UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                    FORM 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

                          COMMISSION FILE NUMBER 1-8383


                          MISSION WEST PROPERTIES, INC.
             (Exact name of registrant as specified in its charter)

            Maryland                                   95-2635431
            --------                                   ----------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

                               10050 Bandley Drive
                        Cupertino, California 95014-2188
                    (Address of principal executive offices)

      Registrant's telephone number, including area code is (408) 725-0700
                                   -----------


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  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS

  Indicate the number of shares outstanding of each of the issuer's classes of
                 common stock as of the latest practicable date:

                 18,247,191 shares outstanding as of May 9, 2005




<PAGE>

                          MISSION WEST PROPERTIES, INC.

                                    FORM 10-Q
                      FOR THE QUARTER ENDED MARCH 31, 2005


<TABLE>
<CAPTION>
                                      INDEX

                                                                                                                     PAGE

PART I        FINANCIAL INFORMATION                                                                                  ----
<S>          <C>                                                                                                    <C>
   Item 1.    Financial Statements:

              Consolidated Balance Sheets as of March 31, 2005 (unaudited)
              and December 31, 2004 ..................................................................................2

              Consolidated Statements of Operations for the
              three months ended March 31, 2005 and 2004 (unaudited)..................................................3

              Consolidated Statements of Cash Flows for the
              three months ended March 31, 2005 and 2004 (unaudited)..................................................4

              Notes to Consolidated Financial Statements (unaudited)..................................................5

   Item 2.    Management's Discussion and Analysis of Financial
              Condition and Results of Operations....................................................................11

   Item 3.    Quantitative and Qualitative Disclosures about Market Risk.............................................21

   Item 4.    Controls and Procedures................................................................................22


PART II       OTHER INFORMATION

   Item 1.    Legal Proceedings......................................................................................23

   Item 6.    Exhibits and Reports on Form 8-K.......................................................................23

SIGNATURES...........................................................................................................24
</TABLE>

Exhibit Index

Certifications

Section 1350 Certification

                                     - 1 -
<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                          MISSION WEST PROPERTIES, INC.
                           CONSOLIDATED BALANCE SHEETS
           (dollars in thousands, except share and per share amounts)

                                    ---------
<TABLE>
<CAPTION>
                                                                                    March 31, 2005         December 31, 2004
                                                                                 ---------------------   ----------------------
                                     ASSETS                                          (Unaudited)
Real estate assets, at cost:
<S>                                                                                  <C>                     <C>
    Land                                                                              $  277,647              $  273,663
    Buildings and improvements                                                           777,925                 770,757
    Real estate related intangible assets                                                 18,284                  18,284
                                                                                 ---------------------   ----------------------
       Total investments in properties                                                 1,073,856               1,062,704
    Less accumulated depreciation and amortization                                      (115,655)               (110,062)
    Assets held for sale, net of accumulated depreciation of $1,578 at 12/31/04                -                   8,221
                                                                                 ---------------------   ----------------------
       Net investments in properties                                                     958,201                 960,863
Cash and cash equivalents                                                                  2,561                   1,519
Restricted cash                                                                            1,551                   1,551
Note receivable, net of deferred gain on sale of real estate of $1,345 at 3/31/05          2,714                       -
Deferred rent receivable, net of $2,000 allowance at 3/31/05 and 12/31/04                 19,126                  18,511
Investment in unconsolidated joint venture                                                 3,298                   3,559
Other assets, net of accumulated amortization of $6,184 and $5,667
    at March 31, 2005 and December 31, 2004, respectively                                 24,130                  19,653
                                                                                 ---------------------   ----------------------
       Total assets                                                                   $1,011,581              $1,005,656
                                                                                 =====================   ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Line of credit (related parties)                                                  $    7,910              $    9,560
    Revolving line of credit                                                              32,504                  24,208
    Mortgage notes payable                                                               290,855                 292,822
    Mortgage notes payable (related parties)                                              10,330                  10,420
    Interest payable                                                                         327                     327
    Security deposits                                                                      8,101                   8,544
    Deferred rental income                                                                12,659                  11,038
    Liabilities related to assets held for sale                                                -                      14
    Dividend/distribution payable                                                         16,718                  16,718
    Accounts payable and accrued expenses                                                  9,670                   6,704
                                                                                 ---------------------   ----------------------
       Total liabilities                                                                 389,074                 380,355

Commitments and contingencies

Minority interests                                                                       509,255                 512,089

Stockholders' equity:
    Preferred stock, $.001 par value, 20,000,000 shares authorized,
       none issued and outstanding                                                             -                       -
    Common stock, $.001 par value, 200,000,000 shares authorized,
       18,147,191 and 18,097,191 shares issued and outstanding
       at 3/31/05 and 12/31/04, respectively                                                  18                      18
    Paid-in-capital                                                                      135,075                 134,539
    Accumulated deficit                                                                  (21,841)                (21,345)
                                                                                 ---------------------   ----------------------
       Total stockholders' equity                                                        113,252                 113,212
                                                                                 ---------------------   ----------------------
     Total liabilities and stockholders' equity                                       $1,011,581              $1,005,656
                                                                                 =====================   ======================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     - 2 -
<PAGE>


                          MISSION WEST PROPERTIES, INC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           (dollars in thousands, except share and per share amounts)
                                   (Unaudited)
                                    ---------

<TABLE>
<CAPTION>
                                                               Three months ended March 31,
                                                                2005                 2004
                                                         -------------------- -------------------
Revenues:
<S>                                                          <C>                  <C>
   Rental revenue from real estate                               $26,247              $31,210
   Tenant reimbursements                                           3,628                4,168
   Other income, including interest                                  303                  394
                                                         -------------------- -------------------
        Total revenues                                            30,178               35,772
                                                         -------------------- -------------------

Expenses:
   Property operating, maintenance and real estate taxes           4,889                5,455
   Interest                                                        4,647                4,363
   Interest (related parties)                                        307                  252
   General and administrative                                        675                  348
   Depreciation and amortization of real estate                    5,574                5,440
                                                         -------------------- -------------------
        Total expenses                                            16,092               15,858
                                                         -------------------- -------------------

Income before equity in earnings of unconsolidated joint
   venture and minority interests                                 14,086               19,914
Equity in (loss)/earnings of unconsolidated joint venture             (6)                 591
Minority interests                                               (11,677)             (17,044)
                                                         -------------------- -------------------
   Income from continuing operations                               2,403                3,461
                                                         -------------------- -------------------

Discontinued operations, net minority interests:
Gain from disposal of discontinued operations                         14                    -
(Loss)/income attributable to discontinued operations                 (9)                  62
                                                         -------------------- -------------------
   Income from discontinued operations                                 5                   62
                                                         -------------------- -------------------

Net income to common stockholders                                $ 2,408              $ 3,523
                                                         ==================== ===================
Net income to minority interests                                 $11,695              $17,269
                                                         ==================== ===================
Income per share from continuing operations:
   Basic                                                           $0.13                $0.19
                                                         ==================== ===================
   Diluted                                                         $0.13                $0.19
                                                         ==================== ===================
Income per share from discontinued operations:
   Basic                                                               -                $0.01
                                                         ==================== ===================
   Diluted                                                             -                    -
                                                         ==================== ===================
Net income per share to common stockholders:
   Basic                                                           $0.13                $0.20
                                                         ==================== ===================
   Diluted                                                         $0.13                $0.19
                                                         ==================== ===================
Weighted average shares of
  common stock outstanding (basic)                            18,110,524           17,969,416
                                                         ==================== ===================
Weighted average shares of
  common stock outstanding (diluted)                          18,136,797           18,075,262
                                                         ==================== ===================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     - 3 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
                                   (Unaudited)
                                    ---------

<TABLE>
<CAPTION>
                                                                                                   Three months ended March 31,
                                                                                                     2005                2004
                                                                                              ------------------- ------------------
Cash flows from operating activities:
<S>                                                                                               <C>                  <C>
     Income from continuing operations                                                             $ 2,403              $ 3,461
     Adjustments to reconcile net income to net cash provided by operating activities:
            Gain from disposal of discontinued operations                                               14                    -
            (Loss)/income attributable to discontinued operations                                       (9)                  62
            Minority interests                                                                      11,695               17,269
            Depreciation and amortization of real estate and in place leases                         5,606                5,523
            Amortization of above market rent intangible asset                                         472                  472
            Equity in loss/(earnings) of unconsolidated joint venture                                    6                 (591)
            Distributions from unconsolidated joint venture                                            255                  500
     Changes in operating assets and liabilities, net of liabilities assumed:
            Deferred rent receivable                                                                  (615)                  67
            Other assets                                                                            (4,477)               1,957
            Security deposits                                                                         (443)                (552)
            Deferred rental income                                                                   2,967                  592
            Accounts payable and accrued expenses                                                    2,966                3,294
                                                                                              ------------------- ------------------
     Net cash provided by operating activities                                                      20,840               32,054
                                                                                              ------------------- ------------------

Cash flows from investing activities:
     Improvements to real estate assets                                                               (285)                (115)
     Proceeds from sales of properties                                                              11,041                    -
     Note receivable from sale of real estate                                                       (4,060)                   -
     Purchase of real estate                                                                       (14,184)                   -
                                                                                              ------------------- ------------------
     Net cash used in investing activities                                                          (7,488)                (115)
                                                                                              ------------------- ------------------

Cash flows from financing activities:
    Principal payments on mortgage notes payable                                                    (1,967)              (1,294)
    Principal payments on mortgage notes payable (related parties)                                     (90)                 (83)
    Net payments under line of credit (related parties)                                             (1,651)              (3,363)
    Payment on revolving line of credit                                                                  -               (3,155)
    Proceeds from revolving line of credit                                                           8,296                    -
    Proceeds from stock options exercised                                                                -                  165
    Minority interest distributions                                                                (14,002)             (20,949)
    Dividends                                                                                       (2,896)              (4,295)
                                                                                              ------------------- ------------------
     Net cash used in financing activities                                                         (12,310)             (32,974)
                                                                                              ------------------- ------------------
     Net increase/(decrease) in cash and cash equivalents                                            1,042               (1,035)
Cash and cash equivalents, beginning of period                                                       1,519                4,129
                                                                                              ------------------- ------------------
Cash and cash equivalents, ending of period                                                        $ 2,561              $ 3,094
                                                                                              =================== ==================
Supplemental information:
    Cash paid for interest                                                                         $ 4,864              $ 4,514
                                                                                              =================== ==================
Supplemental schedule of non-cash investing and financing activities:
    Issuance of common stock upon conversion of O.P units                                          $   535              $ 1,302
                                                                                              =================== ==================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     - 4 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (Dollars in thousands, except share, per share, O.P. Units and
                          per square footage amounts)
                                   (Unaudited)

     The Company's consolidated financial statements have been prepared pursuant
     to the Securities and Exchange  Commission's ("SEC") rules and regulations.
     The following notes,  which present interim  disclosures as required by the
     SEC, highlight  significant  changes to the notes to the Company's December
     31,  2004  audited  consolidated  financial  statements  and should be read
     together with the financial  statements  and notes thereto  included in the
     Company's  Form 10-K.  The results of operations for the three months ended
     March 31, 2005 are not necessarily indicative of the results to be expected
     for the entire year.

1.   ORGANIZATION AND FORMATION OF THE COMPANY

     Mission  West  Properties,  Inc.  ("the  Company")  is a fully  integrated,
     self-administered  and  self-managed  real estate company that acquires and
     manages R&D/office  properties in the portion of the San Francisco Bay Area
     commonly referred to as Silicon Valley. In July 1998, the Company purchased
     an approximate  12.11% of four existing limited  partnerships  (referred to
     collectively as the "operating partnerships") and obtained control of these
     partnerships  by becoming  the sole general  partner in each one  effective
     July 1, 1998 for financial  accounting and reporting purposes.  The Company
     purchased  an  approximate   12.11%  interest  in  each  of  the  operating
     partnerships.   All  limited   partnership   interests  in  the   operating
     partnerships were converted into 59,479,633 operating  partnership ("O.P.")
     units,  which  represented  a limited  partnership  ownership  interest  of
     approximately   87.89%  of  the  operating   partnerships.   The  operating
     partnerships  are the  vehicles  through  which the Company  holds its real
     estate investments,  makes real estate acquisitions, and generally conducts
     its business.

     On December 30, 1998, the Company was reincorporated  under the laws of the
     State of Maryland  through a merger with and into Mission West  Properties,
     Inc. Accordingly,  shares of the former company, Mission West Properties, a
     California  corporation  (no par),  which were  outstanding at December 30,
     1998,  were  converted  into  shares of common  stock  ($.001 par value per
     share) on a one-for-one basis.

     As of March 31, 2005,  the Company owns a controlling  general  partnership
     interest of 17.19%,  21.63%,  16.14% and 12.38% in Mission West Properties,
     L.P., Mission West Properties, L.P. I, Mission West Properties, L.P. II and
     Mission West  Properties,  L.P.  III,  respectively,  for a 17.33%  general
     partnership interest in the operating partnerships,  taken as a whole, on a
     consolidated weighted average basis.

     Through the operating  partnerships,  the Company owns interests in 108 R&D
     properties, all of which are located in Silicon Valley.

     The  Company  has  elected to be taxed as a real  estate  investment  trust
     ("REIT") under the Internal Revenue Code of 1986, as amended.  Accordingly,
     no  provision  has been made for income  taxes for the three  months  ended
     March 31, 2005.

     BUSINESS SEGMENT INFORMATION
     The  Company's   primary  business  is  the  ownership  and  management  of
     R&D/office  real  estate  with a  geographic  concentration  in the Silicon
     Valley  of the  San  Francisco  Bay  Area.  Accordingly,  the  Company  has
     concluded it  currently  has a single  reportable  segment for SFAS No. 131
     purposes.

2.   BASIS OF PRESENTATION

     PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION
     The accompanying  consolidated financial statements include the accounts of
     Mission West Properties,  Inc. and its controlled  subsidiaries,  including
     the operating partnerships. All significant intercompany balances have been
     eliminated in consolidation.  The consolidated  financial  statements as of
     and for the three months ended March 31, 2005 and 2004 and related footnote
     disclosures  are unaudited.  In the opinion of  management,  such financial
     statements reflect all adjustments necessary for a fair presentation of the
     results  of the  interim  periods.  All  such  adjustments  are of a normal
     recurring nature.

     MINORITY INTERESTS
     Minority  interest   represents  the  separate  private  ownership  of  the
     operating  partnerships  by the Berg Group  (defined  as Carl E. Berg,  his
     brother Clyde J. Berg, members of their respective immediate families,  and
     certain entities they control) and other non-affiliate interests. In total,
     these interests account for approximately 83% of the ownership interests in
     the real estate  operations  of the Company as of March 31, 2005.  Minority
     interest  in net  income  is  calculated  by taking  the net  income of the
     operating   partnerships  (on  a  stand-alone   basis)  multiplied  by  the
     respective minority interest ownership percentage.

     RECLASSIFICATIONS
     Certain  reclassifications  have been made to the previously  reported 2004
     statements in order to conform to the 2005 presentation.

                                     - 5 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
                         NOTES TO CONSOLIDATED FINANCIAL
                              STATEMENTS, CONTINUED
         (Dollars in thousands, except share, per share, O.P. Units and
                          per square footage amounts)
                                   (Unaudited)

     ACCOUNTING FOR STOCK-BASED COMPENSATION
     SFAS No. 123, "Accounting for Stock-Based  Compensation,"  encourages,  but
     does not require  companies  to record  compensation  cost for  stock-based
     employee  compensation  plans at fair  value.  The  Company  has  chosen to
     continue to account for stock-based  compensation using the intrinsic value
     method  prescribed in Accounting  Principles  Board Opinion ("APB") No. 25,
     "Accounting  for Stock Issued to  Employees"  and related  interpretations.
     Accordingly, compensation cost for stock options is measured as the excess,
     if any, of the quoted  market price of the  Company's  stock at the date of
     the grant over the amount an employee must pay to acquire the stock.

     The  following  table   illustrates  the  unaudited  pro  forma  effect  on
     consolidated net income  available to common  shareholders and consolidated
     earnings  per  share if the fair  value  method  had  been  applied  to all
     outstanding and unvested stock options for the three months ended March 31,
     2005 and 2004.

<TABLE>
<CAPTION>
                                                                       Three Months Ended March 31,
                                                                           2005             2004
                                                                      ---------------  ---------------
                                                                (dollars in thousands, except per share data)
<S>                                                                       <C>              <C>
       Historical net income to common stockholders                        $2,408           $3,523
       Deduct compensation expense for stock options determined
          under fair value based method                                       (27)             (44)
       Allocation of expense to minority interest                              18               36
                                                                      ---------------  ---------------
       Pro forma net income to common stockholders                         $2,399           $3,515
                                                                      ===============  ===============

       Earnings per share - basic:
       Historical net income to common stockholders
                                                                          $0.13            $0.20
       Pro forma net income to common stockholders
                                                                          $0.13            $0.20
       Earnings per share - diluted:
       Historical net income to common stockholders
                                                                          $0.13            $0.19
       Pro forma net income to common stockholders
                                                                          $0.13            $0.19
</TABLE>

     No stock options were granted during the first three months of 2005.

3.   REAL ESTATE

     PROPERTY DISPOSITION
     During the first  quarter 2005,  the Company  completed the sale of two R&D
     properties  consisting of 103,350  rentable square feet,  which include the
     R&D  properties at 3120 Scott  Boulevard,  Santa Clara,  California and 405
     Tasman Drive,  Sunnyvale,  California.  A loss of approximately  $2,200 was
     realized on the total sales price of $8,500 for the 3120 Scott property and
     was provided for in the fourth quarter 2004 as an asset  impairment  charge
     under  discontinued  operations.  A total  estimated gain of  approximately
     $1,400  will be  recognized  on the total sales price of $4,250 for the 405
     Tasman  property.  The  gain  will be  recognized  as  income  based on the
     installment  method  of profit  recognition  since the buyer has not made a
     sufficient  down payment.  The Company  received a secured note  receivable
     from the buyer of 405 Tasman property for $4,060,  which is being presented
     on the consolidated balance sheets net of the $1,345 deferred gain at March
     31, 2005. The note receivable is non-interest bearing until August 2005, at
     which  time a $400  payment  is due and  interest  accrues  at 5%,  and the
     remaining balance of $3,660 is due in November 2005.

     PROPERTY ACQUISITIONS
     In the first quarter 2005, the Company  acquired a 203,800  rentable square
     foot  vacant  R&D  property  located  at 5521  Hellyer  Avenue in San Jose,
     California.  The total acquisition price for the property was approximately
     $14,000.  The Company has allocated the purchase  price to land,  building,
     and building  improvements based upon the estimated relative fair values of
     such assets.  Since the property was acquired vacant, there was no purchase
     price  allocation to lease  intangible  assets.  The allocation of purchase
     price has not yet been finalized.

4.   STOCK TRANSACTIONS

     During the three months ended March 31, 2005, one limited partner exchanged
     50,000 O.P. units for 50,000 shares of the Company's common stock under the
     terms of the December 1998 Exchange Rights  Agreement among the Company and
     all limited partners of the operating partnerships.

                                     - 6 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
                         NOTES TO CONSOLIDATED FINANCIAL
                              STATEMENTS, CONTINUED
         (Dollars in thousands, except share, per share, O.P. Units and
                          per square footage amounts)
                                   (Unaudited)

5.   DISCONTINUED OPERATIONS

     Effective  January  1,  2002,  the  Company  adopted  SFAS No.  144,  which
     addresses  financial  accounting  and  reporting  for  the  impairment  and
     disposal of long lived assets.  In general,  income or loss attributable to
     the operations and sale of property, and the operations related to property
     held  for  sale,   are  classified  as   discontinued   operations  in  the
     consolidated statements of operations. Prior period consolidated statements
     of operations  presented in this report have been  reclassified  to reflect
     the income or loss  related to  properties  that were held for sale or sold
     and  presented  as  discontinued  operations  during the three months ended
     March 31,  2005.  Additionally,  all periods  presented in this report will
     likely  require  further  reclassification  in future periods if additional
     properties are held for sale or property sales occur.

     As of March 31, 2005, there were no properties under contract to be sold or
     otherwise  disposed  of which  would  qualify  as an asset held for sale or
     discontinued operation.

     During the first  quarter of 2005,  the Company sold two  properties  for a
     combined sales price of $12,750.  See Note 3 above for additional  details.
     Condensed  results of operations for these  properties for the three months
     ended March 31, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                                                      For the Three Months Ended March 31,
                                                                           2005                   2004
                                                                   --------------------    -------------------
                                                                              (dollars in thousands)
                                                                                   (Unaudited)
         Revenues
<S>                                                                      <C>                    <C>
            Rental revenue from real estate                               $ 14                   $ 366
            Tenant reimbursements                                            1                      50
                                                                   --------------------    -------------------
               Total revenues                                               15                     416
                                                                   --------------------    -------------------

         Expenses
            Property operating, maintenance and real estate taxes           22                      46
            Depreciation                                                    33                      82
                                                                   --------------------    -------------------
              Total expenses                                                55                     128
                                                                   --------------------    -------------------

         (Loss)/income from discontinued operations                        (40)                    288
         Gain on disposition of property                                    63                       -
         Minority interest in earnings attributable to
             discontinued operations                                       (18)                   (226)
                                                                   --------------------    -------------------
         (Loss)/income from discontinued operations                       $  5                   $  62
                                                                   ====================    ===================
</TABLE>

     For  the  three  months  ended  March  31,  2005  and  2004,   income  from
     discontinued  operations included results of operations from two properties
     that were sold in the first quarter of 2005.

     A deferred gain of approximately $1,400 was recorded on one of the disposed
     properties.  The recognized gain will be based on the installment method of
     profit  recognition  since the buyer has not made a sufficient down payment
     established  by Statement of Financial  Accounting  Standards No. 66 ("SFAS
     No.  66"),  Accounting  for Sales of Real Estate.  SFAS No. 66  establishes
     accounting  standards  for  recognizing  profit  or loss on  sales  of real
     estate.  The gain on the  sale is only  recognized  proportionately  as the
     seller receives payments from the purchaser.  Interest income is recognized
     on an accrual basis, when  appropriate.  The Company recorded a $63 gain in
     the first quarter 2005, and the balance of the expected gain is deferred.

     As of March 31, 2005, the note receivable from the 405 Tasman property sale
     was approximately $2,714, net of the expected deferred gain on sale of real
     estate of $1,345.

6.   NET INCOME PER SHARE

     Basic  operating net income per share is computed by dividing net income by
     the weighted  average number of common shares  outstanding  for the period.
     Diluted  operating  net income per share is computed by dividing net income
     by the sum of the weighted-average  number of common shares outstanding for
     the period plus the assumed  exercise of all dilutive  securities using the
     treasury stock method.

                                     - 7 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
                         NOTES TO CONSOLIDATED FINANCIAL
                              STATEMENTS, CONTINUED
         (Dollars in thousands, except share, per share, O.P. Units and
                          per square footage amounts)
                                   (Unaudited)

     The computation for weighted average shares is detailed below:

<TABLE>
<CAPTION>
                                                            Three Months Ended March 31,
                                                               2005              2004
                                                         ---------------    --------------
<S>                                                       <C>                <C>
         Weighted average shares outstanding (basic)       18,110,524         17,969,416
         Incremental shares from assumed option exercise       26,273            105,846
                                                         ---------------    --------------
         Weighted average shares outstanding (diluted)     18,136,797         18,075,262
                                                         ===============    ==============
</TABLE>

     Outstanding  options to purchase  647,000 shares in 2005 were excluded from
     the  computation  of diluted net income per share under the treasury  stock
     method  because the option  exercise  price was greater  than the  weighted
     average  exercise  price of the Company's  common stock during that period.
     The  outstanding  O.P. units,  which are  exchangeable at the unit holder's
     option,  subject to  certain  conditions,  for shares of common  stock on a
     one-for-one  basis have been excluded from the diluted net income per share
     calculation,  as there would be no effect on the  calculation  after adding
     the  minority  interests'  share of income  back to net  income.  The total
     number of O.P. units  outstanding at March 31, 2005 and 2004 was 86,334,695
     and 86,467,195, respectively.

7.   RELATED PARTY TRANSACTIONS

     As of March 31, 2005, the Berg Group owned  77,577,528 O.P. units. The Berg
     Group's ownership as of March 31, 2005 represented approximately 74% of the
     equity  interests,   assuming  conversion  of  the  86,334,695  O.P.  units
     outstanding into the Company's common stock.

     The Berg Group  $20,000 line of credit bears  interest at LIBOR plus 1.30%,
     which  was 4.69% as of March 31,  2005,  and  matures  in March  2006.  The
     Company  believes  that the terms of the Berg Group line of credit are more
     favorable than those  available from  commercial  lenders.  As of March 31,
     2005, debt in the amount of $7,910 was due the Berg Group under the line of
     credit,  and debt in the amount of $10,330  was due the Berg Group  under a
     mortgage note  established  May 15, 2000 in connection with the acquisition
     of a 50% interest in Hellyer Avenue Limited Partnership,  the obligor under
     the mortgage  note.  The mortgage  note bears  interest at 7.65% and is due
     June 2010 with principal payments amortized over 20 years. Interest expense
     incurred in connection with the Berg Group line of credit and mortgage note
     was $307 and $252 for the  three  months  ended  March  31,  2005 and 2004,
     respectively.

     During the first  three  months of 2005 and 2004,  Carl E. Berg or entities
     controlled by Mr. Berg held financial  interests in several  companies that
     lease space from the operating partnerships,  which include three companies
     where Mr. Berg has a greater than 10%  ownership  interest.  These  related
     tenants occupy  approximately  48,000 square feet and  contributed  $217 in
     rental revenue for each of the three-month periods ended March 31, 2005 and
     2004.  Under the Company's  charter,  bylaws and  agreements  with the Berg
     Group,  the  individual  members  of the Berg  Group  are  prohibited  from
     acquiring shares of the Company's  common stock if such  acquisition  would
     result in their  beneficial  ownership  percentage of the Company's  common
     stock causing the Company to violate any REIT qualification requirement.

     The Berg Group has an approximately  $2,500  commitment to complete certain
     tenant  improvements in connection  with the Company's 2002  acquisition of
     5345 Hellyer Avenue in San Jose.  The Company  recorded this portion of its
     purchase  consideration  paid to the Berg  Group  as an Other  Asset on its
     Consolidated   Balance  Sheets.  The  Berg  Group  plans  to  satisfy  this
     commitment to complete  certain tenant  improvements  when requested by the
     Company  following the approval of the Independent  Directors  Committee of
     the Company's board of directors (the "Independent Directors Committee").

     The Berg  Group has an  approximately  $7,500  commitment  to  complete  an
     approximately  75,000 to 90,000 square foot building in connection with the
     Company's 2001  acquisition of 245 Caspian in Sunnyvale  which is comprised
     of approximately  three acres of unimproved land. The Company recorded this
     portion of its  purchase  consideration  paid to the Berg Group as an Other
     Asset on its Consolidated  Balance Sheets.  The Berg Group plans to satisfy
     this  commitment  to  construct a building  when  requested  by the Company
     following the approval of the Independent Directors Committee.

     The Company currently leases office space owned by Berg & Berg Enterprises,
     Inc.,  an affiliate of Carl E. Berg and Clyde J. Berg.  Rental  amounts and
     overhead reimbursements paid to Berg & Berg Enterprises,  Inc. were $23 for
     each of the three-month periods ended March 31, 2005 and 2004.

8.   COMMITMENTS AND CONTINGENCIES

     Neither the  operating  partnerships,  the  properties  nor the Company are
     subject to any material litigation nor, to the Company's knowledge,  is any
     material  litigation  threatened  against the operating  partnerships,  the
     properties  or the  Company.  From time to time,  the Company is engaged in
     legal proceedings  arising in the ordinary course of business.  The Company
     does not expect any of such  proceedings to have a material  adverse effect
     on its cash  flows,  financial  condition  or  results of  operations.  The
     Company is

                                     - 8 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
                         NOTES TO CONSOLIDATED FINANCIAL
                              STATEMENTS, CONTINUED
         (Dollars in thousands, except share, per share, O.P. Units and
                          per square footage amounts)
                                   (Unaudited)

     currently  involved  in or  has  recently  concluded  the  following  legal
     proceedings,  which it believes the ultimate  outcome will have no material
     adverse effect on its consolidated financial statements.

     Republic Properties  Corporation  ("RPC") v. Mission West Properties,  L.P.
     ("MWP"),  in the Circuit  Court of  Maryland  for  Baltimore  City Case No.
     24-C-00-005675.  RPC is a former partner with Mission West Properties, L.P.
     in the Hellyer Avenue Limited  Partnership  ("Hellyer  LP"). In April 2004,
     the Circuit Court for Baltimore City,  Maryland issued a Memorandum Opinion
     in  the  case  and  awarded  damages  of  approximately  $934  to  the  RPC
     plaintiffs,  which represented a liability of the Company or MWP. Also, the
     Company  has a  receivable  from a Berg Group  affiliate  for the amount of
     distributions it received as the successor to RPC's interest in the Hellyer
     LP which  exceeds the amount of the damages  awarded to the RPC parties and
     would be used to pay for those  damages  in the event the  decision  of the
     Circuit  Court is upheld  ultimately.  Furthermore,  the  Company has never
     accounted for the 50% interest of RPC as its asset.  In February  2001, the
     Company  filed  a suit  against  RPC in  Superior  Court  of the  State  of
     California  for the  County of Santa  Clara  Case No.  CV 796249  which was
     stayed pending  resolution of the Maryland case. In March 2005, the Company
     voluntarily  dismissed its California  suit. In July 2004, RPC attached the
     Company's  bank  account for  approximately  $1,100.  Following a July 2004
     hearing  in  Superior  Court of the State of  California  for the County of
     Santa  Clara,  the  Company  posted a $1,551  bond in  August  2004 and RPC
     removed the attachment on the Company's bank account until final resolution
     of the appeal in Maryland.  On March 1, 2005,  the Maryland  Appeals  Court
     ruled in favor of Mission West Properties,  L.P.,  finding that the Circuit
     Court of Maryland lacked personal jurisdiction over MWP. In April 2005, the
     decision of the Maryland  Appeals Court became final,  and the Company will
     pursue release of the $1,551 bond. In April 2005, RPC submitted a motion to
     the Superior Court of the State of California  effectively asking the court
     to prevent MWP from dismissing the previously  dismissed  California  suit,
     and a hearing has been  scheduled for May 24, 2005. The Company will submit
     a response in opposition to RPC's motion prior to the May 24, 2005 hearing.

     In January 2004, the Global Crossing Estate Representative,  for itself and
     the Liquidating Trustee of the Global Crossing Liquidating Trust v. Mission
     West Properties filed an action in United States  Bankruptcy Court Southern
     District of New York Case No.  02-40188  (REG)  asserting  that payments of
     approximately  $815 made in the ordinary  course of business within 90 days
     of the Global  Crossing  bankruptcy  filing were preference  payments.  The
     Company has engaged legal counsel to defend itself in this claim and intend
     to  vigorously  contest the matter.  On February 9, 2005,  the Court held a
     hearing  to  consider  the  objection  filed with  respect to Mission  West
     Properties'  claim. A continued  hearing on the claim objection was set for
     March 23,  2005.  A trial date has not been set for  either  the  unsecured
     claim objection or preference litigation.  In April 2005, the Company filed
     a motion  for  summary  judgment  in the  United  States  Bankruptcy  Court
     Southern  District  of  New  York  requesting  the  Court  to  dismiss  the
     preference  claim.  A hearing date for the motion for summary  judgment has
     not been set.

     GUARANTEES
     Under its certificate of incorporation  and bylaws,  the Company has agreed
     to indemnify its officers and directors for certain  events or  occurrences
     arising as a result of the officer or director's  serving in such capacity.
     The  maximum  potential  amount of future  payments  the  Company  could be
     required to make under these indemnification  agreements is unlimited.  The
     Company  believes  the  estimated  fair  value  of  these   indemnification
     agreements is minimal and has no liabilities  recorded for these agreements
     as of March 31, 2005.

     The  Company  also  enters into  indemnification  provisions  under (i) its
     agreements  with  other  companies  in its  ordinary  course  of  business,
     typically with lenders, joint venture partners,  contractors,  and tenants.
     Under these provisions the Company generally indemnifies and holds harmless
     the  indemnified  party for losses  suffered or incurred by the indemnified
     party  as a  result  of the  Company's  activities.  These  indemnification
     provisions generally survive termination of the underlying  agreement.  The
     maximum  potential  amount of future payments the Company could be required
     to make under these  indemnification  provisions is unlimited.  The Company
     has not incurred material costs to defend lawsuits or settle claims related
     to these indemnification  agreements. As a result, the Company believes the
     estimated  fair value of these  agreements  is  minimal.  Accordingly,  the
     Company has no  liabilities  recorded for these  agreements as of March 31,
     2005.

     SEISMIC ACTIVITY
     The Company's  properties  are located in an active seismic area of Silicon
     Valley. Insurance policies currently maintained by the Company do not cover
     seismic  activity,  although  they do  cover  losses  from  fires  after an
     earthquake.

     ENVIRONMENTAL ISSUES
     The environmental  investigations that have been conducted on the Company's
     properties have not revealed any  environmental  liability that it believes
     would have a material adverse effect on its financial condition, results of
     operations  and  assets,  and  it is  not  aware  of  any  such  liability.
     Nonetheless,   it  is  possible  that  there  are  material   environmental
     liabilities of which the Company is unaware. The Company cannot assure that
     future  laws,  ordinances,  or  regulations  will not impose  any  material
     environmental liability, or that the current environmental condition of the
     properties has not been, or will not be,  affected by tenants and occupants
     of the  properties,  by the  condition of properties in the vicinity of the
     properties, or by third parties unrelated to the Company.

                                     - 9 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
                         NOTES TO CONSOLIDATED FINANCIAL
                              STATEMENTS, CONTINUED
         (Dollars in thousands, except share, per share, O.P. Units and
                          per square footage amounts)
                                   (Unaudited)

9.   SUBSEQUENT EVENTS

     On April 7, 2005,  the Company paid  dividends of $0.16 per share of common
     stock to all common  stockholders  of record as of March 31,  2005.  On the
     same date, the operating partnerships paid a distribution of $0.16 per O.P.
     unit to all holders of O.P. units.

     On April 6, 2005, the Company obtained a $25,800 secured mortgage loan from
     Allianz Life  Insurance  Company of North  America  ("Allianz  Loan").  The
     Allianz Loan  matures on April 10,  2020,  and must be paid in full at that
     time,  unless  payment is accelerated by reason of a default or sale of the
     property  that secures the loan.  This loan bears a fixed  interest rate at
     5.56% and principal payments are amortized over 20 years. The mortgage loan
     is secured by one  property.  The Company paid  approximately  $251 in loan
     fees and financing  costs,  which are being amortized over the 15 year loan
     period, and used the proceeds primarily to pay down short-term debt and the
     Berg Group line of credit.

     On April 27, 2005,  the Berg Group  disclosed  that they  received an offer
     from an unrelated  party to purchase a portion of the Piercy & Hellyer land
     comprised  of  approximately  10 acres  in San  Jose,  California,  that is
     subject to the Berg Land Holdings  Option  Agreement with the Company.  The
     prospective  purchaser has disclosed that they intend to develop "for sale"
     industrial type buildings.  In light of the  overcapacity in the market and
     the Company's  current  inventory of available  buildings for lease in this
     submarket,  the Independent  Directors Committee,  which is responsible for
     reviewing,   evaluating  and   authorizing   action  with  respect  to  any
     transaction  between us and any member of the Berg  Group,  has  authorized
     removal of this  approximately 10 acre parcel of land from the scope of the
     Berg Land Holdings Option Agreement,  subject to the completion of the sale
     to the  unrelated  party.  In making this  determination,  the  Independent
     Directors  Committee  considered a number of factors,  including  risks and
     other  potentially  adverse  consequences  that  could be  associated  with
     acquiring  undeveloped  land  for  future  development.  In the  event  the
     approximately  10 acre parcel of land is not sold to this unrelated  party,
     the  parcel  would not be deemed to be  removed  from the scope of the Berg
     Land  Holdings  Option  Agreement  and would remain  eligible for potential
     future acquisition under the Berg Land Holdings Option Agreement.

                                     - 10 -
<PAGE>

ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  should be read in  conjunction  with the  accompanying  consolidated
financial  statements and notes thereto  contained  herein and our  consolidated
financial  statements  and notes thereto  contained in our Annual Report on Form
10-K as of and for the year ended  December 31, 2004.  The results for the three
months ended March 31, 2005 are not necessarily  indicative of the results to be
expected for the entire  fiscal year ending  December 31,  2005.  The  following
discussion includes  forward-looking  statements,  including but not limited to,
statements with respect to our future financial performance,  operating results,
plans and objectives.  Actual results may differ materially from those currently
anticipated depending upon a variety of factors, including those described under
the sub-heading, "Forward-Looking Information."

FORWARD-LOOKING INFORMATION

This quarterly report contains forward-looking  statements within the meaning of
the federal  securities  laws. We intend such  forward-looking  statements to be
covered by the safe harbor provisions for forward-looking  statements  contained
in the Private  Securities  Reform Act of 1995,  and is including this statement
for purposes of  complying  with these safe harbor  provisions.  Forward-looking
statements,  which are based on certain  assumptions  and describe future plans,
strategies and expectations of the Company, are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate,"  "estimate," "project" or
similar  expressions.  Additionally,  all  disclosures  under  Part  I,  Item  3
constitute  forward-looking  statements.  Our ability to predict  results or the
actual effect of future plans or strategies is inherently uncertain.

Factors that could have a material  adverse  effect on our operations and future
prospects include, but are not limited to, the following:

-    economic conditions generally and the real estate market specifically,
-    legislative or regulatory  provisions  (including changes to laws governing
     the taxation of REITs),
-    availability of capital,
-    interest rates,
-    competition,
-    supply of and  demand  for R&D,  office and  industrial  properties  in our
     current and proposed market areas,
-    tenant defaults and bankruptcies,
-    lease term expirations and renewals, and
-    general accounting principles, policies and guidelines applicable to REITs.

In addition, the actual timing of development,  construction, and leasing on any
projects  that we  believe  we may  acquire  in the  future  under the Berg Land
Holdings  Option  Agreement is  presently  unknown,  and reliance  should not be
placed  on  the   estimates   concerning   these   projects.   These  risks  and
uncertainties,  together with the other risks described from time to time in our
reports and other documents  filed with the Securities and Exchange  Commission,
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.

OVERVIEW

We acquire,  market, lease, and manage R&D/office properties,  primarily located
in the Silicon  Valley  portion of the San  Francisco  Bay Area. As of March 31,
2005, we owned and managed 108  properties  totaling  approximately  8.0 million
rentable   square  feet  through  four   limited   partnerships,   or  operating
partnerships,  for which we are the sole general partner. This class of property
is designed  for research  and  development  and office uses and, in some cases,
includes space for light manufacturing operations with loading docks. We believe
that we have one of the  largest  portfolios  of  R&D/office  properties  in the
Silicon Valley.  As of March 31, 2005, the six tenants who each leased in excess
of 300,000  rentable  square feet from us were  Microsoft  Corporation,  Fujitsu
America (a  subsidiary  of  Fujitsu  Limited),  JDS  Uniphase  Corporation,  NEC
Electronics America, Inc. (a subsidiary of NEC Electronics  Corporation),  Ciena
Corporation  and Apple Computer,  Inc. For federal income tax purposes,  we have
operated as a self-managed,  self-administered  and fully integrated real estate
investment trust ("REIT") since fiscal 1999.

Our  acquisition,  growth and  operating  strategy  incorporates  the  following
elements:

-    working  with  the Berg  Group to take  advantage  of their  abilities  and
     resources to pursue  development  opportunities  which we have an option to
     acquire, on pre-negotiated terms, upon completion and leasing;
-    capitalizing   on   opportunistic   acquisitions   from  third  parties  of
     high-quality  R&D/office  properties that provide attractive initial yields
     and significant potential for growth in cash-flow;
-    focusing  on  general  purpose,  single-tenant  Silicon  Valley  R&D/office
     properties for  information  technology  companies in order to maintain low
     operating costs, reduce tenant turnover and capitalize on our relationships
     with these  companies  and our  extensive  knowledge  of their real  estate
     needs; and

                                     - 11 -
<PAGE>

-    maintaining prudent financial management  principles that emphasize current
     cash flow while building  long-term  value,  the  acquisition of pre-leased
     properties to reduce  development  and leasing risks and the maintenance of
     sufficient liquidity to acquire and finance properties on desirable terms.

CURRENT ECONOMIC ENVIRONMENT

All of our  properties  are  located in the  Northern  California  area known as
Silicon  Valley,  which  generally  consists of portions of Santa Clara  County,
Southwestern  Alameda  County,  Southeastern  San Mateo County and Eastern Santa
Cruz  County.  The Silicon  Valley  economy and  business  activity  have slowed
markedly since 2001 after fast-paced growth in 1999 and 2000. The Silicon Valley
R&D  property  market  has  historically  fluctuated  with  the  local  economy.
According to a recent  report by BT  Commercial  Real Estate,  vacancy rates for
Silicon Valley R&D property were  approximately  22.4% in late 2004 and 21.7% at
the end of the first  quarter 2005.  Total vacant R&D square  footage in Silicon
Valley at the end of the first quarter of 2005  amounted to 33.5 million  square
feet,  of which 24.5%,  or 8.2 million  square  feet,  was being  offered  under
subleases.  Total  negative net  absorption  (which is the  computation of gross
square  footage  leased  less gross new square  footage  vacated  for the period
presented) in 2004 amounted to approximately  (0.3) million square feet.  During
the first three  months of 2005,  there was total  positive  net  absorption  of
approximately  0.2 million  square feet.  Average  asking market rent per square
foot has  decreased  from  $0.88 in late  2004 to $0.86 at the end of the  first
quarter of 2005, although individual  properties within any particular submarket
presently may be leased above or below the current  average asking market rental
rates within that  submarket.  The impact of the rental  market  decline has not
been  uniform  throughout  the area,  however.  The Silicon  Valley R&D property
market has been characterized by a substantial  number of submarkets,  with rent
and vacancy rates varying by submarket and location within each submarket.

Our occupancy rate at March 31, 2005 was 67.7%,  which is a significant  decline
from the  occupancy  rate of  75.3%  at March  31,  2004.  We  believe  that our
occupancy  rate could  decline  further  going  forward if key tenants  seek the
protection of bankruptcy laws, consolidate operations or discontinue operations.
In addition,  leases with respect to approximately  373,000 rentable square feet
are expiring prior to the end of 2005.  The  properties  subject to these leases
may take  anywhere  from 24 to 36 months or longer to re-lease.  We believe that
the average 2005 renewal rental rates for our properties  will be  approximately
equal to,  or  perhaps,  below  current  market  rents,  but we cannot  give any
assurance that leases will be renewed or that available  space will be re-leased
at rental rates equal to or above the current  quoted  market  rates.  If we are
unable to lease a  significant  portion of any vacant space or space  subject to
expiring leases; if we experience significant tenant defaults as a result of the
current economic downturn; if we are not able to lease space at or above current
market rates;  or if we restructure  existing leases and lower existing rents in
order to retain tenants for an extended term, our results of operations and cash
flows will be adversely affected. Furthermore, in this event it is probable that
our board of directors  will reduce the  quarterly  dividend on the common stock
and the  outstanding  O.P.  units.  Our  operating  results  and  ability to pay
dividends at current  levels remain  subject to a number of material  risks,  as
indicated  under  the  caption  "Forward-Looking  Information"  above and in the
section entitled "Risk Factors" in our most recent annual report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare the consolidated  financial  statements in conformity with accounting
principles  generally  accepted in the United States of America ("GAAP"),  which
requires us to make certain estimates, judgments and assumptions that affect the
reported  amounts  in  the  accompanying   consolidated   financial  statements,
disclosure  of  contingent   assets  and  liabilities  and  related   footnotes.
Accounting and disclosure  decisions with respect to material  transactions that
are subject to significant  management judgments or estimates include impairment
of long lived assets,  deferred rent reserves,  and allocation of purchase price
relating to property  acquisitions and the related  depreciable  lives assigned.
Actual results may differ from these estimates  under  different  assumptions or
conditions.

Critical  accounting  policies are defined as those that require  management  to
make  estimates,   judgments  and  assumptions,   giving  due  consideration  to
materiality,  in certain  circumstances  that  affect  amounts  reported  in the
consolidated   financial  statements,   and  potentially  result  in  materially
different  results under different  conditions and assumptions.  We believe that
the following best describe our critical accounting policies:

BUSINESS  COMBINATIONS.  Statement of  financial  Accounting  Standards  No. 141
("SFAS No.  141"),  Business  Combinations,  was  effective  July 1,  2001.  The
acquisition costs of each property acquired prior to July 1, 2001 were allocated
only to building,  land and leasing commissions with building depreciation being
computed  based on an estimated  weighted  average  composite  useful life of 40
years and leasing  commissions  amortization being computed over the term of the
lease.  Acquisitions of properties made subsequent to the effective date of SFAS
No. 141 are based on an allocation of the  acquisition  cost to land,  building,
tenant improvements,  and intangibles for at market, including lease origination
and  lease  up  period  costs,  and  above  market  in  place  leases,  and  the
determination  of their useful lives are guided by a combination of SFAS No. 141
and management's estimates. If we do not appropriately allocate these components
or we incorrectly estimate the useful lives of these components, our computation
of  depreciation  and  amortization  expense may not  appropriately  reflect the
actual impact of these costs over future periods, which will affect net income.

IMPAIRMENT OF  LONG-LIVED  ASSETS.  We review real estate assets for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be  recoverable  in  accordance  with  Statement  of  Financial
Accounting Standards No. 144 ("SFAS No. 144"), ACCOUNTING FOR THE IMPAIRMENT AND
DISPOSAL OF LONG-LIVED  ASSETS.  If the carrying amount of the asset exceeds its

                                     - 12 -
<PAGE>

estimated  undiscounted  net cash flow,  before  interest,  we will recognize an
impairment  loss equal to the  difference  between its  carrying  amount and its
estimated fair value. If impairment is recognized,  the reduced  carrying amount
of the asset will be accounted for as its new cost. For a depreciable asset, the
new cost will be depreciated over the asset's remaining useful life.  Generally,
fair values are estimated using discounted cash flow, replacement cost or market
comparison analyses. The process of evaluating for impairment requires estimates
as to future events and conditions, which are subject to varying market factors,
such  as the  vacancy  rates,  future  rental  rates,  lease  periods,  deferred
maintenance  and operating  costs for R&D  facilities in the Silicon Valley area
and related  submarkets.  Therefore,  it is reasonably possible that a change in
estimate  resulting  from  judgments as to future events could occur which would
affect the recorded amounts of the property.

ALLOWANCE  FOR DOUBTFUL  ACCOUNTS  AND DEFERRED  RENT.  The  preparation  of the
consolidated financial statements requires us to make estimates and assumptions.
As  such,  we  must  make  estimates  of the  uncollectibility  of our  accounts
receivable based on the evaluation of our tenants' financial position,  analyses
of accounts  receivable and current economic trends.  We also make estimates for
reserves  against our deferred  rent  receivable  for existing  tenants with the
potential of early termination,  bankruptcy or ceasing operations.  We charge or
credit rental  income for increases or decreases to our deferred rent  reserves.
Our estimates are based on our review of tenants'  payment  histories,  publicly
available  financial  information  and such additional  information  about their
financial  condition as tenants provide to us. The  information  available to us
might lead us to overstate  or  understate  these  reserve  amounts.  The use of
different  estimates or assumptions could produce different  results.  Moreover,
actual  future  collections  of  accounts  receivable  or  reductions  in future
reported  rental income due to tenant  bankruptcies  or other business  failures
could differ materially from our estimates.

CONSOLIDATED  JOINT VENTURES.  We, through an operating  partnership,  own three
properties that are in joint ventures of which we have controlling interests. We
manage and operate all three properties. The recognition of these properties and
their  operating  results  are  100%  reflected  on our  consolidated  financial
statements,  with appropriate  allocation to minority interest,  because we have
operational  and financial  control of the  investments.  We make  judgments and
assumptions  about the estimated  monthly payments made to our minority interest
joint  venture  partners,  which  are  reported  with our  periodic  results  of
operations.  Actual  results may differ  from these  estimates  under  different
assumptions or conditions.

INVESTMENT  IN   UNCONSOLIDATED   JOINT   VENTURE.   We,  through  an  operating
partnership,  have a 50%  non-controlling  limited  partnership  interest in one
unconsolidated joint venture. This investment is not consolidated because the we
do  not  exercise   significant  control  over  major  operating  and  financial
decisions.  We  account  for the  joint  venture  using  the  equity  method  of
accounting.

FAIR VALUE OF FINANCIAL INSTRUMENTS.  Our financial instruments include cash and
cash equivalents,  accounts receivable, accounts payable, and debt. Considerable
judgment is required in  interpreting  market data to develop  estimates of fair
value. Our estimates of fair value are not necessarily indicative of the amounts
that we could realize in a current market exchange.  The use of different market
assumptions  and/or  estimation  methodologies may have a material effect on the
estimated fair value amounts.  Cash and cash equivalents,  accounts  receivable,
and accounts payable are carried at amounts that  approximate  their fair values
due to their  short-term  maturities.  The carrying amounts of our variable rate
debt  approximate  fair value since the interest rates on these  instruments are
equivalent  to rates  currently  offered to us. For fixed rate debt, we estimate
fair value by using  discounted  cash flow analyses based on borrowing rates for
similar kinds of borrowing  arrangements.  The fair value of our fixed rate debt
at March 31, 2005 was approximately $243 million.

REVENUE RECOGNITION. Rental revenue is recognized on the straight-line method of
accounting  required by GAAP under which  contractual rent payment increases are
recognized evenly over the lease term,  regardless of when the rent payments are
received by us. The difference  between recognized rental income and rental cash
receipts is recorded as Deferred  Rent  Receivable on the  consolidated  balance
sheets.

Rental revenue is affected if existing tenants  terminate or amend their leases.
We try to  identify  tenants  who may be likely to declare  bankruptcy  or cease
operations.  By anticipating these events in advance, we expect to take steps to
minimize  their  impact on our  reported  results of  operations  through  lease
renegotiations,  reserves against deferred rent, and other appropriate measures.
Our judgments and estimations  about tenants' capacity to continue to meet their
lease   obligations  will  affect  the  rental  revenue   recognized.   Material
differences  may result in the amount and timing of our rental  revenue  for any
period if we made different judgments or estimations.

Statement of Financial Accounting  Standards No. 66 ("SFAS No. 66"),  Accounting
for Sales of Real Estate establishes accounting standards for recognizing profit
or loss on  sales  of  real  estate.  The  gain on the  sale is only  recognized
proportionately  as the seller  receives  payments from the purchaser.  Interest
income is recognized on an accrual basis, when appropriate.

Lease  termination  fees are  recognized  as other income when there is a signed
termination  letter agreement,  all of the conditions of the agreement have been
met, and the tenant is no longer occupying the property.  These fees are paid by
tenants  who want to  terminate  their lease  obligations  before the end of the
contractual term of the lease.  There is no way of predicting or forecasting the
timing or amounts of future lease termination fees.

We recognize income from rent, tenant  reimbursements and lease termination fees
and other income once all of the following  criteria are met in accordance  with
SEC Staff Accounting Bulletin 104:

                                     - 13 -
<PAGE>

-    the agreement has been fully executed and delivered;
-    services have been rendered;
-    the amount is fixed and determinable; and
-    collectibility is reasonably assured.

With  regards  to  critical  accounting  policies,  where  applicable,  we  have
explained  and  discussed  the  criteria  for   identification   and  selection,
methodology in application and impact on the financial statements with the Audit
Committee  of our Board of  Directors.  The Audit  Committee  has  reviewed  the
critical accounting policies we identified.

                                     - 14 -
<PAGE>


RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2005 TO THE THREE MONTHS ENDED
MARCH 31, 2004

As of March  31,  2005,  through  our  controlling  interests  in the  operating
partnerships,  we  owned  108  properties  totaling  approximately  8.0  million
rentable  square feet  compared to 109  properties  totaling  approximately  7.9
million rentable square feet owned by us as of March 31, 2004. This represents a
net  increase  of  approximately  1% in total  rentable  square  footage,  as we
acquired one property  consisting of approximately  203,800 rentable square feet
and disposed of two  properties  consisting of  approximately  103,350  rentable
square feet during the first quarter 2005.

RENTAL REVENUE FROM REAL ESTATE FROM CONTINUING OPERATIONS
For the quarter ended March 31, 2005,  rental revenue from real estate decreased
by  approximately  ($5.0)  million,  or 15.9%,  from $31.2 million for the three
months  ended March 31, 2004 to $26.2  million for the same period of 2005.  The
decline in rental revenue was primarily a result of the lower rental rate of the
new  Microsoft  blend and extend  lease,  which  accounted  for almost  half the
decline.  Other factors  attributing to the decline in rental revenue were lower
rental rate on new leases and  renewals  and the loss of several  tenants due to
their  bankruptcy,  relocation or cessation of  operations  since March 31, 2004
which all resulted from adverse market  conditions.  Our occupancy rate at March
31, 2005 was approximately 68%, compared to approximately 75% at March 31, 2004.
Due to an over supply of R&D properties and competition  from other landlords in
the Silicon Valley  bidding for tenants,  our occupancy rate may drop further if
the 373,000  rentable  square feet  scheduled to expire  during the remainder of
2005 is not renewed or re-leased.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
As of March 31, 2005, we had investments in four R&D buildings, totaling 593,000
rentable square feet, through an unconsolidated joint venture, TBI-MSW, in which
we acquired a 50%  interest  in January  2003 from the Berg Group under the Berg
Land Holdings Option Agreement.  We have a non-controlling  limited  partnership
interest in this joint venture,  which we account for using the equity method of
accounting.  For the three months ended March 31,  2005,  we recorded  equity in
loss from the unconsolidated joint venture of approximately ($6,000) compared to
equity in income of $0.6  million  for the same  period in 2004.  Our  equity in
earnings from this unconsolidated joint venture declined in the first quarter of
2005 due to the write-offs of leasing  commission and tenant  improvements for a
tenant that  terminated its lease  agreement as well as lower rents received due
to the lower occupancy rate .

OTHER INCOME FROM CONTINUING OPERATIONS
Other income decreased to approximately  $0.3 million for the three months ended
March 31,  2005 from $0.4  million  for the first  quarter  of 2004 due to lower
management fee income which correlates with the lower occupancy rate.

EXPENSES FROM CONTINUING OPERATIONS
Property  operating  expenses and real estate taxes during the first  quarter of
2005 decreased by approximately  ($0.6) million,  or 10.4%, from $5.5 million to
$4.9 million for the three  months ended March 31, 2004 and 2005,  respectively,
due primarily to the lower  occupancy rate on our properties and the disposition
of two properties during the first quarter 2005. Tenant reimbursements decreased
by  approximately  ($0.5)  million,  or 13.0%,  from $4.1  million for the three
months ended March 31, 2004 to $3.6 million for the three months ended March 31,
2005. The decrease in tenant  reimbursements  was due to lower  occupancy in the
current period. Certain expenses such as property insurance,  real estate taxes,
and other fixed expenses are not recoverable from vacant properties. General and
administrative  expenses increased by approximately $0.3 million, or 94.0%, from
$0.4 million to $0.7 million for the three months ended March 31, 2004 and 2005,
respectively.  The increase in general and administrative expenses was primarily
a result of higher  auditing and accounting  expenses  related to the assessment
and certification of our system of internal control over financial reporting for
purposes of Section 404 of the Sarbanes-Oxley Act.

Real estate  depreciation  and amortization  expense  increased by approximately
$0.1  million,  or 2.5%,  from $5.5 million to $5.6 million for the three months
ended March 31, 2004 and 2005, respectively,  reflecting a full first quarter of
depreciation in 2005 for capital expenditures purchased after March 31, 2004.

Interest  expense  increased by approximately  $0.3 million,  or 6.5%, from $4.4
million for the three  months ended March 31, 2004 to $4.7 million for the three
months ended March 31, 2005.  Interest expense (related parties) remained stable
at approximately $0.3 million for the current three-month period compared to the
same period one year ago. Total debt outstanding,  including amounts due related
parties,  increased by approximately $8.6 million,  or 2.6%, from $333.0 million
as of March 31, 2004 to $341.6  million as of March 31, 2005.  Overall  interest
expense,  including amounts paid to related parties, for the quarter ended March
31, 2005 increased by approximately  $0.3 million compared to the same quarter a
year ago  principally due to higher interest rates on the variable rate debt and
the  substitution of new debt at slightly higher rates for borrowings  under the
Berg Group line of credit.

                                     - 15 -

<PAGE>


INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the three months ended March 31, 2005 and 2004.

<TABLE>
<CAPTION>
                                                              March 31, 2005              March 31, 2004
                                                          ------------------------    ------------------------
                                                                        (dollars in thousands)
<S>                                                               <C>                         <C>
    Gain from disposal of property                                 $  63                          -
    (Loss)/income attributable to discontinued operations            (40)                      $288
    Minority interest in earnings attributable to
        discontinued operations                                      (18)                      (226)
                                                          ------------------------    ------------------------
         Income from discontinued operations                       $   5                      $  62
                                                          ========================    ========================
</TABLE>

In  accordance  with our adoption of SFAS No. 144, in the first  quarter 2005 we
sold and classified as  discontinued  operations  two  properties  consisting of
103,350  rentable  square feet and recorded a gain of $63,000,  of which $14,000
and $49,000 were  attributable to common  stockholders  and minority  interests,
respectively.  The (loss)/income to common  stockholders and minority  interests
attributable to discontinued  operations from these two properties for the three
months ended March 31, 2005 and 2004 was  approximately  ($9,000) and ($31,000),
respectively, and $62,000 and $226,000, respectively.

NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTEREST
Minority  interest in net income has been calculated by taking the net income of
the operating partnerships (on a stand-alone basis) multiplied by the respective
minority  interest  ownership  percentage.   Minority  interest  represents  the
ownership  interest of all limited partners in the operating  partnerships taken
as a whole, which was approximately 83% as of March 31, 2005 and 2004.

Net income to common stockholders  decreased by approximately ($1.1) million, or
31.6%,  from $3.5  million  for the three  months  ended  March 31, 2004 to $2.4
million for the same period in 2005.  The  minority  interest  portion of income
decreased by approximately  ($5.6) million, or 32.3%, from $17.3 million for the
three  months  ended March 31, 2004 to $11.7  million for the three months ended
March 31,  2005.  The  decline in net income and  minority  interest  portion of
income was primarily due to lower rental revenue and non-reimbursable  operating
expenses from vacant properties.

                                     - 16 -
<PAGE>


CHANGES IN FINANCIAL CONDITION

The most significant  changes in our financial condition during the three months
ended March 31, 2005 resulted from the  disposition  of two R&D  properties  and
acquisition  of one  R&D  property.  In  addition,  total  stockholders'  equity
increased from the exchange of O.P. units for common stock.

At March 31,  2005,  total  investments  in  properties  had a net  increase  of
approximately  $11.2  million  from  December  31,  2004  due  to  one  property
acquisition  and two  property  dispositions.  During the first three  months of
2005,  we acquired one vacant R&D property  representing  approximately  203,800
rentable square feet located in the Silicon Valley.  The purchase price for this
property was  approximately  $14.0 million.  We also disposed two R&D properties
consisting of approximately 103,350 rentable square feet for a total sales price
of approximately $12.8 million. One of the disposed properties was classified as
an asset held for sale at December 31, 2004 for $8.2 million.

Total  stockholders'  equity,  net,  increased  by  approximately  $40,000  from
December  31, 2004 as we obtained  additional  capital from the exchange of O.P.
units for shares of our common stock while incurring a deficit of  approximately
($0.5) million due to dividends declared in excess of net income for the period.
During the first three months of 2005, one limited partner exchanged 50,000 O.P.
units for 50,000 shares of our common stock under the Exchange Rights  Agreement
among us and the  limited  partners  in the  operating  partnerships.  The newly
issued  shares  increased  additional  paid in  capital  by  approximately  $0.5
million.

LIQUIDITY AND CAPITAL RESOURCES

We expect a  continued  decline  in  operating  cash  flows  from our  operating
property  portfolio  in 2005 as compared to 2004.  The  reduction  in cash flows
reflects the overall  reduced  demand for R&D space,  lower rental rates for new
and renewed leases,  and an increase in vacant  properties in 2005. In addition,
if we are unable to lease a  significant  portion of the  approximately  373,000
rentable  square  feet  scheduled  to expire  during the  remainder  of 2005 and
current  available  space,  our operating cash flows may have an adverse effect.
With the  expectation of lower revenues for the remainder of 2005, we expect the
properties'  net  operating  income to continue to show year over year  declines
when  compared to 2004.  As noted  above,  we expect  cash flows from  operating
activities to continue to show declines primarily driven by the general downturn
in the Silicon  Valley's economy in recent years, the softening of the Company's
market  specifically and the expected weaker  performance of our properties.  We
are also subject to risks of decreased  occupancy  through  tenant  defaults and
bankruptcies,   and  potential   reduction  in  rental  rates  upon  renewal  of
properties,  which  would  result in reduced  cash flow from  operations.  It is
reasonably  likely that vacancy  rates may  continue to increase  and  effective
rental rates on new and renewed leases may continue to decrease.

We expect our principal  source of liquidity for  distributions  to stockholders
and O.P. unit holders,  debt service,  leasing commissions and recurring capital
expenditures  to come from cash  provided by  operations  and/or the  borrowings
under the lines of credit with the Berg Group and  Cupertino  National  Bank. We
expect these sources of liquidity to be adequate to meet projected distributions
to stockholders and other presently anticipated liquidity  requirements in 2005.
We  expect to meet our  long-term  liquidity  requirements  for the  funding  of
property  development,  property  acquisitions and other material  non-recurring
capital  improvements  through long-term secured and unsecured  indebtedness and
the issuance of additional  equity securities by us. We have the ability to meet
short-term  obligations or other  liquidity  needs based on lines of credit with
the Berg Group and Cupertino  National Bank. Despite the current weakness in the
Silicon  Valley  economy,  we expect our total  interest  expense to increase as
interest  rates rise and through new financing  activities.  In the remainder of
2005, we will be obligated to make payments totaling  approximately $6.2 million
of debt principal under mortgage notes without regard to any debt refinancing or
new  debt  obligations  that  we  might  incur,  or  optional  payments  of debt
principal.

DISTRIBUTIONS
On April 7, 2005,  we paid  dividends  of $0.16 per share of common stock to all
common  stockholders  of record  as of March 31,  2005.  On the same  date,  the
operating partnerships paid a distribution of $0.16 per O.P. unit to all holders
of O.P.  units.  For the  remainder  of 2005,  we expect to maintain our current
quarterly  dividend payment rate to common  shareholders and O.P Unit holders of
$0.16 per share.  However,  distributions  are declared at the discretion of our
Board of Directors and are subject to actual cash  available  for  distribution,
our financial  condition,  capital  requirements and such other factors,  as our
Board of Directors deems relevant.

At March 31, 2005, we had total indebtedness of $341.6 million, including $212.8
million of fixed rate mortgage debt, $10.3 million under the Berg Group mortgage
note  (related  parties),  $78.1  million  under the  Citicorp  USA  (Citicorp")
mortgage loan,  $32.5 million under the Cupertino  National Bank ("CNB") line of
credit,  and $7.9 million under the Berg Group line of credit (related parties),
as detailed in the table  below.  The CNB and  Citicorp  loans  contain  certain
financial loan and reporting covenants as defined in the loan agreements.  As of
March 31, 2005, we were in compliance with these loan covenants.

On April 6, 2005, we obtained a $25.8 million secured mortgage loan from Allianz
Life  Insurance  Company of North  America that bears a fixed  interest  rate at
5.56% and matures in 15 years with principal  payments  amortized over 20 years.
The mortgage loan is secured by one property. We paid approximately  $251,000 in
loan fees and financing  costs which are being  amortized  over the 15 year loan
period, and used the proceeds primarily to pay down short-term debt and the Berg
Group line of credit.

                                     - 17 -

<PAGE>


The following  table sets forth  information  regarding  debt  outstanding as of
March 31, 2005:

<TABLE>
<CAPTION>
                                                                                                             Maturity     Interest
              Debt Description                          Collateral Properties               Balance            Date         Rate
---------------------------------------------- -------------------------------------- ------------------  ------------- ------------
                                                                                   (dollars in thousands)
Line of Credit:
<S>                                           <C>                                          <C>               <C>          <C>
Berg Group (related parties)                   2033-2043 Samaritan Dr, San Jose, CA         $  7,910           3/06           (1)
                                               2133 Samaritan Drive, San Jose, CA     ------------------
                                               2233-2243 Samaritan Dr, San Jose, CA
                                               1310-1450 McCandless Dr, Milpitas, CA
                                               1795-1845 McCandless Dr, Milpitas, CA

Cupertino National Bank                        Not Applicable                                 32,504          11/06           (4)
                                                                                      ------------------

Mortgage Notes Payable (related parties):      5300 & 5350 Hellyer Ave, San Jose, CA          10,330           6/10        7.650%

                                                                                      ------------------
Mortgage Notes Payable (2):
Washington Mutual                              10460 Bubb Road, Cupertino, CA                    134          12/06        9.500%
Prudential Insurance Company of America (3)    10300 Bubb Road, Cupertino, CA                118,916          10/08        6.560%
                                               10500 N. De Anza Blvd, Cupertino, CA
                                               4050 Starboard Drive, Fremont, CA
                                               45700 Northport Loop, Fremont, CA
                                               45738 Northport Loop, Fremont, CA
                                               450 National Avenue, Mountain View, CA
                                               6311 San Ignacio Avenue, San Jose, CA
                                               6321 San Ignacio Avenue, San Jose, CA
                                               6325 San Ignacio Avenue, San Jose, CA
                                               6331 San Ignacio Avenue, San Jose, CA
                                               6341 San Ignacio Avenue, San Jose, CA
                                               6351 San Ignacio Avenue, San Jose, CA
                                               3236 Scott Boulevard, Santa Clara, CA
                                               3560 Bassett Street, Santa Clara, CA
                                               3570 Bassett Street, Santa Clara, CA
                                               3580 Bassett Street, Santa Clara, CA
                                               1135 Kern Avenue, Sunnyvale, CA
                                               1212 Bordeaux Lane, Sunnyvale, CA
                                               1230 E. Arques, Sunnyvale, CA
                                               1250 E. Arques, Sunnyvale, CA
                                               1170 Morse Avenue, Sunnyvale, CA
                                               1600 Memorex Drive, Santa Clara, CA
                                               1688 Richard Avenue, Santa Clara, CA
                                               1700 Richard Avenue, Santa Clara, CA
                                               3540 Bassett Street, Santa Clara, CA
                                               3542 Bassett Street, Santa Clara, CA
                                               3544 Bassett Street, Santa Clara, CA
                                               3550 Bassett Street, SantaClara, CA

Northwestern Mutual Life Insurance Company (5) 1750 Automation Parkway, San Jose, CA          93,740           1/13        5.640%
                                               1756 Automation Parkway, San Jose, CA
                                               1762 Automation Parkway, San Jose, CA
                                               6320 San Ignacio Avenue, San Jose, CA
                                               6540-6541 Via Del Oro, San Jose, CA
                                               6385-6387 San Ignacio Avenue, San Jose, CA
                                               2251 Lawson Lane, Santa Clara, CA
                                               1325 McCandless Drive, Milpitas, CA
                                               1650-1690 McCandless Drive, Milpitas, CA
                                               20605-20705 Valley Green Dr, Cupertino, CA

Citicorp USA, Inc.                             2001 Walsh Avenue, Santa Clara, CA             78,065           9/06           (4)
                                               2880 Scott Boulevard, Santa Clara, CA
                                               2890 Scott Boulevard, Santa Clara, CA
                                               2770-2800 Scott Blvd, Santa Clara, CA
                                               2300 Central Expressway, Santa Clara, CA
                                               2220 Central Expressway, Santa Clara, CA
                                               2330 Central Expressway, Santa Clara, CA
                                               20400 Mariani Avenue, Cupertino, CA
                                                                                      ------------------
Mortgage Notes Payable Subtotal                                                              290,855
                                                                                      ------------------
TOTAL                                                                                       $341,599
                                                                                      ==================
</TABLE>

(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2006. The interest rate at March 31, 2005 was 4.69%.
(2)  Mortgage notes payable generally  require monthly  installments of interest
     and principal  ranging from $8,000 to $827,000 over various terms extending
     through the year 2013. The weighted average interest rate of mortgage notes
     payable was 5.83% at March 31, 2005.
(3)  The  Prudential  Insurance  loan is  payable  in  monthly  installments  of
     $827,000,  which includes principal (based upon a 30-year amortization) and
     interest.  A  limited  partner  who is not a member  of the Berg  Group has
     guaranteed  approximately  $12.0  million  of this  debt.  Costs  and  fees
     incurred with obtaining this loan aggregated  approximately $900,000, which
     were deferred and amortized over the loan period.
(4)  Interest rate equal to LIBOR plus 2%. The interest  rates for the Cupertino
     National Bank line of credit and the Citicorp  USA,  Inc.  mortgage loan at
     March 31, 2005 were 4.72% and 4.69%,  respectively.  The Cupertino National
     Bank line of credit and Citicorp USA, Inc. loan contain  certain  financial
     loan and reporting covenants as defined in the loan agreements. As of March
     31, 2005, the Company was in compliance with these loan covenants.
(5)  The Northwestern loan is payable in monthly installments of $696,000, which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and  fees  incurred  with  obtaining  this  loan  aggregated  approximately
     $675,000, which were deferred and amortized over the loan period.

                                     - 18 -
<PAGE>

At March 31,  2005,  our debt to total  market  capitalization  ratio,  which is
computed  as our  total  debt  outstanding  divided  by the  sum of  total  debt
outstanding  plus the market value of common stock (based upon the closing price
of $10.60 per share on March 31, 2005) on a fully diluted  basis,  including the
conversion of all O.P.  units into common stock,  was  approximately  23.6%.  On
March  31,  2005,   the  last   trading  day  for  the  quarter,   total  market
capitalization was approximately $1.4 billion.

At March 31, 2005, the outstanding  balance remaining under certain demand notes
that we owed to the operating partnerships was $1.6 million. The due date of the
demand notes has been  extended to  September  30,  2006.  The  principal of the
demand notes,  along with the interest expense,  which is interest income to the
operating  partnerships,  is eliminated in consolidation  and is not included in
the  corresponding  line items  within the  consolidated  financial  statements.
However,  the interest  income  earned by the operating  partnerships,  which is
interest  expense  to us, in  connection  with this  debt,  is  included  in the
calculation of minority  interest as reported on the  consolidated  statement of
operations, thereby reducing our net income by this same amount. At present, our
only means for repayment of this debt is through  distributions  that we receive
from the operating partnerships that are in excess of the amount of dividends to
be paid to our stockholders or raising additional equity capital.

HISTORICAL CASH FLOWS

COMPARISON  OF THE THREE  MONTHS  ENDED MARCH 31, 2005 TO THE THREE MONTHS ENDED
MARCH 31, 2004

Net cash provided by operating  activities  for the three months ended March 31,
2005 was $20.8  million  compared to $32.1  million for the same period in 2004.
The  decline   resulted   primarily   from  the  reduction  in  tenant   expense
reimbursements  and  decrease in rental  revenue  from our current  portfolio of
property due to tenant lease obligation defaults, tenant re-locations,  decrease
in occupancy  and lower rent  renewal  rates during the last nine months of 2004
and the first  three  months of 2005.  The  decline in cash flow from  operating
activities was also caused by payments of leasing  commissions which amounted to
approximately $3.6 million, including approximately $2.9 million with respect to
modification and extension of our lease with Microsoft.

Net cash used in  investing  activities  was  approximately  ($7.5)  million and
($0.1) million for the three months ended March 31, 2005 and 2004, respectively.
Cash used in investing  activities during the first three months of 2005 related
principally to the  acquisition of the property at 5521 Hellyer Avenue for $14.2
million and the  disposition  of two  existing  properties  for a total of $11.0
million.  We  partially  financed  one of the sales with a note  receivable  for
approximately  $4.1  million.  Capital  expenditures  relating  to  real  estate
improvements  were  approximately  $0.3  million and $0.1  million for the three
months ended March 31, 2005 and 2004, respectively.

Net cash used in financing  activities was ($12.3)  million for the three months
ended March 31,  2005  compared to ($33.0)  million for the three  months  ended
March 31, 2004.  During the first three months of 2005,  we used $3.7 million to
pay  outstanding  debt,  drew an  additional  $8.3  million from the CNB line of
credit and paid $14.0 million for minority interest  dividend  distributions and
$2.9  million for  dividends to common  stockholders.  During the same period in
2004, we used $7.9 million to repay outstanding debt, $20.9 million for minority
interest distributions and $4.3 million for dividends to common stockholders.

FUNDS FROM OPERATIONS ("FFO")

FFO is a non-GAAP financial measurement used by real estate investment trusts to
measure and compare operating performance.  As defined by NAREIT, FFO represents
net income (loss)  before  minority  interest of O.P. unit holders,  computed in
accordance with GAAP, plus non-recurring events other than "extraordinary items"
under  GAAP,  excluding  gains and losses  from sales of  depreciable  operating
properties,  plus real estate related  depreciation and amortization,  excluding
amortization  of deferred  financing  costs and  depreciation of non-real estate
assets,  and  after  adjustments  for  unconsolidated   partnerships  and  joint
ventures.  FFO does include  impairment  losses for properties held for sale and
held for use. Management  considers FFO an appropriate measure of performance of
an equity  REIT  because,  along  with cash  flows  from  operating  activities,
financing  activities and investing  activities,  it provides  investors with an
understanding  of our  ability  to incur  and  service  debt  and  make  capital
expenditures.  With the emphasis on the  disclosure  of  operating  earnings per
share,  we will still continue to use FFO as a measure of our  performance.  FFO
should  not be  considered  as an  alternative  for net  income as a measure  of
profitability  nor  is  it  comparable  to  cash  flows  provided  by  operating
activities determined in accordance with GAAP, nor is FFO necessarily indicative
of funds  available  to meet our cash  needs,  including  the need to make  cash
distributions to satisfy REIT requirements. For example, FFO is not adjusted for
payments of debt principal required under our debt service obligations.

Our definition of FFO also assumes  conversion at the beginning of the period of
all convertible securities, including minority interests that might be exchanged
for common stock.  FFO does not represent the amount  available for management's
discretionary  use;  as such  funds may be needed  for  capital  replacement  or
expansion, debt service obligations or other commitments and uncertainties.

Furthermore, FFO is not comparable to similarly entitled items reported by other
REITs that do not define FFO exactly as we do.

FFO for the three months  ended March 31, 2005 and 2004,  as  reconciled  to net
income to common stockholders, are summarized in the following tables:

                                     - 19 -
<PAGE>



<TABLE>
<CAPTION>
                                                    Three Months Ended March 31,
                                                    2005                   2004
                                             ------------------     ------------------
                                                       (dollars in thousands)
<S>                                             <C>                    <C>
Net income to common stockholders                $ 2,408                $ 3,523
Add:
 Minority interests (1)                           11,574                 17,145
 Depreciation & amortization of real estate (2)    6,389                  6,410
Less:
 Gain on sale of asset                               (63)                     -
                                             ------------------     ------------------
FFO                                              $20,308                 $27,078
                                             ==================     ==================
</TABLE>

(1)  The minority  interest for third parties totaling  $121,000 and $125,000 in
     2005 and 2004,  respectively,  was deducted from total minority interest in
     calculating FFO.
(2)  Includes our portion of  depreciation  and  amortization of real estate and
     leasing commissions from our unconsolidated joint venture totaling $354,000
     and $218,000 in 2005 and 2004, respectively.  Also includes amortization of
     leasing   commissions   of  $428,000   and   $669,000  in  2005  and  2004,
     respectively.  Amortization  of  leasing  commissions  is  included  in the
     property  operating,  maintenance  and real  estate  taxes line item in the
     Company's consolidated statements of operations.


DISTRIBUTION POLICY

Our board of directors will determine the amount and timing of  distributions to
our  stockholders.  The board of directors  will  consider many factors prior to
making any distributions, including the following:

-    the amount of cash available for distribution;
-    our financial condition;
-    whether to reinvest funds rather than to distribute such funds;
-    our committed and projected capital expenditures;
-    the  amount  of cash  required  for new  property  acquisitions,  including
     acquisitions under existing agreements with the Berg Group;
-    prospects  of tenant  renewals  and  re-leases  of  properties  subject  to
     expiring leases;
-    cash  required  for  re-leasing  activities;   o  the  annual  distribution
     requirements under the REIT provisions of the federal income tax laws; and
-    such other factors as the board of directors deems relevant.

We  cannot  assure  you  that we will be  able  to  meet or  maintain  our  cash
distribution objectives.


IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

We do not believe recently issued  accounting  standards will materially  impact
our financial position, results of operations, or cash flows.

In December 2004, the FASB issued SFAS No. 123R,  "Share-Based  Payment," ("SFAS
No.  123R") which  addresses  the  accounting  for  employee and director  stock
options.  Statement  123R  requires  that the cost of all  employee and director
stock  options,  as well as other  equity-based  compensation  arrangements,  be
reflected in the financial  statements  based on the estimated fair value of the
awards. SFAS No. 123R is an amendment to SFAS No. 123 and supersedes APB Opinion
No. 25 ("APB No. 25").  SFAS No. 123R is applicable to any award that is settled
or  measured  in  stock,  including  stock  options,   restricted  stock,  stock
appreciation  rights,  stock units, and employee stock purchase plans.  SFAS No.
123R will be effective  for public  companies  starting  with the first  interim
period  commencing  after June 15, 2005. On April 14, 2005,  the SEC announced a
new rule that delays the  implementation of SFAS No. 123R until the beginning of
the next fiscal year that begins  after  December  15,  2005.  We will adopt the
requirements  of SFAS No. 123R  beginning  2006.  We expect that the adoption of
this  standard  will reduce our net income and earnings per share;  however,  it
will have no impact on cash flow.  Although we have not yet  determined  whether
the  adoption of SFAS No.  123R will  result in amounts  that are similar to the
current  pro  forma  disclosures  under  SFAS No.  123,  we are  evaluating  the
requirements under SFAS No. 123R including the valuation methods and support for
the  assumptions  that underlie the  valuation of the awards and the  transition
methods (modified  prospective  transition method or the modified  retrospective
transition method).

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-monetary
Assets"  ("SFAS No.  153").  SFAS No. 153 amends the guidance in APB Opinion No.
29,  "Accounting for Non-monetary  Transactions" to eliminate certain exceptions
to the principle that exchanges of non-monetary  assets be measured based on the
fair value of the assets  exchanged.  SFAS No. 153  eliminates the exception for
non-monetary  exchanges  of similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  non-monetary  assets  that  do not  have
commercial  substance.  This  statement  is  effective  for  non-monetary  asset
exchanges in fiscal years  beginning  after June 15, 2005.  The adoption of SFAS
No.  153 is not  expected  to have an  impact  on our  consolidated  results  of
operations, financial position or cash flows.

                                     - 20 -

<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not generally hold market risk sensitive instruments for trading purposes.
We use fixed and variable rate debt to finance our  operations.  Our exposure to
market risk for changes in interest  rates relates  primarily to our current and
future debt  obligations.  We are  vulnerable  to  significant  fluctuations  of
interest  rates on our  floating  rate debt and pricing on our future  debt.  We
manage our market risk by  monitoring  interest  rates where we try to recognize
the  unpredictability  of the financial  markets and seek to reduce  potentially
adverse effect on the results of our operations.  This takes frequent evaluation
of available  lending rates and examination of  opportunities to reduce interest
expense  through new sources of debt financing.  Several  factors  affecting the
interest rate risk include governmental monetary and tax policies,  domestic and
international  economics  and other  factors  that are beyond our  control.  The
following table provides  information  about the principal cash flows,  weighted
average interest rates,  and expected  maturity dates for debt outstanding as of
March  31,  2005.  The  current  terms  of this  debt are  described  in Item 2,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources."

For variable rate debt, the table presents the assumption  that the  outstanding
principal balance at March 31, 2005 will be paid upon maturity.

For fixed rate debt,  the table  presents the  assumption  that the  outstanding
principal  balance  at  March  31,  2005  will be paid  according  to  scheduled
principal payments and that we will not prepay any of the outstanding  principal
balance.

<TABLE>
<CAPTION>
                                          Nine
                                         Months             Year Ending December 31,
                                        Remaining ----------------------------------------------
                                          2005       2006        2007       2008        2009     Thereafter     Total     Fair Value
                                      ----------- ----------- ---------- ----------- ----------- ----------- ------------ ----------
                                                                          (dollars in thousands)
Variable Rate Debt:
<S>                                       <C>       <C>          <C>       <C>           <C>       <C>          <C>         <C>
  Secured and unsecured debt               $1,935    $116,543          -           -           -           -     $118,478   $118,478
  Weighted average interest rate            4.69%       4.70%
Fixed Rate Debt:
  Secured notes payable                    $4,292      $6,042     $6,350    $116,674      $4,382     $85,381     $223,121   $242,644
  Weighted average interest rate            6.23%       6.23%      6.23%       6.23%       6.23%       6.23%
</TABLE>



The primary  market  risks we face are  interest  rate  fluctuations.  Principal
amounts  outstanding under the Berg Group line of credit, the CNB line of credit
and the Citicorp  mortgage loan,  which are tied to a LIBOR based interest rate,
were approximately $7.9 million,  $32.5 million and $78.1 million, or 2.3%, 9.5%
and 22.9%,  respectively,  of the total $341.6 million of outstanding debt as of
March 31,  2005.  As a result,  we pay lower  rates of  interest  in  periods of
decreasing  interest rates and higher rates of interest in periods of increasing
interest rates. All of our debt is denominated in United States dollars.  We had
no interest rate caps or interest rate swap contracts at March 31, 2005.

The  following  discussion  of  market  risk  is  based  solely  on  a  possible
hypothetical  change in future market  conditions  related to our  variable-rate
debt. It includes "forward-looking statements," as previously defined, regarding
market risk, but we are not forecasting the occurrence of these market changes.

Based on the amount of variable  debt  outstanding  as of March 31,  2005,  a 1%
increase or decrease in interest  rates on our $118.5  million of floating  rate
debt would decrease or increase,  respectively,  three months  earnings and cash
flows by approximately  $0.3 million,  as a result of the increased or decreased
interest  expense  associated  with the  change  in rate,  and would not have an
impact on the fair value of the floating rate debt. This amount is determined by
considering the impact of hypothetical interest rates on our borrowing cost. Due
to the uncertainty of  fluctuations  in interest rates and the specific  actions
that  might be taken by us to  mitigate  such  fluctuations  and their  possible
effects, the foregoing  sensitivity analysis assumes no changes to our financial
structure.

                                     - 21 -

<PAGE>


ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES
We strive to maintain  disclosure  controls and procedures  that are designed to
ensure that information  required to be disclosed in our Exchange Act reports is
recorded,  processed,  summarized and reported within the time periods specified
in the SEC's  rules and forms,  and that such  information  is  accumulated  and
communicated to our management,  including our chief executive officer and chief
financial  officer,  as  appropriate,  to allow for timely  decisions  regarding
required  disclosure.  In designing and evaluating  the disclosure  controls and
procedures,  management  recognizes that any controls and procedures,  no matter
how well  designated  and  operated,  can provide only  reasonable  assurance of
achieving the desired control objectives and management  necessarily is required
to apply its judgment in evaluating the  cost-benefit  relationship  of possible
controls.

As  required  by SEC Rule  13a-15(b)  we  conducted  an  evaluation,  under  the
supervision and with the  participation  of our management,  including our Chief
Executive Officer, President and Vice President of Finance, of the effectiveness
of the design and operation of our  disclosure  controls and  procedures.  Based
upon that evaluation,  the Chief Executive Officer, President and Vice President
of Finance  concluded that our disclosure  controls and procedures are effective
in timely  alerting them to material  information  relating to us (including our
subsidiaries) required to be included in our periodic SEC filings.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no material changes in our internal control or, to our knowledge,  in
other factors that could significantly  affect such internal controls subsequent
to the date of their  evaluation.  We have determined that our internal  control
over financial reporting was effective as of March 31, 2005.

                                     - 22 -

<PAGE>


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Legal  proceedings are  incorporated  herein by reference from Part 1 "Item 1. -
Financial Statements - Note 8 - Commitments and Contingencies."


ITEM 6.  EXHIBITS AND REPORTS ON FROM 8-K

     a.   Exhibits

          10.21.1 Lease Agreement with Microsoft Corporation, dated December 23,
                  2004
          10.47   Allianz Loan Secured Installment Note dated April 6, 2005
          10.48   Allianz Loan Deed of Trust, Security Agreement, Fixture Filing
                  with Absolute Assignment of Rents dated April 6, 2005
          10.49   Allianz Loan Limited Guaranty dated April 6, 2005
          10.50   Form of Non-statutory   tock  Option  Agreement with  dividend
                  equivalent rights under 2004 Equity Incentive Plan
          31.1    Section 1350 Certificate of CEO
          31.2    Section 1350 Certificate of President & COO
          31.3    Section 1350 Certificate of Principal Financial Officer
          32      Certification pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002

     b.   Reports on Form 8-K

          The  Company  filed a Current  Report on Form 8-K on February 2, 2005,
          regarding  its results of operations  and financial  condition for the
          quarter and full year ended December 31, 2004.

                                     - 23 -



<PAGE>



================================================================================
                                   Signatures

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereto duly authorized.


                                 Mission West Properties, Inc.
                                 (Registrant)


Date: May 9, 2005                By:    /s/ Carl E. Berg
                                    --------------------------------------------
                                    Carl E. Berg
                                    Chief Executive Officer


Date: May 9, 2005                By:    /s/ Wayne N. Pham
                                    --------------------------------------------
                                    Wayne N. Pham
                                    Vice President of Finance and Controller
                                    (Principal Accounting Officer and Duly
                                    Authorized Officer)

                                     - 24 -
<PAGE>