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 SEPTEMBER 30, 2008

                          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)

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


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 a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
definitions  of "large  accelerated  filer,"  "accelerated  filer" and  "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
<TABLE>
<CAPTION>

<S>                          <C>                     <C>                         <C>
Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ]   Smaller reporting company [ ]
</TABLE>

Indicate by check mark whether the  registrant is a shell company (as defined in
Exchange Act Rule 12b-2). Yes [ ] No [X]


                      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:

              19,748,211 shares outstanding as of October 31, 2008


<PAGE>


                          MISSION WEST PROPERTIES, INC.

                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2008


                                      INDEX
<TABLE>
<CAPTION>

                                                                                                                    PAGE
PART I        FINANCIAL INFORMATION

<S>          <C>                                                                                                     <C>
   Item 1.    Condensed Consolidated Financial Statements:

              Condensed Consolidated Balance Sheets as of September 30, 2008 (unaudited)
              and December 31, 2007...................................................................................2

              Condensed Consolidated Statements of Operations for the three
              and nine months ended September 30, 2008 and 2007 (unaudited)...........................................3

              Condensed Consolidated Statements of Cash Flows for the
              nine months ended September 30, 2008 and 2007 (unaudited)...............................................4

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

   Item 2.    Management's Discussion and Analysis of Financial
              Condition and Results of Operations....................................................................13

   Item 3.    Quantitative and Qualitative Disclosures about Market Risk.............................................25

   Item 4.    Controls and Procedures................................................................................26


Part II       Other Information

   Item 1.    Legal Proceedings......................................................................................27

   Item 1A.   Risk Factors...........................................................................................27

   Item 6.    Exhibits...............................................................................................27

   SIGNATURES........................................................................................................28
</TABLE>

   Exhibits

          Exhibit 31.1 - Certification  Pursuant  to  Rule  13a-14(a)  of the
                         Securities Exchange Act of 1934
          Exhibit 31.2 - Certification Pursuant to Rule 13a-14(a) of the
                         Securities Exchange Act of 1934
          Exhibit 31.3 - Certification Pursuant to Rule 13a-14(a) of the
                         Securities Exchange Act of 1934
          Exhibit 32 - Certification of CEO and CFO Pursuant to 18 U.S.C. ss.
                       1350, as Adopted Pursuant to ss. 906 of the
                       Sarbanes-Oxley Act of 2002

                                     - 1 -
<PAGE>



PART I - Financial Information
ITEM 1.  Condensed Consolidated Financial Statements


                          MISSION WEST PROPERTIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
           (dollars in thousands, except share and per share amounts)
                                    ---------
<TABLE>
<CAPTION>

                                                                                  September 30, 2008       December 31, 2007
                                                                                 ---------------------   ----------------------
                                                                                     (unaudited)
                                     ASSETS
Investments in real estate:
<S>                                                                                  <C>                     <C>
    Land                                                                              $  320,911              $  312,152
    Buildings and improvements                                                           796,638                 764,665
    Real estate related intangible assets                                                  3,240                   2,119
                                                                                 ---------------------   ----------------------
       Total investments in properties                                                 1,120,789               1,078,936
    Accumulated depreciation and amortization                                           (173,883)               (156,819)
                                                                                 ---------------------   ----------------------
       Net investments in properties                                                     946,906                 922,117
    Investment in unconsolidated joint venture                                             2,301                   2,735
                                                                                 ---------------------   ----------------------
       Net investments in real estate                                                    949,207                 924,852
Cash and cash equivalents                                                                      -                  23,691
Restricted cash                                                                           43,275                  65,509
Deferred rent                                                                             17,277                  14,833
Other assets, net                                                                         29,245                  25,000
                                                                                 ---------------------   ----------------------
       Total assets                                                                   $1,039,004              $1,053,885
                                                                                 =====================   ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Mortgage notes payable                                                            $  329,188              $  337,520
    Mortgage note payable (related parties)                                                8,880                   9,224
    Note payable (related parties)                                                         7,821                       -
    Revolving line of credit                                                              11,911                       -
    Interest payable                                                                       1,336                   1,331
    Security deposits                                                                      5,627                   4,754
    Deferred rental income                                                                 6,026                   3,302
    Dividends and distributions payable                                                   21,055                  16,832
    Accounts payable and accrued expenses                                                 20,607                  15,618
                                                                                 ---------------------   ----------------------
       Total liabilities                                                                 412,451                 388,581
                                                                                 ---------------------   ----------------------

Commitments and contingencies (Note 9)

Minority interests in operating partnerships                                             493,632                 526,626
                                                                                 ---------------------   ----------------------

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,
       19,748,211 and 19,664,087 shares issued and outstanding
       at September 30, 2008 and December 31, 2007                                            20                      20
    Additional paid-in capital                                                           154,223                 153,024
    Distributions in excess of accumulated earnings                                      (21,322)                (14,366)
                                                                                 ---------------------   ----------------------
     Total stockholders' equity                                                          132,921                 138,678
                                                                                 ---------------------   ----------------------
     Total liabilities and stockholders' equity                                       $1,039,004              $1,053,885
                                                                                 =====================   ======================
</TABLE>

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

                                     - 2 -
<PAGE>



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

<TABLE>
<CAPTION>
                                                         Three months ended September 30,        Nine months ended September 30,
                                                     --------------------------------------- ---------------------------------------
                                                            2008                2007                 2008                2007
                                                     ------------------ -------------------- ------------------- -------------------
Operating revenues:
<S>                                                      <C>                 <C>                 <C>                  <C>
   Rental revenue from real estate                         $20,256            $19,000              $58,612              $61,350
   Above market lease intangible asset amortization              -                  -                    -               (4,091)
   Tenant reimbursements                                     4,607              3,454               11,900                9,908
   Lease termination and settlement income                       -             47,238                1,921               57,515
   Other income                                                292              1,144                  769                3,808
                                                     ------------------ -------------------- ------------------- -------------------
        Total operating revenues                            25,155             70,836               73,202              128,490
                                                     ------------------ -------------------- ------------------- -------------------
Operating expenses:
   Property operating, maintenance and real estate taxes     5,839              6,228               16,238               15,307
   General and administrative                                  605                982                1,951                2,369
   Depreciation and amortization of real estate              5,759              5,533               17,064               17,084
                                                     ------------------ -------------------- ------------------- -------------------
        Total operating expenses                            12,203             12,743               35,253               34,760
                                                     ------------------ -------------------- ------------------- -------------------

        Operating income                                    12,952             58,093               37,949               93,730

Other income (expenses):
   Equity in earnings of unconsolidated joint venture          126                371                  915                1,058
   Interest income                                             193                751                  965                2,101
   Interest expense                                         (5,023)            (5,061)             (14,907)             (15,175)
   Interest expense - related parties                         (309)              (180)              (1,025)                (546)
                                                     ------------------ -------------------- ------------------- -------------------
     Income from continuing operations before minority
        interests                                            7,939             53,974               23,897               81,168

   Minority interests from continuing operations            (6,304)           (43,153)             (19,021)             (64,980)
                                                     ------------------ -------------------- ------------------- -------------------
        Income from continuing operations                    1,635             10,821                4,876               16,188

Discontinued operations, net of minority interests:
Gain from disposal of discontinued operations                    -              1,127                    -                1,127
Income attributable to discontinued operations                   -                 (7)                   -                    5
                                                     ------------------ -------------------- ------------------- -------------------
   Income from discontinued operations                           -              1,120                    -                1,132
                                                     ------------------ -------------------- ------------------- -------------------

Net income to common stockholders                           $1,635            $11,941              $ 4,876              $17,320
                                                     ================== ==================== =================== ===================
Net income to minority interests                            $6,304            $48,550              $19,021              $70,469
                                                     ================== ==================== =================== ===================
Income per common share from continuing operations:
   Basic                                                    $0.08               $0.55               $0.25               $0.82
                                                     ================== ==================== =================== ===================
   Diluted                                                  $0.08               $0.54               $0.25               $0.81
                                                     ================== ==================== =================== ===================
Income per common share from discontinued operations:
   Basic                                                        -               $0.06                 -                 $0.06
                                                     ================== ==================== =================== ===================
   Diluted                                                      -               $0.06                 -                 $0.06
                                                     ================== ==================== =================== ===================
Net income per common share to common stockholders:
   Basic                                                    $0.08               $0.61               $0.25               $0.88
                                                     ================== ==================== =================== ===================
   Diluted                                                  $0.08               $0.60               $0.25               $0.87
                                                     ================== ==================== =================== ===================
Weighted average shares of common stock outstanding       19,745,141          19,640,087          19,703,066           19,621,144
(basic)
                                                     ================== ==================== =================== ===================
Weighted average shares of common stock outstanding       19,783,507          19,818,806          19,769,148           19,914,374
(diluted)
                                                     ================== ==================== =================== ===================
</TABLE>

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

                                      - 3-
<PAGE>

                          MISSION WEST PROPERTIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
                                   (unaudited)
                                    ---------
<TABLE>
<CAPTION>
                                                                                                Nine months ended September 30,
                                                                                             ---------------------------------------
                                                                                                    2008                2007
                                                                                             ------------------- -------------------
Cash flows from operating activities:
<S>                                                                                                <C>                 <C>
     Net income                                                                                     $ 4,876             $17,320
     Adjustments to reconcile net income to net cash provided by operating activities:
            Minority interests income                                                                19,021              70,469
            Minority interest distributions                                                         (19,021)            (41,424)
            Depreciation and amortization of real estate and in-place leases                         17,064              17,232
            Amortization of acquired above market lease                                                   -               4,091
            Gain from disposal of properties classified as discontinued operations                        -              (6,529)
            Equity in earnings of unconsolidated joint venture                                         (915)             (1,058)
            Distributions from unconsolidated joint venture                                           1,350               1,691
            Interest earned on restricted cash                                                         (829)               (722)
            Lease termination fee related to restricted cash                                          7,285             (38,004)
            Stock-based compensation expense                                                            364                 472
            Other                                                                                       144                 147
     Changes in operating assets and liabilities:
            Deferred rent                                                                            (2,444)              3,966
            Other assets                                                                             (4,245)               (911)
            Interest payable                                                                            137                 (41)
            Security deposits                                                                           873              (2,246)
            Deferred rental income                                                                    2,724              (2,853)
            Accounts payable and accrued expenses                                                     4,989               8,294
                                                                                             ------------------- -------------------
     Net cash provided by operating activities                                                       31,373              29,894
                                                                                             ------------------- -------------------

Cash flows from investing activities:
     Improvements to real estate assets                                                              (6,164)             (4,621)
     Proceeds from sale of real estate                                                                    -              15,431
     Restricted cash held in escrow                                                                       -             (15,431)
     Purchase of real estate                                                                        (35,764)            (47,491)
     Restricted cash released for purchase of real estate                                             8,082              43,191
     Excess restricted cash                                                                           7,654                 630
                                                                                             ------------------- -------------------
     Net cash used in investing activities                                                          (26,192)             (8,291)
                                                                                             ------------------- -------------------

Cash flows from financing activities:
    Principal payments on mortgage notes payable                                                     (8,332)             (7,876)
    Principal payments on mortgage note payable (related parties)                                      (344)               (319)
    Proceeds from real estate purchase financing (related parties)                                   19,429                   -
    Payments on real estate purchase financing (related parties)                                    (19,429)                  -
    Proceeds from note payable (related parties)                                                      3,000                   -
    Payment on note payable (related parties)                                                        (3,000)                  -
    Proceeds from line of credit                                                                     11,911                   -
    Payment of loan fees and costs                                                                      (26)                  -
    Proceeds from exercise of stock options                                                             768                   -
    Minority interest distributions in excess of earnings                                           (21,820)                  -
    Dividends paid to common stockholders                                                           (11,029)             (9,393)
                                                                                             ------------------- -------------------
     Net cash used in financing activities                                                          (28,872)            (17,588)
                                                                                             ------------------- -------------------
     Net (decrease) increase in cash and cash equivalents                                           (23,691)              4,015
Cash and cash equivalents, beginning of period                                                       23,691              33,785
                                                                                             ------------------- -------------------
Cash and cash equivalents, end of period                                                            $     -             $37,800
                                                                                             =================== ===================
Supplemental information:
    Cash paid for interest                                                                          $15,720             $15,494
                                                                                             =================== ===================
Supplemental schedule of non-cash investing and financing activities:
    Debt from seller in connection with real estate purchase (related parties)                      $19,068                   -
                                                                                             =================== ===================
    Issuance of common stock upon conversion of O.P. units                                          $    66             $ 2,606
                                                                                             =================== ===================
    Issuance of operating partnership units in connection with property acquisition                       -             $ 6,603
                                                                                             =================== ===================
</TABLE>

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

                                     - 4 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

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 research and development  ("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. 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  September  30,  2008,  the  Company  owns  a  controlling   general
     partnership interest of 19.98%,  21.81%,  16.28% and 12.50% 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,  which
     represents  an  18.72%  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 111
     R&D/office properties, all of which are located in the 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 and nine months
     ended September 30, 2008 and 2007.

     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  Statement of
     Financial  Accounting  Standards  ("SFAS")  No.  131,   "Disclosures  about
     Segments of an Enterprise and Related Information," purposes.

2.   BASIS OF PRESENTATION

     PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
     The  accompanying   unaudited  interim  condensed   consolidated  financial
     statements of the Company have been prepared in accordance  with Rule 10-01
     of Regulation S-X  promulgated  by the  Securities and Exchange  Commission
     ("SEC")  and,  therefore,  do not include  all  information  and  footnotes
     necessary  for a  fair  presentation  of  financial  position,  results  of
     operations  and  cash  flows  in  conformity  with  accounting   principles
     generally  accepted in the United States of America.  In the opinion of the
     Company, however, the accompanying unaudited interim condensed consolidated
     financial  statements  contain all  adjustments,  consisting only of normal
     recurring   adjustments,   necessary  to  present   fairly  the   Company's
     consolidated   financial   position  as  of  September   30,  2008,   their
     consolidated  results of  operations  for the three and nine  months  ended
     September 30, 2008 and 2007, and their cash flows for the nine months ended
     September 30, 2008 and 2007. All  significant  inter-company  balances have
     been  eliminated in  consolidation.  The condensed  consolidated  financial
     statements as of September 30, 2008 and for the three and nine months ended
     September 30, 2008 and 2007 and related footnote disclosures are unaudited.
     The results of operations for the three and nine months ended September 30,
     2008 are not  necessarily  indicative of the results to be expected for the
     entire year.

     The December 31, 2007 condensed consolidated balance sheet data was derived
     from audited  financial  statements,  but does not include all  disclosures
     required by accounting  principles  generally accepted in the United States
     of America.

     The Company consolidates all variable interest entities ("VIE") in which it
     is  deemed  to  be  the  primary   beneficiary  in  accordance   with  FASB
     Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN
     46R").  As of September 30, 2008, the Company  consolidated  one VIE in the
     accompanying  condensed  consolidated  balance sheets in connection with an
     assignment of a lease  agreement with an unrelated  party,  M&M Real Estate
     Control &  Restructuring,  LLC. See Note 3 for further  discussion  of this
     transaction.

                                     - 5 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

     STOCK-BASED OPTION COMPENSATION ACCOUNTING
     The FASB issued SFAS No. 123R,  "Share-Based  Payment" ("SFAS 123R"), which
     addresses the  accounting  for stock  options.  SFAS 123R requires that the
     cost of all employee,  director and consultant  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 123R is an
     amendment  to SFAS 123,  "Accounting  for  Stock-Based  Compensation,"  and
     supersedes  Accounting  Principles  Board Opinion No. 25,  "Accounting  for
     Stock Issued to Employees" ("APB 25"). SFAS 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. At September 30, 2008, the Company had one stock-based  compensation
     plan. The Company adopted the  requirements of SFAS 123R effective  January
     1, 2006 using the modified  prospective method of transition.  The adoption
     of this standard did not have a material effect on the Company's  condensed
     consolidated statements of operations, cash flows or financial position.

     In the third quarter of 2008,  stock  options to purchase  52,500 shares of
     common stock were granted to one  employee and one  non-employee  director,
     which  options  vest  monthly for 48 months from date of grant,  subject to
     continued  employment or other  services to the Company.  Each option grant
     has a term  of six  years  from  the  date of  grant,  subject  to  earlier
     termination  in certain  events  related to  termination  of  employment or
     services to the Company.  The options were granted at an exercise  price of
     $11.36 per share.  The estimated  fair value of the options  granted in the
     third  quarter  of 2008 was $0.99 per share on the date of grant  using the
     Black-Scholes option pricing model with the following assumptions: dividend
     yield of 7.04%,  volatility  of  22.07%,  risk  free  rates of 3.20% and an
     expected  life of six years.  All options  were  granted at the fair market
     value at the date of grant.

     In the third quarter of 2008,  options to purchase  33,696 shares held by a
     former employee of the Company lapsed without exercise.

     The  following  table  shows the  activity  and detail for the 2004  Equity
     Incentive Plan.

<TABLE>
<CAPTION>
                                                                   Weighted Average
                                                2004 Equity          Option Price
                                               Incentive Plan         Per Share
                                               ---------------    ------------------
<S>                                             <C>                   <C>
          Balance, December 31, 2007             1,747,100             $11.13
              Options granted                    1,077,500             $ 9.60
              Options exercised                    (77,154)            $ 9.96
              Options forfeited                   (119,946)            $10.81
                                               ---------------
          Balance, September 30, 2008            2,627,500             $10.55
                                               ===============
</TABLE>

     The Company measures  compensation cost for its stock options at fair value
     on the date of grant and recognizes  compensation  expense  relating to the
     remaining  unvested  portion of  outstanding  stock  options at the time of
     adoption  ratably over the vesting period,  generally four years.  The fair
     value of the Company's stock options is determined using the  Black-Scholes
     option  pricing  model.  Compensation  expense  related  to  the  Company's
     share-based  awards is included in general and  administrative  expenses in
     the Company's accompanying condensed consolidated statements of operations.
     Under  SFAS  123R,  the  Company  recorded  approximately  $122 and $157 of
     expense  for  the  three  months  ended   September   30,  2008  and  2007,
     respectively,  and approximately $364 and $472 for share-based compensation
     relating to grants of stock options for the nine months ended September 30,
     2008 and 2007, respectively.

     As of September  30, 2008,  the total amount of  unrecognized  compensation
     cost  related to unvested  share-based  compensation  arrangements  granted
     under the compensation plan was  approximately  $594. This cost is expected
     to be recognized over a weighted-average period of 2.81 years.

     MINORITY INTERESTS
     Minority  interests   represent  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.  As of
     September 30, 2008, these interests  accounted for  approximately  81.3% of
     the ownership  interests in the real estate  operations of the Company on a
     consolidated  weighted average basis.  The amount of minority  interests in
     net  income  is  calculated  by  taking  the net  income  of the  operating
     partnerships (on a stand-alone basis) multiplied by the respective weighted
     average minority interests ownership percentage.

     Allocation  of  corporate  general  and  administrative   expenses  to  the
     operating  partnerships  is  performed  based  upon  shares  and  operating
     partnership units outstanding for each operating partnership in relation to
     the total for all four operating partnerships.

     RECLASSIFICATIONS
     Certain  reclassifications  have been made to the previously  reported 2007
     condensed consolidated financial statements in order to conform to the 2008
     presentation.


                                     - 6 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

     The following notes,  which present interim  disclosures as required by the
     SEC, highlight  significant  changes to the notes to the Company's December
     31,  2007  audited  consolidated  financial  statements  and should be read
     together  with the  consolidated  financial  statements  and notes  thereto
     included in the  Company's  2007 Annual  Report on Form 10-K filed on March
     14, 2008.

     ACCOUNTING PRONOUNCEMENTS
     In  September  2006,  the FASB issued SFAS 157,  "Fair Value  Measurements"
     ("SFAS  157").  SFAS 157 defines fair value,  establishes  a framework  for
     measuring fair value and expands disclosures about fair value measurements.
     SFAS 157 applies  under other  accounting  pronouncements  that  require or
     permit  fair  value  measurements.  Accordingly,  this  statement  does not
     require  any new fair  value  measurements.  This  guidance  was  issued to
     increase  consistency and  comparability in fair value  measurements and to
     expand  disclosures  about fair value  measurements.  SFAS  establishes and
     requires disclosure of fair value hierarchy that distinguishes between data
     obtained from sources independent of the reporting entity and the reporting
     entity's own assumptions about market  participant  assumptions.  The three
     levels of  hierarchy  are 1) using  quoted  prices in  active  markets  for
     identical assets and liabilities,  2) "significant other observable inputs"
     and 3) "significant  unobservable  inputs".  "Significant  other observable
     inputs" can include  quoted  prices for similar  assets or  liabilities  in
     active  markets,  as well as inputs  that are  observable  for the asset or
     liability,  such as interest rates, foreign exchange rates and yield curves
     that are observable at commonly quoted intervals. "Significant unobservable
     inputs" are  typically  based on an entity's own  assumptions,  as there is
     little,  if  any,  related  market  activity.  SFAS  157 is  effective  for
     financial  statements  issued for fiscal years beginning after November 15,
     2007.  Adoption  on January  1, 2008 did not have a material  effect on the
     Company's  consolidated  financial  statements.  The  FASB has  approved  a
     one-year deferral for the implementation of the statement for non-financial
     assets and  non-financial  liabilities  that are recognized or disclosed at
     fair value in the financial statements on a nonrecurring basis. The Company
     believes  that the  impact  of these  items  will  not be  material  to its
     consolidated financial statements.

     In February  2007,  the FASB issued  SFAS 159,  "The Fair Value  Option for
     Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
     companies  with  an  option  to  report  selected   financial   assets  and
     liabilities  at  fair  value.  SFAS  159's  objective  is  to  reduce  both
     complexity in accounting  for financial  instruments  and the volatility in
     earnings caused by measuring  related assets and  liabilities  differently.
     SFAS 159 is  effective  for  financial  statements  issued for fiscal years
     beginning  after  November  15,  2007.  The Company  adopted  SFAS 159 on a
     prospective  basis on January 1, 2008. The  implementation  of SFAS 159 did
     not  have  a  material  impact  on  the  Company's  consolidated  financial
     statements.

     In  December  2007,  the FASB  issued SFAS 141  (Revised  2007),  "Business
     Combinations"  ("SFAS  141R").  SFAS 141R will  change the  accounting  for
     business  combinations.  Under  SFAS  141R,  an  acquiring  entity  will be
     required to recognize all the assets acquired and liabilities  assumed in a
     transaction  at the  acquisition  date fair value with limited  exceptions.
     SFAS 141R will change the  accounting  treatment and disclosure for certain
     specific  items  in  a  business  combination.   SFAS  141R  requires  that
     acquisition-related  costs and restructuring costs be recognized separately
     from the business  combination and expensed as incurred.  SFAS 141R applies
     prospectively to business combinations for which the acquisition date is on
     or after the beginning of the first annual reporting period beginning on or
     after  December  15, 2008.  Early  adoption is  prohibited.  The Company is
     currently  evaluating  the impact  SFAS 141R will have on its  consolidated
     financial statements.

     In December  2007, the FASB issued SFAS 160,  "Noncontrolling  Interests in
     Consolidated  Financial  Statements"  ("SFAS 160").  SFAS 160 requires that
     noncontrolling  interests  be  presented  as a  component  of  consolidated
     stockholders'  equity,  eliminates "minority interest accounting" such that
     the amount of net income attributable to the noncontrolling  interests will
     be  presented  as part  of  consolidated  net  income  on the  consolidated
     statement  of  operations  and not as a  separate  component  of income and
     expenses.  SFAS 160 is  effective  for fiscal  years  beginning on or after
     December 15, 2008.  Early adoption is prohibited.  The Company is currently
     evaluating  the  impact  SFAS 160 will have on its  consolidated  financial
     statements.

3.   VARIABLE INTEREST ENTITY

     Under FIN 46R, a variable interest entity must be consolidated by a company
     if it is  subject  to a  majority  of the  entity's  expected  losses or is
     entitled to receive a majority of the entity's expected residual returns or
     both. In addition,  FIN 46R requires  disclosures  about variable  interest
     entities that a company is not required to consolidate, but in which it has
     a significant variable interest.

     Under  FIN  46R,  for an  entity  to  qualify  as a VIE  one or more of the
     following three characteristics must exist:

     1.   The equity  investment at risk is not  sufficient to permit the entity
          to finance its activities  without additional  subordinated  financial
          support by any parties, including the equity holders.
     2.   The  equity  investors  lack  one or more of the  following  essential
          characteristics of a controlling financial interest:

          a.   The  direct  or  indirect  ability  to make  decisions  about the
               entity's activities through voting or similar rights.
          b.   The obligation to absorb the expected loss of the entity.
          c.   The right to receive the expected residual returns of the entity.

                                     - 7 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

     3.   The equity investors have voting rights that are not  proportionate to
          their economic interests,  and the activities of the entity involve or
          are conducted on behalf of an investor with a disproportionately small
          voting interest.

     In August  2007,  one of the  Company's  tenants,  Ciena,  entered  into an
     assignment  of lease  agreement  with an unrelated  party,  M&M Real Estate
     Control &  Restructuring,  LLC  ("M&M"),  in  connection  with  leases  for
     approximately 445,000 rentable square feet located in San Jose, California.
     As a  result  of the  Assignment,  M&M  assumed  all of  Ciena's  remaining
     obligations  under  these  leases  and  received  a payment  from  Ciena of
     $53,000, of which $7,000 was reserved for tenant improvements.  At the same
     time, the Company  entered into a consent for assignment of lease with both
     parties and a mutual release agreement with Ciena, pursuant to which all of
     Ciena's obligations under these leases were effectively transferred to M&M.
     M&M is  obligated to continue to perform all of the  obligations  under the
     assumed  Ciena  leases  and has the  right  to  sublease  any or all of the
     445,000  rentable  square feet  vacated by Ciena for the  remainder  of the
     current lease term, which expire in 2011. Under the terms of the assignment
     of  lease  agreement,   the  Company  received  monthly  rent  payments  of
     approximately $789 from July 2007 through June 2008, is receiving $818 from
     July 2008 through June 2009,  will receive $849 from July 2009 through June
     2010, $881 from July 2010 through June 2011 and $915 from July 2011 through
     December 2011. Based upon the provisions of FIN 46R, the Company determined
     that M&M is a variable interest entity. The Company further determined that
     it is the  primary  beneficiary  of  this  variable  interest  entity,  and
     therefore has consolidated  this entity for financial  reporting  purposes.
     Upon consolidation, the Company recognized a gross lease termination fee of
     $46,000 in August 2007.

     Factors  considered  by the  Company in  determining  whether M&M should be
     considered a VIE for financial reporting purposes included the following:

     -    No equity was contributed by the partners in the formation of M&M.
     -    At  present,  the  assigned  leases  are  the  only  properties  under
          management by M&M.
     -    M&M does not have an operating  history that  demonstrates its ability
          to finance its activities  without additional  subordinated  financial
          support.
     -    All revenues,  other than interest  income,  are generated by M&M from
          the Company in the form of fees or commissions.

     The Company  remains at risk with respect to the assigned leases because if
     M&M's operating  expenses exceed its interest income,  fees and commissions
     there would be  insufficient  funds to meet the assigned  lease  obligation
     without additional  financial support from equity holders or other parties.
     The Company,  which had released the original  tenants from its obligations
     under the leases,  would have to absorb the majority of any loss, making it
     the primary beneficiary of M&M's activities.

4.   RESTRICTED CASH

     Restricted cash totaled  approximately $43,275 as of September 30, 2008. Of
     this amount,  approximately $41,775 represents cash held by M&M Real Estate
     Control & Restructuring,  LLC, a consolidated  variable interest entity, or
     VIE.  The Company does not have  possession  or control over these funds or
     any right to receive them except in  accordance  with the payment  terms of
     the lease  agreement  that has been assigned to the VIE. The balance of the
     restricted  cash is a $1,500  certificate  of  deposit  held by  Prudential
     Mortgage  Capital  Company   ("Prudential")  as  collateral   securing  the
     Company's  mortgage  loan.  The  certificate of deposit was provided by the
     Company in the third quarter of 2007 to replace two  buildings  sold by the
     Company  that  previously  served as  collateral.  Prudential  returned the
     funds,  plus  interest,  to the Company in October  2008 after the mortgage
     loan was fully paid off.

5.   STOCK TRANSACTIONS

     During the nine months ended September 30, 2008,  stock options to purchase
     70,487 and 6,667 shares of common stock were  exercised at $10.00 and $9.51
     per share,  respectively.  Total proceeds to the Company were approximately
     $768. During the same period,  three limited partners  exchanged a total of
     6,970 O.P.  units for 6,970 shares of the Company's  common stock under the
     terms of the Exchange  Rights  Agreement  among the Company and all limited
     partners of the operating  partnerships  resulting in a reclassification of
     approximately  $66 from minority  interests to additional  paid-in capital.
     Neither the Company nor the  operating  partnerships  received any proceeds
     from the issuance of the common stock in exchange for O.P. units.

6.   DISCONTINUED OPERATIONS

     The  Company  adopted  SFAS No.  144,  "Accounting  for the  Impairment  or
     Disposal of Long-Lived  Assets"  ("SFAS 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 is
     classified  as  discontinued   operations  in  the  condensed  consolidated
     statements of operations. Prior period condensed consolidated statements of
     operations  presented in this report have been  reclassified to reflect the
     income or loss  related  to  properties  that were  sold and  presented  as

                                     - 8 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)


     discontinued  operations in 2007. All periods presented in this report will
     likely  require  further  reclassification  in future  periods if there are
     properties held for sale or property sales occur.

     In the third  quarter of 2007,  the Company  sold two R&D  properties  that
     qualified as discontinued  operations.  Condensed results of operations for
     these properties for the three and nine months ended September 30, 2007 are
     as follows:
<TABLE>
<CAPTION>

                                                            Three Months Ended September 30,  Nine Months Ended September 30,
                                                             ------------------------------    -----------------------------
                                                                 2008              2007            2008             2007
                                                             -------------    -------------    ------------     ------------
                                                                                  (dollars in thousands)
                                                                                       (unaudited)
         Discontinued operating revenues:
<S>                                                               <C>          <C>                  <C>          <C>
            Rental revenue from real estate                        -              $118               -              $389
            Tenant reimbursements                                  -                56               -                83
            Other income                                           -                 1               -                 1
                                                             -------------    -------------    ------------     ------------
               Total discontinued operating revenues               -               175               -               473
                                                             -------------    -------------    ------------     ------------

         Discontinued operating expenses:
            Operating, maintenance and real estate taxes           -               150               -               233
            Depreciation of real estate                            -                35               -               148
                                                             -------------    -------------    ------------     ------------
              Total discontinued operating expenses                -               185               -               381
                                                             -------------    -------------    ------------     ------------

              Discontinued operating (loss) income                 -               (10)              -                92

         Discontinued operating other expenses:
            Interest expense                                       -                (1)              -                (1)
                                                             -------------    -------------    ------------     ------------
               (Loss) income from discontinued operations
         before minority interests                                 -               (11)              -                91
            Gain from disposal of discontinued operations          -             6,529               -             6,529
            Minority interest in earnings attributable to
                  discontinued operations                          -            (5,398)              -            (5,488)
                                                             -------------    -------------    ------------     ------------
         Income from discontinued operations                       -            $1,120               -            $1,132
                                                             =============    =============    ============     ============
</TABLE>

7.   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.

     The computation for weighted average shares is detailed below:

<TABLE>
<CAPTION>
                                                          Three Months Ended September 30,      Nine Months Ended September 30,
                                                         ---------------------------------     ---------------------------------
                                                               2008              2007               2008               2007
                                                         ---------------    --------------     ---------------   ---------------
<S>                                                        <C>               <C>                <C>                <C>
         Weighted average shares outstanding (basic)       19,745,141        19,640,087         19,703,066         19,621,144
         Incremental shares from assumed option exercise       38,366           178,719             66,082            293,230
                                                         ---------------    --------------     --------------    ---------------
         Weighted average shares outstanding (diluted)     19,783,507        19,818,806         19,769,148         19,914,374
                                                         ===============    ==============     ==============    ===============
</TABLE>

     At  September  30,  2008,  outstanding  options to purchase  1,667,500  and
     1,077,500  shares of common stock were  excluded  from the  computation  of
     diluted net income per share under the treasury  stock method for the three
     and nine months ended September 30, 2008, respectively,  because the option
     exercise price was greater than the weighted  average  closing price of the
     Company's common stock during the 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
     September 30, 2008 and 2007 was 85,526,965 and 85,557,935, respectively.

8.   RELATED PARTY TRANSACTIONS

     As of September 30, 2008, the Berg Group owned  77,902,384 O.P. units.  The
     Berg Group's combined ownership of O.P. units and shares of common stock as
     of September  30, 2008  represented  approximately  74% of the total equity
     interests,  assuming  conversion  of all O.P.  units  outstanding  into the
     Company's common stock.

     As of September 30, 2008,  debt in the amount of  approximately  $8,880 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 in June 2010 with principal payments amortized
     over 20 years.

                                     - 9 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

     On October 1, 2008,  the  Company  and the Berg Group  agreed to extend the
     maturity due date to June 2013.  Interest  expense  incurred in  connection
     with the mortgage note was approximately $171 and $180 for the three months
     ended September 30, 2008 and 2007, respectively,  and $521 and $546 for the
     nine months ended September 30, 2008 and 2007, respectively.

     As of September 30, 2008,  debt due the Berg Group under a short-term  note
     payable  established on January 1, 2008 in connection  with the acquisition
     of 5981 Optical Court was fully paid off. The note payable  bears  interest
     at LIBOR plus 2% and was due September 30, 2008.  Interest expense incurred
     in connection with the loan was approximately $7 and $361 for the three and
     nine months ended September 30, 2008, respectively.

     As of September 30, 2008,  debt in the amount of  approximately  $7,821 was
     due the Berg Group under a short-term  note payable  established on July 3,
     2008 in connection with the second quarter 2008 dividend distributions. The
     note  payable  bears  interest at LIBOR plus 2% and was due  September  30,
     2008.  In October  2008,  the  Company and the Berg Group  entered  into an
     agreement to extend the  maturity  due date to November 30, 2008.  Interest
     expense incurred in connection with the loan was approximately $132 for the
     three and nine months ended September 30, 2008.

     During the first  nine  months of 2008 and 2007,  Carl E. Berg or  entities
     controlled by him held financial  interests in several companies that lease
     space from the operating  partnerships,  which include  companies where Mr.
     Berg has a greater  than 10%  ownership  interest.  These  related  tenants
     contributed  approximately  $307 and $361 in rental  revenue  for the three
     months ended September 30, 2008 and 2007, respectively, and $921 and $1,082
     in rental  revenue for the nine months ended  September  30, 2008 and 2007,
     respectively.

     Under the Company's charter, bylaws and agreements with the Berg Group, the
     individual  members  of the Berg Group are  prohibited  from  acquiring  or
     holding  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.
     Currently their share ownership is below a level at which rent from related
     tenants would be excluded in determining compliance with REIT qualification
     tests.

     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 has recorded this portion of
     the  purchase  price  paid to the  Berg  Group  in  "Other  assets"  on its
     condensed  consolidated balance sheets. The Berg Group is in the process of
     satisfying this commitment to complete certain tenant improvements.

     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 has recorded
     this portion of the purchase price paid to the Berg Group in "Other assets"
     on its  condensed  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
     for the Company's headquarters.  Rental amounts and overhead reimbursements
     paid  to Berg & Berg  Enterprises  were  approximately  $30 and $24 for the
     three months ended September 30, 2008 and 2007,  respectively,  and $84 and
     $71 for the nine months ended September 30, 2008 and 2007, respectively.

9.   COMMITMENTS AND CONTINGENCIES

     Neither  the  operating  partnerships,  the  Company's  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  currently  involved  in the  following  legal
     proceedings and it believes that the ultimate outcome of these  proceedings
     will not have a material  adverse  effect on its  operating  results,  cash
     flows or financial condition.

     Mission West Properties,  L.P. v. Republic Properties  Corporation,  et al.
     Santa Clara County Superior Court, Case No. CV 796249.  Republic Properties
     Corporation  ("RPC") is a former 50% partner with Mission West  Properties,
     L.P. in the Hellyer Avenue Limited  Partnership  ("Hellyer LP"),  which was
     formed  in July  2000.  Under  the  terms  of the  Hellyer  LP  partnership
     agreement  and other  related  contracts,  Mission  West  Properties,  L.P.
     ("MWP") had the right to obtain RPC's entire  interest in Hellyer LP in the
     event of certain payment defaults which occurred in August 2000. Therefore,
     on September 1, 2000, MWP, as the general partner of Hellyer LP, ceased all
     allocations  of income and cash flow to RPC and  exercised  its right under
     the   partnership   agreement  to  cancel  RPC's  entire  interest  in  the
     partnership.  Following  discussions  with and approval by the  Independent
     Directors Committee,  the Company authorized the transfer of RPC's interest
     in Hellyer LP to Berg & Berg Enterprises, Inc. ("BBE"). Under the Berg Land
     Holdings Option Agreement and the Acquisition Agreement dated as of May 14,
     1998, the Company acting through the  Independent

                                     - 10 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

     Directors Committee had the right, but not the obligation, to reacquire the
     property  interest  and the related  distributions  related to the property
     interest at any time.  The transfer was  effective as of September 1, 2000.
     On November 20, 2000,  RPC  commenced a lawsuit  against MWP in the Circuit
     Court of Maryland for  Baltimore  City.  After  lengthy  litigation,  which
     included a trial on the  merits  and  subsequent  appeals,  in April  2006,
     Maryland's highest court upheld an earlier Maryland Appeals Court ruling in
     favor of MWP,  finding that the Circuit Court of Maryland  could not assert
     personal jurisdiction over MWP in Maryland.  The court vacated the judgment
     and decision in the trial court and dismissed the entire  Maryland suit. In
     February  2001,  while the Maryland  case was pending,  the Company filed a
     suit against RPC in the Superior  Court of the State of California  for the
     County  of Santa  Clara.  The case was  stayed  pending  resolution  of the
     Maryland  case,  and the Company  dismissed  its suit on March 4, 2005.  In
     April 2005,  RPC submitted a motion asking the Superior  Court to reinstate
     the case,  which the Court  granted on May 25, 2005.  On July 5, 2006,  RPC
     filed a cross-complaint  in the case seeking  partnership  distributions to
     which the Company demurred. The Court sustained the Company's demurrer with
     leave to  amend.  Subsequently,  RPC  filed an  amended  complaint  and the
     Company  submitted  another  demurrer  seeking  dismissal  of the claims on
     statute of limitations  grounds.  On February 20, 2007, the Court overruled
     the Company's demurrer. The Company sought a writ from the California State
     Court of Appeal for the Sixth District to direct the lower court to reverse
     its decision,  but the petition for the writ was denied. In April 2008, the
     Company  filed a motion for  summary  judgment in the  California  Superior
     Court which was denied.  In October 2008, a motion filed by RPC for summary
     judgment  in the  California  Superior  Court  was  denied.  A trial in the
     California Superior Court is scheduled to commence in late 2008.

     Since the  inception  of Hellyer  LP, the  Company  has  accounted  for the
     properties  owned  by  the  partnership  on  a  consolidated   basis,  with
     reductions  for the minority  interest held by the minority  partner (first
     RPC and then BBE). In each period,  the Company has accrued amounts payable
     by Hellyer LP to the  minority  interest  partner,  including  BBE prior to
     payment. BBE's share of earnings allocated to its 50% minority interest was
     approximately $0.6 million in the first nine months of 2008 and 2007. As of
     September 30, 2008,  accumulated  cash flow  distributions  from Hellyer LP
     totaling approximately $5.1 million were accrued and distributed to BBE. If
     the Company's litigation with RPC is ultimately decided in RPC's favor, the
     Company  anticipates  that  BBE may be  required  to  return  RPC's  former
     interest in Hellyer LP and all prior  distributions  to RPC. As a result of
     this uncertainty,  in October 2003, the Company recorded such distributions
     as an account  receivable  from BBE, which is included in "Other assets" on
     the Company's  consolidated  balance  sheets,  with an  offsetting  account
     payable to BBE.

     If the  litigation  is  ultimately  decided  in favor of the  Company,  the
     Company acting through the Independent  Directors Committee of the Board of
     Directors has the right, but not the obligation,  to acquire the former RPC
     interest  and  related  distributions  from BBE under the terms of the Berg
     Land Holdings Option Agreement and the Acquisition Agreement.

     GUARANTEES AND INDEMNITIES
     Under its articles 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 its  obligations  under these
     indemnification  agreements is minimal and has recorded no liabilities  for
     these agreements as of September 30, 2008.

     The  Company  also  enters  into   indemnification   provisions  under  its
     agreements  with  other  companies  in the  ordinary  course  of  business,
     typically with lenders, joint venture partners,  contractors,  and tenants.
     Under these  provisions the Company  typically agrees to indemnify and hold
     harmless  the  indemnified  party for losses  suffered  or  incurred by the
     indemnified  party as a result of certain  kinds of activities or inactions
     of  the  Company.   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.  To date,  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 recorded no  liabilities  for these  agreements as of September
     30, 2008.

     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 the Company
     believes would have a material  adverse effect on its financial  condition,
     results of operations and assets,  and the Company is not aware of any such
     liability.   Nonetheless,   it  is   possible   that  there  are   material
     environmental liabilities of which the Company is unaware. In addition, 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.

                                     - 11 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except per share and per square footage)
                                   (unaudited)

     ASSET DISPOSITIONS SUBJECT TO CERTAIN CONDITIONS
     The  Company has  entered  into sales  agreements  with  unrelated  parties
     subject to  numerous  material  conditions,  including  but not  limited to
     re-zoning of the property and negotiating certain agreements with the local
     municipality  acceptable to the buyer. As a result of the conditions agreed
     to by the Company and the respective  buyers,  these assets do not meet the
     criteria  set forth in SFAS 144 to be  classified  as assets held for sale.
     The following  summarizes  the assets for which the Company has an executed
     sales  contract as of September  30, 2008 that is subject to such  material
     conditions:

<TABLE>
<CAPTION>
        Property                   Number of Buildings   Rentable Square Feet          Acres              Sales Price
        --------                   -------------------   --------------------          -----              -----------
<S>                                        <C>                 <C>                    <C>                  <C>
        McCandless Drive
        Milpitas, California                8                   427,000                23.03                $76,500
</TABLE>

10.  SUBSEQUENT EVENTS

     On October 1, 2008,  the Company  entered into a fixed rate term  agreement
     and related  contracts and instruments for a secured mortgage loan totaling
     $115,000 from Hartford Life Insurance  Company,  Hartford Life and Accident
     Insurance  Company and  Hartford  Life and Annuity  Insurance  Company (the
     "Hartford  Loan").  The proceeds were used primarily to repay the remaining
     balance of an existing  mortgage loan with Prudential plus accrued interest
     and other short-term debt. The Hartford Loan bears a fixed interest rate of
     6.21%, with a 20 year  amortization,  and matures October 1, 2018, at which
     time any  outstanding  principal and interest will be due.  Pursuant to the
     loan  agreement,  monthly  principal and interest  installment  payments of
     approximately  $838 are due on the first day of each  month.  The  Hartford
     Loan is secured by 20 properties  consisting of  approximately  1.6 million
     rentable  square feet. The Company paid  approximately  $1,000 in loan fees
     and financing costs, which will be amortized over the ten year loan period.

     On  October  7,  2008,  Prudential  returned  approximately  $1,560  to the
     Company,  including  interest,  for a  certificate  of deposit  ("CD") that
     served as collateral  securing the Company's  mortgage loan. The funds were
     provided  by the  Company  in the  third  quarter  of 2007 to  replace  two
     buildings sold by the Company that  previously  served as  collateral.  The
     $1,500 CD was classified as restricted cash as of September 30, 2008.

     On October 9, 2008, the Company paid dividends of $0.20 per share of common
     stock to all common stockholders of record as of September 30, 2008. On the
     same date, the operating partnerships paid a distribution of $0.20 per O.P.
     unit to all holders of O.P.  units,  with the  exception of the Berg Group.
     Aggregate dividends and distributions amounted to approximately $21,055.

     On  October  9,  2008,  a   short-term   note  payable  in  the  amount  of
     approximately  $15,760 was issued to the Berg Group in connection  with the
     third quarter 2008 dividend distributions.  The note payable bears interest
     at LIBOR plus 2% and is due November 30, 2008.

                                     - 12 -

<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  condensed
consolidated financial statements and notes thereto under Part I, Item 1 of this
Report and our  audited  consolidated  financial  statements  and notes  thereto
contained  in our  Annual  Report  on Form  10-K as of and  for the  year  ended
December 31, 2007. The results for the three and nine months ended September 30,
2008 are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 2008.

FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-Q 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 are
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 or would cause actual results in the future to differ  materially from
any of our  forward-looking  statements  include,  but are not  limited  to, the
following:

-    the current  turmoil in the credit  markets could limit the demands for R&D
     space and affect the overall availability and cost of credit,
-    economic conditions generally and the real estate market specifically,
-    the occupancy rates of the properties,
-    rental rates on new and renewed leases,
-    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,
-    changes  in  general   accounting   principles,   policies  and  guidelines
     applicable to REITs, and
-    ability to timely refinance  maturing debt obligations and the terms of any
     such refinancing.

These risks and  uncertainties,  together with the other risks  described  under
Part I, Item 1A - "Risk Factors" of our 2007 Annual Report on Form 10-K and from
time to time in our other reports and documents  filed with the  Securities  and
Exchange Commission ("SEC"), 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 September 30,
2008, we owned and managed 111  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 September 30, 2008,  two tenants  individually  lease in
excess of 300,000 rentable square feet from us: Microsoft Corporation and Apple,
Inc.

For  federal  income  tax  purposes,   we  have  operated  as  a   self-managed,
self-administered  and fully  integrated real estate  investment  trust ("REIT")
since the beginning of 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

                                     - 13 -
<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

In the third  quarter  of 2008,  the  overall  U.S.  economy  weakened  further,
particularly  the  turmoil in the credit  markets,  the  housing  recession  and
growing unemployment. These factors have resulted in a considerable reduction in
business  spending.  As credit  requirements  have tightened with many financial
institutions, current tenants and prospective tenants may find it more difficult
to obtain  credit.  In effect,  this may decrease  the  stability of our current
tenants'  financial  condition  and limit our ability to lease  spaces to credit
worthy prospective tenants.

Given the current  financial  markets  crisis and general  economic  conditions,
there can be no  assurances  that our  operating  results  will not  continue to
decrease.  We have a strong balance sheet and have  maintained one of the lowest
levels of leverage in the REIT  industry.  The current  crisis in the  financial
markets has resulted in de-leveraging  throughout the global finance system. The
displacement  in the current  financing  market has resulted in a very difficult
borrowing 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. Historically, the Silicon Valley R&D property market has fluctuated
with the local economy.  After  fast-paced  growth in 1999 and 2000, the Silicon
Valley economy and business  activity slowed markedly from 2001 through 2006 and
have been  growing  slowly since then.  According  to a recent  report by NAI BT
Commercial  Real Estate (the "BT Report"),  the vacancy rate for Silicon  Valley
R&D  property was  approximately  16.6% in late 2007 and 15.8% at the end of the
third quarter of 2008.  Total vacant R&D square footage in Silicon Valley at the
end of the third quarter of 2008 amounted to  approximately  24.4 million square
feet,  of which 16.1%,  or 3.9 million  square  feet,  was being  offered  under
subleases.  According to the BT Report,  total positive net absorption (which is
the  computation  of gross square  footage  leased less gross new square footage
vacated for the period  presented) in 2007 amounted to approximately 3.5 million
square feet,  and in the first nine months of 2008 there was total  positive net
absorption of  approximately  0.52 million square feet. Also according to the BT
Report,  the average  asking market rent per square foot at the end of the third
quarter of 2008 was $1.27  compared with $1.26 in late 2007.  The Silicon Valley
R&D property market is characterized by a substantial number of submarkets, with
rent and vacancy rates varying by submarket and location  within each submarket,
however, and individual properties within any particular submarket presently may
be leased above or below the current  average  asking market rental rates within
that submarket and the region as a whole.

Our  occupancy  rate at  September  30,  2008 was 66.7%  compared  with 62.6% at
September 30, 2007. We believe that our occupancy rate could decline  further if
key tenants seek the protection of bankruptcy  laws,  consolidate  operations or
discontinue  operations.  In  addition,  leases  with  respect to  approximately
141,000 and 588,000  rentable  square feet are expiring prior to the end of 2008
and 2009, respectively. The properties subject to these leases may take anywhere
from 24 to 36 months or longer to  re-lease.  We believe  that the average  2008
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.

Despite our strategic focus on single tenant  properties and leases, in order to
meet market  conditions,  we have been, and expect to continue leasing less than
the entire  premises of some of our R&D  properties to a single tenant from time
to time. Leasing our R&D properties,  which generally have been built for single
tenant  occupancy,  to multiple  tenants  can  increase  our  leasing  costs and
operating expenses and reduce the profitability of our leasing activities.

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; if we restructure existing leases and lower existing
rents in order to retain  tenants for an extended  term;  or if we increase  our
lease costs and operating expenses substantially to accommodate multiple tenants
in our R&D properties, our results of operations and cash flows will be affected
adversely. 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 condensed  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  condensed  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.

                                     - 14 -

<PAGE>

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
condensed   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 ("SFAS") No.
141,  "Business  Combinations"  ("SFAS 141"),  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  commission  amortization  being computed over the term of the
lease.  Acquisitions of properties made subsequent to the effective date of SFAS
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 and  below  market in place  leases,  and the
determination  of their useful lives are guided by a combination of SFAS 141 and
management's  estimates.  Amortization  expense of above and below  market lease
intangible  asset is offset against rental revenue in the revenue  section while
amortization   of  in-place  lease  value   intangible   asset  is  included  in
depreciation  and  amortization  of real  estate in the  expense  section of our
condensed  consolidated  statements of  operations.  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 SFAS No. 144, "Accounting for
the Impairment and Disposal of Long-Lived  Assets" ("SFAS 144"). If the carrying
amount of the asset exceeds its  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.  We must  estimate  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,  the remaining lease term, whether or
not the tenant is currently occupying our building, 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.  We recognize these properties and 100%
of their operating results in our condensed  consolidated  financial statements,
with appropriate  allocation to minority interests,  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 we do
not exercise  significant control over major operating and financial  decisions.
We  account  for  this  joint  venture  interest  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.

                                     - 15 -


<PAGE>


STOCK-BASED  COMPENSATION.  SFAS 123R  requires  that the cost of all  employee,
director  and  consultant   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 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. We adopted
the  requirements  of SFAS 123R  effective  January 1, 2006  using the  modified
prospective  method of transition.  The adoption of this standard did not have a
material  effect on our  condensed  consolidated  statements  of  operations  or
financial  position.  Compensation  cost  under  SFAS  123R  may  differ  due to
different assumptions and treatment of forfeitures.

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 condensed 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,  cease
operations or are likely to seek a negotiated settlement of their obligation. 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.

SFAS No. 66,  "Accounting  for Sales of Real Estate"  ("SFAS  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.

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 when the tenant no longer has the right to occupy 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. We cannot predict or forecast 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:

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

With regard 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.

                                     - 16 -

<PAGE>


RESULTS OF OPERATIONS

COMPARISON OF THE THREE AND NINE MONTHS ENDED  SEPTEMBER 30, 2008 WITH THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007

As of September  30, 2008,  through our  controlling  interests in the operating
partnerships,  we  owned  111  properties  totaling  approximately  8.0  million
rentable  square feet compared with 109 properties  totaling  approximately  7.9
million  rentable  square  feet  owned  by us as of  September  30,  2007.  This
represents  a net  increase  of  approximately  1.3% in  total  rentable  square
footage,  as we acquired two R&D/office  properties  consisting of approximately
186,000  rentable  square feet since the third quarter of 2007.  Included in the
8.0 million rentable square feet are approximately  854,000 rentable square feet
(or  16  buildings)  that  we  are  seeking  to  have  rezoned  for  residential
development.

Rental  revenue from real estate for the three and nine months  ended  September
30, 2008  compared  with the same three- and  nine-month  periods in 2007 was as
follows:

<TABLE>
<CAPTION>
                                 Three Months Ended September 30,
                                 --------------------------------
                                                                                           % Change by
                                     2008              2007              $ Change         Property Group
                                 -------------     --------------     ---------------     ---------------
                                               (dollars in thousands)

<S>                                <C>               <C>                  <C>                <C>
       Same Property (1)            $19,347           $18,983               $364                1.9%
       2007 Acquisitions                  7                17                (10)             (57.6%)
       2008 Acquisitions                902                 -                902              100.0%
                                 -------------     --------------     ---------------
          Total                     $20,256           $19,000             $1,256                6.6%
                                 =============     ==============     ===============


                                 Nine Months Ended September 30,
                                 --------------------------------
                                                                                           % Change by
                                     2008              2007              $ Change         Property Group
                                 -------------     --------------     ---------------     ---------------
                                               (dollars in thousands)

       Same Property (1)            $56,098           $61,312            ($5,214)              (8.5%)
       2007 Acquisitions                 27                38                (11)             (31.1%)
       2008 Acquisitions              2,487                 -              2,487              100.0%
                                 -------------     --------------     ---------------
          Total                     $58,612           $61,350            ($2,738)              (4.5%)
                                 =============     ==============     ===============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2007 that we
     still owned as of September 30, 2008.

RENTAL REVENUE FROM REAL ESTATE FROM CONTINUING OPERATIONS
For the quarter  ended  September  30,  2008,  rental  revenue  from real estate
increased by  approximately  $1.3 million,  or 6.6%,  from $19.0 million for the
three  months  ended  September  30, 2007 to $20.3  million for the three months
ended September 30, 2008. For the nine months ended  September 30, 2008,  rental
revenue from real estate decreased by approximately  ($2.7) million,  or (4.5%),
from $61.3 million for the nine months ended September 30, 2007 to $58.6 million
for the nine months  ended  September  30, 2008.  The decline in rental  revenue
resulted  primarily from renewing  existing leases at lower rental rates and the
loss of several  tenants due to lease  terminations,  relocation or cessation of
their  operations in 2007,  all of which  resulted from current  adverse  market
conditions.  Total  rental  revenue  was  reduced  by  amortization  expense  of
approximately ($4.1) million for the nine months ended September 30, 2007 for an
above-market  lease intangible asset acquired  pursuant to a lease  termination.
That resulted in the write-off of all remaining  above-market  lease  intangible
asset.  Our  occupancy  rate at  September  30,  2008 was  approximately  66.7%,
compared with approximately 62.6% at September 30, 2007.

LEASE TERMINATION INCOME
We had no lease  termination  fee  income in the third  quarter  of 2008.  Lease
termination  fee  income  for the three  months  ended  September  30,  2007 was
approximately  $47.2 million.  Lease  termination fee income for the nine months
ended  September  30,  2008 and 2007 was  approximately  $1.9  million and $57.5
million,  respectively.  These lease  termination  fees were paid by tenants who
terminated their lease obligations before the end of the contractual term of the
lease  by  agreement  with  us.  We do not  consider  those  transactions  to be
recurring items.

OTHER INCOME FROM CONTINUING OPERATIONS
Other income of approximately  $0.3 million for the three months ended September
30, 2008 included  approximately  $0.25 million from  management  fees and $0.04
million from  miscellaneous  income.  Other income of approximately $1.1 million
for the three  months  ended  September  30, 2007  included  approximately  $0.2
million from management fees and $0.9 million from security  deposit  forfeiture
and  miscellaneous  income.  For the nine months ended September 30, 2008, other
income of approximately  $0.8 million included  approximately  $0.7 million from
management fees and $0.1 million from miscellaneous  income. For the nine months
ended September 30, 2007,  other income of  approximately  $3.8 million included
approximately  $1.6  million from a forfeited  deposit  under a contract for the
sale of  property,  $0.8  million  from  management  fees,  $0.3  million from a
bankruptcy  settlement claim and $1.1 million from security deposit  forfeitures
and miscellaneous income.

                                     - 17 -

<PAGE>


EXPENSES FROM CONTINUING OPERATIONS
Property  operating  expenses and real estate taxes during the third  quarter of
2008 decreased by approximately  ($0.4) million, or (6.2%), from $6.2 million to
$5.8  million  for  the  three  months  ended   September  30,  2007  and  2008,
respectively. The decrease was primarily attributable to higher lease commission
write-off in 2007 that did not recur in 2008. Tenant reimbursements increased by
approximately  $1.2  million,  or 33.4%,  from $3.4 million for the three months
ended  September  30, 2007 to $4.6 million for the three months ended  September
30, 2008 due to reimbursements  of recurring  operating  expenses.  The level of
tenant  reimbursements  is  affected  by  vacancies  because  certain  recurring
expenses  such as  property  insurance,  real  estate  taxes,  and  other  fixed
operating  expenses are not  recoverable  from vacant  properties.  For the nine
months ended  September 30, 2008,  property  operating  expenses and real estate
taxes increased by approximately  $0.9 million,  or 6.1%, from $15.3 million for
the nine months ended  September  30, 2007 to $16.2  million for the nine months
ended September 30, 2008. Tenant reimbursements  increased by approximately $2.0
million,  or 20.1%,  from $9.9 million for the nine months ended  September  30,
2007 to $11.9 million for the nine months ended September 30, 2008. The increase
in tenant  reimbursements  for the nine month period was due to higher operating
costs in 2008 and  reimbursements  from 2007 for common area  charges  that were
applied in 2008.

General and administrative  expenses decreased by approximately  ($0.4) million,
or  (38.4%),  from $1.0  million  to $0.6  million  for the three  months  ended
September  30,  2007  and  2008,  respectively.  The  decrease  in  general  and
administrative expenses was primarily due to higher legal fees associated with a
potential acquisition of the Company in 2007 that did not recur in 2008. For the
nine  months  ended  September  30, 2007 and 2008,  general  and  administrative
expenses  decreased  by  approximately  ($0.4)  million,  or (17.6%),  from $2.4
million to $2.0 million, respectively, for similar reasons.

Real estate  depreciation  and amortization  expense  increased by approximately
$0.2  million,  or 4.1%,  from $5.5 million to $5.7 million for the three months
ended September 30, 2007 and 2008, respectively.  The increase resulted from the
acquisition  of two R&D  properties and  additional  tenant  improvements  since
September 30, 2007. Real estate  depreciation and amortization  expense remained
the same at approximately  $17.1 million for the nine months ended September 30,
2008 and 2007. Such expense in the first nine months of 2007 included additional
amortization  expense relating to in-place lease value intangible asset pursuant
to SFAS 141 in  connection  with two  lease  terminations  that did not recur in
2008.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
As of September 30, 2008, we held  investments  in three R&D buildings  totaling
approximately  466,800  rentable  square feet  through an  unconsolidated  joint
venture,  TBI-MWP,  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
September 30, 2008, we recorded equity in earnings from the unconsolidated joint
venture of approximately $0.13 million compared with equity in earnings of $0.37
million  for the same  period  in  2007.  The  decrease  was  attributable  to a
reduction in rent payment for one of the tenants in the joint  venture.  For the
nine-month  periods ended  September 30, 2008 and 2007,  equity in earnings from
the  unconsolidated  joint  venture was  approximately  $0.92  million and $1.06
million, respectively. The occupancy rate for the properties owned by this joint
venture at September 30, 2008 and 2007 was 100%.

INTEREST INCOME
Interest income decreased by approximately ($0.6) million, or (74.3%), from $0.8
million to $0.2 million for the three months ended  September 30, 2007 and 2008,
respectively.  The decrease was  primarily  due to lower cash reserve on hand in
2008.  Interest income  decreased by approximately  ($1.1) million,  or (54.1%),
from $2.1 million for the nine months ended  September  30, 2007 to $1.0 million
for the nine months ended September 30, 2008.

INTEREST EXPENSE
Interest  expense was  approximately  $5.0  million for the three  months  ended
September 30, 2008 and 2007.  Interest  expense (related  parties)  increased by
approximately  $0.1  million,  or 71.7%,  from $0.2 million for the three months
ended  September  30, 2007 to $0.3 million for the three months ended  September
30, 2008 due to higher  related  party debt  incurred in the quarter just ended.
Total debt  outstanding,  including  amounts due related  parties,  increased by
approximately  $8.2 million,  or 2.4%,  from $349.6  million as of September 30,
2007 to $357.8 million as of September 30, 2008.

Interest expense  decreased by  approximately  ($0.3) million,  or (1.8%),  from
$15.2 million for the nine months ended  September 30, 2007 to $14.9 million for
the nine months ended September 30, 2008.  Interest  expense  (related  parties)
increased by  approximately  $0.5 million,  or 87.7%,  from $0.5 million for the
nine months ended  September  30, 2007 to $1.0 million for the nine months ended
September 30, 2008.

                                     - 18 -

<PAGE>


INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the three and nine months ended September 30, 2007.

<TABLE>
<CAPTION>
                                                            Three Months Ended September 30,   Nine Months Ended September 30,
                                                            -------------------------------    ------------------------------
                                                                2008             2007             2008             2007
                                                             -----------     ------------     ------------     ------------
                                                                                  (dollars in thousands)
                                                                                       (unaudited)
<S>                                                                <C>         <C>                  <C>          <C>
         (Loss) income attributable to discontinued operations      -          ($   11)              -            $   91
         Gain from disposal of discontinued operations              -            6,529               -             6,529
         Minority interest in earnings attributable to
             discontinued operations                                -           (5,398)              -            (5,488)
                                                              -----------     ------------     ------------     ------------
         Income from discontinued operations                        -           $1,120               -            $1,132
                                                              ===========     ============     ============     ============
</TABLE>


In the third quarter of 2007, we sold two R&D properties, and in accordance with
our adoption of SFAS 144, classified them as discontinued operations. The income
to common  stockholders  attributable  to  discontinued  operations  from  these
properties  for  the  three  and  nine  months  ended  September  30,  2007  was
approximately $1.1 million.

NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTERESTS
Net income to common stockholders decreased by approximately ($10.3) million, or
(86.3%),  from $11.9  million for the three months ended  September  30, 2007 to
$1.6  million  for the same period in 2008.  The  minority  interest  portion of
income  decreased  by  approximately  ($42.2)  million,  or (87.0%),  from $48.5
million for the three  months ended  September  30, 2007 to $6.3 million for the
three months ended  September 30, 2008. The decrease in the quarter's net income
for both common  stockholders and minority  interests was primarily due to lower
termination  fee income in the third quarter of 2008.  For the nine months ended
September  30,  2008 and 2007,  the  minority  interest  portion  of income  was
approximately $19.0 million and $70.5 million,  respectively,  and net income to
common   stockholders  was   approximately   $4.9  million  and  $17.3  million,
respectively.  The  combination  of lower  termination  fee  income  and  higher
operating   expenses  led  to  the  decrease  in  net  income  for  both  common
stockholders and minority interests in the first nine months of 2008.

Minority  interest  in net income has been  calculated  by  multiplying  the net
income of the operating  partnerships (on a stand-alone basis) by the respective
minority  interest  ownership  percentage.   Minority  interests  represent  the
ownership  interest of all limited partners in the operating  partnerships taken
as a whole, which was approximately 81% as of September 30, 2008 and 2007.

CHANGES IN FINANCIAL CONDITION

The most significant  changes in our financial  condition during the nine months
ended September 30, 2008 resulted from the acquisition of two R&D properties. At
September 30, 2008, total investments in real estate increased on a net basis by
approximately  $41.9  million from  December 31, 2007  primarily  due to two R&D
property  acquisitions  consisting of approximately 186,000 rentable square feet
located  in the  Silicon  Valley  and  the  construction  of  additional  tenant
improvements.

Total stockholders'  equity, net, decreased by approximately ($5.8) million from
December 31, 2007.  We obtained  additional  capital from the issuance of 77,154
and 6,970 shares of our common stock for stock option exercises and the exchange
of O.P.  units,  respectively,  which  increased  additional  paid-in capital by
approximately  $1.2 million.  Stockholders'  equity was reduced  during the most
recent  quarter  by   distributions   in  excess  of  accumulated   earnings  of
approximately ($7.0) million.

LIQUIDITY AND CAPITAL RESOURCES

We expect a slight increase in operating cash flows from our operating  property
portfolio  in 2008  compared  with  2007  primarily  from new  leases,  periodic
payments  from M&M Real  Estate  Control &  Restructuring  relating to the Ciena
lease  termination  in 2007  (see  Note 3  above)  and  additional  early  lease
terminations.   If  we  are  unable  to  lease  a  significant  portion  of  the
approximately  141,000  rentable  square  feet  scheduled  to expire  during the
remainder of 2008 or an equivalent  amount of our currently  available  space of
approximately  2.7 million  rentable  square feet,  however,  our operating cash
flows after 2008 may be affected adversely. With the expectation of lower rental
revenues for the  remainder of 2008,  we expect our  properties'  net  operating
income to show a  year-over-year  decline  compared  with 2007  driven by excess
capacity of commercial  office and R&D space in the Silicon Valley.  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.  Cash flows from lease terminations
are  non-recurring  and to maintain or increase cash flows in the future we must
re-lease our vacant properties.

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,  as well as borrowings
under our line of credit with Heritage Bank of Commerce ("HBC"). We expect these
sources  of  liquidity  to  be  adequate  to  meet  projected  distributions  to
stockholders and other presently anticipated liquidity  requirements in 2008. 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  cash and  investments,  long-term  secured and  unsecured
indebtedness,  and potentially,  the issuance of additional equity securities by
us. We expect our total  interest  expense to  increase  through  new  financing
activities.

                                     - 19 -

<PAGE>
In the  first  nine  months  of 2008,  cash and cash  equivalents  decreased  by
approximately  ($23.7)  million from $23.7 million as of December 31, 2007 to $0
as of September 30, 2008.

As of September 30, 2008,  restricted cash totaled  approximately $43.3 million.
Of  this  amount,  approximately  $41.8  million  represents  cash  held  by our
consolidated VIE from the Ciena lease  termination in the third quarter of 2007.
We do not  possess or  control  these  funds or have any rights to receive  them
except as provided in the applicable agreements, however. We include this in our
restricted  cash under the  principles  of FIN 46R. The  remaining  $1.5 million
represents a certificate of deposit which represents a portion of our collateral
securing the Prudential mortgage loan, which we placed in escrow in October 2007
as a substitution  for two properties  that we sold.  Prudential  returned these
funds,  plus  interest,  to us in  October  2008.  The  restricted  cash  is not
available for distribution to stockholders.

DISTRIBUTIONS
On October 9, 2008, we paid  dividends of $0.20 per share of common stock to all
common  stockholders  of record as of September 30, 2008. On the same date,  the
operating partnerships paid a distribution of $0.20 per O.P. unit to all holders
of O.P.  units,  with the exception of the Berg Group.  Aggregate  dividends and
distributions  amounted to  approximately  $21.1  million.  For the remainder of
2008,  we expect to maintain  our current  quarterly  dividend  payment  rate to
common  stockholders  and  O.P.  unit  holders  of  $0.20  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.

DEBT
We currently  have a $17.5 million  unsecured  revolving line of credit with HBC
established  in April  2008.  The  revolving  line of credit  carries a variable
interest rate based on the one-month LIBOR plus 1.75% per annum and matures June
15, 2009.

On July 3, 2008, a short-term note payable in the amount of approximately  $12.8
million was issued to the Berg Group in connection  with the second quarter 2008
dividend distributions.  The interest rate on this note was LIBOR plus 2%. As of
September 30, 2008, the due date of the note, the remaining  balance on the Berg
Group note payable was approximately $7.8 million.  In October 2008, the Company
and the Berg Group agreed to extend the maturity due date to November 30, 2008.

At  September  30,  2008,  we had total  indebtedness  of  approximately  $357.8
million,  including  $329.2 million of fixed rate mortgage  debt,  $11.9 million
under the HBC line of credit,  $8.9 million  debt under the Berg Group  mortgage
note  (related  parties) and $7.8 million debt under the Berg Group note payable
(related parties), as detailed in the table below. The Prudential, Northwestern,
Allianz and HBC loans contain certain financial loan and reporting  covenants as
defined in the loan agreements.  As of September 30, 2008, we were in compliance
with these loan covenants.

On October 1, 2008,  we entered  into a fixed rate term  agreement  and  related
contracts and instruments for a secured mortgage loan totaling $115 million from
Hartford Life Insurance  Company,  Hartford Life and Accident  Insurance Company
and Hartford  Life and Annuity  Insurance  Company (the  "Hartford  Loan").  The
Hartford Loan bears a fixed interest rate of 6.21%, with a 20 year amortization,
and  matures  October  1,  2018,  at which time any  outstanding  principal  and
interest  will be due.  Pursuant to the loan  agreement,  monthly  principal and
interest  installment  payments of  approximately  $0.84  million are due on the
first  day of  each  month.  The  Hartford  Loan  is  secured  by 20  properties
consisting of approximately 1.6 million rentable square feet. We have the option
to prepay the Hartford Loan,  subject to certain yield  maintenance  provisions,
though  generally no prepayment  is permitted  during the first 24 months of the
loan term.

In  general,  the  properties  securing  the  Hartford  Loan  cannot  be sold or
otherwise  transferred  without the  lender's  consent.  The loan balance may be
accelerated in full in the event of a prohibited sale or transfer.  The Hartford
Loan is  non-recourse  to the  operating  partnerships.  Under  the  terms  of a
carveout indemnity agreement and an environmental indemnity agreement, we may be
liable for the unpaid balance of the Hartford Loan and other obligations arising
under the loan agreement under the circumstances provided in such agreements.

We paid  approximately $1.0 million in loan fees and financing costs, which will
be amortized over the ten year loan period.  The proceeds were used primarily to
repay the  remaining  balance  of an  existing  mortgage  loan  with  Prudential
Mortgage  Capital Company plus accrued  interest and other  short-term debt. Our
mortgage loan with Prudential  Mortgage Capital Company had a principal  balance
of approximately $110.6 million as of September 30, 2008.

                                     - 20 -

<PAGE>


CONTRACTUAL OBLIGATIONS
The following table  identifies the contractual  obligations with respect to the
maturities and scheduled principal  repayments of our secured debt, Note, Credit
Facility and scheduled  interest  payments of our fixed-rate  and  variable-rate
debt at September 30, 2008 and provides  information  about our operating  lease
obligations that will impact our liquidity and cash flow in future periods.

<TABLE>
<CAPTION>
                                 ------------- ------------- ------------- -------------- ------------- ------------- --------------
                                      2008          2009         2010           2011           2012      Thereafter        Total
                                 ------------- ------------- ------------- -------------- ------------- ------------- --------------
<S>                                 <C>           <C>           <C>            <C>            <C>          <C>            <C>
 Principal payments(1)               $120,732      $21,474       $10,105        $10,681        $11,288      $183,520       $357,800
 Interest payments-fixed rate debt(2)   3,434       12,143        11,601         11,025         10,418        42,883         91,504
 Interest payments-variable rate debt(3)  159          228             -              -              -             -            387
 Operating lease obligations(4)            30           30             -              -              -             -             60
                                 ------------- ------------- ------------- -------------- ------------- ------------- --------------
    Total                            $124,355      $33,875       $21,706        $21,706        $21,706      $226,403       $449,751
                                 ============= ============= ============= ============== ============= ============= ==============
</TABLE>

(1)  As of September  30, 2008,  94.5% of our debt was  contractually  fixed and
     5.5% of our debt bore interest at variable rates.  Our debt obligations are
     set forth in detail in the table below.
(2)  The  information  in the table above  reflects our projected  interest rate
     obligations for the fixed-rate  payments based on the contractual  interest
     rates, interest payment dates and scheduled maturity dates.
(3)  The  information  in the table above  reflects our projected  interest rate
     obligations  for the  variable-rate  payments  based on LIBOR plus a spread
     that  ranged  from 1.75% to 2.00% at  September  30,  2008,  the  scheduled
     interest payment dates and maturity dates.
(4)  Our operating lease  obligations  relate to a lease of our corporate office
     facility from a related party.

                                     - 21 -
<PAGE>

The following table sets forth information regarding debt outstanding as of
September 30, 2008:
<TABLE>
<CAPTION>

                                                                                                                Interest   Maturity
              Debt Description                        Collateral Properties                   Balance             Date       Rate
-----------------------------------------   ------------------------------------------  --------------------  ----------- ----------
                                                                                       (dollars in thousands)
Line of Credit:
<S>                                        <C>                                              <C>                <C>         <C>
Heritage Bank of Commerce                   Not Applicable                                    $11,911            6/09         (3)
                                                                                        --------------------

Note Payable (related parties):             Not Applicable                                      7,821           11/08(7)      (4)
                                                                                        --------------------

Mortgage Note Payable (related parties):    5300 & 5350 Hellyer Avenue, San Jose, CA            8,880            6/13(8)    7.65%
                                                                                        --------------------
Mortgage Notes Payable (1):
Prudential Mortgage Capital Company (2)     10300 Bubb Road, Cupertino, CA                    110,597           10/08       6.56%
                                            10500 N. De Anza Boulevard, Cupertino, CA
                                            4050 Starboard Drive, 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
                                            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, Santa Clara, CA

Northwestern Mutual Life Insurance Co. (5)  1750 Automation Parkway, San Jose, CA              82,247            2/13       5.64%
                                            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 Drive, Cupertino, CA

Allianz Life Ins. Co.(Allianz Loan I)(6)    5900 Optical Court, San Jose, CA                   23,217            8/25       5.56%

Allianz Life Ins. Co.(Allianz Loan II)(6)   5325-5345 Hellyer Avenue, San Jose, CA            113,127            8/25       5.22%
                                            1768 Automation Parkway, San Jose, CA
                                            2880 Scott Boulevard, Santa Clara, CA
                                            2890 Scott Boulevard, Santa Clara, CA
                                            2800 Scott Boulevard, Santa Clara, CA
                                            20400 Mariani Avenue, Cupertino, CA
                                            10450-10460 Bubb Road, Cupertino, CA
                                                                                        --------------------
                                                                                              329,188
                                                                                        --------------------

                                                                                        --------------------
TOTAL                                                                                        $357,800
                                                                                        ====================
</TABLE>


(1)  Mortgage notes payable generally require monthly  installments of principal
     and interest ranging from  approximately  $177,000 to $840,000 over various
     terms extending  through the year 2025. The weighted  average interest rate
     of mortgage notes payable was 5.85% at September 30, 2008.
(2)  The  Prudential  Mortgage  Capital  Company  loan  is  payable  in  monthly
     installments of  approximately  $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  $12,000,000 of this
     debt.   Costs  and  fees  incurred  with  obtaining  this  loan  aggregated
     approximately  $900,000,  which were deferred and  amortized  over the loan
     period.  The  Prudential  loan was paid off in full on October 1, 2008 with
     proceeds from the new Hartford Loan (see above for details).
(3)  Loan  carries a  variable  interest  rate equal to LIBOR  plus  1.75%.  The
     interest  rate at  September  30,  2008 was  4.22%.  The  Heritage  Bank of
     Commerce  line of credit  contains  certain  financial  loan and  reporting
     covenants as defined in the loan agreements, including minimum tangible net
     worth and debt service coverage ratio. As of September 30, 2008, we were in
     compliance with these loan covenants.
(4)  Loan  carries a  variable  interest  rate  equal to LIBOR  plus  2.0%.  The
     interest rate at September 30, 2008 was 4.93%.
(5)  The Northwestern  loan is payable in monthly  installments of approximately
     $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.
(6)  The  Allianz  loans  are  payable  in  monthly  aggregate  installments  of
     approximately  $1,017,000,  which includes  principal (based upon a 20-year
     amortization)  and interest.  Costs and fees incurred with obtaining  these
     loans  aggregated  approximately   $1,089,000,   which  were  deferred  and
     amortized  over  the  loan  periods.  The  Allianz  loans  contain  certain
     customary covenants as defined in the loan agreements.  As of September 30,
     2008, we were in compliance with these loan covenants.
(7)  In  October  2008,  the  Company  and the Berg  Group  agreed to extend the
     maturity due date from September 30, 2008 to November 30, 2008.
(8)  On October 1, 2008,  the  Company  and the Berg Group  agreed to extend the
     maturity due date from June 2010 to June 2013.

                                     - 22 -
<PAGE>


At September 30, 2008, 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 $9.74 per share on September  30, 2008) on a fully diluted  basis,  including
the conversion of all O.P. units into common stock, was approximately  25.9%. On
September  30,  2008,  the  last  trading  day  in  the  quarter,  total  market
capitalization was approximately $1.38 billion.

At September 30, 2008, the  outstanding  balance  remaining  under certain notes
that we owed to the operating  partnerships was approximately $2.1 million.  The
due date of these notes has been extended to September  30, 2009.  The principal
amount of these 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  condensed  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  interests as reported on the condensed
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 by  raising
additional equity capital.

HISTORICAL CASH FLOWS

COMPARISON  OF THE NINE  MONTHS  ENDED  SEPTEMBER  30, 2008 WITH THE NINE MONTHS
ENDED SEPTEMBER 30, 2007

Net cash provided by operating  activities  for the nine months ended  September
30, 2008 was  approximately  $31.4  million  compared with $29.9 million for the
same period in 2007.  Cash flow  increases  came  primarily  from  higher  lease
termination fee payment and higher payments from security  deposits and deferred
rental income in 2008.

Net cash used in investing  activities was approximately  $26.2 million and $8.3
million for the nine months  ended  September  30, 2008 and 2007,  respectively.
Cash used in investing  activities  during the nine months ended  September  30,
2008 related  principally to the acquisition of one R&D property at 5981 Optical
Court in San Jose,  California  and one R&D property at 2904 Orchard  Parkway in
San Jose, California for a total of approximately $35.8 million. The acquisition
at 2904 Orchard  Parkway was completed as a  tax-deferred  exchange  transaction
involving our former R&D property at 1170 Morse Avenue in Sunnyvale, California.
The  remaining  excess  restricted  cash  of  approximately   $7.7  million  was
transferred to our general cash account.  Capital  expenditures  for real estate
improvements were approximately $6.2 million for the nine months ended September
30, 2008.

Net cash used in investing activities during the nine months ended September 30,
2007 related  principally  to the  acquisition of 50 acres of vacant land at the
Morgan Hill Ranch in Morgan Hill,  California for  approximately  $25.5 million,
the  acquisition of five acres of vacant land at the Morgan Hill Ranch in Morgan
Hill,  California for approximately  $2.3 million,  and the acquisition of three
R&D  properties  at Montague  Expressway  in  Milpitas,  California  and one R&D
property at 5845 Hellyer Avenue in San Jose,  California for approximately $19.7
million.  The acquisition at Montague Expressway was completed as a tax-deferred
exchange transaction  involving our former R&D properties at 2033-2243 Samaritan
Drive  in  San  Jose,  California.  The  remaining  excess  restricted  cash  of
approximately $0.6 million was transferred to our general cash account.  Capital
expenditures for real estate  improvements were  approximately  $4.6 million for
the nine months ended September 30, 2007.

Net cash used in financing  activities was  approximately  $28.9 million for the
nine months ended September 30, 2008 compared with  approximately  $17.6 million
for the nine months ended  September  30, 2007.  During the first nine months of
2008,  we financed  approximately  $22.4 million in  short-term  debt,  received
approximately $11.9 million from our line of credit, received approximately $0.7
million from stock option exercises,  paid  approximately  $31.1 million towards
outstanding  debt,  paid  approximately  $11.0  million of  dividends  to common
stockholders  and paid  approximately  $21.8  million to minority  interests for
distributions  in excess of  earnings.  During the same period in 2007,  we paid
approximately $8.2 million towards  outstanding debt and paid approximately $9.4
million of 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 to be an appropriate supplemental measure
of our operating and financial performance because when compared year over year,
it reflects  the impact to  operations  from trends in occupancy  rates,  rental
rates, operating costs, general and administrative  expenses and interest costs,
providing a perspective not immediately  apparent from net income.  In addition,
management  believes that FFO provides  useful  information  about our financial
performance  when compared with other REITs because FFO is generally  recognized
as the industry  standard for reporting the operations of REITs.  In addition to
the disclosure of operating earnings per share, we will continue to use FFO as a
measure of our  performance.  FFO should neither 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.

                                     - 23 -
<PAGE>

Our definition of FFO also assumes  conversion at the beginning of the period of
all convertible  securities,  including minority  interests  represented by O.P.
Units 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  and nine  months  ended  September  30,  2008 and  2007,  as
reconciled to net income to common stockholders, are summarized in the following
table:

<TABLE>
<CAPTION>
                                                  Three Months Ended September 30,              Nine Months Ended September 30,
                                             -----------------------------------------     -----------------------------------------
                                                    2008                   2007                   2008                   2007
                                             ------------------     ------------------     ------------------     ------------------
                                                       (dollars in thousands)                        (dollars in thousands)
<S>                                             <C>                    <C>                    <C>                   <C>
Net income to common stockholders                $ 1,635                $11,941                $ 4,876               $ 17,320
Add:
  Minority interests (1)                           6,171                 48,420                 18,714                 70,098
  Depreciation and amortization of real estate(2)  6,393                  7,184                 18,881                 19,986
Less:
  Gain on sale of real estate                          -                 (6,529)                     -                 (6,529)
                                             ------------------     ------------------     ------------------     ------------------
FFO                                              $14,199                $61,016                $42,471               $100,875
                                             ==================     ==================     ==================     ==================
</TABLE>

(1)  Minority  interests in net income is calculated by taking the net income of
     the  operating  partnerships  (on a  stand-alone  basis)  multiplied by the
     respective  weighted  average  minority  interests  ownership   percentage.
     Minority  interests for third parties totaling  approximately $133 and $130
     for the three months ended September 30, 2008 and 2007,  respectively,  and
     $307 and $371  for the nine  months  ended  September  30,  2008 and  2007,
     respectively,  were deducted from total  minority  interests in calculating
     FFO.
(2)  Includes our portion of  depreciation  and  amortization of real estate and
     leasing   commissions  from  our  unconsolidated   joint  venture  totaling
     approximately  $189 for the three months ended September 30, 2008 and 2007,
     and $568 for the nine  months  ended  September  30,  2008 and  2007.  Also
     includes our amortization of leasing  commissions of approximately $444 and
     $1,426  for  the  three   months  ended   September   30,  2008  and  2007,
     respectively, and $1,249 and $2,187 for the nine months ended September 30,
     2008  and  2007,  respectively.  Amortization  of  leasing  commissions  is
     included in the property operating,  maintenance and real estate taxes line
     item in the condensed consolidated statements of operations.

The decrease in FFO  year-over-year  was primarily due to lower rental and lease
termination fee income in 2008.

DISTRIBUTION POLICY

Our board of directors  determines 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 ability to refinance maturing debt obligations;
-    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;
-    the amount of our annual debt service requirements;
-    prospects  of tenant  renewals  and  re-leases  of  properties  subject  to
     expiring leases;
-    cash required for re-leasing activities;
-    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.

                                     - 24 -

<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
variable rate debt 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  September  30,  2008.  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
fixed rate debt, we estimate fair value by using  discounted  cash flow analyses
based on borrowing rates for similar kinds of borrowing arrangements.

For fixed rate debt,  the table  presents the  assumption  that the  outstanding
principal  balance at  September  30, 2008 will be paid  according  to scheduled
principal payments and that we will not prepay any of the outstanding  principal
balance.

For variable rate debt, the table presents the assumption  that the  outstanding
principal balance at September 30, 2008 will be paid upon maturity.


<TABLE>
<CAPTION>
                                       Three
                                      Months
                                     Remaining             Year Ending December 31,
                                                -----------------------------------------------
                                        2008       2009        2010         2011        2012     Thereafter    Total     Fair Value
                                    ------------------------------------------------------------------------------------------------
                                                                         (dollars in thousands)
 Fixed Rate Debt:
<S>                                    <C>         <C>         <C>         <C>         <C>         <C>        <C>          <C>
   Secured notes payable                $112,911    $9,562      $10,105     $10,681     $11,289     $183,520   $338,068     $434,543
   Weighted average interest rate        5.85%       5.85%       5.85%       5.85%       5.85%       5.85%

 Variable Rate Debt:
   Unsecured debt                       $7,821      $11,911        -           -           -           -        $19,732     $19,732
   Weighted average interest rate        4.93%       4.22%
</TABLE>

The primary market risks we face are interest rate fluctuations. 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.  We had no interest
rate caps or interest  rate swap  contracts  at  September  30,  2008.  The only
variable  debt that we had as of  September  30,  2008 was  approximately  $19.7
million  owed  to the  Heritage  Bank  of  Commerce  and the  Berg  Group.  This
represented  approximately  5.5% of the total $357.8 million of outstanding debt
as of  September  30,  2008.  All of our debt is  denominated  in United  States
dollars.

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 September 30, 2008, a 1%
increase or decrease in interest  rates on our  approximately  $19.7  million of
floating rate debt would decrease or increase,  respectively,  earnings and cash
flows for the  nine-month  period  then ended by  approximately  $148,000,  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.

                                     - 25 -

<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  designed  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 and procedures.

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 (as defined in
Rule 13a-15(e) or Rule 15d-15(e)) were effective as of September 30, 2008.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no material  change in our internal  control over financial  reporting
during the last fiscal  quarter that has materially  affected,  or is reasonably
likely to materially affect, our internal control over financial reporting.

                                     - 26 -

<PAGE>


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The  discussion of legal  proceedings is  incorporated  herein by reference from
Part I "Item 1. - Notes to Condensed  Consolidated Financial Statements - Note 9
- Commitments and Contingencies."

ITEM 1A.  RISK FACTORS

While we  attempt  to  identify,  manage and  mitigate  risks and  uncertainties
associated with our business to the extent  practical  under the  circumstances,
some level of risk and  uncertainty  will always be present.  In addition to the
other information contained in this report and the risk factor listed below, you
should carefully review the factors discussed under Item 1A of our annual report
on Form 10-K for the year ended  December 31, 2007 which  describes  some of the
risks  and  uncertainties   associated  with  our  business.   These  risks  and
uncertainties  have the potential to materially  affect our business,  financial
condition,  results of operations, cash flows, and future prospects.  Additional
risks and  uncertainties  not  presently  known to us or that we currently  deem
immaterial also may impair our business operations.

Our  lenders  may have  suffered  losses  related  to their  lending  and  other
financial  relationships,  especially  because of the general  weakening  of the
national  economy and increased  financial  instability of many borrowers.  As a
result,  lenders may become insolvent or tighten their lending standards,  which
could make it more  difficult  for us to borrow under our credit  facility or to
obtain other financing on favorable terms or at all.

<TABLE>
<CAPTION>
ITEM 6.  Exhibits

<S>      <C>     <C>
         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
</TABLE>

                                     - 27 -

<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: November 6, 2008              By:    /s/ Carl E. Berg
                                       ----------------------------------
                                       Carl E. Berg
                                       Chief Executive Officer


Date: November 6, 2008              By:    /s/ Wayne N. Pham
                                       ----------------------------------
                                       Wayne N. Pham
                                       Vice President of Finance and  Controller
                                       (Principal Accounting Officer and Duly
                                       Authorized Officer)

                                     - 28 -