tucson                  | 100% 2
$6.38      | 100% 2
$6.45      | 100% 2
$6.35      | 100% 2
$6.43      | 100% 2
$6.57      |  | Customer service call center  retail sales; administrative services for mechanical cleaning equipment.                                                                                            
|Butterfield Tech Center II, Tucson                   | 56% 2
$6.67       | 100% 4
$6.85      | 100% 4
$7.07      | 100% 4
$7.39      | 100% 4
$7.59      |  | Package distribution facilities; schoolbook distribution facility; distributor of industrial uniform supplies.                                                                                     
|Greystone Business Park, Tempe                       | 11% 1
$10.56      | 86% 3
$10.85      | 100% 3
$11.67     | 100% 3
$12.20     | 100% 3
$12.53     |  | Sales and service of electronic equipment; business communications equipment and multimedia integrations services; sales, service and support facilities for distribution of electrical components.
|Rio Salado Corporate Centre, Phoenix*                | N/A
N/A           | 0%
$0.00          | 0%
$0.00          | 89% 2
$0.00       | 89% 2
$9.95       |  | Administrative services for orthopedic equipment; administrative and R & D for medical products.                                                                                                   
|Phoenix Tech Center,
Phoenix                         | N/A
N/A           | 100% 1
$9.90      | 100% 1
$9.90      | 100% 1
$10.32     | 100% 1
$8.40      |  | Reprocessing/recycling of single-use non-medical devices.                                                                                                                                          
|4645 S. 35th Street, Phoenix                         | 100% 1
$4.56      | 100% 1
$4.69      | 100% 1
$5.02      | 100% 1
$5.02      | 100% 1
$5.10      |  | Interior design and home products sales.                                                                                                                                                           
|Diablo Business Center, Phoenix                      | 100% 2
$7.21      | 100% 2
$8.00      | 91% 2
$8.26       | 100% 1
$5.21      | 90% 2
$5.78       |  | Consulting engineers; manufacture, delivery of weight management supplements.                                                                                                                      



*

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



14



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

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



|Property                                             | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                                                                                            
|---------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|INDUSTRIAL BUILDINGS
(continued)
Arizona
(continued) |                   |                   |                   |                   |                   |  |                                                                                                                                                                                    
|Cotton Center I, Phoenix                             | N/A
N/A           | N/A
N/A           | N/A
N/A           | 86% 3
$8.94       | 86% 3
$8.94       |  | Business to business multi-modal freight forwarding; delivery of wireless and mobile data; provide building automation in HVAC products, fire safety, and security systems.        
|Cotton Center II, Phoenix                            | N/A
N/A           | N/A
N/A           | N/A
N/A           | 100% 1
$8.63      | 100% 1
$11.99     |  | Pharmaceutical service company.                                                                                                                                                    
|Roosevelt Commons,
Tempe                             | N/A               | N/A               | N/A               | N/A               | 100% 4
$5.43      |  | Resale/refurbish of copy equipment; storage of bakery supplies; storage facility of party rental equipment; offsite storage facility for valuable documents.                       
|Superstition Springs Commerce Center,
Mesa           | N/A               | N/A               | N/A               | N/A               | 100% 4
$8.60      |  | Lending company for medical services; retail facility for motorcycles and quads; mobile glass replacement company, storage of windows; manufacturing/testing of board transmitters.
|                                                     |                   |                   |                   |                   |                   |  |                                                                                                                                                                                    
|Southern California                                  |                   |                   |                   |                   |                   |  |                                                                                                                                                                                    
|Dupont Industrial Center, Ontario                    | 100% 2
$3.67      | 100% 1
$3.82      | 97% 1
$3.88       | 100% 1
$3.93      | 100% 1
$4.26      |  | Distributor of swimming pool supplies.                                                                                                                                             
|3002 Dow Business Center, Tustin                     | 99% 0
$9.52       | 98% 0
$10.20      | 98% 0
$10.92      | 100% 0
$11.31     | 100% 0
$11.54     |  | No single tenant over 10%.                                                                                                                                                         
|Carroll Tech I,
San Diego                            | 100% 1
$9.11      | 100% 1
$9.47      | 100% 1
$9.84      | 100% 1
$10.23     | 100% 1
$10.64     |  | Sales and service of point of sales equipment.                                                                                                                                     
|Signal Systems Building, San Diego                   | 100% 1
$10.42     | 100% 1
$10.79     | 100% 1
$11.08     | 100% 1
$11.24     | 100% 1
$11.48     |  | Developer and manufacturer of avionic diagnostic equipment.                                                                                                                        
|Carroll Tech II,
San Diego                           | 100% 1
$13.79     | 100% 1
$14.40     | 100% 1
$14.40     | 100% 1
$12.74     | 100% 1
$13.12     |  | Customer service center for online computer games.                                                                                                                                 





15



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

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



|Property                                                         | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                                                       
|---------------------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|INDUSTRIAL BUILDINGS
(continued)
Southern California
(continued) |                   |                   |                   |                   |                   |  |                                                                                                                                               
|Canyon Vista Center, San Diego                                   | 100% 3
$8.86      | 100% 3
$10.05     | 100% 3
$10.44     | 100% 2
$10.51     | 100% 2
$10.82     |  | Designer of interactive entertainment software; safety testing of electronic products.                                                        
|6325 Lusk Blvd.,
San Diego                                       | 100% 2
$12.48     | 100% 2
$12.98     | 100% 1
$14.59     | 100% 1
$15.17     | 100% 1
$15.34     |  | Bio-tech company developing diabetes self-test products.                                                                                      
|Jurupa Business Center, Phase I, Ontario                         | N/A
N/A           | N/A
N/A           | 0% 0
$0.00        | 94% 4
$15.76      | 91% 4
$16.19      |  | Commercial print shop; civil engineering; internet service provider; identification technology and systems developer.                         
|Jurupa Business Center, Phase II,
Ontario*                       | N/A               | N/A               | N/A               | N/A               | 55% 3
$11.98      |  | Trade school education; residential real estate developer; federal government.                                                                
|                                                                 |                   |                   |                   |                   |                   |  |                                                                                                                                               
|Northwest                                                        |                   |                   |                   |                   |                   |  |                                                                                                                                               
|Highlands Campus Building B, Bothell                             | N/A
N/A           | 86% 4
$12.34      | 93% 4
$13.02      | 75% 4
$13.18      | 62% 3
$11.53      |  | Manufacturer and distributor of microbiological lab testing equipment; medical prescription service provider; wholesaler of flooring products.
|Highlands Campus Building C, Bothell                             | N/A
N/A           | 60% 2
$14.46      | 75% 3
$14.23      | 75% 3
$14.51      | 75% 3
$14.81      |  | Civil engineering consulting; manufacturer and distributor of ultrasound equipment; home furnishings club/distributor.                        
|Nevada                                                           |                   |                   |                   |                   |                   |  |                                                                                                                                               
|Russell Commerce Center, Las Vegas                               | N/A               | N/A               | N/A               | N/A               | 85% 1
$10.94      |  | Commercial interior designer.                                                                                                                 
|Northport Business Center,
North Las Vegas                       | N/A               | N/A               | N/A               | N/A               | 90% 3
$13.95      |  | Personnel employment agency; vacation timeshare sales company; wholesale novelty distributor.                                                 



*

One tenant is in a free rent period at December 31, 2003. Rent will begin January 2004 at a total average base rent per square foot of $18.55.

16



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

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



|Property                               | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                                                        
|-------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|OFFICE BUILDINGS                       |                   |                   |                   |                   |                   |  |                                                                                                                                                
|Northern California                    |                   |                   |                   |                   |                   |  |                                                                                                                                                
|Village Green, Lafayette               | 100% 2
$24.45     | 100% 2
$26.69     | 100% 2
$27.58     | 100% 2
$28.88     | 100% 2
$29.94     |  | Environmental consultant; real estate investment trust.                                                                                        
|Carneros Commons Phase I, Napa         | N/A
N/A           | 0% 0
$0.00        | 30% 1
$15.35      | 100% 3
$13.41     | 100% 3
$15.18     |  | E-commerce payment processing service; civil engineering; property/casualty insurance provider.                                                
|Canyon Park,
San Ramon                 | 100% 2
$16.44     | 100% 2
$20.92     | 100% 2
$21.92     | 100% 2
$22.44     | 100% 2
$22.99     |  | Geotechnical lab and research; healthcare provider.                                                                                            
|Crow Canyon Centre, San Ramon          | 50% 1
$25.20      | 100% 2
$25.43     | 100% 2
$26.66     | 100% 2
$26.76     | 92% 2
$27.22      |  | Healthcare provider; real estate mortgage and interior designer.                                                                               
|3380 Cypress Drive, Petaluma           | 100% 1
$13.08     | 100% 1
$13.56     | 100% 1
$13.56     | 100% 1
$14.16     | 100% 1
$14.16     |  | Manufacturer of hearing devices.                                                                                                               
|Carneros Common Phase II, Napa         | N/A
N/A           | N/A
N/A           | 63% 1
$16.14      | 91% 2
$16.45      | 94% 2
$17.19      |  | Wine maker and exporter; sales/marketing of purees.                                                                                            
|                                       |                   |                   |                   |                   |                   |  |                                                                                                                                                
|Arizona                                |                   |                   |                   |                   |                   |  |                                                                                                                                                
|Executive Center at Southbank, Phoenix | 98% 3
$9.64       | 92% 3
$9.89       | 100% 3
$10.78     | 92% 3
$11.70      | 87% 2
$12.61      |  | Travel agency; credit card collection.                                                                                                         
|Phoenix Airport Center #1, Phoenix     | 100% 3
$13.97     | 100% 5
$9.97      | 88% 3
$14.97      | 88% 3
$13.63      | 88% 3
$14.21      |  | Administrative services for
electronic component sales;
sales and service for computer hardware/software; call center for glass repair company.
|Cabrillo Executive Center, Phoenix     | 100% 2
$17.03     | 94% 3
$17.24      | 96% 3
$18.00      | 90% 2
$18.38      | 90% 2
$18.04      |  | Provider of email systems and software for businesses; homebuilder.                                                                            
|Mountain Pointe Office Park, Phoenix   | 0% 0
$0.00        | 100% 1
$19.20     | 100% 1
$19.20     | 100% 1
$19.70     | 100% 1
$19.70     |  | Civil engineering.                                                                                                                             
|1355 S. Clearview Avenue, Mesa         | 100% 1
$12.72     | 100% 1
$12.72     | 100% 1
$12.72     | 100% 1
$13.80     | 100% 1
$13.80     |  | Debt collection services.                                                                                                                      
|                                       |                   |                   |                   |                   |                   |  |                                                                                                                                                
|Southern California                    |                   |                   |                   |                   |                   |  |                                                                                                                                                
|Laguna Hills Square, Laguna Hills      | 95% 4
$25.17      | 100% 2
$24.44     | 100% 2
$25.51     | 95% 2
$26.55      | 100% 2
$27.08     |  | Medical facility; optometry and eye surgery.                                                                                                   

17



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

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



|Property                                                     | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                        
|------------------------------------------------------------ | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | -----------------------------------------------------------------------------------------------
|OFFICE BUILDINGS
(continued)
Southern California
(Continued) |                   |                   |                   |                   |                   |  |                                                                                                
|Carroll Tech III,
San Diego                                  | 100% 1
$9.60      | 100% 1
$9.98      | 100% 1
$10.38     | 100% 1
$10.80     | 100% 1
$11.23     |  | On-line game developer.                                                                        
|Scripps Wateridge, San Diego                                 | 100% 2
$13.16     | 100% 2
$13.40     | 100% 2
$14.05     | 100% 2
$14.30     | 100% 2
$14.57     |  | Wireless communications; supplier of digital wireless communication products and technologies. 
|Carroll Tech IV,
San Diego                                   | 100% 1
$15.00     | 100% 1
$12.44     | 100% 1
$12.81     | 100% 1
$13.20     | 100% 1
$13.59     |  | Manufacturer of video games.                                                                   
|Towne Centre Plaza,
Foothill Ranch                           | N/A               | N/A               | N/A               | N/A               | 93% 2
$25.76      |  | University education provider; insurance provider.                                             
|                                                             |                   |                   |                   |                   |                   |  |                                                                                                
|Northwest                                                    |                   |                   |                   |                   |                   |  |                                                                                                
|Times Square, Renton                                         | 100% 1
$9.35      | 100% 1
$10.50     | 100% 1
$10.50     | 100% 1
$11.50     | 100% 1
$11.50     |  | Manufacturer of aircraft.                                                                      
|Adobe Systems
Bldg. 1, Seattle                               | 100% 1
$15.53     | 100% 1
$15.53     | 100% 1
$15.53     | 100% 1
$15.53     | 100% 1
$17.09     |  | Computer software design and engineering.                                                      
|Adobe Systems
Bldg. II, Seattle                              | 100% 2
$16.71     | 100% 2
$16.74     | 100% 2
$17.39     | 86% 1
$16.60      | 90% 1
$18.22      |  | Computer software design and engineering.                                                      
|Highlands Campus, Bldg. A, Bothell                           | 38% 1
$12.51      | 100% 2
$15.06     | 100% 2
$15.25     | 100% 2
$16.50     | 100% 2
$15.38     |  | Computer software research and development; cellular phone manufacturer.                       
|The Federal Way Building,
Federal Way                        | 100% 3
$12.65     | 100% 2
$13.77     | 100% 2
$13.77     | 100% 2
$14.83     | 100% 2
$14.83     |  | Property/casualty insurance company; gasoline company.                                         
|Federal Way
Building II, 
Federal Way                        | 100% 4
$14.20     | 100% 3
$14.31     | 88% 3
$14.24      | 95% 3
$14.94      | 100% 3
$15.44     |  | Producer of semiconductor/computer components; financial advisor and lender; insurance company.



18



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

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



|Property                                  | 1999
%  #
$/Sq Ft | 2000
%  #
$/Sq Ft | 2001
%  #
$/Sq Ft | 2002
%  #
$/Sq Ft | 2003
%  #
$/Sq Ft |  | Principal Business at
December 31, 2003                                                                        
|----------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- |  | ---------------------------------------------------------------------------------------------------------------
|OFFICE BUILDINGS
(continued)              |                   |                   |                   |                   |                   |  |                                                                                                                
|Colorado                                  |                   |                   |                   |                   |                   |  |                                                                                                                
|Oracle Building, Denver                   | 100% 2
$23.34     | 100% 2
$23.34     | 100% 2
$24.22     | 100% 2
$25.07     | 67% 2
$16.85      |  | Computer software company; banking.                                                                            
|4601 DTC Building, Denver                 | 100% 1
$18.05     | 100% 1
$20.06     | 100% 1
$20.06     | 82% 1
$20.03      | 100% 2
$19.13     |  | Oil company; property/casualty insurance provider.                                                             
|WaterPark @ Briarwood Bldg. 1, Centennial | N/A
N/A           | 62% 1
$12.90      | 100% 2
$13.24     | 100% 2
$13.55     | 100% 2
$13.87     |  | Corporate travel agency; resort time-share company.                                                            
|Belleview Corp. Plaza II Office, Denver   | N/A
N/A           | N/A
N/A           | 20% 1
$17.75      | 78% 2
$11.66      | 89% 2
$19.60      |  | Healthcare company; educational software developer.                                                            
|WaterPark @ Briarwood Bldg. 2, Centennial | N/A
N/A           | 70% 2
$13.18      | 100% 2
$13.39     | 100% 2
$13.86     | 88% 2
$14.68      |  | Data processing solutions for the finance industry; distributor of electrical components and computer products.
|WaterPark @ Briarwood Bldg. 3, Centennial | N/A
N/A           | N/A
N/A           | 22% 1
$14.00      | 38% 2
$8.44       | 94% 3
$11.57      |  | Insurance provider; consulting and service provider to lenders; aviation training.                             
|WaterPark @ Briarwood Bldg. 4, Centennial | N/A
N/A           | N/A
N/A           | 100% 1
$14.00     | 100% 1
$14.00     | 100% 1
$14.85     |  | County government.                                                                                             
|Bedford Center at Rampart, Englewood      | N/A
N/A           | 97% 3
$12.73      | 96% 3
$13.09      | 85% 3
$13.33      | 86% 3
$12.56      |  | Office equipment sales and leasing; insurance company; corporate travel agency.                                
|                                          |                   |                   |                   |                   |                   |  |                                                                                                                
|Nevada                                    |                   |                   |                   |                   |                   |  |                                                                                                                
|U.S. Bank Centre, Reno                    | 100% 2
$19.03     | 90% 2
$22.48      | 80% 2
$21.07      | 95% 3
$18.16      | 95% 3
$22.19      |  | Insurance services; mining; financial services.                                                                





19



LEASE EXPIRATIONS - REAL ESTATE PORTFOLIO



The following table presents lease expirations for each of the 10 years beginning January 1, 2004 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 2003 annualized base rent of the expiring leases, and (iv) the percentage of total 2003 annualized base rent for expiring leases.





|Year                | Number of
Leases
Expiring | Square Feet | 2003
Annualized
Base Rent | Percentage of
2003 Annualized
Base Rent
|------------------- | ------------------------- | ----------- | ------------------------- | ---------------------------------------
|                    |                           |             |                           |                                        
|2004                | 121                       | 1,623,130   | 19,436,200                | 20.3%                                  
|2005                | 116                       | 1,335,864   | 21,098,831                | 22.0%                                  
|2006                | 114                       | 1,180,601   | 14,914,327                | 15.6%                                  
|2007                | 59                        | 1,070,654   | 10,726,101                | 11.2%                                  
|2008                | 57                        | 858,718     | 14,153,600                | 14.8%                                  
|2009                | 19                        | 393,108     | 5,014,308                 | 5.2%                                   
|2010                | 14                        | 586,112     | 8,180,601                 | 8.5%                                   
|2011                | 2                         | 29,794      | 388,720                   | 0.4%                                   
|2012                | 2                         | 219,891     | 1,880,905                 | 2.0%                                   
|2013 and thereafter | -                         | -           | -                         | -                                      
|                    |                           |             |                           |                                        
|Total               | 504                       | 7,297,872   | 95,793,593                | 100.0%                                 



20



PRINCIPAL PROVISIONS OF LEASES



The following table sets forth the principal provisions of leases that represent more than 10% of the gross leasable area (GLA) of each of our properties and the property tax rate for each property for 2003.



|Property                                                                  | Annual
Property
Taxes/ Rate | # of Leases
with
10% or
More ofGLA | Project
Square Feet | Square Feet
of Each
Tenant  | Contract Rent
($/Sq/Yr)
At End of Year | Lease
Expiration
(Mo./Yr.) | Renewal
Options    
|------------------------------------------------------------------------- | --------------------------- | ---------------------------------- | ------------------- | --------------------------- | -------------------------------------- | -------------------------- | -------------------
|INDUSTRIAL BUILDINGS                                                      |                             |                                    |                     |                             |                                        |                            |                    
|Northern California
Building #3 at Contra Costa Diablo Ind. Park, Concord | $22,806
$1.06/100           | 1                                  | 21,840              | 21,840                      | $10.51                                 | 02/05                      | None               
|Building #8 at Contra Costa Diablo Ind. Park, Concord                     | $33,743
$1.06/100           | 1                                  | 31,800              | 31,800                      | $11.61                                 | 12/05                      | 1-5 yr.            
|Building #18 at Mason Industrial Park, Concord                            | $25,876
$1.06/100           | 2                                  | 28,836              | 7,225
4,825                 | $9.60
$9.73                            | 05/06
02/06                | None
None          
|Milpitas Town Center, Milpitas                                            | $77,712
$1.11/100           | 2                                  | 102,620             | 48,350
23,430               | $8.64
$14.88                           | 07/06
01/05                | 1-3 yr.
None       
|598 Gibraltar Drive,
Milpitas                                             | $52,431
$1.11/100           | 1                                  | 45,090              | 45,090                      | $21.60                                 | 04/05                      | None               
|Auburn Court,
Fremont                                                     | $52,760
$1.09/100           | 2                                  | 68,030              | 16,095
18,160               | $16.87
$24.31                          | 07/07
07/05                | None
None          
|47650 Westinghouse Drive, Fremont                                         | $16,820
$1.09/100           | 1                                  | 24,030              | 24,030                      | $11.40                                 | 09/04                      | None               
|410 Allerton,
So. San Francisco                                           | $28,314
$1.03/100           | 0                                  | 46,050              | N/A                         | N/A                                    | N/A                        | N/A                
|400 Grandview,
So. San Francisco                                          | $86,965
$1.03/100           | 4                                  | 107,004             | 21,841
43,642
18,789
18,864 | $9.20
$14.50
$9.72
$6.85               | 12/03
03/06
05/04
02/08    | None
None
None
None
|342 Allerton,
So. San Francisco                                           | $62,251
$1.03/100           | 4                                  | 69,312              | 19,751
9,720
30,953
8,888   | $7.56
$11.12
$17.20
$11.12             | 03/08
03/05
02/06
08/07    | None
None
None
None



21





|Property                                                         | Annual
Property
Taxes/ Rate | # of Leases
with
10% or
More
of GLA | Project
Square Feet | Square
Feet
of Each
Tenant         | Contract Rent
($/Sq/Yr)
At End of
Year | Lease
Expiration
(Mo./Yr.)    | Renewal
Options                     
|---------------------------------------------------------------- | --------------------------- | ----------------------------------- | ------------------- | ---------------------------------- | -------------------------------------- | ----------------------------- | ------------------------------------
|INDUSTRIAL BUILDINGS (continued)
Northern California (continued) |                             |                                     |                     |                                    |                                        |                               |                                     
|301 East Grand,
So. San Francisco                                | $36,397
$1.03/100           | 1                                   | 57,846              | 17,206                             | $5.61                                  | 12/03                         | None                                
|Fourier Avenue,
Fremont                                          | $115,727
$1.09/100          | 1                                   | 104,400             | 104,400                            | $10.67                                 | 04/04                         | None                                
|Lundy Avenue,
San Jose                                           | $58,765
$1.12/100           | 2                                   | 60,428              | 49,342
11,086                      | $16.68
$8.28                           | 04/06
06/08                   | 1-5 yr.
1-5 yr.                     
|115 Mason Circle,
Concord                                        | $22,648
$1.06/100           | 5                                   | 35,000              | 5,833
8,154
7,296
7,885
5,832      | $7.47
$9.86
$7.43
$9.00
$3.95          | 04/05
07/05
11/05
07/08
MTM   | None
1-3 yr.
None
1-5 yr.
None      
|47600 Westinghouse Drive, Fremont                                | $18,493
$1.09/100           | 1                                   | 24,030              | 24,030                             | $12.36                                 | 06/10                         | 1-5 yr.                             
|860-870 Napa Valley Corporate Way, Napa                          | $87,859
$1.09/100           | 2                                   | 67,775              | 13,111
7,558                       | $14.40
$14.32                          | 02/08
02/05                   | None
1-3 yr.                        
|47633 Westinghouse Drive, Fremont                                | $59,304
$1.09/100           | 0                                   | 50,088              | N/A                                | N/A                                    | N/A                           | N/A                                 
|47513 Westinghouse Drive, Fremont                                | $104,333
$1.09/100          | 2                                   | 65,385              | 9,163
56,222                       | $17.16
$8.16                           | 12/03
06/10                   | None
None                           
|Bordeaux Centre,
Napa                                            | $157,662
$1.09/100          | 5                                   | 150,000             | 22,075
16,076
51,790
18,434
16,180 | $8.58
$7.72
$6.48
$6.50
$9.39          | 11/07
11/07
01/04
12/04
05/05 | 2-5 yr.
1-5 yr.
None
1-5 yr.
1-5 yr.
|OToole Business Park, San Jose                                  | $128,283
$1.12/100          | 1                                   | 122,320             | 16,197                             | $12.00                                 | 09/06                         | None                                
|6500 Kaiser Drive,
Fremont                                       | $179,486
$1.09/100          | 1                                   | 78,611              | 78,611                             | $10.80                                 | 09/04                         | 2-5 yr.                             

22





|Property                                                         | Annual
Property
Taxes/
Rate | # of Leases
with
10% or
More
of GLA | Project
Square
Feet | Square
Feet
of Each
Tenant | Contract
Rent
($/Sq/Yr)
At End of
Year | Lease
Expiration
(Mo./Yr.) | Renewal
Options                
|---------------------------------------------------------------- | --------------------------- | ----------------------------------- | ------------------- | -------------------------- | -------------------------------------- | -------------------------- | -------------------------------
|INDUSTRIAL BUILDINGS (continued)
Northern California (continued) |                             |                                     |                     |                            |                                        |                            |                                
|Bedford Fremont Business Center,
Fremont                         | $157,767
$1.09/100          | 1                                   | 146,509             | 71,532                     | $12.48                                 | 07/07                      | 1-2 yr.                        
|Spinnaker Court,
Fremont                                         | $159,671
$1.09/100          | 3                                   | 98,500              | 53,380
20,770
15,850       | $24.66
$31.26
$5.40                    | 03/04
11/05
04/05          | None
1-5 yr.
None              
|2277 Pine View Way, Petaluma                                     | $111,140
$1.10/100          | 1                                   | 120,480             | 120,480                    | $7.99                                  | 03/07                      | 2-5 yr.                        
|The Mondavi Building, Napa                                       | $111,629
$1.09/100          | 1                                   | 120,157             | 120,157                    | $5.70                                  | 09/12                      | 1-5 yr.                        
|Parkpoint Business Center, Santa Rosa                            | $80,232
$1.12/100           | 2                                   | 67,869              | 17,505
8,767               | $18.60
$18.00                          | 06/06
06/10                | None
None                      
|2180 S. McDowell Blvd., Petaluma                                 | $43,031
$1.10/100           | 2                                   | 43,197              | 29,709
13,488              | $9.05
$9.60                            | 03/05
02/06                | None
1-5 yr.                   
|2190 S. McDowell Blvd., Petaluma                                 | $32,674
$1.10/100           | 2                                   | 32,719              | 17,131
15,588              | $10.31
$9.28                           | 03/04
04/06                | 1-5 yr.
2-5 yr.                
|So. San Francisco Business Center,
So. San Francisco             | $236,012
$1.03/100          | 2                                   | 112,834             | 15,032
21,652              | $18.46
$19.58                          | 10/08
03/06                | 4-5 yr.
1-5 yr.                
|Philips Business Center, San Jose                                | $443,749
$1.12/100          | 3                                   | 217,824             | 78,592
58,760
80,472       | $19.08
$21.96
$15.99                   | 07/08
11/08
11/08          | 2-5 yr.
2-5 yr.
2-5 yr.        
|                                                                 |                             |                                     |                     |                            |                                        |                            |                                
|Arizona                                                          |                             |                                     |                     |                            |                                        |                            |                                
|Westech Business Center, Phoenix                                 | $161,488
$12.62/100         | 1                                   | 143,940             | 15,623                     | $11.29                                 | 11/06                      | None                           
|Westech II,
Phoenix                                              | $141,741
$12.62/100         | 4                                   | 80,878              | 8,802
10,438
14,615
21,478 | $9.81
$10.09
$9.00
$9.84               | 10/06
07/08
10/09
10/06    | 2-3 yr.
2-5 yr.
1-5 yr.
2-3 yr.

23



|Property                             | Annual
Property
Taxes/
Rate | # of Leases
with
10% or
More
of GLA | Project
Square
Feet | Square
Feet
of Each
Tenant | Contract Rent
($/Sq/Yr)
At End of
Year | Lease
Expiration
(Mo./Yr.) | Renewal
Options          
|------------------------------------ | --------------------------- | ----------------------------------- | ------------------- | -------------------------- | -------------------------------------- | -------------------------- | -------------------------
|INDUSTRIAL BUILDINGS (continued)     |                             |                                     |                     |                            |                                        |                            |                          
|Arizona
(continued)                  |                             |                                     |                     |                            |                                        |                            |                          
|2601 W. Broadway,
Tempe              | $66,823
$12.28/100          | 1                                   | 44,244              | 44,244                     | $8.35                                  | 01/07                      | 2-5 yr.                  
|Phoenix Airport Center #2,
Phoenix   | $76,921
$12.62/100          | 1                                   | 35,768              | 35,768                     | $10.50                                 | 08/06                      | 1-5 yr.                  
|Phoenix Airport Center #3,
Phoenix   | $68,451
$12.62/100          | 1                                   | 55,122              | 55,122                     | $9.60                                  | 07/06                      | None                     
|Phoenix Airport Center #4,
Phoenix   | $56,798
$12.62/100          | 1                                   | 30,504              | 30,504                     | $8.36                                  | 06/05                      | 1-5 yr.                  
|Phoenix Airport Center #5,
Phoenix   | $134,344
$12.62/100         | 1                                   | 60,000              | 60,000                     | $8.80                                  | 09/07                      | 1-5 yr.                  
|Butterfield Business Center, Tucson  | $115,085
$16.34/100         | 3                                   | 95,746              | 50,000
14,982
26,026       | $6.30
$2.86
$9.22                      | 08/04
08/04
06/04          | 2-5 yr.
1-5 yr.
None     
|Butterfield Tech Center II, Tucson   | $40,532
$16.34/100          | 4                                   | 33,082              | 7,383
11,064
7,259
7,376   | $8.18
$7.48
$6.94
$7.80                | 03/06
09/04
02/05
11/04    | 2-5 yr.
None
2-2 yr.
None
|Greystone Business Park, Tempe       | $123,256
$12.15/100         | 3                                   | 60,738              | 6,520
34,471
19,747        | $11.89
$12.48
$12.84                   | 11/04
03/07
09/05          | 2-3 yr.
1-3 yr.
2-5 yr.  
|Rio Salado Corporate Center, Phoenix | $91,715
$12.15/100          | 2                                   | 82,257              | 47,633
25,737              | $8.78
$12.12                           | 09/10
01/09                | 2-3 yr.
4-1 yr.          





24





|Property                                   | Annual
Property
Taxes/
Rate | # of Leases
with
10% or
More
of GLA | Project
Square
Feet | Square
Feet
of Each
Tenant  | Contract Rent
($/Sq/Yr)
At End of
Year | Lease
Expiration
(Mo./Yr.) | Renewal
Options             
|------------------------------------------ | --------------------------- | ----------------------------------- | ------------------- | --------------------------- | -------------------------------------- | -------------------------- | ----------------------------
|INDUSTRIAL BUILDINGS (continued)           |                             |                                     |                     |                             |                                        |                            |                             
|Arizona
(continued)                        |                             |                                     |                     |                             |                                        |                            |                             
|Phoenix Tech Center,
Phoenix               | $46,424
$12.52/100          | 1                                   | 39,280              | 39,280                      | $8.40                                  | 02/10                      | 1-5 yr.                     
|4645 S. 35th Street, Phoenix               | $111,645
$15.67/100         | 1                                   | 71,345              | 71,345                      | $5.10                                  | 08/07                      | 1-3 yr.                     
|Diablo Business Center, Phoenix            | $173,643
$15.67/100         | 2                                   | 101,835             | 30,409
22,958               | $7.80
$0.84                            | 06/05
MTM                  | None
None                   
|Cotton Center I,
Phoenix                   | $161,398
$12.62/100         | 3                                   | 114,484             | 31,385
42,215
24,879        | $10.80
$8.37
$7.56                     | 10/05
10/10
11/10          | 2-5 yr.
2-7 yr.
2-5 yr.     
|Cotton Center II,
Phoenix                  | $196,177
$12.62/100         | 1                                   | 99,734              | 99,734                      | $11.99                                 | 05/12                      | 5-5 yr.                     
|Roosevelt Commons, Tempe                   | $171,776
$12.15/100         | 4                                   | 151,830             | 28,564
18,860
53,567
20,166 | $4.32
$6.00
$4.92
$5.64                | 10/06
MTM
08/08
10/07      | 1-5 yr.
None
1-5 yr.
None   
|Superstition Springs Commerce Center, Mesa | $87,824
$10.37/100          | 4                                   | 77,261              | 13,500
19,751
27,000
13,500 | $10.56
$10.53
$5.16
$8.88              | 08/08
10/11
09/07
01/06    | 1-5 yr.
None
None
1-2.25 yr.
|                                           |                             |                                     |                     |                             |                                        |                            |                             
|Southern California                        |                             |                                     |                     |                             |                                        |                            |                             
|Dupont Industrial Center, Ontario          | $212,050
$1.05/100          | 1                                   | 451,192             | 183,244                     | $3.12                                  | 01/07                      | 2-5 yr.                     
|3002 Dow Business Center, Tustin           | $202,263
$1.01/100          | 0                                   | 192,125             | N/A                         | N/A                                    | N/A                        | N/A                         
|Carroll Tech I,
San Diego                  | $23,698
$1.13/100           | 1                                   | 21,936              | 21,936                      | $10.64                                 | 12/05                      | 2-3 yr.                     
|Signal Systems Building,
San Diego         | $108,141
$1.01/100          | 1                                   | 109,780             | 109,780                     | $11.48                                 | 08/06                      | 2-5 yr.                     

25





|Property                                                         | Annual
Property
Taxes/
Rate | # of
Leases
with
10% or
More
of GLA | Project
Square
Feet | Square
Feet
of Each
Tenant | Contract Rent
($/Sq/Yr)
At End of
Year | Lease
Expiration
(Mo./Yr.) | Renewal
Options             
|---------------------------------------------------------------- | --------------------------- | ----------------------------------- | ------------------- | -------------------------- | -------------------------------------- | -------------------------- | ----------------------------
|INDUSTRIAL BUILDINGS (continued)
Southern California (continued) |                             |                                     |                     |                            |                                        |                            |                             
|Carroll Tech II,
San Diego                                       | $45,697
$1.13/100           | 1                                   | 37,586              | 37,586                     | $13.12                                 | 03/09                      | None                        
|Canyon Vista Center,
San Diego                                   | $74,727
$1.13/100           | 2                                   | 63,746              | 17,591
46,155              | $8.40
$11.74                           | 12/04
11/06                | 1-5 yr.
None                
|6325 Lusk Blvd.,
San Diego                                       | $66,121
$1.13/100           | 1                                   | 49,942              | 49,942                     | $15.34                                 | 01/04                      | 1-5 yr.                     
|Jurupa Business Center, Phase I, Ontario                         | $42,166
$1.05/100           | 4                                   | 41,726              | 9,568
5,460
11,421
4,628   | $16.51
$15.60
$15.82
$16.69            | 12/07
03/07
08/07
12/05    | 2-3 yr.
None
1-3 yr.
2-5 yr.
|Jurupa Business Center, Phase II,
Ontario                        | $41,816
$1.05/100           | 3                                   | 41,390              | 9,227
7,717
5,810          | $16.27
$17.14
$24.16                   | 08/08
08/06
09/13          | None
1-3 yr.
None           
|                                                                 |                             |                                     |                     |                            |                                        |                            |                             
|Northwest                                                        |                             |                                     |                     |                            |                                        |                            |                             
|Highlands Campus Building B,
Bothell                             | $60,402
$1.19/100           | 3                                   | 69,821              | 14,970
8,206
9,412         | $9.42
$12.60
$13.03                    | 11/08
01/05
07/08          | 1-5 yr.
1-5 yr.
1-5 yr.     
|Highlands Campus Building C,
Bothell                             | $49,382
$1.19/100           | 3                                   | 57,478              | 7,008
27,251
8,780         | $12.36
$15.91
$13.32                   | 07/07
12/07
10/08          | 1-5 yr.
None
1-5 yr.        
|                                                                 |                             |                                     |                     |                            |                                        |                            |                             
|Nevada                                                           |                             |                                     |                     |                            |                                        |                            |                             
|Russell Commerce Center, Las Vegas                               | $32,586
$2.93/100           | 1                                   | 98,334              | 12,462                     | $10.00                                 | 04/06                      | None                        
|Northport Business Center,
North Las Vegas                       | $36,908
$3.39/100           | 3                                   | 126,209             | 15,336
20,312
33,398       | $12.28
$15.70
$15.82                   | 06/07
03/09
03/09          | None
1-5 yr.
1-5 yr.        

26





|Property                               | Annual
Property
Taxes/
Rate | # of Leases
with 10%
or
More
of GLA | Project
Square
Feet | Square
Feet
of Each
Tenant | Contract
Rent
($/Sq/Yr)
At End of
Year | Lease
Expiration
(Mo./Yr.) | Renewal
Options     
|-------------------------------------- | --------------------------- | ----------------------------------- | ------------------- | -------------------------- | -------------------------------------- | -------------------------- | --------------------
|OFFICE BUILDINGS
Northern California   |                             |                                     |                     |                            |                                        |                            |                     
|Village Green,
Lafayette               | $29,622
$1.10/100           | 2                                   | 16,795              | 2,119
9,637                | $37,80
$26.91                          | 10/05
11/08                | None
None           
|Carneros Commons Phase I, Napa         | $92,912
$1.09/100           | 3                                   | 40,290              | 8,900
6,706
21,331         | $15.43
$16.07
$14.20                   | 03/06
07/07
10/09          | None
1-5 yr.
1-5 yr.
|Canyon Park,
San Ramon                 | $67,774
$1.05/100           | 2                                   | 57,667              | 48,265
9,402               | $22.98
$23.08                          | 02/05
01/04                | 2-5 yr.
None        
|Crow Canyon Centre,
San Ramon          | $75,474
$1.05/100           | 2                                   | 39,108              | 19,615
16,478              | $26.40
$27.12                          | 12/06
01/05                | 2-5 yr.
1-5 yr.     
|3880 Cypress Drive,
Petaluma           | $55,259
$1.10/100           | 1                                   | 35,100              | 35,100                     | $14.16                                 | 05/07                      | 1-5 yr.             
|Carneros Commons Phase II, Napa        | $85,747
$1.09/100           | 2                                   | 36,885              | 23,107
8,188               | $16.96
$17.30                          | 10/08
07/09                | 2-5 yr.
1-5 yr.     
|                                       |                             |                                     |                     |                            |                                        |                            |                     
|Arizona                                |                             |                                     |                     |                            |                                        |                            |                     
|Executive Center at Southbank,
Phoenix | $303,601
$15.67/100         | 2                                   | 140,157             | 54,740
21,626              | $13.99
$12.73                          | 06/04
04/05                | 1-5 yr.
None        
|Phoenix Airport Center #1,
Phoenix     | $68,099
$12.62/100          | 3                                   | 32,460              | 19,443
4,527
4,449         | $13.66
$18.50
$12.25                   | 11/05
09/07
04/07          | 2-5 yr.
1-5 yr.
None
|Cabrillo Executive Center, Phoenix     | $172,861
$13.20/100         | 2                                   | 60,321              | 12,400
18,267              | $19.29
$18.00                          | 10/08
12/04                | None
None           
|Mountain Pointe Office Park,
Phoenix   | $92,051
$12.62/100          | 1                                   | 54,584              | 54,584                     | $19.70                                 | 10/10                      | 1-5 yr.             
|1355 S. Clearview Avenue, Mesa         | $92,996
$10.42/100          | 1                                   | 57,193              | 57,193                     | $13.80                                 | 04/05                      | 2-5 yr.             

27





|Property                              | Annual
Property
Taxes/
Rate | # of Leases
with
10% or
More
of GLA | Project
Square
Feet | Square
Feet
of Each
Tenant    | Contract
Rent
($/Sq/Yr)
At End of
Year | Lease
Expiration
(Mo./Yr.)    | Renewal
Options                     
|------------------------------------- | --------------------------- | ----------------------------------- | ------------------- | ----------------------------- | -------------------------------------- | ----------------------------- | ------------------------------------
|OFFICE BUILDINGS
(continued)          |                             |                                     |                     |                               |                                        |                               |                                     
|Southern California                   |                             |                                     |                     |                               |                                        |                               |                                     
|Laguna Hills Square,
Laguna Hills     | $69,433
$1.01/100           | 5                                   | 51,734              | 8,474
7,368
6,391
9,229
5,981 | $31.47
$28.00
$28.93
$23.83
$30.95     | 11/10
09/05
09/05
06/07
10/10 | 2-5 yr.
1-5 yr.
2-5 yr.
1-5 yr.
None
|Carroll Tech III,
San Diego           | $25,979
$1.13/100           | 1                                   | 29,307              | 29,307                        | $11.23                                 | 03/09                         | 1-5 yr.                             
|Scripps Wateridge,
San Diego          | $194,443
$1.11/100          | 2                                   | 123,853             | 49,295
74,558                 | $13.85
$15.05                          | 07/06
08/05                   | 1-5 yr.
2-3 yr.                     
|Carroll Tech IV,
San Diego            | $62,327
$1.13/100           | 1                                   | 43,415              | 43,415                        | $13.59                                 | 03/09                         | None                                
|Towne Centre Plaza,
Foothill Ranch    | $258,742
$1.01/100          | 2                                   | 205,077             | 30,344
114,033                | $25.63
$25.89                          | 01/08
02/08                   | 2-5 yr.
4-5 yr.                     
|                                      |                             |                                     |                     |                               |                                        |                               |                                     
|Northwest                             |                             |                                     |                     |                               |                                        |                               |                                     
|Time Square,
Renton                   | $376,548
$1.12/100          | 1                                   | 334,255             | 334,255                       | $11.50                                 | 02/04                         | None                                
|Adobe Systems
Bldg. 1, Seattle        | $230,017
$1.03/100          | 1                                   | 161,117             | 161,117                       | $17.09                                 | 07/10                         | 2-5 yr.                             
|Adobe Systems
Bldg. 2, Seattle        | $206,027
$1.03/100          | 1                                   | 136,111             | 93,211                        | $17.09                                 | 07/10                         | 2-5 yr.                             
|Highlands Campus Building A,
Bothell  | $111,065
$1.19/100          | 2                                   | 74,559              | 39,824
13,498                 | $15.99
$12.12                          | 05/05
10/08                   | 2-3 yr.
None                        
|The Federal Way Building,
Federal Way | $114,605
$1.24/100          | 2                                   | 65,000              | 32,871
26,420                 | $13.95
$15.51                          | 04/06
10/04                   | 2-3 yr.
1-5 yr.                     
|Federal Way
Building II,
Federal Way  | $190,262
$1.24/100          | 3                                   | 114,769             | 16,230
12,071
50,000          | $16.35
$16.34
$14.65                   | 06/05
04/06
08/09             | 1-5 yr.
None
2-5 yr.                

28





|Property                                  | Annual
Property
Taxes/
Rate | # of Leases
with
10% or
More
of GLA | Project
Square
Feet | Square
Feet
of Each
Tenant | Contract
Rent
($/Sq/Yr)
At End of Year | Lease
Expiration
(Mo./Yr.) | Renewal
Options        
|----------------------------------------- | --------------------------- | ----------------------------------- | ------------------- | -------------------------- | -------------------------------------- | -------------------------- | -----------------------
|OFFICE BUILDINGS (continued)
Colorado     |                             |                                     |                     |                            |                                        |                            |                        
|Oracle Building,
Denver                   | $278,710
$9.09/100          | 2                                   | 90,712              | 10,043
44,216              | $18.00
$17.00                          | 10/11
03/09                | 4-5 yr.
2-5 yr.        
|4601 DTC Building,
Denver                 | $586,917
$8.19/100          | 2                                   | 238,957             | 189,702
40,641             | $20.25
$15.00                          | 01/05
12/08                | 2-5 yr.
2-5 yr.        
|Waterpark @ Briarwood Bldg. 1,
Centennial | $79,377
$12.39/100          | 2                                   | 29,405              | 18,295
11,110              | $13.92
$13.79                          | 12/09
02/06                | 1-5 yr.
None           
|Belleview Corp. Plaza II  Office,
Denver | $196,057
$9.09/100          | 2                                   | 81,508              | 15,644
47,615              | $18.75
$20.50                          | 09/06
09/07                | 1-5 yr.
2-3 yr.        
|Waterpark @ Briarwood Bldg. 2,
Centennial | $199,198
$12.39/100         | 2                                   | 73,781              | 36,077
21,232              | $14.08
$15.13                          | 10/04
10/05                | None
2-5 yr.           
|Waterpark @ Briarwood Bldg. 3,
Centennial | $199,198
$12.39/100         | 3                                   | 73,781              | 37,704
16,301
11,541       | $9.00
$14.85
$14.00                    | 09/09
01/07
12/07          | 2-5 yr.
1-5 yr.
2-5 yr.
|Waterpark @ Briarwood Bldg. 4,
Centennial | $79,377
$12.39/100          | 1                                   | 29,400              | 29,400                     | $14.85                                 | 02/06                      | 1-5 yr.                
|Bedford Center at Rampart, Englewood      | $658,809
$11.08/100         | 3                                   | 165,191             | 27,474
41,717
36,291       | $10.75
$12.50
$13.50                   | 03/09
12/04
10/05          | 2-2 yr.
2-2 yr.
2-3 yr.
|                                          |                             |                                     |                     |                            |                                        |                            |                        
|Nevada                                    |                             |                                     |                     |                            |                                        |                            |                        
|U.S. Bank Centre,
Reno                    | $146,820
$3.64/100          | 3                                   | 104,324             | 36,363
13,064
13,611       | $21.64
$21.96
$19.20                   | 10/04
12/08
04/08          | None
None
2-5 yr.      





29



TAX INFORMATION



The following table sets forth tax information of our depreciable real estate investments at December 31, 2003, as follows: (i) Federal tax basis, (ii) annual rate of depreciation, (iii) method of depreciation, and (iv) life claimed, with respect to each property or component thereof for purposes of depreciation(dollars in thousands):



|                                                  | Federal
Tax Basis | Annual Rate
of Depreciation | Depreciation
Method | Life
In Years
|------------------------------------------------- | ----------------- | --------------------------- | ------------------- | -------------
|INDUSTRIAL BUILDINGS                              |                   |                             |                     |              
|                                                  |                   |                             |                     |              
|Northern California                               | $  7,156          | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 6,902             | 6.67%                       | MACRS  150%        | 15.00        
|                                                  | 3,788             | 3.17%                       | Straight Line       | 31.50        
|                                                  | 121,937           | 2.56%                       | Straight Line       | 39.00        
|                                                  | 139,783           |                             |                     |              
|                                                  |                   |                             |                     |              
|Arizona                                           | 3,624             | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 4,036             | 6.67%                       | MACRS  150%        | 15.00        
|                                                  | 72,811            | 2.56%                       | Straight Line       | 39.00        
|                                                  | 80,471            |                             |                     |              
|                                                  |                   |                             |                     |              
|Southern California                               | 459               | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 269               | 6.67%                       | MACRS  150%        | 15.00        
|                                                  | 41,427            | 2.56%                       | Straight Line       | 39.00        
|                                                  | 42,155            |                             |                     |              
|                                                  |                   |                             |                     |              
|Northwest                                         | 10,375            | 2.56%                       | Straight Line       | 39.00        
|                                                  |                   |                             |                     |              
|Nevada                                            | 183               | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 18,276            | 2.56%                       | Straight Line       | 39.00        
|                                                  | 18,459            |                             |                     |              
|                                                  |                   |                             |                     |              
|Total depreciable assets for industrial buildings | 291,243           |                             |                     |              
|                                                  |                   |                             |                     |              
|OFFICE BUILDINGS                                  |                   |                             |                     |              
|                                                  |                   |                             |                     |              
|Northern California                               | 1,286             | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 829               | 6.67%                       | MACRS  150%        | 15.00        
|                                                  | 22,922            | 2.56%                       | Straight Line       | 39.00        
|                                                  | 25,037            |                             |                     |              
|                                                  |                   |                             |                     |              
|Arizona                                           | 2,305             | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 1,254             | 6.67%                       | MACRS  150%        | 15.00        
|                                                  | 20,204            | 2.56%                       | Straight Line       | 39.00        
|                                                  | 23,763            |                             |                     |              
|                                                  |                   |                             |                     |              
|Southern California                               | 2,169             | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 1,173             | 6.67%                       | MACRS  150%        | 15.00        
|                                                  | 47,047            | 2.56%                       | Straight Line       | 39.00        
|                                                  | 50,389            |                             |                     |              
|                                                  |                   |                             |                     |              
|Northwest                                         | 8,290             | 20.00%                      | MACRS  200%        | 5.00         
|                                                  | 4,407             | 6.67%                       | MACRS  150%        | 15.00        
|                                                  | 85,799            | 2.56%                       | Straight Line       | 39.00        
|                                                  | 98,496            |                             |                     |              

30





|                                              | Federal
Tax Basis | Annual Rate
of Depreciation | Depreciation
Method | Life
In Years
|--------------------------------------------- | ----------------- | --------------------------- | ------------------- | -------------
|OFFICE BUILDINGS (continued)                  |                   |                             |                     |              
|                                              |                   |                             |                     |              
|Colorado                                      | 6,714             | 20.00%                      | MACRS  200%        | 5.00         
|                                              | 3,585             | 6.67%                       | MACRS  150%        | 15.00        
|                                              | 75,907            | 2.56%                       | Straight Line       | 39.00        
|                                              | 86,206            |                             |                     |              
|                                              |                   |                             |                     |              
|Nevada                                        | 1,258             | 20.00%                      | MACRS  200%        | 5.00         
|                                              | 674               | 6.67%                       | MACRS  150%        | 15.00        
|                                              | 9,427             | 2.56%                       | Straight Line       | 39.00        
|                                              | 11,359            |                             |                     |              
|                                              |                   |                             |                     |              
|Total depreciable assets for office buildings | 295,250           |                             |                     |              
|                                              |                   |                             |                     |              
|Grand total                                   | $586,493          |                             |                     |              



For additional information on our real estate portfolio, see Note 2 to the financial statements included in Item 15 of this report.



Item 3. Legal Proceedings



We are not presently subject to any material litigation. Moreover, we are not aware of any threatened litigation against us, other than routine actions for negligence or other claims and proceedings arising in the ordinary course of our business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse impact on our liquidity, results of operations, business, or financial position.



Item 4. Submission of Matters to a Vote of Security Holders



Not applicable.

31



PART II



Item 5. Market for the Registrants Common Equity and Related Stockholder Matters



As of February 13, 2004, we had 837 holders of record of our common stock. A significant number of these stockholders are also nominees holding stock in street name for individuals. Our common stock trades on the New York Stock Exchange and the Pacific Exchange under the symbol BED.  The following table shows the high and low sale prices per share reported on the New York Stock Exchange and the dividends declared per share on the common stock for each quarterly period during 2002 and 2003.



|     |                | High   |  | Low    |  | Dividend
Per Share
|---- | -------------- | ------ |  | ------ |  | ------------------
|     |                |        |  |        |  |                   
|2002 |                |        |  |        |  |                   
|     | First Quarter  | $26.69 |  | $22.08 |  | $ 0.48            
|     | Second Quarter | 27.50  |  | 25.26  |  | 0.48              
|     | Third Quarter  | 26.91  |  | 20.67  |  | 0.50              
|     | Fourth Quarter | 26.50  |  | 22.00  |  | 0.50              
|     |                |        |  |        |  |                   
|2003 |                |        |  |        |  |                   
|     | First Quarter  | $27.87 |  | $24.32 |  | $ 0.50            
|     | Second Quarter | 28.61  |  | 26.11  |  | 0.50              
|     | Third Quarter  | 29.00  |  | 25.31  |  | 0.51              
|     | Fourth Quarter | 29.55  |  | 25.40  |  | 0.51              



Limitations on our ability to pay dividends are described in the Potential Factors Affecting Future Operating Results section under Item 7 of this report.



The information relating to our equity compensation plans required by Item 5 of this report is incorporated by reference from the proxy statement that we will mail to our stockholders in connection with the solicitation of proxies for the annual meeting of our stockholders scheduled to take place on May 13, 2004.

32



Item 6. Selected Financial Data



Following is a table of our selected financial data for the last five years (which should be read in conjunction with the discussion under the Managements Discussion and Analysis of Financial Condition and Results of Operations section in Item 7 of this report and the financial statements and notes thereto contained herein):



(in thousands of dollars, except per share data)

|                                                                                         | 2003        | 2002        | 2001        | 2000         | 1999       
|---------------------------------------------------------------------------------------- | ----------- | ----------- | ----------- | ------------ | -----------
|Operating Data:
Rental income(1)                                                         | $107,954    | $  99,740   | $  95,842   | $  93,528    | $  86,848  
|Gain on sales of real
estate investments(2)                                              | -           | 3,575       | 5,976       | 38,404       | 7,796      
|Income from continuing
operations                                                        | 27,665      | 31,682      | 33,414      | 67,148       | 37,574     
|Net income                                                                               | 27,665      | 36,003      | 34,950      | 68,307       | 38,659     
|Net income available to common
shareholders                                              | 26,980      | 36,003      | 34,950      | 68,307       | 38,659     
|Per common share 
assuming dilution:                                                    |             |             |             |              |            
|Income from continuing
operations before discontinued
operations and extraordinary items | $      1.65 | $      1.91 | $      1.97 | $       3.64 | $      1.76
|Net income                                                                               | $      1.65 | $      2.17 | $      2.06 | $       3.70 | $      1.81
|Balance Sheet Data:
Real estate investments                                              | $722,669    | $662,626    | $605,078    | $ 608,511    | $647,950   
|Bank loans payable                                                                       | 68,978      | 124,681     | 80,925      | 77,320       | 137,156    
|Mortgage loans payable                                                                   | 368,542     | 259,496     | 242,066     | 224,205      | 206,880    
|Stockholders equity                                                                     | 303,899     | 276,057     | 275,880     | 296,199      | 296,644    
|Other Data:
Net cash provided by
operating activities                                    | $  49,170   | $  50,126   | $  47,082   | $   45,703   | $  45,191  
|Net cash (used) provided
by investing activities                                         | (94,923)    | (72,094)    | (6,977)     | 70,127       | (71,467)   
|Net cash provided (used)
by financing activities                                         | 49,624      | 20,183      | (37,753)    | (114,254)    | 26,574     
|Funds From Operations(3)                                                                 | 49,723      | 50,083      | 45,250      | 43,801       | 44,257     
|Cash Dividends declared
per common share                                                 | $      2.02 | $      1.96 | $      1.86 | $      1.74  | $      1.56



(1)

Rental income excludes amounts reported as discontinued operations for properties sold during the year ended December 31, 2002 as a result of the adoption of Statement of Financial Accounting Standards 144 on January 1, 2002.



(2)

Reported as a component of discontinued operations for 2002.



(3)

We consider funds from operations (FFO) to be one measure of the performance of an equity REIT. FFO is used by financial analysts in evaluating REITs and can be one measure of a REITs ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. FFO generally is defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with accounting principles generally accepted in the United States of America (GAAP)), excluding extraordinary items and gains (losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our FFO as set forth in the table above has been computed in accordance with this definition. FFO does not represent cash generated by operating activities in accordance with GAAP; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. Furthermore, FFO as disclosed by other REITs may not be comparable to our presentation. Item 7 of this report contains a reconciliation of our FFO to our net income, which is calculated in accordance with GAAP.

33



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations



GENERAL



We are a self-administered and self-managed equity real estate investment trust (REIT). We own, manage, acquire, and develop industrial and suburban office properties proximate to metropolitan areas in the western United States. As of December 31, 2003, we owned 92 operating properties totaling approximately 7.8 million rentable square feet and 11 parcels of land totaling approximately 50 acres. Of the 92 operating properties, 61 are industrial buildings and 31 are suburban offices. Our properties and land are located in California, Arizona, Washington, Colorado, Oregon, and Nevada.



The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and notes to financial statements included in this report.



Market Conditions



The Northwest Region



We believe that the Puget Sound area is still experiencing the effects of significant job loss resulting from the technology and telecommunication slowdown. We also believe that these economic conditions have affected most commercial real estate markets causing excess space, both direct and sub-lease, and weaker deal terms. At December 31, 2003, our Northwest portfolio was 95% occupied with 55,000 square feet vacant in three properties. We believe that this comparatively strong occupancy has insulated us from the worst effects of local market conditions in 2003. We have been notified by one of our tenants, who currently occupies approximately 334,000 square feet in this region, that it does not plan to renew its lease when it expires in February 2004. We have commenced a program to re-position the asset and plan to introduce it to the market as a campus-style office park in mid-2004.



The Northern California Region



Our properties in Northern California are located throughout the San Francisco Bay Area and include one property in Reno, Nevada. The Bay Area market has been impacted by the technology industry slowdown, particularly in the Silicon Valley area, where we own 14 properties totaling 1,207,865 square feet. In this sub-market, we believe that the job loss associated with the recent recession has been significant, resulting in increased vacancy and reduced rental rates. In addition, we expect higher than usual lease expirations in the Silicon Valley during the next two years, which create the potential for increasing vacancy in our portfolio. In order to retain good credit tenants in the current market, we have engaged in a strategy to negotiate lower rental rates in exchange for extended lease terms, which we refer to as blend and extend leases.



Another Bay Area sub-market that has demonstrated weakness during the last two years is the South San Francisco industrial market. In this sub-market, we have faced rental rate declines in renewals, and an increase in the vacancy rate of our five-building portfolio from 1% at the end of 2002 to 24% at the end of 2003. Other Bay Area sub-markets have not been as dramatically affected as the Fremont, Milpitas, and San Jose markets in Silicon Valley, and the South San Francisco industrial market. In Sonoma County, Napa County, and Contra Costa County, while demand has slowed during the past two years, vacancy rates have not climbed to the extent they have in the Silicon Valley.

















34





The Southern California Region



In Southern California, we have properties in three relatively healthy sub-markets. These sub-markets are Orange County, San Diego, and the Inland Empire. We have two properties in Orange County and have maintained them at, or close to, 100% leased during 2003. In the Inland Empire, we have a bulk industrial property in Ontario, California, which was 100% leased on December 31, 2003. Additionally, we have a new development, the Jurupa Business Center Phase I, which was 91% leased as of December 31, 2003. Finally, in San Diego, we were 100% occupied during the year. In one of our San Diego properties, we had a lease expiration in a 50,000 square-foot single-tenant building scheduled in June of 2004, which we have successfully re-leased.



The Arizona Region



Most of our properties in Arizona are in Phoenix, a market that has been characterized by the same weakness in demand for office, R&D, and industrial space that we have experienced in our other regions. We have responded to these challenges by improving our marketing processes and the marketability of our vacant spaces. We are making capital improvements to our vacant spaces to render them to near move-in condition for prospective tenants. Notwithstanding these efforts, however, leasing in Phoenix remains a slow process, and we expect our vacant suites to remain vacant for longer periods than we have previously experienced.



The Colorado Region



All of our properties in Colorado are in the southeast Denver suburban office market. We believe that market conditions in Denver reflect the job loss experienced during the last several years, similar to our other markets. In July 2003, we were successful in executing a significant lease with a large insurance company for the top two floors of our 4601 DTC Boulevard property, representing 20% of the total square footage of the building. This ten-story office property is 80% leased to a single tenant under a lease that will expire on January 31, 2005, and that tenant has notified us that it does not plan to renew. We are planning to make significant capital improvements to the property during 2004 in preparation of this anticipated vacancy.



Future Trends and Events



Acquisitions



During 2003, we purchased five new properties totaling approximately $85 million. We plan to continue to seek out potential acquisition properties that meet our required capitalization rate and have stabilized rents. While capitalization rates continue to remain low as the result of the large amount of capital available in the market place and the low cost of debt, we have been successful at identifying several properties that we believe will enhance our portfolio. We plan to purchase an additional $150 million in acquisitions during 2004; however, this will be dependent upon the availability of properties that meet our requirements.



Dispositions



We currently do not have plans to dispose of any properties. With the low capitalization rate market, however, we plan to continually evaluate potential sales as an exit and support strategy to our property acquisition and share repurchase programs.



Development and Redevelopment



In response to decreasing demand for office and industrial space, our development activities over the past two years have been limited to our Jurupa Business Center project in Ontario, California. As of February 2004, the 41,726 square-foot phase I was 100% leased, and the 41,390 square-foot phase II, which was shell complete in December

35







2002, was 76% leased. Our board has authorized us to move forward with the final two phases, with construction of phases III and IV expected to commence in early 2004. Both phases will be constructed concurrently over an expected 7-month period, taking advantage of the project momentum generated with the recent leasing activities of phases I and II. We estimate the total cost of construction of these two phases, including the purchase price of the land, to be approximately $6.9 million.



In February 2003, one of our larger tenants informed us that it did not intend to renew its lease upon expiration on February 28, 2004. This tenant occupies the entire 334,000 square feet of our five-building facility in Renton, Washington. We are currently planning the redevelopment of this property and expect to commence construction in March 2004 when the tenant vacates. We expect the construction process for site work, shell enhancement, construction of lobbies, and the upgrade of common areas to take place over a 48-month period. The construction will be completed in phases, with the completion and leasing of some of the buildings occurring prior to the end of the 48-month period. We expect to incur costs between $18 and $22 million to renovate and re-tenant the project.



Share Repurchases



Since the inception of our share repurchase program in November of 1998, we have repurchased a total of 8,032,252 shares of our common stock at an average cost of $18.74 per share, which represents 35% of the shares of common stock outstanding at November 1998. We intend to continue to repurchase shares of our common stock on the open market when the opportunities exist. Our share repurchase strategy takes into consideration several factors, including the dividend yield on our stock price, the cost of capital and its alternative uses, existing yields on potential acquisitions, market trading volume, trading regulations, and debt covenants. We currently have board approval to repurchase up to a total of 10 million shares of our common stock.



Occupancy and Rental Rates



As of December 31, 2003, our portfolio was 93% occupied, a decrease of one percentage point over the prior year. Occupancy has been our highest priority during this economic downturn. In order to retain tenants in the current market, we sometimes find it necessary to negotiate lower rental rates in exchange for extended terms, which we refer to as blend and extend leases. While this has a negative impact on our income from operations, we believe the impact of losing good credit tenants would surpass the incremental loss due to reduced rental rates. During the year 2003, we renewed or re-leased 85% of the expiring square footage and experienced a 19% decline in weighted average rental rates on these leases. We intend to continue this strategy of maximizing our occupancy until market conditions improve.



Leasing



During the years 2003 and 2002, we successfully renewed or released 124 and 109 leases, respectively, or 85% and 88% of our expiring square footage, respectively.



Over the next three years, we expect to face significant lease rollovers. During the years 2004, 2005, and 2006, leases representing 19%, 22%, and 16% of annualized base rent, respectively, will expire. Of the 19% expiring in 2004, 4% is due to the expiration of the lease of one of our largest tenants in Renton, Washington mentioned in the

36



Development and Redevelopment section above. The expirations as a percentage of annualized base rent by region are as follows:





|                    | 2004 | 2005 | 2006
|------------------- | ---- | ---- | ----
|Northern California | 7%   | 9%   | 6%  
|Arizona             | 3%   | 3%   | 3%  
|Southern California | 2%   | 3%   | 5%  
|Northwest           | 5%   | 1%   | 1%  
|Colorado            | 1%   | 5%   | 1%  
|Nevada              | 1%   | 1%   | *   
|Total               | 19%  | 22%  | 16% 
|* Less than 1%      |      |      |     



In order to be successful in sustaining our occupancy, we have developed a plan to focus our attention on a group of 90 tenants. At the time of implementation of the plan in the second quarter 2003, these mighty ninety tenants represented approximately 20% of our tenant population and over 50% of our annualized base rent, with leases expiring through the end of 2006.  For each of these tenants, we are taking a proactive approach by creating specific strategies for renewal, which may include blend and extend offers, early renewals, and other appropriate measures. As of December 31, 2003, we had renewed or re-leased 24 of these leases, nine of which were blend and extend leases.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



The preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to valuation of real estate investments, revenue recognition, allowance for doubtful accounts, stock compensation expense, deferred assets, and qualification as a REIT. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could vary from those estimates, and those estimates could be different under different assumptions or conditions.



Real Estate Investments



Real estate investments are recorded at cost less accumulated depreciation. The cost of real estate includes purchase price, other acquisition costs, and costs to develop properties which include interest and real estate taxes. In accordance with Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, a portion of the purchase price is allocated to tenant improvements and identifiable intangible assets or liabilities. For acquired properties with rental guarantees from the seller, amounts received under the rental guarantee are recorded as a reduction to the basis of the asset upon receipt. Expenditures for maintenance and repairs that do not add to the value or prolong the useful life of the property are expensed. Expenditures for asset replacements or significant improvements that extend the life or increase the propertys value are capitalized. Real estate properties are depreciated using the straight-line method over estimated useful lives. When circumstances such as adverse market conditions indicate an impairment of a property, we will recognize a loss to the extent that the carrying value exceeds the fair value of the property.



37



Revenue Recognition and Allowance for Doubtful Accounts



Base rental income is recognized on a straight-line basis over the terms of the respective lease agreements. Differences between rental income recognized and amounts contractually due under the lease agreements are credited or charged, as applicable, to rent receivable. The amount of straight-line rent receivable is charged against income upon early termination of a lease or as a reduction of gain on sale of the property. Lease termination income is recorded in the period the lease terminates according to the lease termination agreement. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments, which results in a reduction to income. Management determines the adequacy of this allowance by continually evaluating individual tenant receivables considering the tenants financial condition, security deposits, letters of credit, lease guarantees, and current economic conditions.



Stock Compensation Expense



Beginning January 1, 2003, we voluntarily adopted the recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, using the modified prospective method as prescribed in SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS 123. The modified prospective method provides for the calculation of the compensation expense as if the fair value based accounting method had been used to account for all stock options granted in fiscal years after December 15, 1994. The impact of adopting SFAS 148 was an increase in compensation expense of $49,000 and $195,000 in the three and twelve months ended December 31, 2003, respectively.



Deferred Assets



Costs incurred for debt financing and property leasing are capitalized as other assets. Deferred loan costs include amounts paid to lenders and others to obtain financing. Such costs are amortized over the term of the related loan. Amortization of deferred financing costs is included in interest expense in our consolidated statements of income. Deferred leasing costs include leasing commissions that are amortized using the straight-line method over the term of the related lease. Deferred leasing costs are included with the basis when a property is sold and therefore reduce the gain on sale. Unamortized financing and leasing costs are charged to expense in the event of debt prepayment or early termination of the lease.



Qualification as a REIT



We have elected to be taxed as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended. A REIT is generally not subject to federal income tax on that portion of real estate investment trust taxable income that is distributed to stockholders, provided that at least 90% of such taxable income is distributed and other requirements are met. If we were to fail to qualify as a REIT, we would be, among other things, required to provide for federal income taxes on our income and reduce the level of distributions made to our stockholders.

38



RESULTS OF OPERATIONS



Our operations consist of developing, owning, and operating industrial and suburban office properties located primarily in the western United States.



Variances in revenues, expenses, net income, and cash flows for the twelve months ended December 31, 2003 when compared with the same period in 2002 were due primarily to the acquisition, development, and sale of operating properties as follows:



|                                                         | Office Properties    | Industrial Properties | Total Operating Properties
|-------------------------------------------------------- | -------------------- | --------------------- | --------------------------
|                                                         | Number of
Properties | Square
Feet           | Number of
Properties      
|Total at January 1, 2002                                 | 31                   | 2,642,000             | 59                        
|Activity from January 1, 2002 through December 31, 2002: |                      |                       |                           
|Acquisitions                                             | -                    | -                     | 4                         
|Sales+                                                   | (1)                  | (50,000)              | (7)                       
|Total at December 31, 2002                               | 30                   | 2,592,000             | 56                        
|                                                         |                      |                       |                           
|Activity from January 1, 2003 through December 31, 2003: |                      |                       |                           
|Acquisitions                                             | 1                    | 205,000               | 4                         
|Development++                                            | -                    | -                     | 1                         
|Total at December 31, 2003                               | 31                   | 2,797,000             | 61                        



+

Income from property operations for 2002 sales has been recorded as discontinued operations and is excluded from the comparisons of income from property operations, rental income, and rental expenses discussed below.

++

The property is included as development based on the date of shell completion.



Comparison of 2003 to 2002



Income from Property Operations



Income from property operations (defined as rental income less rental expenses) decreased $1,397,000 or 2% in 2003 compared to 2002. This decrease is attributable to an increase in rental income of $8,214,000, offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of $9,611,000.



39



The following table presents the change in income from property operations for the twelve months ended December 31, 2003 compared to the same period in 2002, detailing amounts contributed from properties acquired in 2002 and 2003, properties developed in 2002 and 2003, and properties that remained stable during the period from January 1, 2002 to December 31, 2003 (in thousands):



|                                    | Acquisitions | Development | + | Stabilized   | Total       
|----------------------------------- | ------------ | ----------- | - | ------------ | ------------
|                                    |              |             |   |              |             
|Rental income                       | $ 8,200,000  | $ 428,000   |   | $  (414,000) | $ 8,214,000 
|Rental expenses:
Operating expenses | (638,000)    | (44,000)    |   | (1,689,000)  | (2,371,000) 
|Real estate taxes                   | (866,000)    | (18,000)    |   | (822,000)    | (1,706,000) 
|Depreciation and
amortization       | (3,456,000)  | (196,000)   |   | (1,882,000)  | (5,534,000) 
|Total rental expenses               | (4,960,000)  | (258,000)   |   | (4,393,000)  | (9,611,000) 
|Income from property
operations     | $ 3,240,000  | $ 170,000   |   | $(4,807,000) | $(1,397,000)



+  Includes one property with a shell completion date of December 1, 2001.



Rental Income



The net increase in rental income of $8,214,000 is primarily attributable to property acquisitions and, to a lesser extent, development activities. The decrease in rental income of $414,000 on the stabilized properties is primarily attributable to decreased early termination fees of $1,087,000 and negative straight line rents of $1,231,000, partially offset by a total of $1,705,000 of increased base rents, expense reimbursement income, and miscellaneous income. Lower bad debt expense increased rental income in 2003 by an additional $283,000.



Rental Expenses



The net increase in rental expenses of $9,611,000 is primarily attributable to property acquisitions and stabilized properties. The increase in operating expenses on stabilized properties of $4,393,000 is generally attributable to increases in depreciation and amortization, repairs and maintenance costs, and real estate taxes. The increase in depreciation and amortization is due to a greater level of tenant improvement and lease commission spending required to obtain leases.  Building maintenance has also been increased in order to attract potential tenants.



General and Administrative Expenses



General and administrative expenses increased $1,126,000 or 24% in 2003 compared to 2002, primarily as a result of increased compensation costs associated with the hiring of the employees of Bedford Acquisitions, Inc., which increased compensation costs by approximately $500,000. The remaining increase is partially due to higher legal and accounting fees associated with new compliance requirements resulting from the Sarbanes-Oxley Act of 2002.



Interest Expense



Interest expense, which includes amortization of loan fees, increased $1,401,000 or 7% in 2003 compared to 2002. The increase is attributable to a higher level of weighted average outstanding debt in 2003 due to share repurchases and the funding of property acquisitions in the third and fourth quarters of 2003, as well as increased amortization of loan fees. The amortization of loan fees was $1,599,000 and $1,361,000 in 2003 and 2002, respectively. The increase in amortization of loan fees is primarily due to loan fees paid in connection with the $137.6 million of mortgage financing obtained in 2003.



40



Discontinued Operations



In the second quarter 2002, we sold three industrial properties in Vista, California, one industrial property in San Diego, California, and one industrial property in Scottsdale, Arizona for net sale prices totaling $19,081,000, which resulted in an aggregate gain of $1,798,000. Net operating income relating to these properties is classified as discontinued operations for all periods presented.



In the third quarter 2002, we sold two industrial properties and one office property in Monterey, California for net sale prices totaling $12,391,000, which resulted in an aggregate gain of $1,777,000. Net operating income relating to these properties is classified as discontinued operations for all periods presented.



Dividends



Common stock dividends to stockholders declared for the first and second quarters of 2003 were $0.50 per share and $0.51 per share for the third and fourth quarters of 2003. Common stock dividends to stockholders declared for the first and second quarters of 2002 were $0.48 per share and $0.50 per share for the third and fourth quarters of 2002. Consistent with our policy, common stock dividends were paid in the quarter following the quarter in which they were declared. Preferred stock dividends of $685,000, or $0.8507 per share, were declared on October 1, 2003 and paid on October 15, 2003.



Comparison of 2002 to 2001



Income from Property Operations



Income from property operations (defined as rental income less rental expenses) increased $774,000 or 1% in 2002 compared to 2001. This increase is attributable to an increase in rental income of $3,898,000, offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of $3,124,000.



The following table presents the change in income from property operations for the twelve months of 2002 compared to the same period in 2001, detailing amounts contributed from properties acquired in 2001 and 2002, properties developed in 2001 and 2002, and properties that remained stable during the period from January 1, 2001 to December 31, 2002 (in thousands):



|                                    | Acquisitions | Development | Stabilized   | Total       
|----------------------------------- | ------------ | ----------- | ------------ | ------------
|                                    |              |             |              |             
|Rental income                       | $ 3,524,000  | $ 1,979,000 | $(1,605,000) | $ 3,898,000 
|Rental expenses:
Operating expenses | (209,000)    | (506,000)   | (840,000)    | (1,555,000) 
|Real estate taxes                   | (313,000)    | (276,000)   | 541,000      | (48,000)    
|Depreciation and
Amortization       | (632,000)    | (965,000)   | 76,000       | (1,521,000) 
|Total rental expenses               | (1,154,000)  | (1,747,000) | (223,000)    | (3,124,000) 
|Income from property
operations     | $ 2,370,000  | $   232,000 | $(1,828,000) | $    774,000



41



Rental Income



The net increase in rental income of $3,898,000 is primarily attributable to property acquisitions and development activities, partially offset by a decrease in rental income on stabilized properties. The decrease in rental income of $1,605,000 on the stabilized properties is primarily attributable to decreased base rents of $976,000, negative level rents of $682,000, and decreased expense reimbursement income of $615,000, partially offset by $636,000 of increased early termination fees in 2002.



Rental Expenses



The net increase in rental expenses of $3,124,000 is primarily attributable to property acquisitions and development activities. The increase in operating expenses on stabilized properties of $223,000 is mainly due to increased insurance costs and non-reimbursable property expenses.



General and Administrative Expenses



General and administrative expenses decreased $1,890,000 or 29% in 2002 compared to 2001, primarily as a result of $2,250,000 of financing fees incurred in 2001 for the renewal of our $150 million credit facility, partially offset by $276,000 for an accrual of our estimated 2002 tax liability.



Interest Expense



Interest expense, which includes amortization of loan fees, decreased $915,000 or 4% in 2002 compared to 2001. The decrease is attributable to lower interest rates on our variable rate debt and a decrease in amortization of loan fees. The amortization of loan fees was $1,361,000 and $1,573,000 in 2002 and 2001, respectively.



Other (Expense) Income



During 2001, we recorded $526,000 in other expense. This sum represents $400,000 for litigation accruals and $126,000 of pre-development costs incurred for a project in Denver that was subsequently abandoned due to deterioration in market conditions.



Gain on Sales of Real Estate Investments, Net



Prior to our adoption of Statement of Financial Accounting Standards 144 on January 1, 2002, all properties sold are classified as components of continuing operations. Subsequent to January 1, 2002, all such sales, including the related net operating income and related interest expense, are reported as components of discontinued operations.



In the fourth quarter of 2001, we sold two industrial properties in Denver, Colorado, an industrial property in Tempe, Arizona, and an office property in Tucson, Arizona for net sale prices totaling $19,282,000, which resulted in an aggregate gain of approximately $5,976,000.



Discontinued Operations



In the second quarter 2002, we sold three industrial properties in Vista, California, one industrial property in San Diego, California, and one industrial property in Scottsdale, Arizona for net sale prices totaling $19,081,000, which resulted in an aggregate gain of $1,798,000. Net operating income relating to these properties is classified as discontinued operations for all periods presented.

42



In the third quarter 2002, we sold two industrial properties and one office property in Monterey, California for net sale prices totaling $12,391,000, which resulted in an aggregate gain of $1,777,000. Net operating income relating to these properties is classified as discontinued operations for all periods presented.



Dividends



Common stock dividends to stockholders declared for the first and second quarters of 2002 were $0.48 per share and $0.50 per share for the third and fourth quarters of 2002. Common stock dividends to stockholders and distributions to Operating Partnership (OP) unit-holders declared for the first and second quarters of 2001 were $0.45 per share and $0.48 per share or OP unit for the third and fourth quarters of 2001. The outstanding OP units were redeemed on January 15, 2002. Consistent with our policy, common stock dividends and distributions were paid in the quarter following the quarter in which they were declared.





LIQUIDITY AND CAPITAL RESOURCES



Liquidity



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



-   cash flow from operations;

-   borrowings under our credit facility and, if available, other indebtedness which may include

indebtedness assumed in acquisitions;

-   the sale of certain real estate investments; and

-   preferred stock issuance.



Our line of credit, which has a total commitment of $150 million plus an accordion feature for expansion of $25 million, had an outstanding balance of $68,978,000 and letters of credit issued and undrawn of $6,957,000, leaving $99,065,000 of available borrowing. We anticipate utilizing this available borrowing as well as other potential sources of financing such as new mortgages and/or preferred equity offerings to fund future acquisitions of approximately $150 million, development costs of approximately $25 to $29 million, and capital expenditures of approximately $14.5 million. We are currently in the process of renegotiating our line of credit and expect to renew the facility at substantially similar terms. We anticipate that the cash flow generated by our real estate investments and funds available under our credit facility will be sufficient to meet our short-term liquidity requirements.



Cash Flows



Comparison of 2003 to 2002



Operating Activities



Net cash provided by operating activities was $49,170,000 and $50,126,000 for the twelve months ended December 31, 2003 and 2002, respectively. The decrease of $956,000 in cash flows from operating activities is primarily due to the following:



Increase in cash flows:

-   increased rental receipts of $6,927,000.



Decreases in cash flows:

-   increased lease commission payments of $2,425,000;

-   increased real estate tax payments of $1,227,000;

-   increased general and administrative cost payments of $2,001,000;

-   increased interest payments of $542,000; and

43





-   increased change in tenant improvement liabilities of $1,936,000 resulting from the 2002 cash

receipt of a $1,040,000 credit through escrow and the 2003 cash disbursement for $896,000 of this escrow credit.



Investing Activities



Net cash used by investing activities was $94,923,000 and $72,094,000 for the twelve months ended December 31, 2003 and 2002, respectively. The increase in cash used for investing activities of $22,829,000 is primarily due to the following:



Increase in cash flows:

-   proceeds of $31,472,000 from sales of real estate investments.



Decreases in cash flows:

-   increased investments in real estate of $8,120,000; and

-   increased contract retention payments of $523,000.



Financing Activities



Net cash provided by financing activities was $49,624,000 and $20,183,000 for the twelve months ended December 31, 2003 and 2002, respectively. The net increase in cash provided by financing activities of $29,441,000 is primarily due to the following:



Increases in cash flows:

-   increased mortgage proceeds, net of loan costs, of $113,785,000;

-   proceeds of $38,947,000 from our Series A preferred stock offering in 2003; and

-   increased proceeds from the issuance of common stock of $2,608,000.



Decreases in cash flows:

-   increased net payments of $99,232,000 on our bank loans;

-   increased payments on mortgages of $23,412,000, including the payoff of an $18 million mortgage

at maturity and a $4.3 million early mortgage payoff;

-   increased payments of $3,166,000 to repurchase and retire our common stock; and

-   increased dividend payments of $1,389,000.



Comparison of 2002 to 2001



Operating Activities



Net cash provided by operating activities was $50,126,000 and $47,082,000 for the twelve months ended December 31, 2002 and 2001, respectively. The increase of $3,044,000 in cash flows from operating activities is primarily due to the following:



Increases in cash flows:

-   increased rental receipts of $1,941,000;

-   decreased payments for general and administrative expenses of $780,000;

-   decreased interest payments of $1,582,000; and

-   proceeds from escrow for tenant improvement liabilities of $1,040,000 in 2002.



Decrease in cash flows:

-   decreased operating expense payments of $2,260,000.



44



Investing Activities



Net cash used by investing activities was $72,094,000 and $6,977,000 for the twelve months ended December 31, 2002 and 2001, respectively. The increase in cash used for investing activities of $65,117,000 is primarily due to the following:



Increase in cash flows:

-   increased proceeds of $12,190,000 from sales of real estate investments.



Decreases in cash flows:

-   increased investments in real estate of $77,126,000; and

-   increased contract retention payments of $181,000.



Financing Activities



Net cash provided by financing activities was $20,183,000 for the twelve months ended December 31, 2002, and net cash used by financing activities was $37,753,000 in 2001. The net increase in cash provided by financing activities of $57,936,000 is primarily due to the following:



Increases in cash flows:

-   increased net proceeds of $41,415,000 on our bank loans;

-   decreased payments on mortgages of $2,723,000;

-   increased proceeds from the issuance of common stock of $498,000; and

-   decreased payments of $17,509,000 to repurchase and retire our common stock.



Decreases in cash flows:

-   decreased mortgages proceeds, net of loan costs, of $2,914,000;

-   payments for prepaid loan fees in 2002 of $605,000;

-   increased payments for the redemption of Operating Partnership units of $71,000; and

-   increased dividend payments of $619,000.



Debt Financing



Our ability to continue to finance operations is subject to several uncertainties. For example, our ability to obtain mortgage loans on income producing property is dependent upon our 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. Approximately 89% of our real estate investments served as collateral for our existing indebtedness as of December 31, 2003. Our ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at reasonable commercial rates.

45



We currently have a revolving credit facility with a bank group led by Bank of America. The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature that gives us the option to expand the facility to $175 million, if needed. Interest on the facility is at a floating rate equal to either the lenders prime rate or LIBOR plus a margin ranging from 1.30% to 1.55%, depending on our leverage level as defined in the credit agreement. As of December 31, 2003, the facility had a total outstanding balance of $68,978,000, an effective interest rate of 2.85%, and was secured by our interests in 17 properties. These properties collectively accounted for approximately 20% of our annualized base rent and our total real estate assets as of December 31, 2003. We are currently in the process of renegotiating our revolving credit facility and anticipate that we will renew the line of credit at substantially similar terms.



In March 2003, we obtained a $48,500,000 mortgage from Teachers Insurance and Annuity Association of America. The loan has a ten-year term and carries a fixed interest rate of 5.60%. Proceeds from the mortgage financing were used to pay down a portion of the outstanding balance of our lines of credit and to replace an $18,000,000 mortgage from Prudential Insurance Company of America, which matured in March 2003 and carried a fixed interest rate of 7.02%.



In October and November 2003, we secured two mortgages with Bank of America for $9,900,000 and $11,400,000. These loans each have a ten-year term and carry fixed interest rates of 5.45% and 5.55%, respectively. The mortgages call for interest only payments for the first two years and principal and interest payments for the remainder of the loan term. Proceeds from the mortgages were used to finance property acquisitions and to pay down our secured credit facility.



In November 2003, we obtained a $25,000,000 mortgage from JPMorgan Chase Bank. The loan has a ten-year term and carries a fixed interest rate of 5.74%. Proceeds from the mortgage were used to finance the acquisition of the property collateralized by the loan.



In November 2003, we obtained three mortgages from John Hancock for an aggregate amount of $27,900,000. Each of the mortgages has a seven-year term and carries a fixed interest rate of 4.95%. These three mortgages call for interest only payments for the first four years and principal and interest payments for the remainder of the loan term. In November 2003, we obtained an additional three mortgages from John Hancock for an aggregate amount of $11,800,000. Each of these mortgages has a five-year term and carries a fixed interest rate of 4.60%. These three mortgages call for interest only payments for the first three years and principal and interest payments for the remainder of the loan term. The majority of the proceeds from the mortgages were used to finance property acquisitions and to pay down our secured credit facility. Proceeds of approximately $4,300,000 were used to pay off the remaining balance of a Union Bank loan with a floating rate, which was 6.00% at the time of the payoff.



In November 2003, we assumed two mortgages with Sun Life Assurance Company in connection with the acquisition of a property. The mortgages had remaining outstanding balances of approximately $1,659,000 and $1,469,000 at the date of the acquisition with interest at fixed rates of 7.00% and 7.25%, respectively. Both of the mortgages have a maturity date of April 1, 2009.



46



Mortgage loans payable at December 31, 2003 consist of the following (in thousands):



|                                          |                   |                                     |           | Collateral as of December 31, 2003
|----------------------------------------- | ----------------- | ----------------------------------- | --------- | ----------------------------------
|Lender                                    | Maturity Date     | Interest Rate at
December 31, 2003+ | Balance   | Number of
Properties              
|Union Bank                                | November 19, 2004 | 3.01%(1)                            | $  20,676 | 9                                 
|TIAA-CREF                                 | June 1, 2005      | 7.17%                               | 25,263    | 5                                 
|Security Life of Denver
Insurance Company | September 1, 2005 | 3.00%(2)                            | 21,500    | 6                                 
|Security Life of Denver
Insurance Company | September 1, 2005 | 3.00%(2)                            | 3,334     | 2                                 
|Nationwide Life Insurance                 | November 1, 2005  | 4.61%                               | 22,065    | 4                                 
|Prudential Insurance                      | July 31, 2006     | 8.90%                               | 7,702     | 1                                 
|Prudential Insurance                      | July 31, 2006     | 6.91%                               | 18,652    | 4                                 
|TIAA-CREF                                 | December 1, 2006  | 7.95%                               | 20,828    | 5                                 
|TIAA-CREF                                 | June 1, 2007      | 7.17%                               | 34,361    | 4                                 
|John Hancock                              | December 1, 2008  | 4.60%                               | 11,800    | 5                                 
|Sun Life Assurance Co.                    | April 1, 2009     | 7.00%                               | 1,655     | 1                                 
|Sun Life Assurance Co.                    | April 1, 2009     | 7.25%                               | 1,466     | *                                 
|TIAA-CREF                                 | June 1, 2009      | 7.17%                               | 40,134    | 8                                 
|John Hancock                              | December 1, 2010  | 4.95%                               | 27,900    | 3                                 
|Washington Mutual                         | August 1, 2011    | 4.04%(3)                            | 16,830    | 1                                 
|TIAA-CREF                                 | April 1, 2013     | 5.60%                               | 48,076    | 5                                 
|Bank of America                           | November 1, 2013  | 5.45%                               | 9,900     | 1                                 
|Bank of America                           | December 1, 2013  | 5.55%                               | 11,400    | 1                                 
|JP Morgan                                 | December 1, 2013  | 5.74%                               | 25,000    | 1                                 
|                                          | Total             |                                     | $368,542  | 66                                





(1)

Floating rate based on LIBOR plus 1.60%. The interest rate of 3.01% is fixed to maturity.

(2)

Floating rate based on 30-day LIBOR plus 1.40% (adjusted monthly). Effective July 3, 2003, the floating 30-day LIBOR rate was swapped to a fixed rate of 1.595% for an all-in rate of 2.995% until maturity.

(3)

Floating rate based on a 12-month average of U.S. Treasury security yields plus 2.60% (adjusted semi-annually).

+

Interest rates are fixed unless otherwise indicated by footnote.

*

The two Sun Life Assurance Company mortgages are collateralized by a single property.



We were in compliance with the covenants and requirements of our various mortgages during the twelve months ended December 31, 2003 and 2002.



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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS



The following table summarizes our contractual obligations and other commitments at December 31, 2003, as well as  the effect such obligations could have on our liquidity and cash flow in future periods (in thousands):



|                                  | Amount of Commitment Expiring by Period
|--------------------------------- | ---------------------------------------
|                                  | Less
Than
1 Year                       
|Bank Loan Payable                 | $  68,978                              
|Mortgage Loans Payable            | 27,137                                 
|Construction Contract
Commitments | 127                                    
|Standby Letters of Credit         | 6,957                                  
|Total                             | $103,199                               



We have issued five letters of credit to Teachers Insurance and Annuity of America and two letters of credit to Bank of America as security to these lenders that we will meet specific obligations in the loan documents.  Generally, obligations under letters of credit issued to our lenders can include security for the payment of property taxes (where a letter of credit is used in lieu of an impound account), payment of lease commissions or tenant improvement obligations on major leases, payment of lender required repairs to a building securing the loan, or security for leasing risk in the event the term of a major lease expires before the loan is due.



RELATED PARTY TRANSACTIONS



In prior years, we used Bedford Acquisitions, Inc. (BAI), a corporation wholly owned by our chairman of the board and chief executive officer, Peter Bedford, to provide services for our acquisition, disposition, financing, and development activities. These services were provided under an agreement that was terminated on July 1, 2002. Upon termination of the agreement, we hired the employees of BAI.



Prior to the termination of the agreement, fees incurred for services provided during the three and six months ended June 30, 2002 were expensed to the extent that such fees did not represent payments to BAI for direct and incremental development costs or independent third party costs incurred by BAI on our behalf.  During the six months ended June 30, 2002, we paid BAI approximately $1,785,000 for acquisition, disposition, financing, and development activities provided pursuant to the agreement. As of December 31, 2002, we had a receivable of $590,000 for excess fees paid to BAI, which was subsequently paid in January 2003 by BAI.



We occasionally use the services of the law firm Bartko, Zankel, Tarrant & Miller of which a member of our board of directors, Martin I. Zankel, is a Senior Principal. During the years ended December 31, 2003, 2002, and 2001, we paid Bartko, Zankel, Tarrant & Miller approximately $81,000, $17,000, and $3,000, respectively.



OFF-BALANCE SHEET ARRANGEMENTS



At December 31, 2003 and 2002, we did not have any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not materially exposed to any financing, liquidity, market,or credit risk that could arise if we were engaged in such relationships.



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POTENTIAL FACTORS AFFECTING FUTURE OPERATING RESULTS



Many factors affect our actual financial performance and may cause our future results to be different from past performance or trends. These factors include the following:



We could experience a reduction in rental income if we are unable to renew or re-let space on expiring leases on current lease terms, or at all.



A significant portion of our leases is scheduled to expire in the near future. As of December 31, 2003, leases representing 19%, 22%, 16%, and 11% of our total annualized base rent were scheduled to expire during 2004, 2005, 2006, and 2007, respectively. If the rental rates upon re-letting or renewal of leases were significantly lower than current rates, or if we were unable to lease a significant amount of space on economically favorable terms, or at all, our results of operations could suffer. We are subject to the risk that, upon expiration, some of these or other leases will not be renewed, the space may not be re-let, or the terms of renewal or re-letting, including the costs of required renovations or concessions to tenants, may be less favorable than current lease terms. We could face difficulties re-letting our space on commercially acceptable terms when it becomes available. In addition, we expect to incur costs in making improvements or repairs to our properties required by new or renewing tenants and expenses associated with brokerage commissions payable in connection with the re-letting of space. Similarly, our rental income could be reduced by vacancies resulting from lease expirations or by rental rates that are less favorable than our current terms. If we are unable to promptly renew leases or re-let space or if the expenses relating to tenant turnover are greater than expected, our financial results could be harmed.



Our leases with our 25 largest tenants generate approximately 42% of our base rent, and the loss of one or more of these tenants, as well as the inability to re-lease this space on equivalent terms, could harm our results of operations.



As of December 31, 2003, our 25 largest tenants accounted for approximately 42% of our total annualized base rent. One of these tenants, in Renton, Washington, representing approximately 4% of our annualized base rent, has already notified us that it does not intend to renew its lease upon expiration in February 2004. Additionally, we have been advised by another large tenant, in Denver, Colorado, that it will not renew the 190,000 square feet that it currently leases. This tenant, whose lease expires on January 31, 2005, also represents approximately 4% of our annualized base rent. The re-leasing of the footage in the Renton and Denver markets will require considerable capital expenditures and an indeterminate period of time. Further losses of our larger tenants and our inability to re-lease the vacated properties on favorable terms could limit our ability to make distributions to our stockholders.



A significant portion of our base rent is generated by properties in California, and our business could be harmed by an economic downturn in the California real estate market or a significant earthquake.



As of December 31, 2003, approximately 52% of our total annualized base rent was generated by our properties located in the State of California. As a result of this geographic concentration, the performance of the commercial real estate markets and the local economies in various areas within California could affect the value of these properties and the rental income from these properties and, in turn, our results of operations. In addition, the geographic concentration of our properties in California in close proximity to regions known for their seismic activity exposes us to the risk that our operating results could be harmed by a significant earthquake.





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Future declines in the demand for office and light industrial space in the greater San Francisco Bay Area could harm our results of operations and, consequently, our ability to make distributions to our stockholders.



Approximately 13% of our net operating income for the twelve months ended December 31, 2003 was generated by our office properties and flex industrial properties located in the greater San Francisco Bay Area. As a result, our business is somewhat dependent on the condition of the San Francisco Bay Area economy in general and the market for office space in the San Francisco Bay Area in particular. The market for this space in the San Francisco Bay Area is in the midst of one of the most severe downturns of the past several decades. This downturn has been precipitated by the unprecedented collapse of many technology and so-called dot com businesses that, during the past several years, had been chiefly responsible for generating demand for and increased prices of local office properties. This downturn has harmed, and may continue to harm, our results of operations. For example, during the fourth quarter of 2003, we experienced a 19.6% decline in weighted average rental rates on new leases and renewed leases combined compared to the prior rents for these spaces. This decline was primarily attributable to a 33% decrease in the average rental rates that we were able to obtain on three new leases compared to the prior rents for these spaces. Excluding these three transactions, the average decline in rental rates would have been approximately 9% for the quarter. The largest of these leases is a 104,480 square-foot space located in the Silicon Valley. We expect that the Silicon Valley area as a whole may experience higher than usual lease turnover during the next two years, which may increase area vacancy rates and further depress market rents for commercial real estate. In the event this downturn continues or economic conditions in the San Francisco Bay Area worsen, it could harm the market value of our properties, the results derived from such properties and our ability to make distributions to our stockholders.



Real estate investments are inherently risky, and many of the risks involved are beyond our ability to control.



Real property investments are subject to numerous risks. The yields available from an equity investment in real estate depend on the amount of income generated and costs incurred by the related properties. If the properties in which we invest do not generate sufficient income to meet costs, including debt service, tenant improvements, third-party leasing commissions, and capital expenditures, our results of operations and ability to make distributions to our stockholders could suffer. Revenues and values of our properties may also be harmed by a number of other factors, some of which are beyond our control, including:



-

the national economic climate;

-

the local economic climate;

-

local real estate conditions, including an oversupply of space or a reduction in demand for real estate in an area;

-

the attractiveness of our properties to tenants;

-

competition from other available space;

-

our ability to provide adequate maintenance and insurance to cover other operating costs, government regulations and changes in real estate, zoning or tax laws, and interest rate levels;

-

the availability of financing; and

-

potential liabilities under environmental and other laws.



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If our tenants experience financial difficulty or seek the protection of bankruptcy laws, our cash from operating activities could suffer.



Our commercial tenants may, from time to time, experience downturns in their business operations and finances due to adverse economic conditions, which may result in their failure to make rental payments to us on a timely basis or at all. Missed rental payments, in the aggregate, could impair our cash flows and, as a result, our ability to make distributions to our stockholders.



At any time, a tenant could seek the protection of the bankruptcy laws, which might result in the modification or termination of the tenants lease and cause a reduction in our cash flow. During the twelve months ended December 31, 2003, three of our tenants, representing less than 1% of our base rent, filed for bankruptcy. In the event of default by or bankruptcy of a tenant, we may experience delays in enforcing our rights as lessor and may incur substantial costs in protecting our investment. The default, bankruptcy, or insolvency of a major tenant may harm us and our ability to pay dividends to our stockholders.



Our dependence on smaller businesses to rent office space could negatively affect our cash flow.



Many of the tenants in our properties operate smaller businesses that may not have the financial strength of larger corporate tenants. Smaller companies generally experience a higher rate of failure and are generally more susceptible to financial risks than large, well-capitalized enterprises. Dependence on these companies could create a higher risk of tenant defaults, turnover, and bankruptcies, all of which could harm our ability to pay dividends.



The acquisition and development of real estate is subject to numerous risks, and the cost of bringing any acquired property to standards for its intended market position could exceed our estimates.



A significant portion of our leases is scheduled to expire in 2004, 2005, and 2006. To supplement the losses in net operating income caused by the leasing turnover, we have expanded our acquisitions program in 2003, with new purchases totaling approximately $85 million, and we expect to continue to focus on property acquisitions in the near future. As a part of the acquisitions program, we may acquire industrial and suburban office properties and portfolios of these properties, which may include the acquisition of other companies and business entities owning the properties. Although we engage in due diligence review for each new acquisition, we may not be aware of all potential liabilities and problems associated with a property. We may have limited contractual recourse, or no contractual recourse, against the sellers of a property. In the future, we expect the majority of our properties and portfolios of properties to be acquired on an as is basis, with limited recourse against the sellers. In addition, our investments may fail to perform in accordance with our expectations. Further, estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property might prove inaccurate. To the extent that we acquire properties with substantial vacancies, as we have in the past, we may be unable to lease vacant space in a timely manner or at all, and the costs of obtaining tenants, including tenant improvements, lease concessions, and brokerage commissions, could prove more costly than anticipated.



Real estate development is subject to other risks, including the following:



-

the risks of difficult and complicated construction projects;

-

the risks related to the use of contractors and subcontractors to perform all or substantially all construction activities;

-

the risk of development delays, unanticipated increases in construction costs, environmental issues, and regulatory approvals; and

-

financial risks relating to financing and construction loan difficulties.



Additionally, the time frame required for development, construction, and lease-up of these properties means that we may have to wait a few years or more for a significant cash return to be realized.

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We may abandon development opportunities resulting in direct expenses to us.



From time to time, we may invest significant time and resources exploring development opportunities that we subsequently decide are not in our best interest. The costs of investigating these opportunities will still be considered a direct expense and may harm our financial condition.



Our uninsured or underinsured losses could result in a loss in value of our properties.



We currently maintain 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. Separate flood and earthquake insurance is provided with an annual aggregate limit of $10 million, subject to a deductible of 5% of total insurable value per building and respective rent loss with respect to earthquake coverage. Additional excess earthquake coverage with an aggregate limit of $20 million is provided for properties located in California, which represent approximately 52% of our portfolios annual base rent. We also carry additional excess earthquake insurance with an aggregate limit of $10 million for properties located in Washington. Some losses, including those due to acts of war, nuclear accidents, pollution, mold, or terrorism, may be either uninsurable or not economically insurable. However, we do presently carry insurance for terrorism losses as defined under the Terrorism Risk Insurance Act of 2002 under our All Risks property policies, liability policies, primary and umbrella/excess policies. In addition, non-certified terrorism coverage is provided under our property policy for losses in excess of $10 million up to the $200 million limit.



Some losses could exceed the limits of our insurance policies or could cause us to bear a substantial portion of those losses due to deductibles under those policies. If we suffer an uninsured loss, we could lose both our invested capital in and anticipated cash flow from the property while being obligated to repay any outstanding indebtedness incurred to acquire the property. In addition, a majority of our properties are located in areas that are subject to earthquake activity. Although we have obtained earthquake insurance policies for all of our properties, if one or more properties sustain damage as a result of an earthquake, we may incur substantial losses up to the amount of the deductible under the earthquake policy and, additionally, to the extent that the damage exceeds the policys maximum coverage, we would not have insurance compensation for that portion of the losses. Although we have obtained owners title insurance policies for each of our properties, the title insurance may be in an amount less than the current market value of some of the properties. If a title defect results in a loss that exceeds insured limits, we could lose all or part of our investment in, and anticipated gains, if any, from, the property. Furthermore, the current insurance market is characterized by rising premium rates, increasing deductibles, and more restrictive coverage language. Continued increases in the costs of insurance coverage or increased limits or exclusions in insurance policy coverage could negatively affect our financial results.



If we fail to maintain our qualification as a real estate investment trust, we could experience adverse tax and other consequences, including the loss of deductibility of dividends in calculating our taxable income and the imposition of federal income tax at regular corporate rates.



We have elected to qualify as a real estate investment trust (REIT) under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended. We believe that we have been organized and have operated in a manner so as to have satisfied the REIT qualification requirements since 1985. However, the IRS could challenge our qualification as a REIT for taxable years still subject to audit, and we may fail to qualify as a REIT in the future.



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Qualification as a REIT involves the application of highly technical and complex tax provisions, and the determination of various factual matters and circumstances not entirely within our control may have an impact on our ability to maintain our qualification as a REIT. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources and we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, excluding net capital gains. In addition, we cannot assure you that new legislation, Treasury Regulations, administrative interpretations, or court decisions will not significantly change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of such qualification. We are not aware of any proposal to amend the tax laws that would significantly and negatively affect our ability to continue to operate as a REIT.



If we fail to maintain our qualification as a REIT, or are found not to have qualified as a REIT for any prior year, we would not be entitled to deduct dividends paid to our stockholders and would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. In addition, unless entitled to statutory relief, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. This treatment would reduce amounts available for investment or distribution to stockholders because of any additional tax liability for the year or years involved. In addition, we would no longer be required by the Internal Revenue Code to make any distributions. As a result, disqualification as a REIT would harm us and our ability to make distributions to our stockholders. To the extent that distributions to stockholders have been made in anticipation of our qualification as a REIT, we might be required to borrow funds or to liquidate investments to pay the applicable tax.



We must comply with strict income distribution requirements to maintain favorable tax treatment as a REIT. If our cash flow is insufficient to meet our operating expenses and the distribution requirements, we may need to incur additional borrowings or otherwise obtain funds to satisfy these requirements.



To maintain REIT status, we are required each year to distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income and 95% of our capital gain net income for the calendar year plus any amount of such income not distributed in prior years. Although we anticipate that cash flow from operations will be sufficient to pay our operating expenses and meet the distribution requirements, we cannot assure you that this will occur, and we may need to incur borrowings or otherwise obtain funds to satisfy the distribution requirements associated with maintaining the REIT qualification. In addition, differences in timing between the receipt of income and payment of expenses in arriving at our taxable income could require us to incur borrowings or otherwise obtain funds to meet the distribution requirements necessary to maintain our qualification as a REIT. We cannot assure you that we will be able to borrow funds or otherwise obtain funds if and when necessary to satisfy these requirements.



As a REIT, we are subject to complex constructive ownership rules that limit any holder to 9.8% in value of our outstanding common and preferred stock, taken together. Any shares transferred in violation of this rule are subject to redemption by us and any such transaction is voidable.



To maintain REIT qualification, our charter provides that no holder is permitted to own more than 9.8% in value of our outstanding common and preferred stock, taken together, or more than 9.8% (in value or number) of our outstanding common stock. In addition, no holder is permitted to own any shares of any class of our stock if that ownership would cause more than 50% in value of our outstanding common and preferred stock, taken together, to be owned by five or fewer individuals, would result in our stock being beneficially owned by less than 100 persons or would otherwise result in our failure to qualify as a REIT. Acquisition or ownership of our common or preferred stock in violation of these restrictions results in automatic transfer of the stock to a trust for the benefit of a charitable beneficiary or, under specified circumstances, the violative transfer may be deemed void or we may choose to redeem the violative shares. Peter B. Bedford is subject to higher ownership limitations than our other stockholders. Specifically, Mr. Bedford is not permitted to own more than 15% of the lesser of the number or value of the outstanding shares of our common stock.



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The ownership limitations described above are applied using the constructive ownership rules of the Internal Revenue Code. These rules are complex and may cause common or preferred stock owned beneficially or constructively by a group of related individuals and/or entities to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of our outstanding common or preferred stock or the acquisition of an interest in an entity that owns our common or preferred stock by an individual or entity could cause that individual or entity or another individual or entity to constructively own stock in excess of the limits and subject that stock to the ownership restrictions in our charter.



We rely on the services of our key personnel, particularly our chief executive officer, and their expertise and knowledge of our business would be difficult to replace.



We are highly dependent on the efforts of our senior officers. While we believe that we could find suitable replacements for these key personnel, the loss of their services could harm our business. In addition, our credit facility provides that it is an event of default if Mr. Bedford ceases for any reason to be our chairman or chief executive officer and a replacement reasonably satisfactory to the lenders has not been appointed by our board of directors within six months. We have entered into an amended employment agreement with Mr. Bedford pursuant to which he will serve as chairman of the board and chief executive officer on a substantially full-time basis until the agreement is terminated by the board of directors.



The commercial real estate industry is highly competitive, and we compete with companies, including REITs, that may be able to purchase properties at lower capitalization rates than would be accretive for us.



We seek to grow our asset base through the acquisition of industrial and suburban office properties and portfolios of these properties, as well as through the development of new industrial and suburban office properties. Many real estate companies, including other REITs, compete with us in making bids to acquire new properties. The level of competition to acquire income-producing properties is largely measured by the capitalization rates at which properties are trading. The capitalization rate is the annual yield that property produces on the investment. Currently, capitalization rates are low due to the amount of capital available for investment and attractive debt financing terms. As a result, we may not be able to compete effectively with companies, including REITs, that may be able to purchase properties at lower capitalization rates than would be accretive for us.



Many of our properties are located in markets with an oversupply of space, and our ability to compete effectively with other properties to attract tenants may be limited to the extent that competing properties may be newer, better capitalized or in more desirable locations than our properties.



Numerous industrial and suburban office properties compete with our properties in attracting tenants. Some of these competing properties are newer, better located, or better capitalized than our properties. Many of our investments are located in markets that have a significant supply of available space, resulting in intense competition for tenants and lower rents. We believe the oversupply of available space relative to demand is likely to increase in the near to intermediate term due to the softening U.S. economy. The number of competitive properties in a particular area could negatively impact our ability to lease space in the properties or at newly acquired or developed properties.



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We could incur costs from environmental liabilities even though we did not cause, contribute to, or know about them.



Under various federal, state, and local laws, ordinances and regulations, an owner or operator of real estate may be held liable for the costs of removal or remediation of hazardous or toxic substances released on, above, under or in a property. These laws often impose liability regardless of whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. In addition, environmental laws often impose liability on a previous owner of property for hazardous or toxic substances present during the prior ownership period. A transfer of the property may not relieve an owner of all liability. Accordingly, we could be liable for properties previously sold or otherwise divested. The costs of removal or remediation could be substantial. Additionally, the presence of the substances, or the failure to properly remove them, may harm our ability to borrow using the real estate as collateral.



All of our properties have had Phase I environmental site assessments, which involve inspection without soil sampling or groundwater analysis, by independent environmental consultants and have been inspected for hazardous materials as part of our acquisition inspections. None of the Phase I assessments has revealed any environmental problems requiring material costs for clean up. The Phase I assessment for Milpitas Town Center, however, indicates that the groundwater under that property either has been or may in the future be, impacted by the migration of contaminants originating off-site. According to information available to us, the responsible party for this offsite source has been identified and has begun clean up. We do not believe that this environmental matter will impair the future value of Milpitas Town Center in any significant respect or that we will be required to fund any portion of the cost of remediation. We cannot assure you, however, that these Phase I assessments or our inspections have revealed all environmental liabilities and problems relating to our properties.



We believe that we are in compliance in all material respects with all federal, state, and local laws regarding hazardous or toxic substances. To date, compliance with federal, state, and local environmental protection regulations has not had a material effect on us. However, we cannot assure you that costs relating to the investigation and remediation of environmental issues for properties currently or previously owned by us, or properties that we may acquire in the future, or other expenditures or liabilities, including claims by private parties, resulting from hazardous substances present in, on, under, or above the properties or resulting from circumstances or other actions or claims relating to environmental matters, will not harm us and our ability to pay dividends to our stockholders.



Costs associated with moisture infiltration and resulting mold remediation may be significant.



Concern about indoor exposure to mold, fungi, and mycotoxins has been increasing because this exposure is allegedly linked to various adverse effects on health. Increasingly, insurance companies are excluding mold-related risks from their policy coverage, and it is now excluded from our coverage. Costs and potential liability stemming from tenant exposure to mold and the increased costs of renovating and remodeling buildings with exposure to mold could harm our financial position and results.



We could incur unanticipated costs to comply with the Americans with Disabilities Act, and any non-compliance could result in fines.



Under the Americans with Disabilities Act (the ADA), all public accommodations and commercial facilities are required to meet federal requirements related to access and use by disabled persons. Compliance with the ADA requires removal of access barriers, and any non-compliance may result in the imposition of fines by the U.S. government or an award of damages to private litigants. Although we believe that our properties are substantially in compliance with these requirements, in the future we may incur costs to comply with the ADA with respect to both existing properties and properties acquired in the future, which could limit our ability to make distributions to stockholders.



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We are subject to numerous federal, state, and local regulatory requirements, and any changes to existing regulations or new laws may result in significant, unanticipated costs.



Our properties are, and any properties we may acquire in the future will be, subject to various other federal, state, and local regulatory requirements, including local building codes. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We believe that our properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at properties owned by us may be necessary to comply with changes in these laws. Although no material expenditures are contemplated at this time to comply with any laws or regulations, we cannot assure you that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures by us, which could harm us and our ability to make distributions to our stockholders. Similarly, changes in laws increasing the potential liability for environmental conditions existing on our properties could result in significant unanticipated expenditures.



Our $150 million credit agreement and our mortgage loans are collateralized by approximately 89% of our total real estate assets, and in the event of default under any of these debt instruments, our lenders could foreclose on the collateral securing this indebtedness.



As of December 31, 2003, our $150 million credit facility was secured by mortgages on 17 properties that accounted for approximately 20% of our annualized base rent and approximately 20% of our total real estate assets. All of our mortgage loans were collateralized by 66 properties that accounted for approximately 73% of our annualized base rent and approximately 69% of our total real estate assets. If we fail to meet our obligations under the credit facility, the mortgage loans, or any other debt instruments we may enter into from time to time, including failure to comply with financial covenants, the holders of this indebtedness generally would be entitled to demand immediate repayment of the principal and to foreclose upon any collateral securing this indebtedness. In addition, default under or acceleration of any debt instrument could, pursuant to cross-default clauses, cause or permit the acceleration of other indebtedness. Any default or acceleration would harm us, jeopardizing our qualification as a REIT and threatening our continued viability.



Our $150 million credit agreement and some of our mortgage loans carry floating interest rates, and increases in market interest rates could harm our results of operations.



As of December 31, 2003, our $150 million credit facility had an outstanding balance of $69.0 million, and we had other floating rate loans of $37.5 million. Borrowings under our credit facility bear interest at a floating rate, and we may from time to time incur or assume other indebtedness also bearing interest at a floating rate. In that regard, our results of operations for 2003 have benefited from low levels of interest rates that are currently near historic lows. Should this trend in interest rates reverse itself, our operating results could be harmed.



We use borrowings to finance the acquisition, development and operation of properties and to repurchase our common stock, and we cannot assure you that financing will be available on commercially reasonable terms, or at all, in the future.



We borrow money to pay for the acquisition, development, and operation of our properties, to repurchase our common stock, and for other general corporate purposes. Our credit facility currently expires on June 1, 2004, when the principal amount of all outstanding borrowings must be paid. Since the term of our credit facility is limited, our ability to fund acquisitions and provide funds for working capital and other cash needs following the expiration or utilization of the credit facility will depend primarily on our ability to obtain additional private or public equity or debt financing.



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A downturn in the economy could make it difficult for us to borrow money on favorable terms. If we are unable to borrow money on favorable terms, we may need to sell some of our assets at unfavorable prices in order to pay our loans. We could encounter several problems, including:



-

insufficient cash flow to meet required payments of principal and interest;

-

an increase on variable interest rates on indebtedness; and

-

an inability to refinance existing indebtedness on favorable terms or at all.



Our leverage could harm our ability to operate our business and fulfill our debt obligations.



We have significant debt service obligations. As of December 31, 2003, we had total liabilities of approximately $469.7 million, excluding unused commitments under our credit facility, and total stockholders equity of approximately $304.0 million. Payments to service this debt totaled approximately $28.3 million during the twelve months ended December 31, 2003. Our debt level increases the possibility that we could be unable to generate cash sufficient to pay the principal of, interest on, or other amounts due in respect of our indebtedness. In addition, we may incur additional debt from time to time to fund our stock buy back program, finance strategic acquisitions, investments, or for other purposes, subject to the restrictions contained in our debt instruments.



We have not used derivatives extensively to mitigate our interest rate risks.



Historically, we have not used interest rate swaps, caps and floors, or other derivative transactions extensively to help us mitigate our interest rate risks because we have determined that the cost of these transactions outweighed their potential benefits and could have, in some cases, jeopardized our status as a REIT. Generally, income from derivative transactions qualifies for purposes of the 95% gross income test but not for purposes of the 75% gross income test. We have entered into swap agreements to hedge our exposure to variable interest rates on two mortgages with remaining principal balances of approximately $25 million as of December 31, 2003. Even if we were to use derivative transactions more extensively, we would not be fully insulated from the prepayment and interest rate risks to which we are exposed. However, we do not have any policy that prohibits us from using derivative transactions or other hedging strategies more extensively in the future. If we do engage in additional derivative transactions in the future, we cannot assure you that a liquid secondary market will exist for any instruments purchased or sold in those transactions, and we may be required to maintain a position until exercise or expiration, which could result in losses.



We may change our policies without stockholder approval.



Our major policies, including those concerning our qualification as a REIT and with respect to dividends, acquisitions, debt, and investments, are established by our board of directors. Although it has no present intention to do so, the board of directors may amend or revise these and other policies from time to time without a vote of or advance notice to our stockholders. Accordingly, holders of our capital stock will have no control over changes in our policies, including any policies relating to the payment of dividends or to maintaining qualification as a REIT. In addition, policy changes could harm our financial condition, results of operations, the price of our securities, or our ability to pay dividends.





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Recently enacted U.S. federal income tax legislation reduces the maximum tax rates applicable to corporate dividends from 38.6% to 15%, which may make investments in corporations relatively more attractive than investments in REITs and negatively affect our stock price as a result.



The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduces the tax rates applicable to corporate dividends, in the case of individual taxpayers, from as high as 38.6% to 15% through December 31, 2008. The reduced maximum 15% rate imposed on some corporate dividends implemented by the Jobs and Growth Tax Relief Reconciliation Act of 2003 does not, however, generally apply to ordinary dividends paid by REITs. We do not presently expect that ordinary dividends paid by us will be eligible for the reduced tax rate on dividends. This change in the maximum tax rate on qualifying dividends may make investments in corporate stock relatively more attractive than investments in REITs, which could harm our stock price.



An increase in market interest rates could cause the respective prices of our common stock and preferred stock to decrease.



One of the factors that may influence the respective market prices of our shares of common stock and preferred stock will be the annual dividend yield on the price paid for shares of our common stock or preferred stock as compared to yields on other financial instruments. An increase in market interest rates may lead prospective purchasers of our stock to seek a higher annual yield from their investments, which may adversely affect the respective market prices of our common stock and preferred stock. As of December 31, 2003, interest rates in the U.S. were near their historic lows.



We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends.



Our governing documents and existing debt instruments do not limit us from incurring additional indebtedness and other liabilities. As of December 31, 2003, we had approximately $437.5 million of indebtedness outstanding. We may incur additional indebtedness and become more highly leveraged, which could harm our financial position and potentially limit our cash available to pay dividends. As a result, we may not have sufficient funds to satisfy our dividend obligations relating to the Series A preferred stock or pay dividends on our common stock, if we assume additional indebtedness.



We cannot assure you that we will be able to pay dividends regularly although we have done so in the past.



Our ability to pay dividends in the future is dependent on our ability to operate profitably and to generate cash from our operations. Although we have done so in the past, we cannot guarantee that we will be able to pay dividends on a regular quarterly basis in the future. Furthermore, any new shares of common stock issued will substantially increase the cash required to continue to pay cash dividends at current levels. Any common stock or preferred stock that may in the future be issued to finance acquisitions, upon exercise of stock options or otherwise would have a similar effect. In addition, our existing credit facility limits our ability to pay quarterly dividends to stockholders.



Our ability to pay dividends is further limited by the requirements of Maryland law.



Our ability to pay dividends on our common stock and preferred stock is further limited by the laws of Maryland. Under the Maryland General Corporation Law, a Maryland corporation may not make a distribution if, after giving effect to the distribution, either the corporation would not be able to pay indebtedness of the corporation as the indebtedness becomes due in the usual course of business or the corporations total assets would be less than the sum of the corporations total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. Accordingly, we cannot make a distribution, except by dividend, on our common stock or preferred stock if, after giving effect to the distribution, our total assets would be less than the sum of our liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of any shares of preferred stock then outstanding, or if we would not be able to pay our indebtedness as it became due.

58



FINANCIAL PERFORMANCE



Our funds from operations (FFO) during the three and twelve months ended December 31, 2003 was $12,151,000 and $49,723,000, respectively.  During the same periods in 2002, our FFO was $12,514,000 and $50,083,000, respectively.  Although FFO is not a financial measure calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), we believe that FFO may be an appropriate alternative measure of the performance of an equity REIT. Presentation of this information provides the reader with an additional measure to compare the performance of equity REITs. FFO is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with GAAP), excluding extraordinary items and gains (losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We computed our FFO in accordance with this definition. FFO does not represent cash generated by operating activities in accordance with GAAP; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.  Furthermore, FFO as disclosed by other REITs may not be comparable to our presentation. The most directly comparable financial measure calculated in accordance with GAAP to FFO is net income (loss). The following table sets forth a reconciliation of the differences between our FFO and our net income available to common stockholders for each of the three and twelve months ended December 31, 2003 and 2002.





|                                                                  | Three Months Ended
December 31, | Twelve Months Ended
December 31,
|----------------------------------------------------------------- | ------------------------------- | --------------------------------
|                                                                  | 2003                            | 2002                            
|Funds From Operations
(in thousands, except share amounts):       |                                 |                                 
|Net income available to common shareholders                       | $ 5,287                         | $ 7,535                         
|Adjustments:
Depreciation and amortization:
Continuing operations | 6,864                           | 4,979                           
|Discontinued operations                                           | -                               | -                               
|Gain on sale of operating properties                              | -                               | -                               
|Funds From Operations                                             | $12,151                         | $12,514                         
|Weighted average number of
shares  diluted                       | 16,156,283                      | 16,509,319                      



59



Item 7A. Quantitative and Qualitative Disclosures about Market Risk



We are exposed to interest rate changes primarily as a result of our line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we balance our borrowings between fixed and variable rate debt. During 2003, we significantly increased our level of fixed rate debt to take advantage of historically low interest rates. While we have entered into interest swap agreements to minimize our exposure to interest rate fluctuations, we do not enter into derivative or interest rate transactions for speculative purposes.



We monitor our interest rate risk using a variety of techniques. The table below presents the principal amounts and related weighted average annual interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in thousands):



|                               | Twelve Month Period Ending December 31,
|------------------------------ | ---------------------------------------
|                               | 2004                                   
|Variable rate LIBOR
debt       | $90,320                                
|Weighted average
interest rate | 2.90%                                  
|Fixed rate
debt                | $  5,794                               
|Weighted average
interest rate | 6.16%                                  



As the table incorporates only those exposures that existed as of December 31, 2003, it does not consider those exposures or positions that could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented has limited predictive value. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations would depend on the exposures that arise during the period, our hedging strategies at that time, and interest rates.



In July 2003, we entered into an interest swap agreement with Bank of America, N.A. on our two floating-rate mortgages with Security Life of Denver Insurance Company. The agreement, which commenced on July 3, 2003 and terminates on September 1, 2005, exchanges a floating rate of 30-day LIBOR for a fixed rate of 1.595% on a notional amount of $24.5 million for the first 6 months, $23.5 million in 2004, and $23.0 million in 2005 through the expiration date. Interest rate pay differentials that arise under this swap agreement are recognized in interest expense over the term of the contract. This interest rate swap agreement was considered to be fully effective in hedging the variable rate risk associated with the two mortgages.



The following table summarizes the notional value and fair value of our interest swap contract. The notional value below provides an indication of the amount that has been hedged in this contract but does not represent an obligation or exposure to credit risk at December 31, 2003 (dollars in thousands):



|Notional
Amount | Fixed
Rate | Contract
Maturity | Cumulative
Cash Paid, Net | Fair Value of
Asset at
December 31, 2003
|--------------- | ---------- | ----------------- | ------------------------- | ----------------------------------------
|$24,500         | 2.995%     | September 1, 2005 | $50                       | $89                                     



60



To determine the fair values of derivative instruments in accordance with SFAS 133, we use the discounted cash flow method, which requires the use of assumptions about market conditions and risks existing at the balance sheet date. Judgment is required in interpreting market data to develop estimates of market value. Accordingly, estimated fair value is a general approximation of value, and such value may or may not actually be realized.



Item 8. Financial Statements and Supplementary Data



The response to this Item is submitted as a separate section of this Form 10-K. See Item 15.





Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



On March 13, 2003, our board of directors, upon the recommendation of the audit committee, authorized the dismissal of KPMG LLP and the appointment of PricewaterhouseCoopers LLP as our new independent auditors for the fiscal year ended December 31, 2003.  The dismissal of KPMG LLP was not a result of disagreements between KPMG LLP and us on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.  Additional information relating to the change in independent auditors is contained in the current report on Form 8-K that we filed with the SEC on March 20, 2003.



Item 9A. Controls and Procedures



Our management, with the participation of our chief executive officer and chief financial officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2003. Based on that evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion. There have been no significant changes in our internal control over financial reporting during the quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



61



PART III



Item 10. Directors and Executive Officers of the Registrant



The information required by Item 10 of this report is incorporated by reference from the proxy statement that we will mail to our stockholders in connection with the solicitation of proxies for the annual meeting of our stockholders scheduled to take place on May 13, 2004.



Item 11. Executive Compensation



The information required by Item 11 of this report is incorporated by reference from the proxy statement that we will mail to our stockholders in connection with the solicitation of proxies for the annual meeting of our stockholders scheduled to take place on May 13, 2004.



Item 12. Security Ownership of Certain Beneficial Owners and Management



The information required by Item 12 of this report is incorporated by reference from the proxy statement that we will mail to our stockholders in connection with the solicitation of proxies for the annual meeting of our stockholders scheduled to take place on May 13, 2004.



Item 13. Certain Relationships and Related Transactions



The information required by Item 13 of this report is incorporated by reference from the proxy statement that we will mail to our stockholders in connection with the solicitation of proxies for the annual meeting of our stockholders scheduled to take place on May 13, 2004.



Item 14. Principal Accounting Fees and Services



The information required by Item 14 of this report is incorporated by reference from the proxy statement that we will mail to our stockholders in connection with the solicitation of proxies for the annual meeting of our stockholders scheduled to take place on May 13, 2004.









62



PART IV





Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K



|A. 1. | Financial Statements                                                                                 |  |     
|----- | ---------------------------------------------------------------------------------------------------- |  | ----
|      |                                                                                                      |  | Page
|      |                                                                                                      |  |     
|      | Independent Auditors Reports                                                                        |  | F1  
|      |                                                                                                      |  |     
|      | Consolidated Balance Sheets as of December 31, 2003 and 2002                                         |  | F3  
|      |                                                                                                      |  |     
|      | Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001               |  | F4  
|      |                                                                                                      |  |     
|      | Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  | F5  
|      |                                                                                                      |  |     
|      | Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001           |  | F6  
|      |                                                                                                      |  |     
|      | Notes to Financial Statements                                                                        |  | F7  
|      |                                                                                                      |  |     
|2.    | Financial Statement Schedule                                                                         |  |     
|      |                                                                                                      |  |     
|      | Schedule III  Real Estate and Accumulated Depreciation                                              |  | F29 





All other schedules have been omitted as they are not applicable, not required or because the information is given in the Financial Statements or related Notes to Financial Statements.



3.

Exhibits



Exhibit No.

List of Exhibits



3.1(d)

Articles of Amendment and Restatement of Bedford Property Investors, Inc., filed on May 27, 2003, is incorporated herein by reference to Exhibit 3.1(d) to our Form 10-Q for the quarter ending June 30, 2003.



3.1(e)

Articles Supplementary relating to the Series A Cumulative Redeemable Preferred Stock of Bedford Property Investors, Inc., filed on August 4, 2003, is incorporated herein by reference to Exhibit 3.1(e) to our Form 10-Q for the quarter ending June 30, 2003.



3.2(b)

Second Amended and Restated Bylaws of Bedford Property Investors, Inc. are incorporated herein by reference to Exhibit 3.2(b) to our Form 10-Q for the quarter ending June 30, 2003.



4.4

Series A Cumulative Redeemable Preferred Stock Registration Rights Agreement, dated August 5, 2003, between Bedford Property Investors, Inc. and RBC Dain Rauscher Inc. is incorporated herein by reference to Exhibit 4.4 to our Form 10-Q for the quarter ending June 30, 2003.





63



10.13

Promissory Note, dated as of March 20, 1996, by and between Bedford Property Investors, Inc. and Prudential Insurance Company of America, is incorporated herein by reference to Exhibit 10.13 to our Amendment No. 1 to our Registration Statement on Form S-2 (File No. 333-00921) filed on March 29, 1996.



10.15

Our Dividend Reinvestment and Stock Purchase Plan is incorporated herein by reference to our post-effective Amendment No. 1 to our Registration Statement on Form S-3 (File No. 333-33795) filed on November 20, 1997.



10.16

Our Amended and Restated Employee Stock Plan is incorporated herein by reference to Exhibit 10.16 to our Form 10-K for the year ended December 31, 1997.



10.18

Our Amended and Restated 1992 Directors Stock Option Plan is incorporated herein by reference to Exhibit 10.18 to our Form 10-K for the year ended December 31, 1997.



10.22

Promissory Note, dated as of May 28, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.22 to our Form 10-Q for the quarter ended June 30, 1999.



10.23

Promissory Note, dated as of May 28, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.23 to our Form 10-Q for the quarter ended June 30, 1999.



10.24

Promissory Note, dated as of May 28, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.24 to our Form 10-Q for the quarter ended June 30, 1999.



10.28

Promissory Note, dated as of November 22, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.28 to our Form 10-K for the year ended December 31, 1999.



10.29

Loan Agreement, dated as of July 27, 2000, by and between Bedford Property Investors, Inc. and Security Life of Denver Insurance Company, is incorporated herein by reference to Exhibit 10.29 to our Form 10-Q for the quarter ended June 30, 2000.



10.30

Loan Agreement, dated as of July 27, 2000, by and between Bedford Property Investors, Inc. and Security Life of Denver Insurance Company, is incorporated herein by reference to Exhibit 10.30 to our Form 10-Q for the quarter ended June 30, 2000.



10.31

Amended and Restated Promissory Note, dated as of May 24, 1996, by and between Bedford Property Investors, Inc. and Prudential Insurance Company of America, is incorporated herein by reference to Exhibit 10.13 to our Form 10-Q for the quarter ended June 30, 1996.



10.32

Loan Agreement, dated as of January 30, 1998, by and between Bedford Property Investors, Inc. and Prudential Insurance Company of America, is incorporated herein by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 1997.

64



10.35

Fifth Amended and Restated Credit Agreement, dated May 18, 2001, by and among Bedford Property Investors, Inc., Bank of America, National Association as Administrative Agent for the banks party thereto, Union Bank of California, N.A. as Co-Agent, Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager and the other banks party thereto, is incorporated herein by reference to Exhibit 10.35 to our Form 10-Q for the quarter ended June 30, 2001.



10.36

Promissory Note, dated as of July 23, 2001, by and between Bedford Property Investors, Inc. and Washington Mutual Bank, is incorporated herein by reference to Exhibit 10.36 to our Form 10-Q for the quarter ended June 30, 2001.



10.40

Amended and Restated Promissory Note, dated as of November 19, 2001, by and between Bedford Property Investors, Inc. and Union Bank of California, N.A., is incorporated herein by reference to Exhibit 10.40 to our Form 10-K for the year ended December 31, 2001.



10.41

Purchase Agreement and Escrow Instructions, Financial Agreement, and Holdback Escrow Agreement, each dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and Dared 80, LLC, are incorporated herein by reference to Exhibit 10.41 to our Form 8-K filed on September 24, 2002.



10.42

Real Estate Sale Agreement dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and EOP-Industrial Portfolio, LLC, is incorporated herein by reference to Exhibit 10.42 to our Form 8-K filed on September 24, 2002.



10.43

First Amendment, dated as of August 6, 2002, to the Real Estate Sale Agreement, dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and EOP-Industrial Portfolio, LLC, is incorporated herein by reference to Exhibit 10.43 to our Form 8-K filed on September 24, 2002.



10.44

Second Amendment, dated as of August 14, 2002, to the Real Estate Sale Agreement, dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and EOP-Industrial Portfolio, LLC, is incorporated herein by reference to Exhibit 10.44 to our Form 8-K filed on September 24, 2002.



10.45

Purchase Agreement and Escrow Instructions, dated as of July 26, 2002, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.45 to our Form 8-K filed on September 24, 2002.



10.47

Note, dated as of October 7, 2002, by and between Bedford Property Investors, Inc. and Nationwide Life Insurance Company, is incorporated herein by reference to Exhibit 10.47 to our Form 10-Q for the quarter ended September 30, 2002.



10.48

Promissory Note, dated as of March 28, 2003, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.48 to our Form 10-Q for the quarter ending March 31, 2003.



10.49

Form of Retention Agreement is incorporated herein by reference to Exhibit 10.49 to our Form 10-Q for the quarter ending June 30, 2003.

65



10.50

Interest Rate Protection Agreement, dated as of July 3, 2003, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporated herein by reference to Exhibit 10.50 to our Form 10-Q for the quarter ending June 30, 2003.



10.51

Master Agreement, dated as of March 15, 2002, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporated herein by reference to Exhibit 10.51 to our Form 10-Q for the quarter ending June 30, 2003.



10.52

Second Amendment to Employment Agreement, dated as of July 15, 2003, by and between Peter B. Bedford and Bedford Property Investors, Inc., is incorporated herein by reference to Exhibit 10.52 to our Form 10-Q for the quarter ending June 30, 2003.



10.53

2003 Employee Stock Plan of Bedford Property Investors, Inc., dated May 13, 2003, as amended on August 6, 2003, is incorporated herein by reference to Exhibit 10.53 to our Form 10-Q for the quarter ending June 30, 2003.



10.54

Promissory Note, dated as of October 30, 2003, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporatedherein by reference to Exhibit 10.54 to our Form 10-Q for the quarter ending September 30, 2003.



10.55

Promissory Note, dated as of November 3, 2003, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporated herein by reference to Exhibit 10.55 to our Form 10-Q for the quarter ending September 30, 2003.



10.56

Fixed Rate Note, dated as of November 3, 2003, by and between Bedford Property Investors, Inc. and J.P. Morgan Chase Bank, is incorporated herein by reference to Exhibit 10.56 to our Form 10-Q for the quarter ending September 30, 2003.



10.57

Purchase and Sale Agreement, dated as of June 16, 2003, by and between Bedford Property Investors, Inc. and Roosevelt Commons Limited Partnership, is incorporated herein by reference to Exhibit 10.57 to our Form 8-K filed on December 12, 2003.



10.58

Amendment, dated as of July 16, 2003, to the Purchase and Sale Agreement, dated as of June 16, 2003, by and between Bedford Property Investors, Inc. and Roosevelt Commons Limited Partnership, is incorporated herein by reference to Exhibit 10.58 to our Form 8-K filed on December 12, 2003.



10.59

Second Amendment, dated as of July 31, 2003, to the Purchase and Sale Agreement, dated as of June 16, 2003, by and between Bedford Property Investors, Inc. and Roosevelt Commons Limited Partnership, is incorporated herein by reference to Exhibit 10.59 to our Form 8-K filed on December 12, 2003.



10.60

Purchase Agreement and Escrow Instructions, dated as of June 9, 2003, by and between Bedford Property Investors, Inc. and Arville & Russell, LLC, is incorporated herein by reference to Exhibit 10.60 to our Form 8-K filed on December 12, 2003.



10.61

Amendment, dated as of August 18, 2003, to the Escrow Instructions, dated as of June 9, 2003, by and between Bedford Property Investors, Inc. and Arville & Russell, LLC, is incorporated herein by reference to Exhibit 10.61 to our Form 8-K filed on December 12, 2003.



66



10.62

Purchase Agreement and Escrow Instructions, dated as of October 2, 2003, by and between Bedford Property Investors, Inc. and Foothill-Operon I, LLC, is incorporated herein by reference to Exhibit 10.62 to our Form 8-K filed on December 12, 2003.



10.63

Purchase Agreement and Escrow Instructions, dated as of August 29, 2003, by and between Bedford Property Investors, Inc. and CWA Acquisition, LLC, is incorporated herein by reference to Exhibit 10.63 to our Form 8-K filed on December 12, 2003.



10.64

Purchase Agreement and Escrow Instructions, dated as of November 4, 2003, by and between Bedford Property Investors, Inc. and Jackson-Shaw/Northport Limited Partnership, is incorporated herein by reference to Exhibit 10.64 to our Form 8-K filed on December 12, 2003.



10.65*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Laguna Hills Square SPE, Inc. and John Hancock Life Insurance Company.



10.66*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Petaluma SPE, Inc. and John Hancock Life Insurance Company



10.67*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Philips Business Center SPE, Inc. and John Hancock Life Insurance Company.



10.68*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Phoenix Tech Center SPE, Inc. and John Hancock Life Insurance Company.



10.69*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Rio Salado SPE, Inc. and John Hancock Life Insurance Company.



10.70*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Village Green SPE, Inc. and John Hancock Life Insurance Company.



12*

Statement regarding Computation of Ratio of Earnings to Fixed Charges.



16.1

Letter from KPMG LLP to the Securities and Exchange Commission re Change in Certifying Accountant is incorporated herein by reference to Exhibit 16.1 to our Form 8-K filed on March 20, 2003.



21*

List of Subsidiaries.



23.1*

Consent of KPMG LLP.



23.2*

Consent of PricewaterhouseCoopers LLP.



24*

Power of Attorney (see signature page).



31.1*

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



31.2*

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





67



32.1*

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002.



32.2*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002.





* Filed herewith



4.    Reports on Form 8-K



On October 20, 2003, we furnished to the Securities and Exchange Commission a current report on Form 8-K relating to our press release issued on October 20, 2003 announcing our financial results for the quarter ended September 30, 2003.



On December 23, 2003, we filed a current report on Form 8-K with the Securities and Exchange Commission with regard to our acquisitions of assets, excluding the required financial information. On February 24, 2004, we filed an amendment to such report to include the requisite financial information.





68



Report of Independent Auditors





Tothe Stockholders and the Board of Directors of

Bedford Property Investors, Inc.:



In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Bedford Property Investors, Inc. and its subsidiaries at December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  These financial statements and financial statement schedule are the responsibility of the Companys management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.  We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.  The financial statements of the Company as of December 31, 2002 and for the two years in the period then ended were audited by other auditors whose report dated February 10, 2003 expressed an unqualified opinion on those statements.



As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 148, Accounting for Stock Based Compensation  Transition and Disclosure  an amendment of SFAS 123 using the modified prospective method effective January 1, 2003.









PricewaterhouseCoopers LLP





San Francisco, California

February 27, 2004





F1



Independent Auditors Report







The Board of Directors
Bedford Property Investors, Inc.:







We have audited the accompanying balance sheet of Bedford Property Investors, Inc. as of December 31, 2002, and the related statements of income, stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2002. In connection with our audits of the financial statements, we also audited the financial statement schedule, Real Estate and Accumulated Depreciation.These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the 2002 and 2001 financial statements referred to above present fairly, in all material respects, the financial position of Bedford Property Investors, Inc. as of December 31, 2002, and the results of its operations and its cash flows for the two-year period then ended in conformity with accounting principles generally accepted in the United States of America.







KPMG LLP



February 10, 2003





F2



BEDFORD PROPERTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2003 AND 2002

(in thousands, except share and per share amounts)



|                                                                                                                                                                                         | 2003     |  | 2002    
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- |  | --------
|Assets:                                                                                                                                                                                  |          |  |         
|                                                                                                                                                                                         |          |  |         
|Real estate investments:                                                                                                                                                                 |          |  |         
|Industrial buildings                                                                                                                                                                     | $414,392 |  | $372,105
|Office buildings                                                                                                                                                                         | 375,844  |  | 336,472 
|Properties under development                                                                                                                                                             | -        |  | 2,864   
|Land held for development                                                                                                                                                                | 14,071   |  | 13,747  
|                                                                                                                                                                                         | 804,307  |  | 725,188 
|Less accumulated depreciation                                                                                                                                                            | 81,638   |  | 62,562  
|Total real estate investments                                                                                                                                                            | 722,669  |  | 662,626 
|                                                                                                                                                                                         |          |  |         
|Cash and cash equivalents                                                                                                                                                                | 7,598    |  | 3,727   
|Other assets                                                                                                                                                                             | 43,352   |  | 27,978  
|                                                                                                                                                                                         |          |  |         
|                                                                                                                                                                                         | $773,619 |  | $694,331
|                                                                                                                                                                                         |          |  |         
|Liabilities and Stockholders Equity:                                                                                                                                                    |          |  |         
|                                                                                                                                                                                         |          |  |         
|Bank loans payable                                                                                                                                                                       | $ 68,978 |  | $124,681
|Mortgage loans payable                                                                                                                                                                   | 368,542  |  | 259,496 
|Accounts payable and accrued expenses                                                                                                                                                    | 8,874    |  | 10,173  
|Dividends payable                                                                                                                                                                        | 8,319    |  | 8,222   
|Other liabilities                                                                                                                                                                        | 15,007   |  | 15,702  
|                                                                                                                                                                                         |          |  |         
|Total liabilities                                                                                                                                                                        | 469,720  |  | 418,274 
|                                                                                                                                                                                         |          |  |         
|Commitments and contingencies (Notes 4 and 17)                                                                                                                                           |          |  |         
|                                                                                                                                                                                         |          |  |         
|Stockholders equity:                                                                                                                                                                    |          |  |         
|Preferred stock, par value $0.01 per share; authorized
49,195,000 shares; issued none                                                                                                    | -        |  | -       
|Series A 8.75% Cumulative Redeemable Preferred Stock,
Par value $0.01 per share; authorized and issued 805,000
shares in 2003 and none in 2002; stated liquidation
preference of $40,250 | 38,947   |  | -       
|Common stock, par value $0.02 per share;
authorized 50,000,000 shares;
issued and outstanding 16,311,955                                                                                 |          |  |         
|shares in 2003 and 16,443,664 shares in 2002                                                                                                                                             | 326      |  | 329     
|Additional paid-in capital                                                                                                                                                               | 289,734  |  | 293,864 
|Deferred stock compensation                                                                                                                                                              | (5,476)  |  | (4,622) 
|Accumulated dividends in excess of net income                                                                                                                                            | (19,721) |  | (13,514)
|Accumulated other comprehensive income                                                                                                                                                   | 89       |  | -       
|                                                                                                                                                                                         |          |  |         
|Total stockholders equity                                                                                                                                                               | 303,899  |  | 276,057 
|                                                                                                                                                                                         |          |  |         
|                                                                                                                                                                                         | $773,619 |  | $694,331



See accompanying notes to consolidated financial statements.



F3



BEDFORD PROPERTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(in thousands, except share and per share amounts)



|                                                                                                                                  | 2003        |  | 2002        |  | 2001       
|--------------------------------------------------------------------------------------------------------------------------------- | ----------- |  | ----------- |  | -----------
|Property operations:                                                                                                              |             |  |             |  |            
|Rental income                                                                                                                     | $107,954    |  | $  99,740   |  | $  95,842  
|Rental expenses:                                                                                                                  |             |  |             |  |            
|Operating expenses                                                                                                                | 19,383      |  | 17,012      |  | 15,457     
|Real estate taxes                                                                                                                 | 10,571      |  | 8,865       |  | 8,817      
|Depreciation and amortization                                                                                                     | 22,743      |  | 17,209      |  | 15,688     
|                                                                                                                                  |             |  |             |  |            
|Income from property operations                                                                                                   | 55,257      |  | 56,654      |  | 55,880     
|                                                                                                                                  |             |  |             |  |            
|General and administrative expenses                                                                                               | (5,742)     |  | (4,616)     |  | (6,506)    
|Interest income                                                                                                                   | 106         |  | 199         |  | 202        
|Interest expense                                                                                                                  | (21,956)    |  | (20,555)    |  | (21,470)   
|Other expense                                                                                                                     | -           |  | -           |  | (526)      
|                                                                                                                                  |             |  |             |  |            
|Income from continuing operations before gain
on sales of real estate investments, minority
interest, and discontinued operations | 27,665      |  | 31,682      |  | 27,580     
|                                                                                                                                  |             |  |             |  |            
|Gain on sales of real estate investments, net                                                                                     | -           |  | -           |  | 5,976      
|Minority interest                                                                                                                 | -           |  | -           |  | (142)      
|                                                                                                                                  |             |  |             |  |            
|Income from continuing operations                                                                                                 | 27,665      |  | 31,682      |  | 33,414     
|                                                                                                                                  |             |  |             |  |            
|Discontinued operations:                                                                                                          |             |  |             |  |            
|Income from operating properties sold, net                                                                                        | -           |  | 746         |  | 1,536      
|Gain on sale of operating properties                                                                                              | -           |  | 3,575       |  | -          
|                                                                                                                                  |             |  |             |  |            
|Income from discontinued operations                                                                                               | -           |  | 4,321       |  | 1,536      
|                                                                                                                                  |             |  |             |  |            
|Net income                                                                                                                        | 27,665      |  | 36,003      |  | 34,950     
|Preferred dividends  Series A                                                                                                    | (685)       |  | -           |  | -          
|                                                                                                                                  |             |  |             |  |            
|Net income available to common shareholders                                                                                       | $  26,980   |  | $  36,003   |  | $  34,950  
|                                                                                                                                  |             |  |             |  |            
|Income per common share  basic:                                                                                                  |             |  |             |  |            
|Income from continuing operations                                                                                                 | $      1.69 |  | $      1.95 |  | $      2.00
|Income from discontinued operations                                                                                               | -           |  | 0.27        |  | 0.09       
|                                                                                                                                  |             |  |             |  |            
|Net income available to common shareholders                                                                                       | $      1.69 |  | $      2.22 |  | $      2.09
|                                                                                                                                  |             |  |             |  |            
|Weighted average number of shares  basic                                                                                         | 16,010,659  |  | 16,240,722  |  | 16,747,498 
|                                                                                                                                  |             |  |             |  |            
|Income per common share  diluted:                                                                                                |             |  |             |  |            
|Income from continuing operations                                                                                                 | $      1.65 |  | $      1.91 |  | $      1.97
|Income from discontinued operations                                                                                               | -           |  | 0.26        |  | 0.09       
|                                                                                                                                  |             |  |             |  |            
|Net income available to common shareholders                                                                                       | $      1.65 |  | $      2.17 |  | $      2.06
|                                                                                                                                  |             |  |             |  |            
|Weighted average number of shares  diluted                                                                                       | 16,336,369  |  | 16,604,069  |  | 17,045,493 
|                                                                                                                                  |             |  |             |  |            



See accompanying notes to consolidated financial statements.

F4



BEDFORD PROPERTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(in thousands, except per share amounts)



|                                                        | Series A
Preferred
Stock | Common
Stock | Additional
Paid-in
Capital | Deferred
Stock
Compensation | Accumulated
Dividends
in Excess of
Net Income | Accumulated
Other
Comprehensive
Income | Total
Stock-
holders
Equity
|------------------------------------------------------- | ------------------------ | ------------ | -------------------------- | --------------------------- | --------------------------------------------- | -------------------------------------- | ----------------------------
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Balance, December 31, 2000                              | $       -                | $354         | $320,087                   | $(4,003)                    | $(20,239)                                     | $      -                               | $296,199                    
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Issuance of common stock                                | -                        | 2            | 2,256                      | -                           | -                                             | -                                      | 2,258                       
|Repurchase and retirement of
common stock               | -                        | (28)         | (27,318)                   | -                           | -                                             | -                                      | (27,346)                    
|Issuance of restricted stock                            | -                        | 2            | 2,337                      | (2,339)                     | -                                             | -                                      | -                           
|Forfeiture of restricted stock                          | -                        | -            | (19)                       | 19                          | -                                             | -                                      | -                           
|Amortization of restricted stock                        | -                        | -            | -                          | 1,711                       | -                                             | -                                      | 1,711                       
|Dividends to common
stockholders ($1.86 per share)      | -                        | -            | -                          | -                           | (31,582)                                      | -                                      | (31,582)                    
|Subtotal                                                | -                        | 330          | 297,343                    | (4,612)                     | (51,821)                                      | -                                      | 241,240                     
|Net income                                              | -                        | -            | -                          | -                           | 34,950                                        | -                                      | 34,950                      
|Unrealized loss on derivative
instruments               | -                        | -            | -                          | -                           | -                                             | (310)                                  | (310)                       
|Comprehensive income (loss)                             | -                        | -            | -                          | -                           | 34,950                                        | (310)                                  | 34,640                      
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Balance, December 31, 2001                              | -                        | 330          | 297,343                    | (4,612)                     | (16,871)                                      | (310)                                  | 275,880                     
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Issuance of common stock                                | -                        | 5            | 4,272                      | -                           | -                                             | -                                      | 4,277                       
|Repurchase and retirement of
common stock               | -                        | (8)          | (9,829)                    | -                           | -                                             | -                                      | (9,837)                     
|Issuance of restricted stock                            | -                        | 2            | 2,315                      | (2,317)                     | -                                             | -                                      | -                           
|Forfeiture of restricted stock                          | -                        | -            | (237)                      | 237                         | -                                             | -                                      | -                           
|Amortization of restricted stock                        | -                        | -            | -                          | 2,070                       | -                                             | -                                      | 2,070                       
|Dividends to common
stockholders ($1.96 per share)      | -                        | -            | -                          | -                           | (32,646)                                      | -                                      | (32,646)                    
|Subtotal                                                | -                        | 329          | 293,864                    | (4,622)                     | (49,517)                                      | (310)                                  | 239,744                     
|Net income                                              | -                        | -            | -                          | -                           | 36,003                                        | -                                      | 36,003                      
|Unrealized gain on derivative
instruments               | -                        | -            | -                          | -                           | -                                             | 310                                    | 310                         
|Comprehensive income                                    | -                        | -            | -                          | -                           | 36,003                                        | 310                                    | 36,313                      
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Balance, December 31, 2002                              | -                        | 329          | 293,864                    | (4,622)                     | (13,514)                                      | -                                      | 276,057                     
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Issuance of preferred stock, net of
issuance costs      | 38,947                   | -            | -                          | -                           | -                                             | -                                      | 38,947                      
|Issuance of common stock                                | -                        | 4            | 5,398                      | -                           | -                                             | -                                      | 5,402                       
|Repurchase and retirement of
common stock               | -                        | (10)         | (12,993)                   | -                           | -                                             | -                                      | (13,003)                    
|Stock option expense                                    | -                        | -            | 195                        | -                           | -                                             | -                                      | 195                         
|Issuance of restricted stock                            | -                        | 3            | 3,291                      | (3,294)                     | -                                             | -                                      | -                           
|Forfeiture of restricted stock                          | -                        | -            | (21)                       | 21                          | -                                             | -                                      | -                           
|Amortization of restricted stock                        | -                        | -            | -                          | 2,419                       | -                                             | -                                      | 2,419                       
|Dividends to common
stockholders ($2.02 per share)      | -                        | -            | -                          | -                           | (33,187)                                      | -                                      | (33,187)                    
|Dividends to preferred
stockholders ($0.8507 per
share) | -                        | -            | -                          | -                           | (685)                                         | -                                      | (685)                       
|Subtotal                                                | 38,947                   | 326          | 289,734                    | (5,476)                     | (47,386)                                      | -                                      | 276,145                     
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Net income                                              | -                        | -            | -                          | -                           | 27,665                                        | -                                      | 27,665                      
|Unrealized gain on derivative
instruments               | -                        | -            | -                          | -                           | -                                             | 89                                     | 89                          
|Comprehensive income                                    | -                        | -            | -                          | -                           | 27,665                                        | 89                                     | 27,754                      
|                                                        |                          |              |                            |                             |                                               |                                        |                             
|Balance, December 31, 2003                              | $38,947                  | $326         | $289,734                   | $(5,476)                    | $(19,721)                                     | $  89                                  | $303,899                    



See accompanying notes to consolidated financial statements.

F5



BEDFORD PROPERTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(in thousands)



|                                                                                  | 2003           |  | 2002           |  | 2001         
|--------------------------------------------------------------------------------- | -------------- |  | -------------- |  | -------------
|Operating Activities:                                                             |                |  |                |  |              
|Net income                                                                        | $  27,665      |  | $  36,003      |  | $  34,950    
|Adjustments to reconcile net income to net cash
provided by operating activities: |                |  |                |  |              
|Minority interest                                                                 | -              |  | -              |  | 142          
|Depreciation and amortization, including
amortization of deferred loan costs      | 24,588         |  | 19,288         |  | 18,054       
|Gain on sale of operating properties                                              | -              |  | (3,575)        |  | (5,976)      
|Amortization of deferred compensation                                             | 2,419          |  | 2,070          |  | 1,711        
|Stock compensation expense                                                        | 195            |  | -              |  | -            
|Uncollectible accounts expense                                                    | 53             |  | 322            |  | 505          
|Change in other assets                                                            | (3,492)        |  | (4,582)        |  | (3,393)      
|Change in accounts payable and accrued expenses                                   | (1,143)        |  | (1,056)        |  | (1,558)      
|Change in other liabilities                                                       | (1,115)        |  | 1,656          |  | 2,647        
|                                                                                  |                |  |                |  |              
|Net cash provided by operating activities                                         | 49,170         |  | 50,126         |  | 47,082       
|                                                                                  |                |  |                |  |              
|Investing Activities:                                                             |                |  |                |  |              
|Investments in real estate                                                        | (94,767)       |  | (102,887)      |  | (25,761)     
|Proceeds from sales of real estate investments, net                               | -              |  | 31,472         |  | 19,282       
|Contract retention paid, net                                                      | (156)          |  | (679)          |  | (498)        
|                                                                                  |                |  |                |  |              
|Net cash used by investing activities                                             | (94,923)       |  | (72,094)       |  | (6,977)      
|                                                                                  |                |  |                |  |              
|Financing Activities:                                                             |                |  |                |  |              
|Proceeds from bank loans payable, net of loan costs                               | 109,552        |  | 125,083        |  | 55,467       
|Repayments of bank loans payable                                                  | (165,561)      |  | (81,860)       |  | (53,659)     
|Proceeds from mortgage loans payable, net of
loan costs                           | 136,151        |  | 22,366         |  | 25,280       
|Repayments of mortgage loans payable                                              | (28,582)       |  | (5,170)        |  | (7,893)      
|Refund of loan costs                                                              | 493            |  | -              |  | -            
|Prepaid loan fees                                                                 | -              |  | (605)          |  | -            
|Issuance of preferred stock, net of issuance costs                                | 38,947         |  | -              |  | -            
|Issuance of common stock                                                          | 5,402          |  | 2,794          |  | 2,296        
|Repurchase and retirement of common stock                                         | (13,003)       |  | (9,837)        |  | (27,346)     
|Redemption of Operating Partnership Units                                         | -              |  | (202)          |  | (131)        
|Payment of dividends and distributions                                            | (33,775)       |  | (32,386)       |  | (31,767)     
|                                                                                  |                |  |                |  |              
|Net cash provided (used) by financing activities                                  | 49,624         |  | 20,183         |  | (37,753)     
|                                                                                  |                |  |                |  |              
|Net increase (decrease) in cash and cash equivalents                              | 3,871          |  | (1,785)        |  | 2,352        
|Cash and cash equivalents at beginning of year                                    | 3,727          |  | 5,512          |  | 3,160        
|                                                                                  |                |  |                |  |              
|Cash and cash equivalents at end of year                                          | $    7,598     |  | $    3,727     |  | $    5,512   
|                                                                                  |                |  |                |  |              
|Supplemental disclosure of cash flow information                                  |                |  |                |  |              
|Cash paid during the year for interest, net of amounts
capitalized                | $  20,109      |  | $  19,567      |  | $  21,149    
|                                                                                  |                |  |                |  |              
|Cash paid during the year for income taxes                                        | $       300    |  | $       162    |  | $           -
|                                                                                  |                |  |                |  |              
|Non-cash investing and financing transactions:                                    |                |  |                |  |              
|Redemption of Operating Partnership Units paid in
common stock                    | $            - |  | $  (1,483)     |  | $           -
|Investment in real estate assets                                                  | $            - |  | $       550    |  | $           -
|Minority interest in consolidated partnership                                     | $            - |  | $       933    |  | $           -
|                                                                                  |                |  |                |  |              
|Assumption of debt                                                                | $    3,128     |  | $            - |  | $           -

See accompanying notes to consolidated financial statements.

F6



BEDFORD PROPERTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



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



The Company

Bedford Property Investors, Inc. is a real estate investment trust (REIT) incorporated in 1993 as a Maryland corporation. We are a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring, and developing industrial and suburban office properties concentrated in the western United States. Our common stock, par value $0.02 per share, trades under the symbol BED on both the New York Stock Exchange and the Pacific Exchange.



Basis of Consolidation

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United State of America (GAAP). Our consolidated financial statements include the financial information of Bedford Property Investors, Inc., six wholly-owned corporations, and three wholly-owned limited liability companies. All significant inter-entity balances have been eliminated in consolidation.



Critical Accounting Policies and Use of Estimates

The preparation of these financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to valuation of real estate investments, income recognition, allowance for doubtful accounts, stock compensation expense, deferred assets, and qualification as a REIT. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could vary from those estimates, and those estimates could be different under different assumptions or conditions.



Real Estate Investments

Real estate investments are recorded at cost less accumulated depreciation. The cost of real estate investments includes purchase price, other acquisition costs, and costs to develop properties which include interest and real estate taxes. For acquired properties with rental guarantees from the seller, amounts received under the rental guarantee are recorded as a reduction to the basis of the asset upon receipt. Expenditures for maintenance and repairs that do not add to the value or prolong the useful life of the property are expensed. Expenditures for asset replacements or significant improvements that extend the life or increase the propertys value are capitalized. Real estate investment costs are depreciated using the straight-line method over estimated useful lives as follows: building improvements - 45 years; tenant improvements  the lesser of the life of the asset or the term of the related lease. The depreciable cost for buildings in development is based on the percentage of leased space until the building becomes fully leased or one year after shell completion, whichever occurs first. When circumstances such as adverse market conditions indicate a possible impairment of the value of a property, we initiate a review of the recoverability of the propertys carrying value. The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the real estate investments use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value of the property. As of December 31, 2003 and 2002, none of our real estate assets were considered to be impaired.



In accordance with Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, the acquisition of real estate investments results in the allocation of a portion of the purchase price to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a historical basis prorated over the remaining lease terms. They are

F7



classified as an asset under real estate investments and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in four forms: (i) origination value, which represents the value associated with cost avoidance of acquiring in-place leases, such as lease commissions paid under terms generally experienced in our markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the assumed vacant property to the occupancy level when purchased; (iii) market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks; and (iv) value of tenant relationships, which reflects estimated future benefits from enhanced renewal probabilities and cost savings in lease commissions and tenant improvements. Origination value is recorded as an other asset and is amortized over the remaining lease terms. Value of in-place leases is recorded as an other asset and amortized over the average term of the acquired leases. Market value is classified as an other asset or liability, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to rental revenue over the remaining terms of the leases. Value of tenant relationships is classified as an other asset and is amortized over the anticipated term of the customer relationship, not to exceed the remaining depreciable life of the building. For the year ended December 31, 2003, we allocated a portion of the purchase price of acquisitions of approximately $16,045,000 to other assets and approximately $420,000 to other liabilities as a result of implementing SFAS 141.



Real Estate Investments Held for Sale

We record real estate investments that are considered held for sale at the lower of carrying amount or fair value less costs to sell and such properties are no longer depreciated. We adopted the Financial Accounting Standards Boards Statement of Financial Accounting Standards 144, Accounting for the Impairment or Disposal of Long-Lived Assets, on January 1, 2002. In accordance with SFAS 144, we classify real estate assets as held for sale in the period in which all of the following criteria are met:



-

management, having the authority to approve the action, commits to a plan to sell the asset;

-

the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

-

an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated;

-

the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;

-

the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

-

actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.



Our adoption of SFAS 144 resulted in: (i) the presentation of the net operating results of properties sold during the year ended December 31, 2002, less allocated interest expense, as income from discontinued operations for all periods presented, and (ii) the presentation of the gain on sale of operating properties sold, net of sale costs, as income from discontinued operations for the year ended December 31, 2002. We allocate interest expense based on the percentage of the cost basis of properties sold to the total cost basis of real estate assets as of the respective year-end, pro-rated the number of days prior to sale. Properties sold prior to January 1, 2002 are required to be presented as a component of continuing operations.  There were no sales of properties in 2003.



Revenue Recognition and Allowance for Doubtful Accounts

Base rental income is recognized on a straight-line basis over the terms of the respective lease agreements. Differences between rental income recognized and amounts contractually due under the lease agreements are credited or charged, as applicable, to straight-line rent receivable. The difference between straight-line rental income and contractual rental income decreased revenue by $31,000 in 2003, and increased revenue by $968,000 and $1,055,000 for 2002 and 2001, respectively. Straight-line rent receivable is included in other assets in the accompanying balance sheets and is charged against income upon early termination of a lease or as a reduction of gain on sale upon the sale of the property. Rental payments received before they are recognized as income are

F8



recorded as a prepaid income liability. Lease termination income is recorded in the period the lease terminates according to the lease termination agreement. Leases for both industrial and office space generally contain provisions under which the tenants reimburse us for a portion of property operating expenses, real estate taxes, and other recoverable costs. The expected recovery of these reimbursable expenses from tenants is recorded as revenue when the associated expenses are incurred. We make estimates of the uncollectibility of our accounts receivable related to minimum rent, straight-line rent receivable, expense reimbursements, and other revenue or income. We specifically analyze accounts receivable and historical bad debts, tenant concentrations, tenant credit worthiness, tenant security deposits, letters of credit and lease guarantees provided by the tenant, current economic trends, and changes in our tenant payment terms when evaluating the adequacy of the allowance for doubtful accounts receivable.



Gain on Sales of Real Estate Investments

In accordance with SFAS 66, gains on sales of real estate investments are recognized using the full accrual method provided that we meet various criteria relating to the terms of the transactions and any subsequent involvement by us with the properties sold. Gains or revenues relating to transactions which do not meet the established criteria would be deferred and recognized when the criteria are met or using the installment or cost recovery methods, as appropriate in the circumstances.



Deferred Financing and Leasing Costs

Costs incurred for debt financing and property leasing are capitalized as other assets. Deferred loan costs include amounts paid to lenders and others to obtain financing. Such costs are amortized over the term of the related loan. Amortization of deferred financing costs is included in interest expense in our consolidated statements of income. Deferred leasing costs include leasing commissions that are amortized using the straight-line method over the term of the related lease. Unamortized deferred leasing costs are included with the basis when a property is sold and therefore reduce the gain on sale. Unamortized financing and leasing costs are charged to expense in the event of debt prepayment or early termination of the lease.



Federal Income Taxes

We have elected to be taxed as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the Code). A REIT is generally not subject to federal income tax on that portion of real estate investment trust taxable income that is distributed to stockholders, provided that at least 90% of such taxable income is distributed and other requirements are met. We believe we are in compliance with the Code.



As of December 31, 2003, for federal income tax purposes, we had an ordinary loss carryforward of approximately $19 million. As we do not expect to incur income tax liabilities, there may be little or no value realized from such carryforwards.



For federal income tax purposes, dividend distributions made were classified as follows:



|Year | Ordinary
Income | Capital
Gain | Unrecaptured
Section
1250 Gain | Return of
Capital
|---- | --------------- | ------------ | ------------------------------ | -----------------
|     |                 |              |                                |                  
|2001 | 80%             | 17%          | 3%                             | -                
|2002 | 82%             | 10%          | 8%                             | -                
|2003 | 81%             | -            | -                              | 19%              





The determination of the tax treatment for dividend distributions is based on our earnings and profits. Income reported for financial reporting purposes will differ from earnings and profits for federal income tax purposes primarily due to differences in the estimated lives used to calculate depreciation.



F9



Derivative Instruments and Hedging Activities

We recognize all derivatives as either assets or liabilities in the consolidated balance sheets and measure those instruments at fair value. Additionally, the fair value adjustments will affect either other comprehensive income or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.



We require that our derivative instruments are effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Instruments that meet the hedging criteria are formally designated as hedges at the inception of the derivative contract and changes in the fair value of the instrument are included in other comprehensive income until the instrument matures. When the terms of an underlying transaction are modified or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are included in net income each period until the instrument matures. Any portion of a derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with changes in value included in net income for each period.



Stock-Based Compensation

In prior years, we accounted for our stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion (APB) 25 and all related interpretations. As of January 1, 2003, we adopted SFAS 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of SFAS 123, on a modified prospective basis.SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The impact of adopting SFAS 148 in accordance with the modified prospective method was an increase in compensation expense of $195,000 for the year ended December 31, 2003.



If we had determined compensation costs for the stock options granted to employees consistent with SFAS 123 during the years ended December 31, 2002 and 2001, our net income and earnings per share would have been reduced to the pro forma amounts as follows (in thousands, except per share amounts):



|                                        |  | 2002      |  | 2001     
|--------------------------------------- |  | --------- |  | ---------
|Net income:                             |  |           |  |          
|As reported                             |  | $36,003   |  | $34,950  
|Less: compensation expense per SFAS 123 |  | 223       |  | 213      
|Pro forma                               |  | $35,780   |  | $34,737  
|                                        |  |           |  |          
|Earnings per share  basic:             |  |           |  |          
|As reported                             |  | $    2.22 |  | $    2.09
|Less: compensation expense per SFAS 123 |  | .02       |  | .02      
|Pro forma                               |  | $    2.20 |  | $    2.07
|                                        |  |           |  |          
|Earnings per share  diluted:           |  |           |  |          
|As reported                             |  | $    2.17 |  | $    2.06
|Less: compensation expense per SFAS 123 |  | .02       |  | .02      
|Pro forma                               |  | $    2.15 |  | $    2.04



F10



The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2003, 2002, and 2001, respectively:



|                                                                     | 2003      |  | 2002      |  | 2001     
|-------------------------------------------------------------------- | --------- |  | --------- |  | ---------
|Weighted average fair value of options granted
during the year       | $1.45     |  | $1.94     |  | $1.09    
|                                                                     |           |  |           |  |          
|Assumptions:                                                         |           |  |           |  |          
|Risk-free interest rate                                              | 2.5%      |  | 4.0%      |  | 4.9%     
|Dividend yield                                                       | 7.3%      |  | 7.2%      |  | 9.5%     
|Volatility factors of the expected market price
of the common shares | 0.18      |  | 0.18      |  | 0.19     
|Weighted average expected life of the options                        | 4.3 years |  | 4.3 years |  | 4.3 years



We record deferred compensation when we make restricted stock awards to employees. The amount of deferred compensation initially recorded is the difference between the exercise price (which is zero for restricted stock awards) and fair market value of the common stock on the date of grant. Such deferred compensation is fixed and remains unchanged for subsequent increases or decreases in the market value of our common stock. We record deferred compensation as a reduction to stockholders equity and an offsetting increase to additional paid-in capital. We then amortize deferred compensation into stock based compensation expense, a component of general and administrative expenses, over the service period, which typically coincides with the vesting period of the restricted stock award.



In September 1995, we established a Management Stock Acquisition program which was subsequently modified by the Board in 1999. Under the program, certain options may be exercised by option holders with a recourse note payable to us. Such notes bear interest at 7.5% which approximated the market rate at the time of issuance. The note is due on the first of nine years and nine months after the date of the grant or within ninety days from termination of employment, with interest payable quarterly. From the beginning of the program through December 31, 2003, options for 316,000 shares of common stock were exercised in exchange for notes payable to us. The unpaid balance of the notes was $706,000 (55,250 shares) and $1,659,000 (158,000 shares) at December 31, 2003 and 2002, respectively, and is included in the accompanying balance sheets as a reduction of additional paid-in capital. In accordance with the Sarbanes-Oxley Act of 2002, which prohibits new loans to directors and executive officers, we no longer allow options to be exercised with a recourse note.



During the years ended December 31, 2003, 2002, and 2001, we recorded compensation expense relating to our stock compensation plans of approximately $2,614,000, $2,070,000, and $1,711,000, respectively.



Per Share Data

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



Common Stock Repurchases

We currently have board approval to repurchase up to a total of 10 million shares of our common stock under our share repurchase program. Our share repurchase strategy takes into consideration several factors, including the dividend yield on our stock price, the cost of capital and its alternative uses, existing yields on potential acquisitions, market trading volume, trading regulations, and debt covenants.



F11



Cash and Cash Equivalents

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



Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (FASB) issued SFAS Interpretation (FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. It requires the guarantor to recognize a liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002. The initial recognition and measurement provisions are effective for all guarantees within the scope of FIN 45 issued or modified after December 31, 2002. The adoption of this pronouncement did not have any impact on our financial position or results of operations.



In December 2003, the FASB issued FIN 46-R, Consolidation of Variable Interest Entities  an interpretation of ARB No. 51. FIN 46-R requires that any entity meeting certain rules relating to a companys equity investment at risk and level of financial control be consolidated as a variable interest entity. The statement is applicable to all variable interest entities created or acquired after January 31, 2003, and the first interim or annual reporting period beginning after December 15, 2003, for variable interest entities in which a Company holds a variable interest that was acquired before February 1, 2003. We have and will adopt FIN 46-R in the time frames as required by the statement. There is no significant effect on our financial position, results of operations, or cash flows as a result of the initial adoption of this standard in regard to existing variable interest entities; however, future newly formed entities could meet these requirements and will be recorded as appropriate. At December 31, 2003, we did not own any equity investments created or acquired after January 31, 2003, that qualified as variable interest entities.



In May 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of this pronouncement did not have a material impact on our financial position or results of operations.



In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for the clarification and measurement of certain financial instruments with characteristics of both liabilities and equity. However, in November 2003, the provisions as related to mandatorily redeemable non-controlling interests in finite lived entities were deferred indefinitely. The other provisions of this statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of the pronouncement did not have a material impact on our financial position or results of operations.



Reclassifications

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



F12



Note 2 - Real Estate Investments

As of December 31, 2003, our real estate investments were diversified by property type as follows(dollars in thousands):



|                          | Number of
Properties |  | Gross
Cost |  | Percent
of Total
|------------------------- | -------------------- |  | ---------- |  | ----------------
|                          |                      |  |            |  |                 
|Industrial buildings      | 61                   |  | $414,392   |  | 51%             
|Office buildings          | 31                   |  | 375,844    |  | 47%             
|Land held for development | 11                   |  | 14,071     |  | 2%              
|                          |                      |  |            |  |                 
|Total                     | 103                  |  | $804,307   |  | 100%            

F13



Note 2 - Real Estate Investments (continued)



The following table sets forth our real estate investments as of December 31, 2003(in thousands):

|                                              | Land     | Building | Development
In-Progress | Less
Accumulated
Depreciation | Total   
|--------------------------------------------- | -------- | -------- | ----------------------- | ----------------------------- | --------
|Industrial buildings
Northern California      | $ 68,084 | $137,413 | $        -              | $22,245                       | $183,252
|Arizona                                       | 25,653   | 83,219   | -                       | 10,785                        | 98,087  
|Southern California                           | 17,234   | 42,301   | -                       | 7,292                         | 52,243  
|Northwest                                     | 3,409    | 10,821   | -                       | 3,260                         | 10,970  
|Nevada                                        | 7,799    | 18,459   | -                       | 202                           | 26,056  
|Total industrial buildings                    | 122,179  | 292,213  | -                       | 43,784                        | 370,608 
|Office buildings
Northern California          | 6,073    | 25,492   | -                       | 4,099                         | 27,466  
|Arizona                                       | 10,588   | 25,872   | -                       | 3,617                         | 32,843  
|Southern California                           | 15,448   | 50,355   | -                       | 3,698                         | 62,105  
|Northwest                                     | 16,669   | 100,578  | -                       | 13,666                        | 103,581 
|Colorado                                      | 13,706   | 97,606   | -                       | 10,914                        | 100,398 
|Nevada                                        | 2,102    | 11,355   | -                       | 1,860                         | 11,597  
|Total office buildings                        | 64,586   | 311,258  | -                       | 37,854                        | 337,990 
|Land held for development
Northern California | 5,866    | -        | -                       | -                             | 5,866   
|Arizona                                       | 637      | -        | -                       | -                             | 637     
|Southern California                           | 2,477    | -        | -                       | -                             | 2,477   
|Northwest                                     | 1,142    | -        | -                       | -                             | 1,142   
|Colorado                                      | 3,949    | -        | -                       | -                             | 3,949   
|Total land held for development               | 14,071   | -        | -                       | -                             | 14,071  
|Total as of December 31, 2003                 | $200,836 | $603,471 | $        -              | $81,638                       | $722,669
|Total as of December 31, 2002                 | $182,310 | $540,014 | $2,864                  | $62,562                       | $662,626



F14



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



During 2003, 2002, and 2001, we capitalized interest costs relating to properties under development totaling $131,000, $633,000, and $1,303,000, respectively.



Note 3 - Consolidated Entities



During the fourth quarter of 2003, we entered into several new mortgage financing agreements with three separate lenders. Our lenders required that we place each collateral property into separate legal entities. As a result, we created six corporations and three limited liability companies. Each of the legal entities maintains a separate loan that is collateralized by the property owned by the entity.  All of the entities are 100% subsidiaries of the REIT and are consolidated with Bedford Property Investors, Inc. in the financial statements presented.



In December 1996, we formed Bedford Realty Partners, L.P. (the Operating Partnership), with Bedford Property Investors, Inc. as the sole general partner, for the purpose of acquiring real estate. In exchange for contributing a property into the Operating Partnership, the owners of the property received limited partnership units (OP Units). A limited partner had the ability to redeem the OP Units at any time. We, at our option, had the ability to redeem the OP Units by either (i) issuing common stock at the rate of one share of common stock for each OP Unit, or (ii) paying cash to a limited partner based on the average trading price of our common stock. Each OP Unit was allocated partnership income and cash flow at a rate equal to the dividend being paid by Bedford Property Investors, Inc. on a share of common stock. Additional partnership income and cash flow was allocated approximately 99% to Bedford Property Investors, Inc. and 1% to the limited partners.



Effective January 15, 2002, we exercised our option to redeem the remaining outstanding 72,060 OP Units of the limited partners of the Operating Partnership. The OP Units were redeemed by issuing 63,437 shares of common stock at the rate of one share of common stock for each OP Unit and by paying cash of $202,000 for 8,623 shares based on the closing trading price of our common stock. Upon redemption of the remaining OP Units, the operating property, Diablo Business Center, a nine building service center flex complex which was held in the Operating Partnership, was transferred to us. Bedford Realty Partners, L.P. was dissolved as of January 15, 2002.



Note 4 - Leases



Minimum future lease payments to be received as of December 31, 2003 are as follows (in thousands):



| | 2004       |  | $ 86,328
| | ---------- |  | --------
| | 2005       |  | 70,266  
| | 2006       |  | 54,285  
| | 2007       |  | 41,035  
| | 2008       |  | 29,001  
| | Thereafter |  | 31,814  
| | Total      |  | $312,729



The total minimum future lease payments shown above do not include tenants obligations for reimbursement of operating expenses or taxes as provided by the terms of certain leases.













F15









Note 5 - Related Party Transactions



In prior years, we used Bedford Acquisitions, Inc. (BAI), a corporation wholly owned by our chairman of the board and chief executive officer, Peter Bedford, to provide services for our acquisition, disposition, financing, and development activities. These services were provided under an agreement that was terminated on July 1, 2002. Upon termination of the agreement, we hired the employees of BAI.



Prior to the termination of the agreement, fees incurred for services provided during the six months ended June 30, 2002 were expensed to the extent that such fees did not represent payments to BAI for direct and incremental development costs or independent third party costs incurred by BAI on our behalf.  During the six months ended June 30, 2002, we paid BAI approximately $1,785,000 for acquisition, disposition, financing, and development activities provided pursuant to the agreement. As of December 31, 2002, we had a receivable of $590,000 for excess fees paid to BAI, which was subsequently paid in January 2003 by BAI.



We occasionally use the services of the law firm Bartko, Zankel, Tarrant & Miller of which a member of our board of directors, Martin I. Zankel, is a Senior Principal. During the years ended December 31, 2003, 2002, and 2001, we paid Bartko, Zankel, Tarrant & Miller approximately $81,000, $17,000, and $3,000, respectively.



Note 6 - Stock Compensation Plans



In May 2003, the stockholders approved a replacement for the expiring Amended and Restated 1993 Employee Stock Option Plan (the Expiring Employee Plan). The approved 2003 Employee Stock Option Plan (the Employee Plan) is identical to the Expiring Employee Plan except that the term has been extended to March 12, 2013 and the number of shares reserved for future issuance was modified to 1,500,000 shares. The Employee Plan provides for grants of non-qualified stock options, incentive stock options, and restricted stock.



The Employee Plan is administered by the compensation committee of the board of directors, which determines the terms of options granted, including the exercise price, the number of shares subject to the option, and the exercisability of the options. Options granted to employees are exercisable upon vesting, and typically vest over a four-year period.



The Employee Plan requires that the exercise price of incentive stock options be at least equal to the fair market value of such shares on the date of grant and that the exercise price of non-qualified stock options be equal to at least 85% of the fair market value of such shares on the date of the grant. The maximum term of options granted is ten years.



We may grant restricted stock to employees pursuant to the Employee Plan. These shares generally vest over five or seven years and are subject to forfeiture under certain conditions. From 1997 through 2003, we granted 724,135 shares of restricted stock net of forfeitures. Deferred compensation associated with unvested restricted stock was $5,476,000 and $4,622,000 as of December 31, 2003 and 2002, respectively.



In May 2002, the stockholders approved a replacement for the expiring Amended and Restated 1992 Directors Stock Option Plan (the Expiring Directors Plan). The approved 2002 Directors Stock Option Plan (the Directors Plan) is identical to the Expiring Directors Plan except that the term has been extended to May 19, 2012 and the number of shares reserved for future issuance was modified to 750,000 shares. The Directors Plan provides for the grant of non-qualified stock options to directors of the Company. The Directors Plan contains an automatic grant feature whereby a director receives a one-time initial option to purchase 25,000 shares upon a directors appointment to the board of directors and thereafter receives automatic annual grants of options to purchase 10,000 shares upon re-election to the board of directors. Options granted are generally exercisable six months from the date of grant.



The Directors Plan requires that the exercise price of options be equal to the fair market value of the underlying shares on the date of grant. The maximum term of options granted is ten years.

F16



A summary of the status of our plans as of December 31, 2003, 2002, and 2001 and changes during the years ended on those dates is presented below:



|                                 | 2003      |                                 | 2002 |          | 2001                           
|-------------------------------- | --------- | ------------------------------- | ---- | -------- | -------------------------------
|                                 |           |                                 |      |          |                                
|                                 | Shares    | Weighted
Average
Exercise
Price |      | Shares   | Weighted
Average
Exercise
Price
|                                 |           |                                 |      |          |                                
|Employee Plan                    |           |                                 |      |          |                                
|Outstanding at beginning
of year | 538,250   | $20.47                          |      | 529,250  | $18.67                         
|Granted                          | -         | -                               |      | 119,000  | 26.58                          
|Exercised                        | (168,750) | 18.58                           |      | (98,500) | 18.25                          
|Forfeited and cancelled          | -         | -                               |      | (11,500) | 19.89                          
|                                 |           |                                 |      |          |                                
|Outstanding at end of year       | 369,500   | $21.33                          |      | 538,250  | $20.47                         
|                                 |           |                                 |      |          |                                
|Options exercisable              | 195,000   |                                 |      | 277,000  |                                
|                                 |           |                                 |      |          |                                
|Directors Plan                  |           |                                 |      |          |                                
|Outstanding at beginning
of year | 250,000   | $19.97                          |      | 280,000  | $18.11                         
|Granted                          | 50,000    | 27.42                           |      | 50,000   | 26.58                          
|Exercised                        | (70,000)  | 18.37                           |      | (80,000) | 17.61                          
|Forfeited and cancelled          | -         | -                               |      | -        | -                              
|                                 |           |                                 |      |          |                                
|Outstanding at end of year       | 230,000   | $22.08                          |      | 250,000  | $19.97                         
|                                 |           |                                 |      |          |                                
|Options exercisable              | 230,000   |                                 |      | 250,000  |                                



The following table summarizes information about stock options outstanding on December 31, 2003:



|                        | Options Outstanding |                                          | Options Exercisable         
|----------------------- | ------------------- | ---------------------------------------- | ----------------------------
|Range of
Exercise Price | Number
Outstanding  | Weighted Avg.
Remaining
Contractual Life | Weighted Avg.
Exercise Price
|                        |                     |                                          |                             
|Employee Plan           |                     |                                          |                             
|$17.63 to 18.87         | 160,000             | 6.60                                     | $18.43                      
|19.56 to 20.06          | 92,500              | 4.17                                     | 19.72                       
|26.58                   | 117,000             | 8.38                                     | 26.58                       
|$17.63 to 26.58         | 369,500             | 6.55                                     | $21.33                      
|                        |                     |                                          |                             
|Directors Plan         |                     |                                          |                             
|$14.22 to 18.87         | 110,000             | 6.11                                     | $18.06                      
|19.56 to 26.58          | 70,000              | 7.73                                     | 24.58                       
|27.42                   | 50,000              | 9.87                                     | 27.42                       
|$14.22 to 27.42         | 230,000             | 7.42                                     | $22.08                      



F17



Note 7 - Bank Loans Payable



We currently have a revolving credit facility with a bank group led by Bank of America. The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature that gives us the option to expand the facility to $175 million, if needed. Interest on the facility is at a floating rate equal to either the lenders prime rate or LIBOR plus a margin ranging from 1.30% to 1.55%, depending on our leverage level as defined in the credit agreement. As of December 31, 2003, the facility had a total outstanding balance of $68,978,000, an effective interest rate of 2.85%, and was secured by our interests in 17 properties. These properties collectively accounted for approximately 20% of our annualized base rent and our total real estate assets as of December 31, 2003.



During the quarter ended September 30, 2003, we paid off the remaining balance of $22,000,000 on the $40 million unsecured bridge facility with Bank of America, which carried an interest rate of LIBOR plus 1.55%.



Including both the $150 million revolving credit facility and the $40 million unsecured bridge facility, the daily weighted average outstanding balances were $98,489,000 and $95,785,000 for the twelve months ended December 31, 2003 and 2002, respectively. The weighted average annual interest rates under the credit facilities in each of these periods were 3.19% and 4.25%, respectively.



The credit facilities contain various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of our average Funds From Operations (FFO). We were in compliance with the various covenants and requirements of our credit facilities during the twelve months ended December 31, 2003 and 2002.



We are currently in the process of renegotiating our revolving credit facility and anticipate that we will renew the line of credit at substantially similar terms.



Note 8 - Mortgage Loans Payable



In March 2003, we obtained a $48,500,000 mortgage from Teachers Insurance and Annuity Association of America. The loan has a ten-year term and carries a fixed interest rate of 5.60%. Proceeds from the mortgage financing were used to pay down a portion of the outstanding balance of our lines of credit and to replace an $18,000,000 mortgage from Prudential Insurance Company of America, which matured in March 2003 and carried a fixed interest rate of 7.02%.



In October and November 2003, we secured two mortgages from Bank of America for $9,900,000 and $11,400,000. These loans each have a ten-year term and carry fixed interest rates of 5.45% and 5.55%, respectively. The mortgages call for interest only payments for the first two years and principal and interest payments for the remainder of the loan term. Proceeds from the mortgages were used to finance property acquisitions and to pay down our secured credit facility.



In November 2003, we obtained a $25,000,000 mortgage from JPMorgan Chase Bank. The loan has a ten-year term and carries a fixed interest rate of 5.74%. Proceeds from the mortgage were used to finance the acquisition of the property collateralized by the loan.



In November 2003, we obtained three mortgages from John Hancock for an aggregate amount of $27,900,000. Each of the mortgages has a seven-year term and carries a fixed interest rate of 4.95%. These three mortgages call for interest only payments for the first four years and principal and interest payments for the remainder of the loan term. In November 2003, we obtained an additional three mortgages from John Hancock for an aggregate amount of $11,800,000. Each of these mortgages has a five-year term and carries a fixed interest rate of 4.60%. These three mortgages call for interest only payments for the first three years and principal and interest payments for the remainder of the loan term. The majority of the proceeds from the mortgages were used to finance property acquisitions and to pay down our secured credit facility. Proceeds of approximately $4,300,000 were used to pay off the remaining balance of a Union Bank loan with a floating rate, which was 6.00% at the time of the payoff.



F18



In November 2003, we assumed two mortgages with Sun Life Assurance Company in connection with the acquisition of a property. The mortgages had remaining outstanding balances of approximately $1,659,000 and $1,469,000 at the date of the acquisition with interest at fixed rates of 7.00% and 7.25%, respectively. Both of the mortgages have a maturity date of April 1, 2009.



Mortgage loans payable at December 31, 2003 consist of the following (in thousands):



|                                          |                   |                                     |           | Collateral as of December 31, 2003
|----------------------------------------- | ----------------- | ----------------------------------- | --------- | ----------------------------------
|Lender                                    | Maturity Date     | Interest Rate at
December 31, 2003+ | Balance   | Number of
Properties              
|Union Bank                                | November 19, 2004 | 3.01%(1)                            | $  20,676 | 9                                 
|TIAA-CREF                                 | June 1, 2005      | 7.17%                               | 25,263    | 5                                 
|Security Life of Denver
Insurance Company | September 1, 2005 | 3.00%(2)                            | 21,500    | 6                                 
|Security Life of Denver
Insurance Company | September 1, 2005 | 3.00%(2)                            | 3,334     | 2                                 
|Nationwide Life
Insurance                 | November 1, 2005  | 4.61%                               | 22,065    | 4                                 
|Prudential Insurance                      | July 31, 2006     | 8.90%                               | 7,702     | 1                                 
|Prudential Insurance                      | July 31, 2006     | 6.91%                               | 18,652    | 4                                 
|TIAA-CREF                                 | December 1, 2006  | 7.95%                               | 20,828    | 5                                 
|TIAA-CREF                                 | June 1, 2007      | 7.17%                               | 34,361    | 4                                 
|John Hancock                              | December 1, 2008  | 4.60%                               | 11,800    | 5                                 
|Sun Life Assurance Co.                    | April 1, 2009     | 7.00%                               | 1,655     | 1                                 
|Sun Life Assurance Co.                    | April 1, 2009     | 7.25%                               | 1,466     | *                                 
|TIAA-CREF                                 | June 1, 2009      | 7.17%                               | 40,134    | 8                                 
|John Hancock                              | December 1, 2010  | 4.95%                               | 27,900    | 3                                 
|Washington Mutual                         | August 1, 2011    | 4.04%(3)                            | 16,830    | 1                                 
|TIAA-CREF                                 | April 1, 2013     | 5.60%                               | 48,076    | 5                                 
|Bank of America                           | November 1, 2013  | 5.45%                               | 9,900     | 1                                 
|Bank of America                           | December 1, 2013  | 5.55%                               | 11,400    | 1                                 
|JP Morgan                                 | December 1, 2013  | 5.74%                               | 25,000    | 1                                 
|                                          | Total             |                                     | $368,542  | 66                                



(1)

Floating rate based on LIBOR plus 1.60%. The interest rate of 3.01% is fixed to maturity.

(2)

Floating rate based on 30-day LIBOR plus 1.40% (adjusted monthly). Effective July 3, 2003, the floating 30-day LIBOR rate was swapped to a fixed rate of 1.595% for an all-in rate of 2.995% until maturity.

(3)

Floating rate based on a 12-month average of U.S. Treasury security yields plus 2.60% (adjusted semi-annually).

+

Interest rates are fixed unless otherwise indicated by footnote.

*

The two Sun Life Assurance Company mortgages are collateralized by a single property.



We were in compliance with the covenants and requirements of our various mortgages during the twelve months ended December 31, 2003 and 2002.



The following table presents scheduled principal payments on mortgage loans for each of the twelve-month periods ending December 31 (in thousands):



|2004       | $ 27,137
|---------- | --------
|2005       | 75,034  
|2006       | 48,900  
|2007       | 35,473  
|2008       | 15,618  
|Thereafter | 166,380 
|Total      | $368,542

F19



Note 9  Stockholders Equity



On August 5, 2003, we issued and sold 805,000 shares of our 8.75% Series A Cumulative Redeemable Preferred Stock at a price of $50.00 per share for a total of $40,250,000. The offering was made only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. We pay cumulative dividends on the shares from the date of original issuance at the rate of 8.75% of the $50.00 liquidation preference per share per year, which is equivalent to $4.375 per share per year. Dividends on the shares are paid quarterly in arrears. The initial dividend of $685,000 was declared on October 1, 2003 and paid on October 15, 2003 for the period from August 5, 2003 through October 14, 2003. A dividend of $880,000 was declared on January 2, 2004 and paid on January 15, 2004 for the period from October 15, 2003 through January 14, 2004. Dividends are recorded when declared.



The Series A preferred shares have no stated maturity, are not subject to any sinking fund or mandatory redemption, and are not convertible into any other securities. The shares are redeemable at our option beginning in August 2008, or earlier if necessary in limited circumstances to preserve our status as a REIT.



The net proceeds of approximately $39 million from the sale of the Series A preferred stock were used to finance a portion of the $85 million in property acquisitions during the third and fourth quarters of 2003.



The following schedule presents changes in the number of outstanding shares of common stock and preferred stock during the period from January 1, 2001 through December 31, 2003 (in thousands):



|                                          | Common Stock |  | Preferred Stock
|----------------------------------------- | ------------ |  | ---------------
|                                          |              |  |                
|Balance, December 31, 2000                | 17,709,738   |  | -              
|Issuance of common stock                  | 80,000       |  | -              
|Repurchase and retirement of common stock | (1,394,018)  |  | -              
|Issuance of restricted stock              | 120,550      |  | -              
|Forfeiture of restricted stock            | (1,070)      |  | -              
|Balance, December 31, 2001                | 16,515,200   |  | -              
|                                          |              |  |                
|Issuance of common stock                  | 242,601      |  | -              
|Repurchase and retirement of common stock | (401,667)    |  | -              
|Issuance of restricted stock              | 99,650       |  | -              
|Forfeiture of restricted stock            | (12,120)     |  | -              
|Balance, December 31, 2002                | 16,443,664   |  | -              
|                                          |              |  |                
|Issuance of preferred stock               | -            |  | 805,000        
|Issuance of common stock                  | 239,798      |  | -              
|Repurchase and retirement of common stock | (497,730)    |  | -              
|Issuance of restricted stock              | 127,175      |  | -              
|Forfeiture of restricted stock            | (952)        |  | -              
|Balance, December 31, 2003                | 16,311,955   |  | 805,000        





Note 10 - Derivative Instruments and Hedging Activities



In the normal course of business, we are exposed to the effects of interest rate changes on our floating rate debt. We limit these risks by following established risk management policies and procedures, including the occasional use of derivatives. For interest rate exposures, interest rate swaps are used primarily to hedge the cash flow risk of our variable rate borrowing obligations.

F20



We do not use derivatives for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, we have not sustained a material loss from those instruments, and we do not anticipate any material adverse effect on our net income, cash flows, or financial position in the future from the use of derivatives.



Interest rate swaps that convert variable payments to fixed payments are cash flow hedges. Hedging relationships that are fully effective have no effect on net income or FFO. The unrealized gains and losses in the fair value of these interest rate swaps are reported on the balance sheet, as a component of other assets or other liabilities as appropriate, with a corresponding adjustment to accumulated other comprehensive income (loss).



In July 2003, we entered into an interest swap agreement with Bank of America, N.A. on our two floating-rate mortgages with Security Life of Denver Insurance Company. The agreement, which commenced on July 3, 2003 and terminates on September 1, 2005, exchanges a floating rate of 30-day LIBOR for a fixed rate of 1.595% on a notional amount of $24.5 million for the first 6 months, $23.5 million in 2004, and $23.0 million in 2005 through the expiration date. Interest rate pay differentials that arise under this swap agreement are recognized on an accrual basis in interest expense over the term of the contract. This interest rate swap agreement was considered to be fully effective in hedging the variable rate risk associated with the two mortgages.



The following summarizes the notional value and fair value of our interest swap contract. The notional value below provides an indication of the amount that has been hedged in this contract but does not represent an obligation or exposure to credit risk at December 31, 2003 (dollars in thousands):



|Notional
Amount | Fixed
Rate | Contract
Maturity | Cumulative
Cash Paid, Net | Fair Value of
Asset at
December 31, 2003
|--------------- | ---------- | ----------------- | ------------------------- | ----------------------------------------
|$24,500         | 2.995%     | September 1, 2005 | $50                       | $89                                     





To determine the fair values of derivative instruments in accordance with SFAS 133, we use the discounted cash flow method, which requires the use of assumptions about market conditions and risks existing at the balance sheet date. Judgment is required in interpreting market data to develop estimates of market value. Accordingly, estimated fair value is a general approximation of value, and such value may or may not actually be realized.



At December 31, 2003, $89,000 is included in other assets and accumulated other comprehensive income, a stockholders equity account, reflecting the estimated market value of the swap contract at that date.



Note 11 - Repurchases of Common Stock



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. The share repurchase program does not require us to purchase a specified number of shares and it does not have an expiration date. Since November 1998, we have repurchased and retired approximately 8 million shares at an average price of $18.74 per share. This represents 35% of the shares outstanding at November 30, 1998 when we began implementing our share repurchase program.



F21



Note 12  Discontinued Operations



In accordance with SFAS 144, income from properties sold during the period from January 1, 2002 through December 31, 2002 is presented in the income statement as discontinued operations for the years ended December 31, 2002 and 2001. Since no properties were sold in 2003, there are no discontinued operations for the year 2003.  Income from operating properties sold, net includes an allocation of interest expense based on the percentage of the cost basis of properties sold to the cost basis of total real estate assets as of the respective balance sheet date. The following schedule presents the calculation of income from operating properties sold, net (in thousands):



|                                           | Year Ended
December 31, 2002 |  | Year Ended
December 31, 2001
|------------------------------------------ | ---------------------------- |  | ----------------------------
|Rental income                              | $2,162                       |  | $4,107                      
|Rental expenses                            |                              |  |                             
|Operating expenses                         | 383                          |  | 665                         
|Real estate taxes                          | 182                          |  | 392                         
|Depreciation and amortization              | 445                          |  | 446                         
|                                           |                              |  |                             
|Income from property operations            | 1,152                        |  | 2,604                       
|                                           |                              |  |                             
|Interest expense                           | 406                          |  | 1,068                       
|                                           |                              |  |                             
|Income from operating properties sold, net | $  746                       |  | $1,536                      



F22



Note 13 - Segment Disclosure



We have five reportable segments organized by the region in which they operate: Northern California (Northern California and Nevada), Arizona, Southern California, Northwest (greater Seattle, Washington, and greater Portland, Oregon) and Colorado.



The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based upon income from real estate from the combined properties in each segment.



|                                                       | For the year ended December 31, 2003(in thousands, except percentages)
|------------------------------------------------------ | ----------------------------------------------------------------------
|                                                       | Northern
California                                                   
|Rental income                                          | $  40,857                                                             
|Operating expenses and
real estate taxes               | 9,376                                                                 
|Depreciation and
amortization                          | 7,346                                                                 
|Income from property
operations                        | 24,135                                                                
|General and administrative
expenses                    | -                                                                     
|Interest income(1)                                     | 27                                                                    
|Interest expense                                       | -                                                                     
|Net income (loss)                                      | $  24,162                                                             
|Percent of income from
property operations             | 43%                                                                   
|Real estate investments                                | $256,384                                                              
|Additions (dispositions) of
real estate investments(2) | $    (569)                                                            
|Total assets                                           | $273,706                                                              



(1)

The interest income in Northern California, Arizona, and Northwest segments represents interest earned from tenant notes receivable.



(2)

The decrease in Northern California is due to reclassifications of purchase price to intangible assets for 2002 acquired properties in accordance with SFAS 141.





F23



|                                                                    | For the year ended December 31, 2002(in thousands, except percentages)
|------------------------------------------------------------------- | ----------------------------------------------------------------------
|                                                                    | Northern
California                                                   
|Rental income                                                       | $  37,382                                                             
|Operating expenses and
real estate taxes                            | 8,023                                                                 
|Depreciation and
amortization                                       | 5,513                                                                 
|Income from property
operations                                     | 23,846                                                                
|General and administrative
expenses                                 | -                                                                     
|Interest income(1)                                                  | 37                                                                    
|Interest expense                                                    | -                                                                     
|Income (loss) from
continuing operations                            | 23,883                                                                
|Discontinued operations:
Income from operating
properties sold, net | 362                                                                   
|Gain on sale of
operating properties                                | 1,777                                                                 
|Income from discontinued
operations                                 | 2,139                                                                 
|Net income (loss)                                                   | $ 26,022                                                              
|Percent of income from
property operations                          | 42%                                                                   
|Real estate investments                                             | $256,953                                                              
|Additions (dispositions) of
real estate investments                 | $  49,000                                                             
|Total assets                                                        | $266,747                                                              





(1)

The interest income in Northern California, Arizona, Northwest, and Colorado segments represents interest earned from tenant notes receivable.





F24







|                                                                                                              | For the year ended December 31, 2001(in thousands, except percentages)
|------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------
|                                                                                                              | Northern
California                                                   
|Rental income                                                                                                 | $  33,621                                                             
|Operating expenses and
real estate taxes                                                                      | 6,845                                                                 
|Depreciation and
amortization                                                                                 | 5,003                                                                 
|Income from property
operations                                                                               | 21,773                                                                
|General and administrative
expenses                                                                           | -                                                                     
|Interest income (1)                                                                                           | 26                                                                    
|Interest expense                                                                                              | -                                                                     
|Other expense                                                                                                 | -                                                                     
|Income (loss) before gain
on sales of real estate
investments, minority
interest, and discontinued
operations | 21,799                                                                
|Gain on sales of real estate
investments, net                                                                 | -                                                                     
|Minority interest                                                                                             | -                                                                     
|Income (loss) from
continuing operations                                                                      | 21,799                                                                
|Discontinued operations:
Income from operating
properties sold, net                                           | 701                                                                   
|Net income (loss)                                                                                             | $  22,500                                                             
|Percent of income from
property operations                                                                    | 39%                                                                   
|                                                                                                              |                                                                       
|Real estate investments                                                                                       | $207,953                                                              
|Additions (dispositions) of
real estate investments                                                           | $    7,573                                                            
|Total assets                                                                                                  | $218,681                                                              





(1)

The interest income in the Northern California, Arizona, and Northwest segments represents interest earned from tenant notes receivable.







F25



Note 14  Fair Value of Financial Instruments



The carrying values of cash and cash equivalents, trade accounts payable, and receivables approximate fair value due to the short-term maturity of these instruments. Management has determined that the market value of the $331,036,000 of fixed rate debt at December 31, 2003 is approximately $334,436,000 based on the terms of existing debt compared to those available in the marketplace. At December 31, 2002, the fixed rate debt of $190,778,000 had an approximate market value of $198,848,000. The carrying value of variable rate debt approximates fair value, as the interest rates and other terms are comparable to current market terms.













F26



Note 15  Earnings per Share



Following is a reconciliation of earnings per share (in thousands, except share and per share amounts):





|                                                                                                                        | Year Ended December 31,
|----------------------------------------------------------------------------------------------------------------------- | -----------------------
|                                                                                                                        | 2003                   
|Basic:                                                                                                                  |                        
|Income from continuing operations                                                                                       | $  27,665              
|Less: Preferred dividend  Series A                                                                                     | (685)                  
|Income from continuing operations available
to common shareholders                                                      | 26,980                 
|Income from discontinued operations                                                                                     | -                      
|Net income available to common shareholders                                                                             | $ 26,980               
|Weighted average number of shares  basic                                                                               | 16,010,659             
|Income per common share - basic:
Income from continuing operations                                                      | $      1.69            
|Income from discontinued operations                                                                                     | -                      
|Net income available to common shareholders                                                                             | $      1.69            
|Diluted:                                                                                                                |                        
|Income from continuing operations                                                                                       | $  27,665              
|Less: Preferred dividend  Series A                                                                                     | (685)                  
|Add: minority interest                                                                                                  | -                      
|Income from continuing operations available
to common shareholders                                                      | 26,980                 
|Income from discontinued operations                                                                                     | -                      
|Net income available to common shareholders                                                                             | $  26,980              
|Weighted average number of shares  basic                                                                               | 16,010,659             
|Weighted average shares of dilutive stock
options using average period stock price
under the treasury stock method      | 156,681                
|Weighted average shares issuable upon the
conversion of Operating Partnership Units                                     | -                      
|Weighted average shares of non-vested
restricted stock using average period
stock price under the treasury stock method | 169,029                
|Weighted average number of shares  diluted                                                                             | 16,336,369             
|Income per common share  diluted:
Income from continuing operations                                                    | $     1.65             
|Income from discontinued operations                                                                                     | -                      
|Net income available to common shareholders                                                                             | $     1.65             



Since their effect would have been antidilutive, 50,000, 167,000, and zero of our stock options have been excluded from diluted earnings per share for the years ended December 31, 2003, 2002, and 2001, respectively.



F27



Note 16 - Quarterly Financial Data-Unaudited



The following is a summary of quarterly results of operations for 2003 and 2002(in thousands, except per share amounts):



|2003 Quarters Ended                     | 3/31      | 6/30      | 9/30      | 12/31    
|--------------------------------------- | --------- | --------- | --------- | ---------
|                                        |           |           |           |          
|Rental income                           | $26,953   | $26,508   | $26,396   | $28,097  
|                                        |           |           |           |          
|Income from property operations         | 14,789    | 13,956    | 13,316    | 13,196   
|                                        |           |           |           |          
|Income from continuing operations       | 7,672     | 7,302     | 6,719     | 5,972    
|                                        |           |           |           |          
|Income from discontinued operations     | -         | -         | -         | -        
|                                        |           |           |           |          
|Net income                              | 7,672     | 7,302     | 6,719     | 5,972    
|                                        |           |           |           |          
|Earnings per share  basic              | $    0.48 | $    0.45 | $    0.42 | $    0.33
|                                        |           |           |           |          
|Earnings per share  diluted            | $    0.47 | $    0.44 | $    0.41 | $    0.33
|                                        |           |           |           |          
|2002 Quarters Ended                     | 3/31      | 6/30      | 9/30      | 12/31    
|                                        |           |           |           |          
|Rental income (1)                       | $23,805   | $24,323   | $25,655   | $25,951  
|                                        |           |           |           |          
|Income from property operations (1)     | 14,010    | 13,839    | 14,532    | 14,256   
|                                        |           |           |           |          
|Income from continuing operations (1)   | 8,150     | 7,992     | 8,036     | 7,535    
|                                        |           |           |           |          
|Income from discontinued operations (1) | 225       | 2,065     | 2,000     | -        
|                                        |           |           |           |          
|Net income                              | 8,375     | 10,057    | 10,036    | 7,535    
|                                        |           |           |           |          
|Earnings per share  basic              | $    0.52 | $    0.62 | $    0.61 | $    0.47
|                                        |           |           |           |          
|Earnings per share  diluted            | $    0.50 | $    0.60 | $    0.60 | $    0.46



(1) Quarterly amounts reflect discontinued operations for properties sold in 2002 as reported in our quarterly reports filed in 2003.



Note 17 - Commitments and Contingencies



As of December 31, 2003, we had outstanding contractual construction commitments of approximately $127,000 relating to development in progress and tenant improvements on recently developed properties.We had outstanding undrawn letters of credit against our credit facility of approximately $6,957,000 at December 31, 2003.



From time to time, we are subject to legal claims in the ordinary course of business. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, prospects, financial condition, operating results, or cash flows.

F28







BEDFORD PROPERTY INVESTORS, INC.

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2003

(in thousands of dollars)



|                                                                                              |                  | Initial Cost to Company(1) | Cost Capitalized | Gross Amount  |                            |             |        
|--------------------------------------------------------------------------------------------- | ---------------- | -------------------------- | ---------------- | ------------- | -------------------------- | ----------- | -------
|                                                                                              |                  |                            | Buildings &      | Subsequent to | Carried at Close of Period | Accumulated | Date   
|Description                                                                                   | Location         | Land                       | Improvement      | Acquisition   | Land                       | Building    | Total  
|Industrial buildings:
Northern California
Building #3 at Contra Costa Diablo
Industrial Park* | Concord          | $   495                    | $  1,159         | $   128       | $   495                    | $ 1,287     | $ 1,782
|Building #8 at Contra Costa Diablo
Industrial Park *                                          | Concord          | 877                        | 1,548            | 212           | 877                        | 1,760       | 2,637  
|Building #18 at Mason Industrial
Park *                                                       | Concord          | 610                        | 1,265            | 147           | 610                        | 1,412       | 2,022  
|Milpitas Town Center                                                                          | Milpitas         | 1,400                      | 4,421            | 149           | 1,400                      | 4,570       | 5,970  
|598 Gibraltar Drive *                                                                         | Milpitas         | 535                        | 2,522            | 2             | 535                        | 2,524       | 3,059  
|Auburn Court *                                                                                | Fremont          | 1,391                      | 2,473            | 711           | 1,415                      | 3,160       | 4,575  
|47650 Westinghouse Drive*                                                                     | Fremont          | 267                        | 893              | 66            | 271                        | 955         | 1,226  
|410 Allerton*                                                                                 | S. San Francisco | 1,333                      | 889              | 40            | 1,356                      | 906         | 2,262  
|400 Grandview *                                                                               | S. San Francisco | 3,246                      | 3,517            | 2,099         | 3,300                      | 5,562       | 8,862  
|342 Allerton*                                                                                 | S. San Francisco | 2,516                      | 1,542            | 483           | 2,558                      | 1,983       | 4,541  
|301 East Grand *                                                                              | S. San Francisco | 2,036                      | 959              | 268           | 2,070                      | 1,193       | 3,263  
|Fourier Avenue *                                                                              | Fremont          | 2,120                      | 7,018            | 58            | 2,120                      | 7,076       | 9,196  
|Lundy Avenue *                                                                                | San Jose         | 2,055                      | 2,184            | 613           | 2,055                      | 2,797       | 4,852  
|115 Mason Circle *                                                                            | Concord          | 697                        | 854              | 255           | 697                        | 1,109       | 1,806  
|47600 Westinghouse Drive*                                                                     | Fremont          | 356                        | 1,067            | 271           | 356                        | 1,338       | 1,694  
|860-870 Napa Valley Corporate Way*                                                            | Napa             | 933                        | 3,515            | 825           | 933                        | 4,340       | 5,273  
|47633 Westinghouse Drive*                                                                     | Fremont          | 1,051                      | 3,239            | 399           | 1,051                      | 3,638       | 4,689  
|47513 Westinghouse Drive*                                                                     | Fremont          | 1,624                      | -                | 4,093         | 1,625                      | 4,092       | 5,717  
|Bordeaux Centre*                                                                              | Napa             | 1,151                      | -                | 6,730         | 1,151                      | 6,730       | 7,881  
|OToole Business Park*                                                                        | San Jose         | 3,933                      | 5,748            | 1,042         | 3,934                      | 6,789       | 10,723 
|6500 Kaiser Drive*                                                                            | Fremont          | 1,556                      | 6,411            | 29            | 1,556                      | 6,440       | 7,996  
|Bedford Fremont Business Center*                                                              | Fremont          | 3,598                      | 9,004            | 347           | 3,598                      | 9,351       | 12,949 
|Spinnaker Court*                                                                              | Fremont          | 2,548                      | 5,989            | 454           | 2,548                      | 6,443       | 8,991  
|2277 Pine View Way*                                                                           | Petaluma         | 1,861                      | 7,074            | 3             | 1,862                      | 7,076       | 8,938  





F29





|                                                                  |                  | Initial Cost to Company(1) | Cost Capitalized |               | Gross Amount |                            |             |       
|----------------------------------------------------------------- | ---------------- | -------------------------- | ---------------- | ------------- | ------------ | -------------------------- | ----------- | ------
|                                                                  |                  |                            | Buildings &      | Subsequent to |              | Carried at Close of Period | Accumulated | Date  
|Description                                                       | Location         | Land                       | Improvement      | Acquisition   |              | Land                       | Building    | Total 
|Industrial buildings (continued):
Northern California (continued) |                  |                            |                  |               |              |                            |             |       
|Mondavi Building*                                                 | Napa             | 1,315                      | 5,214            | -             |              | 1,315                      | 5,214       | 6,529 
|Parkpoint Business Center*                                        | Santa Rosa       | 1,956                      | 4,432            | 823           |              | 1,957                      | 5,254       | 7,211 
|2180 S. McDowell Blvd.*                                           | Petaluma         | 769                        | 2,989            | 142           |              | 770                        | 3,130       | 3,900 
|2190 S. McDowell Blvd.*                                           | Petaluma         | 584                        | 2,270            | 1             |              | 585                        | 2,270       | 2,855 
|South San Francisco Business
Center*                              | S. San Francisco | 9,459                      | 10,415           | 264           |              | 9,459                      | 10,679      | 20,138
|Philips Business Center*                                          | San Jose         | 15,627                     | 18,335           | -             |              | 15,627                     | 18,335      | 33,962
|                                                                  |                  |                            |                  |               |              |                            |             |       
|Arizona                                                           |                  |                            |                  |               |              |                            |             |       
|Westech Business Center *                                         | Phoenix          | 3,531                      | 4,422            | 1,023         |              | 3,531                      | 5,445       | 8,976 
|Westech II *                                                      | Phoenix          | 1,033                      | -                | 4,211         |              | 1,033                      | 4,211       | 5,244 
|2601 W. Broadway *                                                | Tempe            | 1,127                      | 2,348            | 119           |              | 1,127                      | 2,467       | 3,594 
|Building #2 at Phoenix Airport
Center *                           | Phoenix          | 723                        | 3,278            | 30            |              | 723                        | 3,308       | 4,031 
|Building #3 at Phoenix Airport
Center *                           | Phoenix          | 682                        | 3,163            | 206           |              | 682                        | 3,369       | 4,051 
|Building #4 at Phoenix Airport
Center *                           | Phoenix          | 517                        | 1,732            | 18            |              | 517                        | 1,750       | 2,267 
|Building #5 at Phoenix Airport
Center *                           | Phoenix          | 1,507                      | 3,860            | 150           |              | 1,507                      | 4,010       | 5,517 
|Butterfield Business Center *                                     | Tucson           | 905                        | 4,211            | 178           |              | 905                        | 4,389       | 5,294 
|Butterfield Tech Center II *                                      | Tucson           | 100                        | -                | 1,815         |              | 100                        | 1,815       | 1,915 
|Greystone Business Park *                                         | Tempe            | 1,216                      | -                | 4,589         |              | 1,217                      | 4,588       | 5,805 
|Rio Salado Corporate Center *                                     | Tempe            | 1,704                      | 2,850            | 4,881         |              | 1,704                      | 7,731       | 9,435 
|Phoenix Tech Center *                                             | Phoenix          | 1,314                      | 939              | 882           |              | 1,314                      | 1,821       | 3,135 
|4645 S. 35th Street*                                              | Phoenix          | 1,561                      | 1,602            | 80            |              | 1,561                      | 1,682       | 3,243 
|Diablo Business Center                                            | Phoenix          | 991                        | 6,242            | 1,033         |              | 1,067                      | 7,199       | 8,266 
|Cotton Center I *                                                 | Phoenix          | 2,742                      | 11,157           | (541)         | +            | 2,628                      | 10,730      | 13,358
|Cotton Center II *                                                | Phoenix          | 2,609                      | 8,928            | (284)         | +            | 2,545                      | 8,708       | 11,253
|Roosevelt Commons                                                 | Tempe            | 1,606                      | 5,549            | 1             |              | 1,606                      | 5,550       | 7,156 
|Superstition Springs Commerce
 Center*                            | Mesa             | 1,886                      | 4,448            | -             |              | 1,886                      | 4,448       | 6,334 





F30





|                                                      |                 | Initial Cost to Company(1) | Cost Capitalized |               | Gross Amount |                            |             |       
|----------------------------------------------------- | --------------- | -------------------------- | ---------------- | ------------- | ------------ | -------------------------- | ----------- | ------
|                                                      |                 |                            | Buildings &      | Subsequent to |              | Carried at Close of Period | Accumulated | Date  
|Description                                           | Location        | Land                       | Improvement      | Acquisition   |              | Land                       | Building    | Total 
|Industrial Buildings (continued):
Southern California |                 |                            |                  |               |              |                            |             |       
|Dupont Industrial Center *                            | Ontario         | 3,588                      | 6,162            | 375           |              | 3,588                      | 6,537       | 10,125
|3002 Dow Business Center *                            | Tustin          | 4,209                      | 7,291            | 1,592         |              | 4,305                      | 8,787       | 13,092
|Carroll Tech I *                                      | San Diego       | 511                        | 1,372            | 202           |              | 511                        | 1,574       | 2,085 
|Signal Systems Buildings *                            | San Diego       | 2,228                      | 7,264            | -             |              | 2,228                      | 7,264       | 9,492 
|Carroll Tech II *                                     | San Diego       | 1,022                      | 2,129            | 834           |              | 1,022                      | 2,963       | 3,985 
|Canyon Vista Center *                                 | San Diego       | 1,647                      | 4,598            | 453           |              | 1,647                      | 5,051       | 6,698 
|6325 Lusk Blvd. *                                     | San Diego       | 2,202                      | 3,444            | 4             |              | 2,202                      | 3,448       | 5,650 
|Jurupa Business Center Phase I                        | Ontario         | 841                        | -                | 3,812         |              | 841                        | 3,812       | 4,653 
|Jurupa Business Center Phase II                       | Ontario         | 889                        | -                | 2,865         |              | 889                        | 2,865       | 3,754 
|                                                      |                 |                            |                  |               |              |                            |             |       
|Northwest                                             |                 |                            |                  |               |              |                            |             |       
|Highlands Campus Building B *                         | Bothell, WA     | 1,762                      | -                | 5,875         |              | 1,762                      | 5,875       | 7,637 
|Highlands Campus Building C *                         | Bothell, WA     | 1,646                      | -                | 4,947         |              | 1,646                      | 4,947       | 6,593 
|                                                      |                 |                            |                  |               |              |                            |             |       
|Nevada                                                |                 |                            |                  |               |              |                            |             |       
|Russell Commerce Center                               | Las Vegas       | 3,479                      | 6,500            | (78)          | +            | 3,452                      | 6,449       | 9,901 
|Northport Business Center                             | North Las Vegas | 4,348                      | 12,009           | -             |              | 4,348                      | 12,009      | 16,357
|                                                      |                 |                            |                  |               |              |                            |             |       
|Office buildings:
Northern California                 |                 |                            |                  |               |              |                            |             |       
|Village Green *                                       | Lafayette       | 547                        | 1,245            | 641           |              | 743                        | 1,690       | 2,433 
|Carneros Commons Phase I*                             | Napa            | 500                        | -                | 4,273         |              | 500                        | 4,273       | 4,773 
|Canyon Park *                                         | San Ramon       | 1,916                      | 3,072            | 3,535         |              | 1,917                      | 6,606       | 8,523 
|Crow Canyon Centre *                                  | San Ramon       | 767                        | -                | 5,277         |              | 767                        | 5,277       | 6,044 
|3380 Cypress Drive *                                  | Petaluma        | 1,684                      | 3,704            | 1             |              | 1,685                      | 3,704       | 5,389 
|Carneros Commons Phase II*                            | Napa            | 461                        | -                | 3,941         |              | 461                        | 3,941       | 4,402 
|                                                      |                 |                            |                  |               |              |                            |             |       
|Arizona                                               |                 |                            |                  |               |              |                            |             |       
|Executive Center at Southbank *                       | Phoenix         | 4,943                      | 7,134            | 357           |              | 4,943                      | 7,491       | 12,434
|Building #1 at Phoenix Airport
Center*                | Phoenix         | 944                        | 1,541            | 176           |              | 944                        | 1,717       | 2,661 
|Phoenix Airport Center Parking *                      | Phoenix         | 1,369                      | 81               | -             |              | 1,369                      | 81          | 1,450 
|Cabrillo Executive Center *                           | Phoenix         | 475                        | 5,552            | 694           |              | 475                        | 6,246       | 6,721 
|Mountain Pointe Office Park *                         | Phoenix         | 834                        | -                | 4,954         |              | 834                        | 4,954       | 5,788 
|1355 S. Clearview Avenue*                             | Mesa            | 2,023                      | 5,383            | -             |              | 2,023                      | 5,383       | 7,406 
|                                                      |                 |                            |                  |               |              |                            |             |       





F31





|                                     |                 | Initial Cost to Company(1) | Cost Capitalized |               | Gross Amount |                            |             |       
|------------------------------------ | --------------- | -------------------------- | ---------------- | ------------- | ------------ | -------------------------- | ----------- | ------
|                                     |                 |                            | Buildings &      | Subsequent to |              | Carried at Close of Period | Accumulated | Date  
|Description                          | Location        | Land                       | Improvement      | Acquisition   |              | Land                       | Building    | Total 
|Office Buildings (continued)         |                 |                            |                  |               |              |                            |             |       
|Southern California                  |                 |                            |                  |               |              |                            |             |       
|Laguna Hills Square *                | Laguna          | 2,436                      | 3,655            | 1,264         |              | 2,436                      | 4,919       | 7,355 
|Building #3 at Carroll Tech Center * | San Diego       | 716                        | 1,400            | 203           |              | 716                        | 1,603       | 2,319 
|Scripps Wateridge *                  | San Diego       | 4,160                      | 12,472           | 22            |              | 4,160                      | 12,494      | 16,654
|Building #4 at Carroll Tech Center * | San Diego       | 2,028                      | 3,192            | 263           |              | 2,028                      | 3,455       | 5,483 
|Towne Centre Plaza*                  | Foothill Ranch  | 6,117                      | 27,927           | (51)          | +            | 6,108                      | 27,885      | 33,993
|                                     |                 |                            |                  |               |              |                            |             |       
|Northwest                            |                 |                            |                  |               |              |                            |             |       
|Time Square*                         | Renton, WA      | 10,021                     | 22,975           | 283           |              | 10,021                     | 23,258      | 33,279
|Adobe Systems Bldg. 1 *              | Seattle, WA     | -                          | 22,032           | 3,930         |              | -                          | 25,962      | 25,962
|Adobe Systems Bldg. 2 *              | Seattle, WA     | -                          | 18,618           | 3,612         |              | -                          | 22,230      | 22,230
|Highlands Campus Building A *        | Bothell, WA     | 1,989                      | -                | 7,841         |              | 1,989                      | 7,841       | 9,830 
|The Federal Way Building *           | Federal Way, WA | 2,178                      | 6,915            | 29            |              | 2,179                      | 6,943       | 9,122 
|Federal Way II*                      | Federal Way, WA | 2,465                      | 14,105           | 252           |              | 2,480                      | 14,342      | 16,822
|                                     |                 |                            |                  |               |              |                            |             |       
|Colorado                             |                 |                            |                  |               |              |                            |             |       
|Oracle Building*                     | Denver          | 1,838                      | 13,094           | 839           |              | 1,839                      | 13,932      | 15,771
|4601 DTC Building*                   | Denver          | 3,648                      | 31,193           | 3,456         |              | 3,649                      | 34,648      | 38,297
|WaterPark @ Briarwood
Building 1*    | Centennial      | 271                        | -                | 2,822         |              | 271                        | 2,822       | 3,093 
|Belleview Corporate Plaza II Office* | Denver          | 2,533                      | -                | 11,309        |              | 2,472                      | 11,370      | 13,842
|WaterPark @ Briarwood Building 2     | Centennial      | 716                        | -                | 7,778         |              | 716                        | 7,778       | 8,494 
|WaterPark @ Briarwood Building 3     | Centennial      | 716                        | -                | 5,954         |              | 716                        | 5,954       | 6,670 
|WaterPark @ Briarwood Building 4     | Centennial      | 285                        | -                | 3,129         |              | 285                        | 3,129       | 3,414 
|Bedford Center at Rampart*           | Englewood       | 3,757                      | 17,777           | 196           |              | 3,757                      | 17,973      | 21,730
|                                     |                 |                            |                  |               |              |                            |             |       
|Nevada                               |                 |                            |                  |               |              |                            |             |       
|U.S. Bank Centre*                    | Reno            | 2,102                      | 10,264           | 1,091         |              | 2,102                      | 11,355      | 13,457
|                                     |                 |                            |                  |               |              |                            |             |       
|Land held for development:           |                 |                            |                  |               |              |                            |             |       
|Scripps Land                         | San Diego, CA   | 622                        | -                | 88            |              | 710                        | -           | 710   
|Mondavi Land, Napa Lot 12G           | Northern CA     | 1,137                      | -                | 205           |              | 1,342                      | -           | 1,342 
|West Tempe Lots 30 and 31            | Tempe, AZ       | 543                        | -                | 94            |              | 637                        | -           | 637   
|210 Lafayette Circle                 | Northern CA     | 513                        | -                | 28            |              | 541                        | -           | 541   
|Belleview Corporate Plaza III, IV    | Denver, CO      | 2,094                      | -                | 27            |              | 2,121                      | -           | 2,121 
|Belleview Corporate Plaza V          | Denver, CO      | 1,561                      | -                | 267           |              | 1,828                      | -           | 1,828 

F32





|                                      |              | Initial Cost to Company(1) | Cost Capitalized | Gross Amount  |                            |             |         
|------------------------------------- | ------------ | -------------------------- | ---------------- | ------------- | -------------------------- | ----------- | --------
|                                      |              |                            | Buildings &      | Subsequent to | Carried at Close of Period | Accumulated | Date    
|Description                           | Location     | Land                       | Improvement      | Acquisition   | Land                       | Building    | Total   
|Land held for development (continued) |              |                            |                  |               |                            |             |         
|Napa Lots 9B & 8D                     | Napa, CA     | 2,133                      | -                | 33            | 2,166                      | -           | 2,166   
|Jurupa Business Center Phase III      | Ontario, CA  | 558                        | -                | 90            | 648                        | -           | 648     
|Jurupa Business Center Phase IV       | Ontario, CA  | 928                        | -                | 191           | 1,119                      | -           | 1,119   
|Napa Lot 10C                          | Napa, CA     | 1,809                      | -                | 7             | 1,816                      | -           | 1,816   
|Southshore Corporate Park Land        | Portland, OR | 956                        | -                | 187           | 1,143                      | -           | 1,143   
|                                      |              |                            |                  |               |                            |             |         
|                                      |              | $199,318                   | $465,775         | $139,214      | $200,836                   | $603,471    | $804,307
|                                      |              |                            |                  |               |                            |             | (A)     





(1) Includes adjustments for SFAS 141, Business Combinations, for 2002 and 2003 acquired properties.



(2) Depreciation for all properties is calculated using a depreciable life of 45 years.



* Property is encumbered, see footnotes 7 and 8 to the financial statements.



+ Decrease due to cash received from seller for rent subsidies.



See accompanying independent auditors report.



F33



NOTES TO SCHEDULE III

(in thousands of dollars)



(A)

An analysis of the activity in real estate investments for the years ended December 31, 2003, 2002, and 2001 is presented below in accordance with accounting principles generally accepted in the United States of America:



|                                                         | Investment |          | Accumulated Depreciation
|-------------------------------------------------------- | ---------- | -------- | ------------------------
|Depreciation                                             | 2003       | 2002     | 2001                    
|                                                         |            |          |                         
|BALANCE AT BEGINNING OF YEAR                             | $725,188   | $654,062 | $644,332                
|Add (deduct):                                            |            |          |                         
|Acquisition of Cotton Center I                           | -          | 14,681   | -                       
|Acquisition of Cotton Center II                          | -          | 12,169   | -                       
|Acquisition of So. San Francisco Business
     Center    | -          | 21,020   | -                       
|Acquisition of Philips Business Center                   | -          | 35,707   | -                       
|Acquisition of Southshore Corp. Park Land                | -          | 956      | -                       
|Acquisition of Napa Lot 10C                              | -          | -        | 1,809                   
|Sale of Bryant Street Quad (B)                           | -          | -        | (3,752)                 
|Sale of Bryant Street Annex (B)                          | -          | -        | (1,480)                 
|Sale of Expressway Corporate Center (B)                  | -          | -        | (4,828)                 
|Sale of Troika Building (C)                              | -          | -        | (4,017)                 
|Sale of Vista I (D)                                      | -          | (2,845)  | -                       
|Sale of Vista II (D)                                     | -          | (2,398)  | -                       
|Sale of Oakridge Way (D)                                 | -          | (2,964)  | -                       
|Sale of Flanders Drive (D)                               | -          | (3,419)  | -                       
|Sale of Cimarron Business Park (E)                       | -          | (6,476)  | -                       
|Sale of Monterey Commerce Center #1 (F)                  | -          | (6,241)  | -                       
|Sale of Monterey Commerce Center #2 (F)                  | -          | (2,697)  | -                       
|Sale of Monterey Commerce Center #3 (F)                  | -          | (2,522)  | -                       
|Acquisition of Roosevelt Commons                         | 7,155      | -        | -                       
|Acquisition of Russell Commerce Center                   | 9,979      | -        | -                       
|Acquisition of Towne Centre Plaza                        | 34,044     | -        | -                       
|Acquisition of Superstition Springs Commerce
     Center | 6,334      | -        | -                       
|Acquisition of Northport Business Center                 | 16,357     | -        | -                       
|Capitalized costs                                        | 5,250      | 16,155   | 21,998                  
|Depreciation                                             | -          | -        | -                       
|                                                         |            |          |                         
|BALANCE AT END OF YEAR                                   | $804,307   | $725,188 | $654,062                
|                                                         |            |          |                         
|AGGREGATE COST FOR FEDERAL
INCOME TAX PURPOSES           | $586,493   | $520,212 | $479,505                
|                                                         |            |          |                         



|(B) | The properties were sold in October 2001.  
|--- | -------------------------------------------
|(C) | The property was sold in November 2001.    
|(D) | The properties were sold in April 2002.    
|(E) | The property was sold in May 2002.         
|(F) | The properties were sold in September 2002.



F34



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 our 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 12, 2004



POWER OF ATTORNEY



Know all persons by these presents, that each person whose signature appears below constitutes and appoints Peter B. Bedford and Hanh Kihara, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.



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 capacity and on the date indicated.



/s/ Peter B. Bedford

March 12, 2004

Peter B. Bedford, Chairman of the Board

Date

and Chief Executive Officer (principal executive officer)



/s/ Anthony Downs

March 12, 2004

Anthony Downs, Director

Date



/s/ Anthony M. Frank

March 12, 2004

Anthony M. Frank, Director

Date



/s/ Peter Linneman

March 12, 2004

Peter Linneman, Director

Date



/s/ Bowen H. McCoy

March 12, 2004

Bowen H. McCoy, Director

Date



/s/ Thomas H. Nolan, Jr.

March 12, 2004

Thomas H. Nolan, Jr., Director

Date



/s/ Martin I. Zankel

March 12, 2004

Martin I. Zankel, Director

Date



/s/ Hanh Kihara

March 12, 2004

Hanh Kihara, Senior Vice President

Date

and Chief Financial Officer (principal financial officer)



/s/ Krista K. Rowland

March 12, 2004

Krista K. Rowland, Vice President and

Date

Controller (principal accounting officer)





LIST OF EXHIBITS

Exhibit No.

Exhibit



3.1(d)

Articles of Amendment and Restatement of Bedford Property Investors, Inc., filed on May 27, 2003, is incorporated herein by reference to Exhibit 3.1(d) to our Form 10-Q for the quarter ending June 30, 2003.



3.1(e)

Articles Supplementary relating to the Series A Cumulative Redeemable Preferred Stock of Bedford Property Investors, Inc., filed on August 4, 2003, is incorporated herein by reference to Exhibit 3.1(e) to our Form 10-Q for the quarter ending June 30, 2003.



3.2(b)

Second Amended and Restated Bylaws of Bedford Property Investors, Inc. are incorporated herein by reference to Exhibit 3.2(b) to our Form 10-Q for the quarter ending June 30, 2003.



4.4

Series A Cumulative Redeemable Preferred Stock Registration Rights Agreement, dated August 5, 2003, between Bedford Property Investors, Inc. and RBC Dain Rauscher Inc. is incorporated herein by reference to Exhibit 4.4 to our Form 10-Q for the quarter ending June 30, 2003.



10.13

Promissory Note, dated as of March 20, 1996, by and between Bedford Property Investors, Inc. and Prudential Insurance Company of America, is incorporated herein by reference to Exhibit 10.13 to our Amendment No. 1 to our Registration Statement on Form S-2 (File No. 333-00921) filed on March 29, 1996.



10.15

Our Dividend Reinvestment and Stock Purchase Plan is incorporated herein by reference to our post-effective Amendment No. 1 to our Registration Statement on Form S-3 (File No. 333-33795) filed on November 20, 1997.



10.16

Our Amended and Restated Employee Stock Plan is incorporated herein by reference to Exhibit 10.16 to our Form 10-K for the year ended December 31, 1997.



10.18

Our Amended and Restated 1992 Directors Stock Option Plan is incorporated herein by reference to Exhibit 10.18 to our Form 10-K for the year ended December 31, 1997.



10.22

Promissory Note, dated as of May 28, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.22 to our Form 10-Q for the quarter ended June 30, 1999.



10.23

Promissory Note, dated as of May 28, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.23 to our Form 10-Q for the quarter ended June 30, 1999.



10.24

Promissory Note, dated as of May 28, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.24 to our Form 10-Q for the quarter ended June 30, 1999.



10.28

Promissory Note, dated as of November 22, 1999, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.28 to our Form 10-K for the year ended December 31, 1999.



10.29

Loan Agreement, dated as of July 27, 2000, by and between Bedford Property Investors, Inc. and Security Life of Denver Insurance Company, is incorporated herein by reference to Exhibit 10.29 to our Form 10-Q for the quarter ended June 30, 2000.



10.30

Loan Agreement, dated as of July 27, 2000, by and between Bedford Property Investors, Inc. and Security Life of Denver Insurance Company, is incorporated herein by reference to Exhibit 10.30 to our Form 10-Q for the quarter ended June 30, 2000.



10.31

Amended and Restated Promissory Note, dated as of May 24, 1996, by and between Bedford Property Investors, Inc. and Prudential Insurance Company of America, is incorporated herein by reference to Exhibit 10.13 to our Form 10-Q for the quarter ended June 30, 1996.



10.32

Loan Agreement, dated as of January 30, 1998, by and between Bedford Property Investors, Inc. and Prudential Insurance Company of America, is incorporated herein by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 1997.



10.35

Fifth Amended and Restated Credit Agreement, dated May 18, 2001, by and among Bedford Property Investors, Inc., Bank of America, National Association as Administrative Agent for the banks party thereto, Union Bank of California, N.A. as Co-Agent, Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager and the other banks party thereto, is incorporated herein by reference to Exhibit 10.35 to our Form 10-Q for the quarter ended June 30, 2001.



10.36

Promissory Note, dated as of July 23, 2001, by and between Bedford Property Investors, Inc. and Washington Mutual Bank, is incorporated herein by reference to Exhibit 10.36 to our Form 10-Q for the quarter ended June 30, 2001.



10.40

Amended and Restated Promissory Note, dated as of November 19, 2001, by and between Bedford Property Investors, Inc. and Union Bank of California, N.A., is incorporated herein by reference to Exhibit 10.40 to our Form 10-K for the year ended December 31, 2001.



10.41

Purchase Agreement and Escrow Instructions, Financial Agreement, and Holdback Escrow Agreement, each dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and Dared 80, LLC, are incorporated herein by reference to Exhibit 10.41 to our Form 8-K filed on September 24, 2002.



10.42

Real Estate Sale Agreement dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and EOP-Industrial Portfolio, LLC, is incorporated herein by reference to Exhibit 10.42 to our Form 8-K filed on September 24, 2002.



10.43

First Amendment, dated as of August 6, 2002, to the Real Estate Sale Agreement, dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and EOP-Industrial Portfolio, LLC, is incorporated herein by reference to Exhibit 10.43 to our Form 8-K filed on September 24, 2002.



10.44

Second Amendment, dated as of August 14, 2002, to the Real Estate Sale Agreement, dated as of July 17, 2002, by and between Bedford Property Investors, Inc. and EOP-Industrial Portfolio, LLC, is incorporated herein by reference to Exhibit 10.44 to our Form 8-K filed on September 24, 2002.



10.45

Purchase Agreement and Escrow Instructions, dated as of July 26, 2002, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.45 to our Form 8-K filed on September 24, 2002.



10.47

Note, dated as of October 7, 2002, by and between Bedford Property Investors, Inc. and Nationwide Life Insurance Company, is incorporated herein by reference to Exhibit 10.47 to our Form 10-Q for the quarter ended September 30, 2002.



10.48

Promissory Note, dated as of March 28, 2003, by and between Bedford Property Investors, Inc. and Teachers Insurance and Annuity Association of America, is incorporated herein by reference to Exhibit 10.48 to our Form 10-Q for the quarter ending March 31, 2003.



10.49

Form of Retention Agreement is incorporated herein by reference to Exhibit 10.49 to our Form 10-Q for the quarter ending June 30, 2003.





10.50

Interest Rate Protection Agreement, dated as of July 3, 2003, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporated herein by reference to Exhibit 10.50 to our Form 10-Q for the quarter ending June 30, 2003.



10.51

Master Agreement, dated as of March 15, 2002, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporated herein by reference to Exhibit 10.51 to our Form 10-Q for the quarter ending June 30, 2003.



10.52

Second Amendment to Employment Agreement, dated as of July 15, 2003, by and between Peter B. Bedford and Bedford Property Investors, Inc., is incorporated herein by reference to Exhibit 10.52 to our Form 10-Q for the quarter ending June 30, 2003.



10.53

2003 Employee Stock Plan of Bedford Property Investors, Inc., dated May 13, 2003, as amended on August 6, 2003, is incorporated herein by reference to Exhibit 10.53 to our Form 10-Q for the quarter ending June 30, 2003.



10.54

Promissory Note, dated as of October 30, 2003, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporated herein by reference to Exhibit 10.54 to our Form 10-Q for the quarter ending September 30, 2003.



10.55

Promissory Note, dated as of November 3, 2003, by and between Bedford Property Investors, Inc. and Bank of America, N.A., is incorporated herein by reference to Exhibit 10.55 to our Form 10-Q for the quarter ending September 30, 2003.



10.56

Fixed Rate Note, dated as of November 3, 2003, by and between Bedford Property Investors, Inc. and J.P. Morgan Chase Bank, is incorporated herein by reference to Exhibit 10.56 to our Form 10-Q for the quarter ending September 30, 2003.



10.57

Purchase and Sale Agreement, dated as of June 16, 2003, by and between Bedford Property Investors, Inc. and Roosevelt Commons Limited Partnership, is incorporated herein by reference to Exhibit 10.57 to our Form 8-K filed on December 12, 2003.



10.58

Amendment, dated as of July 16, 2003, to the Purchase and Sale Agreement, dated as of June 16, 2003, by and between Bedford Property Investors, Inc. and Roosevelt Commons Limited Partnership, is incorporated herein by reference to Exhibit 10.58 to our Form 8-K filed on December 12, 2003.



10.59

Second Amendment, dated as of July 31, 2003, to the Purchase and Sale Agreement, dated as of June 16, 2003, by and between Bedford Property Investors, Inc. and Roosevelt Commons Limited Partnership, is incorporated herein by reference to Exhibit 10.59 to our Form 8-K filed on December 12, 2003.



10.60

Purchase Agreement and Escrow Instructions, dated as of June 9, 2003, by and between Bedford Property Investors, Inc. and Arville & Russell, LLC, is incorporated herein by reference to Exhibit 10.60 to our Form 8-K filed on December 12, 2003.



10.61

Amendment, dated as of August 18, 2003, to the Escrow Instructions, dated as of June 9, 2003, by and between Bedford Property Investors, Inc. and Arville & Russell, LLC, is incorporated herein by reference to Exhibit 10.61 to our Form 8-K filed on December 12, 2003.



10.62

Purchase Agreement and Escrow Instructions, dated as of October 2, 2003, by and between Bedford Property Investors, Inc. and Foothill-Operon I, LLC, is incorporated herein by reference to Exhibit 10.62 to our Form 8-K filed on December 12, 2003.



10.63

Purchase Agreement and Escrow Instructions, dated as of August 29, 2003, by and between Bedford Property Investors, Inc. and CWA Acquisition, LLC, is incorporated herein by reference to Exhibit 10.63 to our Form 8-K filed on December 12, 2003.



10.64

Purchase Agreement and Escrow Instructions, dated as of November 4, 2003, by and between Bedford Property Investors, Inc. and Jackson-Shaw/Northport Limited Partnership, is incorporated herein by reference to Exhibit 10.64 to our Form 8-K filed on December 12, 2003.



10.65*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Laguna Hills Square SPE, Inc. and John Hancock Life Insurance Company.



10.66*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Petaluma SPE, Inc. and John Hancock Life Insurance Company.



10.67*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Philips Business Center SPE, Inc. and John Hancock Life Insurance Company.



10.68*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Phoenix Tech Center SPE, Inc. and John Hancock Life Insurance Company.



10.69*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Rio Salado SPE, Inc. and John Hancock Life Insurance Company.



10.70*

Deed of Trust Note, dated as of November 25, 2003, by and between Bedford Village Green SPE, Inc. and John Hancock Life Insurance Company.



12*

Statement regarding Computation of Ratio of Earnings to Fixed Charges.



16.1

Letter from KPMG LLP to the Securities and Exchange Commission re Change in Certifying Accountant is incorporated herein by reference to Exhibit 16.1 to our Form 8-K filed on March 20, 2003.



21*

List of Subsidiaries.



23.1*

Consent of KPMG LLP.



23.2*

Consent of PricewaterhouseCoopers LLP.



24*

Power of Attorney (see signature page).



31.1*

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



31.2*

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



32.1*

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002.



32.2*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002.





* Filed herewith