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

                                    Form 10-Q


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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

                          COMMISSION FILE NUMBER 1-8383


                          Mission West Properties, Inc.
             (Exact name of registrant as specified in its charter)

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

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

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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES [X ] NO [ ]


Indicate by check mark whether the Registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer  [ ]

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:

               19,640,087 shares outstanding as of April 30, 2007

<PAGE>

                          Mission West Properties, Inc.

                                    FORM 10-Q
                      FOR THE QUARTER ENDED MARCH 31, 2007

<TABLE>
<CAPTION>

                                      INDEX

PART I        FINANCIAL INFORMATION

     Item 1.  Financial Statements:

<S>                                                                                                                  <C>
              Condensed Consolidated Balance Sheets as of March 31, 2007
              and December 31, 2006 (unaudited).......................................................................2

              Condensed Consolidated Statements of Operations for the three
              months ended March 31, 2007 and 2006 (unaudited)........................................................3

              Condensed Consolidated Statements of Cash Flows for the
              three months ended March 31, 2007 and 2006 (unaudited)..................................................4

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

     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations....................................................................12

     Item 3.  Quantitative and Qualitative Disclosures about Market Risk.............................................22

     Item 4.  Controls and Procedures................................................................................23


PART II       OTHER INFORMATION

     Item 1.  Legal Proceedings......................................................................................24

     Item 1A. Risk Factors...........................................................................................24

     Item 6.  Exhibits...............................................................................................24

     SIGNATURES......................................................................................................25

     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
</TABLE>

                                     - 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)
                                   (unaudited)
                                    ---------
<TABLE>
<CAPTION>
                                                                                    March 31, 2007         December 31, 2006
                                                                                 ---------------------   ----------------------
                                     ASSETS
<S>                                                                                  <C>                     <C>
Real estate:
    Land                                                                              $  297,765              $  272,223
    Buildings and improvements                                                           757,459                 756,596
    Real estate related intangible assets                                                  6,422                  19,529
                                                                                 ---------------------   ----------------------
       Total investments in properties                                                 1,061,646               1,048,348
    Less accumulated depreciation and amortization                                      (146,653)               (149,459)
                                                                                 ---------------------   ----------------------
       Total investments in real estate, net                                             914,993                 898,889
Cash and cash equivalents                                                                 45,703                  33,785
Restricted cash                                                                           21,503                  48,245
Deferred rent receivable, net                                                             16,894                  18,489
Investment in unconsolidated joint venture                                                 3,155                   3,468
Other assets, net                                                                         25,051                  24,611
                                                                                 ---------------------   ----------------------
       Total assets                                                                   $1,027,299              $1,027,487
                                                                                 =====================   ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Mortgage notes payable                                                            $  345,495              $  348,101
    Mortgage notes payable (related parties)                                               9,549                   9,654
    Interest payable                                                                       1,366                   1,375
    Security deposits                                                                      6,798                   6,977
    Deferred rental income                                                                 7,915                   6,874
    Dividends and distributions payable                                                   16,745                  16,745
    Accounts payable and accrued expenses                                                  8,795                   7,601
                                                                                 ---------------------   ----------------------
       Total liabilities                                                                 396,663                 397,327
                                                                                 ---------------------   ----------------------

Commitments and contingencies (Note 10)

Minority interests                                                                       498,970                 501,282
                                                                                 ---------------------   ----------------------

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,
      19,625,587 and 19,443,587 shares issued and outstanding
      at March 31, 2007 and December 31, 2006                                                 20                      19
  Paid-in capital                                                                        152,094                 149,541
  Accumulated deficit                                                                    (20,448)                (20,682)
                                                                                 ---------------------   ----------------------
     Total stockholders' equity                                                          131,666                 128,878
                                                                                 ---------------------   ----------------------
     Total liabilities and stockholders' equity                                       $1,027,299              $1,027,487
                                                                                 =====================   ======================
</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 March 31,
                                                           --------------------------------------
                                                                 2007                2006
                                                           ------------------ -------------------
Revenues:
<S>                                                             <C>                <C>
   Rental revenue from real estate                                 $21,338            $24,048
   Above market lease intangible asset amortization                 (4,091)              (472)
   Tenant reimbursements                                             3,227              3,197
   Lease termination fees                                           10,109             16,056
   Other income, including interest                                  3,056                729
                                                           ------------------ -------------------
        Total revenues                                              33,639             43,558
                                                           ------------------ -------------------

Expenses:
   Property operating, maintenance and real estate taxes             4,546              4,506
   Interest                                                          5,069              5,323
   Interest (related parties)                                          184                192
   General and administrative                                          713                635
   Depreciation and amortization of real estate                      6,210              5,214
                                                           ------------------ -------------------
        Total expenses                                              16,722             15,870
                                                           ------------------ -------------------
Income before equity in earnings of unconsolidated
   joint venture and minority interests                             16,917             27,688
Equity in earnings of unconsolidated joint venture                     337                331
Minority interests                                                 (13,879)           (22,951)
                                                           ------------------ -------------------
   Income from continuing operations                                 3,375              5,068
                                                           ------------------ -------------------

Discontinued operations, net of minority interests:
Income attributable to discontinued operations                           -                 84
                                                           ------------------ -------------------
   Income from discontinued operations                                   -                 84
                                                           ------------------ -------------------

Net income to common stockholders                                  $ 3,375            $ 5,152
                                                           ================== ===================
Net income to minority interests                                   $13,879            $23,390
                                                           ================== ===================
Income per common share from continuing operations:
   Basic                                                           $0.17              $0.27
                                                           ================== ===================
   Diluted                                                         $0.17              $0.27
                                                           ================== ===================
Income per common share from discontinued operations:
   Basic                                                               -              $0.01
                                                           ================== ===================
   Diluted                                                             -              $0.01
                                                           ================== ===================
Net income per common share to common stockholders:
   Basic                                                           $0.17              $0.28
                                                           ================== ===================
   Diluted                                                         $0.17              $0.28
                                                           ================== ===================
Weighted average shares of common stock outstanding (basic)     19,582,787          18,455,897
                                                           ================== ===================
Weighted average shares of common stock outstanding (diluted)   19,889,453          18,520,297
                                                           ================== ===================
</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>
                                                                                                  Three months ended March 31,
                                                                                             ---------------------------------------
                                                                                                    2007                2006
                                                                                             ------------------- -------------------
Cash flows from operating activities:
<S>                                                                                               <C>                  <C>
     Net income                                                                                     $3,375               $5,152
     Adjustments to reconcile net income to net cash provided by operating activities:
            Minority interests                                                                      13,879               23,390
            Minority interest distributions                                                        (13,826)             (13,967)
            Depreciation and amortization of real estate and in-place leases                         6,210                5,479
            Amortization of above market lease                                                       4,091                  472
            Equity in earnings of unconsolidated joint venture                                        (337)                (331)
            Distributions from unconsolidated joint venture                                            650                  255
            Interest earned on restricted cash                                                        (519)                (121)
            Lease termination fee income related to restricted cash                                  1,635              (11,147)
            Stock-based compensation expense                                                           159                   59
            Other                                                                                       20                    7
     Changes in operating assets and liabilities:
            Deferred rent receivable                                                                 1,595                  678
            Other assets                                                                              (364)              (2,823)
            Interest payable                                                                            (9)                   -
            Security deposits                                                                         (179)              (1,439)
            Deferred rental income                                                                   1,041                4,482
            Accounts payable and accrued expenses                                                    1,182                1,987
                                                                                             ------------------- -------------------
     Net cash provided by operating activities                                                      18,603               12,133
                                                                                             ------------------- -------------------

Cash flows from investing activities:
     Improvements to real estate assets                                                               (863)                 (79)
     Purchase of real estate                                                                       (25,626)             (13,447)
     Restricted cash released for purchase of real estate                                           25,626               13,477
     Excess restricted cash                                                                              -                1,835
                                                                                             ------------------- -------------------
     Net cash (used in)/provided by investing activities                                              (863)               1,756
                                                                                             ------------------- -------------------

Cash flows from financing activities:
    Principal payments on mortgage notes payable                                                    (2,606)              (2,472)
    Principal payments on mortgage notes payable (related parties)                                    (105)                 (96)
    Net proceeds from exercise of stock options                                                          -                  125
    Dividends paid to common stockholders                                                           (3,111)              (2,950)
                                                                                             ------------------- -------------------
     Net cash used in financing activities                                                          (5,822)              (5,393)
                                                                                             ------------------- -------------------
     Net increase in cash and cash equivalents                                                      11,918                8,496
Cash and cash equivalents, beginning of period                                                      33,785               31,441
                                                                                             ------------------- -------------------
Cash and cash equivalents, end of period                                                           $45,703              $39,937
                                                                                             =================== ===================
Supplemental information:
    Cash paid for interest                                                                          $4,202               $5,338
                                                                                             =================== ===================
Supplemental schedule of non-cash investing and financing activities:
    Issuance of common stock upon conversion of O.P. units                                          $2,394               $  589
                                                                                             =================== ===================
</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 share, per share, O.P. units and
                          per square footage amounts)
                                   (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 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 March 31, 2007,  the Company owns a controlling  general  partnership
     interest of 20.00%,  21.78%,  16.26% and 12.48% 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 18.71%
     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 107 R&D
     properties, all of which are located in Silicon Valley.

     The  Company  has  elected to be taxed as a real  estate  investment  trust
     ("REIT") under the Internal Revenue Code of 1986, as amended.  Accordingly,
     no  provision  has been made for income  taxes for the three  months  ended
     March 31, 2007 and 2006.

     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 FINANCIAL STATEMENT 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 March 31, 2007, their  consolidated
     results of  operations  for the three months ended March 31, 2007 and 2006,
     and their cash flows for the three  months  ended  March 31, 2007 and 2006.
     All   significant   inter-company   balances   have  been   eliminated   in
     consolidation.  The condensed consolidated financial statements as of March
     31, 2007 and for the three months ended March 31, 2007 and 2006 and related
     footnote disclosures are unaudited. The results of operations for the three
     months ended March 31, 2007 are not  necessarily  indicative of the results
     to be expected for the entire year.

     The year-end  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 March  31,  2007,  the  Company  consolidated  one VIE in the
     accompanying  condensed  consolidated  balance sheet in connection  with an
     assignment of a lease  agreement with an unrelated  party,  M&M Real Estate
     Control &  Restructuring,  LLC. See Note 5 for further  discussion  of this
     transaction.

                                     - 5 -

<PAGE>


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

     STOCK-BASED OPTION COMPENSATION ACCOUNTING
     In December  2004,  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 March 31, 2007, the Company
     had  one  stock-based  compensation  plan.  The  Company  has  adopted  the
     requirements  of SFAS 123R  effective  January 1, 2006  using the  modified
     prospective method of transition.  Accordingly, prior periods have not been
     restated.  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 first quarter of 2007,  stock options to purchase  710,000 shares of
     common stock were granted to four employees,  three non-employee  directors
     and four consultants,  which vest monthly for 48 months from date of grant,
     subject to  continued  employment  or other  service 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.
     The  options  were  granted at an exercise  price of $12.09 per share.  The
     estimated fair value of the options  granted in 2007 was $1.45 per share on
     the date of grant using the  Black-Scholes  option  pricing  model with the
     following  assumptions:  dividend yield of 5.3%, volatility of 18.94%, risk
     free rates of 4.5% and an  expected  life of six years.  All  options  were
     granted at the fair market value at the date of grant.

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

<TABLE>
<CAPTION>
                                                 2004 Equity      Weighted Average
                                                  Incentive         Option Price
                                                     Plan             Per Share
                                               ---------------    ------------------
<S>                                              <C>                    <C>
          Balance, December 31, 2006              1,037,100              $10.48
              Options granted                       710,000              $12.09
              Options exercised                           -
              Options cancelled                           -
                                               ---------------
          Balance, March 31, 2007                 1,747,100              $11.13
                                               ===============
</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 $159 and $59 of expense
     for  share-based  compensation  relating to grants of stock options for the
     three months ended March 31, 2007 and 2006, respectively.

     As of March 31, 2007, there was approximately $965 of total unrecognized
     compensation cost related to unvested share-based compensation arrangements
     granted under the compensation plan. That cost is expected to be recognized
     over a weighted-average period of 3.5 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
     March 31, 2007, these interests  accounted for approximately  81.29% of the
     ownership  interests  in the real  estate  operations  of the  Company on a
     consolidated  weighted average basis.  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 2006
     condensed consolidated financial statements in order to conform to the 2007
     presentation.

     The following notes,  which present interim  disclosures as required by the
     SEC, highlight  significant  changes to the notes to the Company's December
     31,  2006  audited  consolidated  financial  statements  and should be read
     together  with the  consolidated  financial  statements  and notes  thereto
     included in the  Company's  2006 Annual  Report on Form 10-K filed on March
     15, 2007.

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

2.   REAL ESTATE

     On March 8, 2007,  the Company  acquired  approximately  50 acres of vacant
     land in Morgan Hill, California,  which could support approximately 725,000
     rentable  square feet of space.  The land is currently zoned for industrial
     use and a portion has the potential to be rezoned for residential  use. The
     acquisition  price for this  property  was  approximately  $25,543  and was
     funded from a portion of the proceeds received from the Samaritan  property
     sale, which was classified as restricted cash as of December 31, 2006.

3.   RESTRICTED CASH

     Restricted cash totaled approximately $21,503 as of March 31, 2007. Of this
     amount,  approximately $18,254 represents proceeds received from a property
     sale and interest income held in a separate cash account at a trust company
     for future use in tax-deferred  exchanges.  The remaining $3,249 represents
     cash held by the  Company's  consolidated  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.

4.   VARIABLE INTEREST ENTITY

     In December  2003, the FASB issued FIN 46R, a revision to FIN 46, which was
     issued in January 2003.  Under FIN 46R, a variable  interest entity must be
     consolidated  by a company if that  company is subject to a majority of the
     entity's  expected losses or entitled to receive a majority of the entity's
     expected  residual  returns or both.  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.

     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 March 2006, one of the Company's tenants, JDS Uniphase ("JDS"),  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 252,000 rentable square feet located in San Jose, California.
     M&M assumed all of JDS's remaining obligations under these leases, acquired
     certain  personal  property of JDS located on the  premises  and received a
     payment of  approximately  $11,147.  At the same time, the Company  entered
     into a consent  for  assignment  of lease  with both  parties  and a mutual
     release  agreement with JDS, pursuant to which all of the JDS's obligations
     under  these  leases have been  effectively  transferred  to M&M.  M&M must
     continue to perform all of the obligations under the assumed JDS leases and
     has the right to sublease  any or all of the 252,000  rentable  square feet
     vacated by JDS for the remainder of the current  lease terms,  which expire
     in 2006 and 2007.  Under  the  terms of the  agreement,  the  Company  will
     receive monthly rent payments of approximately $733 from April 2006 through
     December  2006,  $545 from January  2007 through  August 2007 and $330 from
     September 2007 through November 2007. Based upon the provisions of FIN 46R,
     the Company  determined that M&M is a variable interest entity. The Company
     further  determined  that the  Company 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
     lease termination fee of approximately $11,147 in March 2006.

     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  assignment  of a lease is the only  property  under
          management by M&M.
     -    Because  M&M is a newly  formed  entity it 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.

                                     - 7 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
         (dollars in thousands, except share, per share, O.P. units and
                          per square footage amounts)
                                   (unaudited)

     The Company remains at risk 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 tenant from its obligations under the lease,  would have to absorb
     the  majority  of any loss,  making  it the  primary  beneficiary  of M&M's
     activities.

5.   STOCK TRANSACTIONS

     During  the  three  months  ended  March 31,  2007,  two  limited  partners
     exchanged a total of 182,000 O.P. units for 182,000 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  $2,394 from  minority  interests to
     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

     Effective  January 1, 2002, 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 discontinued operations in 2006. 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.

     The Company  classified three R&D properties as assets held for sale in the
     third  quarter of 2006 and sold them in the fourth  quarter of 2006,  which
     qualified as discontinued  operations.  Condensed results of operations for
     these properties for the three months ended March 31, 2006 are as follows:

<TABLE>
<CAPTION>
                                                              Three Months Ended March 31,
                                                                 2007             2006
                                                              -----------     ------------
                                                                 (dollars in thousands)
                                                                       (unaudited)
<S>                                                                <C>         <C>
         Revenues
            Rental revenue from real estate                         -           $ 740
            Tenant reimbursements                                   -             112
            Other income                                            -               3
                                                              -----------     ------------
               Total revenues                                       -             855
                                                              -----------     ------------

         Expenses
            Property operating, maintenance and real estate taxes   -             175
            Depreciation of real estate                             -             157
                                                              -----------     ------------
              Total expenses                                        -             332
                                                              -----------     ------------

         Income from discontinued operations                        -             523
         Minority interest in earnings attributable to
             discontinued operations                                -            (439)
                                                              -----------     ------------
         Income from discontinued operations                        -           $  84
                                                              ===========     ============
</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 March 31,
                                                               2007              2006
                                                         ---------------    --------------
<S>                                                       <C>               <C>
         Weighted average shares outstanding (basic)       19,582,787        18,455,897
         Incremental shares from assumed option exercise      306,666            64,400
                                                         ---------------    --------------
         Weighted average shares outstanding (diluted)     19,889,453        18,520,297
                                                         ===============    ==============
</TABLE>

     Outstanding  options to purchase  647,000 shares in 2006 were excluded from
     the  computation  of diluted net income per share under the treasury  stock
     method  because the option  exercise  price was greater  than the  weighted
     average exercise price of the Company's

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

     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 March 31,
     2007 and 2006 was 85,024,199 and 86,038,095, respectively.

8.   RELATED PARTY TRANSACTIONS

     As of March 31, 2007, the Berg Group owned  77,392,648 O.P. units. The Berg
     Group's  combined  ownership of O.P. units and shares of common stock as of
     March 31, 2007 represented approximately 74% of the total equity interests,
     assuming conversion of all O.P. units outstanding into the Company's common
     stock.

     As of March 31, 2007,  debt in the amount of  approximately  $9,549 was due
     the  Berg  Group  under a  mortgage  note  established  on 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.  Interest  expense  incurred in connection with the mortgage
     note was  approximately  $184 and $192 for the three months ended March 31,
     2007 and 2006, respectively.

     During the first  three  months of 2007 and 2006,  Carl E. Berg or entities
     controlled by Mr. Berg 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 $361 and $132 in rental revenue during the three
     months ended March 31, 2007 and 2006, 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.

     In March 2006, the Company and Fujitsu Limited,  or Fujitsu,  agreed to the
     termination of a lease for one building consisting of approximately 125,000
     rentable square feet.  Fujitsu is responsible  for repairing  damage to the
     building and with the Company's  Independent  Directors  Committee approval
     has hired Berg & Berg Enterprises,  LLC to perform the restoration work for
     a total of approximately  $4,500.  This restoration work is estimated to be
     completed by the end of the second quarter of 2007.

     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 plans to satisfy this
     commitment to complete  certain tenant  improvements  when requested by the
     Company following the approval of the Independent Directors Committee.

     The Berg  Group has an  approximately  $7,500  commitment  to  complete  an
     approximately  75,000 to 90,000 square foot building in connection with the
     Company's 2001  acquisition of 245 Caspian in Sunnyvale  which is comprised
     of  approximately  three acres of unimproved land. The Company 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,
     Inc.,  an  affiliate of Carl E. Berg and Clyde J. Berg,  for the  Company's
     headquarters.  Rental  amounts and overhead  reimbursements  paid to Berg &
     Berg Enterprises,  Inc. were  approximately $23 for each of the three-month
     periods ended March 31, 2007 and 2006.

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 does not  believe  the  ultimate  outcome of any of these
     proceedings will have a material adverse effect on its financial  condition
     or operating results.

     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

                                     - 9 -

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

     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  the 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. Under the Berg Land Holdings
     Option  Agreement and the  Acquisition  Agreement dated as of May 14, 1998,
     the Independent  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 the RPC suit. 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 is in the process of
     seeking  a writ from the  California  State  Court of Appeal  for the Sixth
     District directing the Superior Court to sustain the demurrer.

     The Company has a receivable  from a Berg Group affiliate for the amount of
     distributions it received as the successor to RPC's interest in the Hellyer
     LP.  Furthermore,  the Company has never  accounted for the 50% interest of
     RPC as its asset,  and if it is ultimately  determined that RPC should have
     retained  that  interest or it  reacquires  that  interest,  the  Company's
     balance sheet and financial  condition  would not be impacted.  Although to
     date, the Company has  consolidated  the assets,  liabilities and operating
     results of the Hellyer LP and allocated 50% of the operating  income to the
     minority interest holder.

     In January 2004, the Global Crossing Estate Representative,  for Itself and
     the Liquidating Trustee of the Global Crossing Liquidating Trust v. Mission
     West  Properties  L.P.  filed an action in United States  Bankruptcy  Court
     Southern  District  of New York  Case No.  02-40188  (REG)  asserting  that
     payments  of  approximately  $815 made in the  ordinary  course of business
     within 90 days of the Global  Crossing  bankruptcy  filing  were  avoidable
     preference  payments.  During the  course of  settlement  discussions  with
     Global  Crossing's  representative,  we learned that we would  receive only
     2-3% of our unsecured claim of  approximately  $16,711 for unpaid rent from
     the final  distribution of the assets and proceeds of bankruptcy estate. On
     February 21, 2007, we and the Liquidating Trustee entered into a settlement
     agreement under which the $815 claim against us was dismissed and we agreed
     to accept a payment  of  approximately  $301 as a final  settlement  of our
     unsecured claim for unpaid rent.

     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  these   indemnification
     agreements is minimal and has recorded no liabilities for these  agreements
     as of March 31, 2007.

     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 March 31,
     2007.

     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

                                     - 10 -
<PAGE>

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

     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.

     ASSET DISPOSITIONS SUBJECT TO CERTAIN CONDITIONS
     The  Company has  entered  into a sale  agreement  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  buyer,  this asset does not meet the
     criteria  set forth in SFAS 144 to be  classified  as assets held for sale.
     The following summarizes the asset for which the Company has executed sales
     contract that is subject to material conditions as previously described:

<TABLE>
        Property                   Number of Building    Rentable Square Feet           Acre              Sales Price
        --------                   ------------------    --------------------           ----              -----------
<S>                                        <C>                 <C>                     <C>                  <C>
        Morse Avenue
        Sunnyvale, California               1                   39,200                  2.25                 $8,300
</TABLE>


11.  SUBSEQUENT EVENTS

     On April 5, 2007,  the Company paid  dividends of $0.16 per share of common
     stock to all common  stockholders  of record as of March 30,  2007.  On the
     same date, the operating partnerships paid a distribution of $0.16 per O.P.
     unit to all holders of O.P. units.  Aggregate  dividends and  distributions
     amounted to approximately $16,745.

     On  April  20,  2007,  the  Company  acquired  three  office/R&D  buildings
     comprised  of  approximately  149,000  rentable  square  feet in  Milpitas,
     California for  approximately  $15,351.  The  acquisition was funded from a
     portion of the proceeds  received from the Samaritan  property sale,  which
     was classified as restricted  cash as of March 31, 2007. With the exception
     of one lease, the property was purchased without any long-term tenants.

     On April 27, 2007,  the Company  acquired  approximately  5 acres of vacant
     land in Morgan Hill,  California,  which could support approximately 73,000
     rentable  square feet of space.  The land is currently zoned for industrial
     use. The acquisition price for this property was  approximately  $2,297 and
     was funded from the remaining proceeds received from the Samaritan property
     sale, which was classified as restricted cash as of March 31, 2007.

                                     - 11 -

<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, 2006. The results for the three months ended March 31, 2007 are not
necessarily  indicative of the results to be expected for the entire fiscal year
ending  December 31, 2007.  The following  discussion  includes  forward-looking
statements,  including but not limited to, statements with respect to our future
financial performance,  operating results, plans and objectives.  Actual results
may differ materially from those currently  anticipated depending upon a variety
of factors,  including those described under the  sub-heading,  "Forward-Looking
Information," below.

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 include, but are not limited to, the following:

-    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, and
-    changes  in  general   accounting   principles,   policies  and  guidelines
     applicable to REITs.

In addition, the actual timing of development,  construction, and leasing on any
projects  that we  believe  we may  acquire  in the  future  under the Berg Land
Holdings  Option  Agreement is  presently  unknown,  and reliance  should not be
placed on estimates  concerning these projects.  These risks and  uncertainties,
together with the other risks  described  under Part I, Item 1A - "Risk Factors"
of our 2006  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 March 31,
2007, we owned and managed 107  properties  totaling  approximately  7.7 million
rentable   square  feet  through  four   limited   partnerships,   or  operating
partnerships,  for which we are the sole general partner. This class of property
is designed  for research  and  development  and office uses and, in some cases,
includes space for light manufacturing operations with loading docks. We believe
that we have one of the  largest  portfolios  of  R&D/office  properties  in the
Silicon Valley. As of March 31, 2007, the four tenants who each leased in excess
of  300,000  rentable  square  feet  from us  were  Microsoft  Corporation,  NEC
Electronics America, Inc. (a subsidiary of NEC Electronics  Corporation),  Ciena
Corporation  and Apple Computer,  Inc. For federal income tax purposes,  we have
operated as a self-managed,  self-administered  and fully integrated real estate
investment trust ("REIT") since 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

                                     - 12 -
<PAGE>

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

CURRENT ECONOMIC ENVIRONMENT

All of our  properties  are  located in the  Northern  California  area known as
Silicon  Valley,  which  generally  consists of portions of Santa Clara  County,
Southwestern  Alameda  County,  Southeastern  San Mateo County and Eastern Santa
Cruz County. The Silicon Valley R&D property market has historically  fluctuated
with the local economy.  The Silicon  Valley economy and business  activity have
slowed markedly since 2001 after fast-paced  growth in 1999 and 2000.  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  18.3% in late
2006 and 18.6% at the end of the first quarter of 2007.  Total vacant R&D square
footage in Silicon  Valley at the end of the first  quarter of 2007  amounted to
28.8 million square feet, of which 19.6%,  or 5.6 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 2006  amounted  to
approximately  1.9 million  square feet,  but in the first three months of 2007,
there was total  negative net absorption of  approximately  (0.3) million square
feet. According to the BT Report,  average asking market rent per square foot at
the end of the first  quarter of 2007 was $1.05  compared to $0.99 in late 2006.
The Silicon Valley R&D property market has been  characterized  by a substantial
number of  submarkets,  with rent and vacancy  rates  varying by  submarket  and
location within each submarket,  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.

Our  occupancy  rate at March 31, 2007 was 69.4%  compared to 67.3% at March 31,
2006. We believe that our occupancy rate could decline  further going forward if
key tenants seek the protection of bankruptcy  laws,  consolidate  operations or
discontinue  operations.  In  addition,  leases  with  respect to  approximately
492,000  rentable  square  feet  are  expiring  prior  to the end of  2007.  The
properties  subject to these  leases may take  anywhere  from 24 to 36 months or
longer to re-lease.  We believe  that the average 2007 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
adversely affected.  Furthermore, in this event it is probable that our board of
directors  will  reduce  the  quarterly  dividend  on the  common  stock and the
outstanding  O.P. units.  Our operating  results and ability to pay dividends at
current levels remain subject to a number of material  risks, as indicated under
the caption  "Forward-Looking  Information"  above and in the  section  entitled
"Risk Factors" in our most recent Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare the 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.

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

                                     - 13 -
<PAGE>

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. The recognition of these properties and
their  operating  results  are  100%  reflected  on 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.

STOCK-BASED  COMPENSATION.  In December 2004,  the FASB issued 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 and  supersedes  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. We have
adopted  the  requirements  of SFAS 123R  effective  January  1, 2006  using the
modified prospective method of transition.  Accordingly,  prior periods have not
been restated.  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

                                     - 14 -
<PAGE>

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.

                                     - 15 -
<PAGE>


RESULTS OF OPERATIONS

COMPARISON  OF THE THREE  MONTHS  ENDED MARCH 31, 2007 TO THE THREE MONTHS ENDED
MARCH 31, 2006

As of March  31,  2007,  through  our  controlling  interests  in the  operating
partnerships,  we  owned  107  properties  totaling  approximately  7.7  million
rentable  square feet  compared to 109  properties  totaling  approximately  7.9
million rentable square feet owned by us as of March 31, 2006. This represents a
net decrease of  approximately  2.5% in total  rentable  square  footage,  as we
acquired one R&D property  consisting of  approximately  42,100  rentable square
feet and sold three R&D properties  consisting of approximately 235,100 rentable
square feet since the first quarter of 2006.

Rental  revenue  from real  estate for the three  months  ended  March 31,  2007
compared to the same three-month period in 2006 is as follows:

<TABLE>
<CAPTION>
                                  Three Months Ended March 31,
                                                                                           % Change by
                                     2007              2006              $ Change         Property Group
                                 -------------     --------------     ---------------     ---------------
                                               (dollars in thousands)
<S>                               <C>                <C>                <C>                  <C>
       Same Property (1)           $20,784            $23,937            ($3,153)             (13.2%)
       2006 Acquisitions               554                111                443              399.1%
                                 -------------     --------------     ---------------
          Total                    $21,338            $24,048            ($2,710)             (11.3%)
                                 =============     ==============     ===============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2006 that we
     still owned as of March 31, 2007.

RENTAL REVENUE FROM REAL ESTATE FROM CONTINUING OPERATIONS
For the quarter ended March 31, 2007,  rental revenue from real estate decreased
by  approximately  ($2.7)  million,  or 11.3%,  from $24.0 million for the three
months  ended March 31, 2006 to $21.3  million for the three  months ended March
31, 2007.  The decline in rental  revenue  resulted  primarily from lower rental
rates  on  lease  renewals  and  the  loss  of  several  tenants  due  to  lease
terminations,  bankruptcy,  relocation  or cessation of their  operations  since
March 31, 2006,  all of which resulted from current  adverse market  conditions.
Rental revenue was offset by  amortization  expense of ($4.1) million and ($0.5)
million for an above-market  lease  intangible  asset for the three months ended
March 31, 2007 and 2006, respectively.  The increase was attributable to a lease
termination.  Our  occupancy  rate at March 31,  2007 was  approximately  69.4%,
compared to approximately 67.3% at March 31, 2006.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
As of March  31,  2007,  we had  investments  in three R&D  buildings,  totaling
466,600 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 March 31,  2007,  we
recorded   equity  in  earnings  from  the   unconsolidated   joint  venture  of
approximately  $0.34 million compared to equity in earnings of $0.33 million for
the same period in 2006.  The occupancy  rate for the  properties  owned by this
joint  venture  at March 31,  2007 and 2006 was  approximately  100% and  78.7%,
respectively.

LEASE TERMINATION INCOME
Lease  termination  fees for the three months ended March 31, 2007 and 2006 were
approximately  $10.1 million and $16.1  million,  respectively.  These fees were
paid by tenants who  terminated  their lease  obligations  before the end of the
contractual  term of the lease.  We do not  consider  those  transactions  to be
recurring items.

OTHER INCOME FROM CONTINUING OPERATIONS
Other income of approximately  $3.1 million for the three months ended March 31,
2007  included  approximately  $1.6  million  from a forfeited  deposit  under a
contract for the sale of property, $0.9 million from interest, $0.3 million from
management   fees,  $0.3  million  from  a  bankruptcy   settlement   claim  and
miscellaneous  income.  Other income of approximately $0.7 million for the three
months ended March 31, 2006  included  approximately  $0.4 million from interest
and $0.3 million from management fees.

EXPENSES FROM CONTINUING OPERATIONS
Property  operating  expenses and real estate taxes during the first  quarter of
2007 remained the same at approximately $4.5 million compared to the same period
in 2006.  Tenant  reimbursements  also remained the same at  approximately  $3.2
million  compared to the same period in 2006.  Certain expenses such as property
insurance,  real  estate  taxes,  and other  fixed  operating  expenses  are not
recoverable from vacant properties, however. General and administrative expenses
increased by  approximately  $0.1 million,  or 12.3%,  from $0.6 million to $0.7
million for the three  months ended March 31, 2006 and 2007,  respectively.  The
increase in general and administrative expenses was primarily a result of higher
salaries and wages and stock-based compensation expense.

Real estate  depreciation  and amortization  expense  increased by approximately
$1.0 million,  or 19.1%,  from $5.2 million to $6.2 million for the three months
ended March 31,  2006 and 2007,  respectively.  The  increase  was  attributable
primarily to the  write-offs  of  additional  amortization  expense  relating to
in-place lease value  intangible  asset pursuant to SFAS 141 in connection  with
two lease terminations.

                                     - 16 -
<PAGE>

Interest expense decreased by approximately  ($0.1) million,  or 2.8%, from $5.2
million for the three  months ended March 31, 2006 to $5.1 million for the three
months  ended March 31, 2007 due to lower total debt in 2007.  Interest  expense
(related  parties)  was  approximately  $0.2  million for the three months ended
March 31, 2007 and 2006. Total debt  outstanding,  including amounts due related
parties,  decreased  by  approximately  ($10.0)  million,  or 2.7%,  from $365.0
million as of March 31,  2006 to $355.0  million as of March 31,  2007.  Overall
interest  expense,  including  amounts paid to related parties,  for the quarter
ended March 31, 2007 decreased by  approximately  ($0.2) million compared to the
same quarter a year ago.

INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the three months ended March 31, 2006.

<TABLE>
<CAPTION>
                                                          Three Months Ended March 31,
                                                             2007             2006
                                                         ------------     ------------
                                                             (dollars in thousands)
                                                                  (unaudited)
<S>                                                           <C>          <C>
    Income attributable to discontinued operations             -            $ 523
    Minority interest in earnings attributable to
        discontinued operations                                -             (439)
                                                         ------------     ------------
    Income from discontinued operations                        -           $   84
                                                         ============     ============
</TABLE>

In  accordance  with our  adoption of SFAS 144, in the third  quarter of 2006 we
classified  three R&D  properties  as assets  held for sale and sold them in the
fourth  quarter of 2006 and  classified  them as  discontinued  operations.  The
income  to  common   stockholders   and  minority   interests   attributable  to
discontinued  operations from these three  properties for the three months ended
March 31, 2006 was approximately $84,000 and $439,000, respectively.

NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTERESTS
Net income to common stockholders  decreased by approximately ($1.8) million, or
34.5%,  from $5.2  million  for the three  months  ended  March 31, 2006 to $3.4
million for the same period in 2007.  The  minority  interest  portion of income
decreased by approximately  ($9.5) million, or 40.7%, from $23.4 million for the
three  months  ended March 31, 2006 to $13.9  million for the three months ended
March 31,  2007.  The  decline  in the  quarter's  net  income  for both  common
stockholders  and  minority  interests  was  primarily  due to lower  rental and
termination fee income in the first quarter of 2007.

Minority  interest in net income has been calculated by taking the net income of
the operating partnerships (on a stand-alone basis) multiplied by the respective
minority  interest  ownership  percentage.   Minority  interests  represent  the
ownership  interest of all limited partners in the operating  partnerships taken
as a whole,  which was  approximately 81% and 82% as of March 31, 2007 and 2006,
respectively.

CHANGES IN FINANCIAL CONDITION

The most significant  changes in our financial condition during the three months
ended March 31, 2007 resulted from the  acquisition  of 50 acres of vacant land.
In addition,  total  stockholders'  equity increased from the issuance of common
stocks upon the exchange of O.P. units.

At March 31, 2007, total  investments in properties  increased on a net basis by
approximately $13.3 million from December 31, 2006 because of the acquisition of
50 acres of vacant  land and tenant  improvements  during  the first  quarter of
2007.

Total  stockholders'  equity,  net, increased by approximately $2.8 million from
December 31, 2006 as we obtained additional capital from the issuance of 182,000
shares of our common  stock for the  exchange  of O.P.  units and a decrease  in
accumulated  deficit of approximately  $0.2 million.  The newly issued shares of
common stock increased additional paid-in capital by approximately $2.6 million.

LIQUIDITY AND CAPITAL RESOURCES

We expect a slight increase in operating cash flows from our operating  property
portfolio in 2007 as compared to 2006.  The increase in cash flows reflects cash
received from early lease terminations.  If we are unable to lease a significant
portion of the  approximately  492,000  rentable square feet scheduled to expire
during the remainder of 2007 or an equivalent amount of our currently  available
space of  approximately  2.4 million  rentable  square feet,  our operating cash
flows may be affected  adversely.  With the expectation of lower rental revenues
for the remainder of 2007,  we expect the  properties'  net operating  income to
continue to show year over year  declines when compared to 2006. As noted above,
we expect cash flows from operating  activities to increase primarily from lease
terminations  and offset by lower rental  revenues  driven by excess capacity of
commercial  office and R&D space in the Silicon Valley.  We are 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.

We expect our principal  source of liquidity for  distributions  to stockholders
and O.P. unit holders,  debt service,  leasing commissions and recurring capital
expenditures  to come from cash  provided by  operations  and/or the  borrowings
under the line of credit with Santa Clara Valley  National  Bank  ("SCVNB").  We
expect these sources of liquidity to be adequate to meet projected distributions
to stockholders

                                     - 17 -
<PAGE>

and other  presently  anticipated  liquidity  requirements in 2007. 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 the issuance of additional equity securities by us. We have the
ability to meet  short-term  obligations or other  liquidity  needs based on the
line of credit  with  SCVNB.  We expect our total  interest  expense to increase
through new financing activities. In the remainder of 2007, we will be obligated
to make payments  totaling  approximately  $8.3 million of debt principal  under
mortgage  notes without regard to any debt  refinancing or new debt  obligations
that we might incur, or optional payments of debt principal.

Cash and cash equivalents  increased by  approximately  $11.9 million from $33.8
million as of December 31, 2006 to $45.7 million as of March 31, 2007  primarily
from lease termination fees.

Restricted  cash totaled  approximately  $21.5  million as of March 31, 2007. Of
this amount,  approximately  $18.3 million  represents  proceeds received from a
property  sale and  interest  income held in a separate  cash account at a trust
company for future use in  tax-deferred  exchanges.  The remaining  $3.2 million
represents  cash held by our VIE from a lease  termination  in 2006.  We include
this in our  restricted  cash under the principles of FIN 46R. We do not possess
or control  these funds or have any rights to receive them except as provided in
the applicable  agreements,  however.  The restricted  cash is not available for
distribution to stockholders.

DISTRIBUTIONS
On April 5, 2007,  we paid  dividends  of $0.16 per share of common stock to all
common  stockholders  of record  as of March 30,  2007.  On the same  date,  the
operating partnerships paid a distribution of $0.16 per O.P. unit to all holders
of O.P. units.  Aggregate dividends and distributions  amounted to approximately
$16.7  million.  For the  remainder  of 2007,  we expect to maintain our current
quarterly dividend payment rate to common  stockholders and O.P. unit holders of
$0.16 per share.  However,  distributions  are declared at the discretion of our
Board of Directors and are subject to actual cash  available  for  distribution,
our financial  condition,  capital  requirements and such other factors,  as our
Board of Directors deems relevant.

DEBT
At March 31, 2007, we had total  indebtedness of  approximately  $355.0 million,
including  $345.4 million of fixed rate mortgage debt and $9.6 million under the
Berg Group mortgage note (related parties),  as detailed in the table below. The
Allianz and SCVNB loans contain certain  financial loan and reporting  covenants
as defined in the loan  agreements.  As of March 31, 2007, we were in compliance
with these loan covenants.

CONTRACTUAL OBLIGATIONS
The following table identifies our contractual  obligations as of March 31, 2007
that will impact our liquidity and cash flow in future periods:

<TABLE>
<CAPTION>
                                   ------------ ------------ ------------- ------------ ------------- ------------ ------------
                                       2007         2008         2009          2010         2011       Thereafter      Total
                                   ------------ ------------ ------------- ------------ ------------- ------------ ------------
                                                                      (dollars in thousands)
<S>                                  <C>         <C>             <C>        <C>           <C>          <C>          <C>
    Long-Term Debt Obligations (1)    $8,300      $121,589        $9,561     $10,105       $10,681      $194,808     $355,044
    Operating Lease Obligations (2)       95            24             -           -             -             -          119
                                   ------------ ------------ ------------- ------------ ------------- ------------ ------------
    Total                             $8,395      $121,613        $9,561     $10,105       $10,681      $194,808     $355,163
                                   ============ ============ ============= ============ ============= ============ ============
</TABLE>

(1)  Our  long-term  debt  obligations  are set forth in detail in the  schedule
     below.
(2)  Our operating lease  obligations  relate to a lease of our corporate office
     facility from a related party.

                                     - 18 -

<PAGE>


The following table sets forth information regarding debt outstanding as of
March 31, 2007:

<TABLE>
<CAPTION>
                                                                                                              Maturity     Interest
             Debt Description                        Collateral Properties                  Balance             Date         Rate
--------------------------------------------- --------------------------------------  --------------------  ------------- ----------
                                                                                     (dollars in thousands)
Line of Credit:
<S>                                          <C>                                          <C>                   <C>           <C>
Santa Clara Valley National Bank              Not Applicable                                      -              12/07         (3)
                                                                                      --------------------

Mortgage Notes Payable (related parties):     5300 & 5350 Hellyer Avenue, San Jose, CA     $  9,549               6/10       7.65%

                                                                                      --------------------
Mortgage Notes Payable (1):
Prudential Insurance Company of America (2)   10300 Bubb Road, Cupertino, CA                114,396              10/08       6.56%
                                              10500 N. De Anza Boulevard, Cupertino, CA
                                              4050 Starboard Drive, Fremont, CA
                                              45700 Northport Loop, Fremont, CA
                                              45738 Northport Loop, Fremont, CA
                                              450 National Avenue, Mountain View, CA
                                              6311 San Ignacio Avenue, San Jose, CA
                                              6321 San Ignacio Avenue, San Jose, CA
                                              6325 San Ignacio Avenue, San Jose, CA
                                              6331 San Ignacio Avenue, San Jose, CA
                                              6341 San Ignacio Avenue, San Jose, CA
                                              6351 San Ignacio Avenue, San Jose, CA
                                              3236 Scott Boulevard, Santa Clara, CA
                                              3560 Bassett Street, Santa Clara, CA
                                              3570 Bassett Street, Santa Clara, CA
                                              3580 Bassett Street, Santa Clara, CA
                                              1135 Kern Avenue, Sunnyvale, CA
                                              1212 Bordeaux Lane, Sunnyvale, CA
                                              1230 E. Arques, Sunnyvale, CA
                                              1250 E. Arques, Sunnyvale, CA
                                              1170 Morse Avenue, Sunnyvale, CA
                                              1600 Memorex Drive, Santa Clara, CA
                                              1688 Richard Avenue, Santa Clara, CA
                                              1700 Richard Avenue, Santa Clara, CA
                                              3540 Bassett Street, Santa Clara, CA
                                              3542 Bassett Street, Santa Clara, CA
                                              3544 Bassett Street, Santa Clara, CA
                                              3550 Bassett Street, Santa Clara, CA

Northwestern Mutual Life Insurance Co. (4)    1750 Automation Parkway, San Jose, CA          87,549               1/13       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 Insurance Co.(Allianz Loan I)(5) 5900 Optical Court, San Jose, CA               24,409               8/25       5.56%


Allianz Life Insurance Co.(Allianz Loan II)(5)5325-5345 Hellyer Avenue, San Jose, CA        119,141               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
                                                                                      --------------------
                                                                                            345,495
                                                                                      --------------------

                                                                                      --------------------
TOTAL                                                                                      $355,044
                                                                                      ====================
</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 5.84% at March 31, 2007.
(2)  The  Prudential  Insurance  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  $12.0 million of this debt. Costs
     and  fees  incurred  with  obtaining  this  loan  aggregated  approximately
     $900,000, which were deferred and amortized over the loan period.
(3)  Interest  rate equal to LIBOR plus 1.75%.  The Santa Clara Valley  National
     Bank 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 March 31,  2007,  the Company was in
     compliance with these loan covenants.
(4)  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.
(5)  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 March 31,
     2007, the Company was in compliance with these loan covenants.

At March 31,  2007,  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 $14.46 per share on March 30, 2007) on a fully diluted  basis,  including the
conversion of all O.P.  units into common stock,  was  approximately  19.0%.  On
March  30,  2007,   the  last   trading  day  for  the  quarter,   total  market
capitalization was approximately $1.87 billion.

                                     - 19 -
<PAGE>

At March 31, 2007, the outstanding balance remaining under certain notes that we
owed to the operating  partnerships was approximately $1.9 million. The due date
of these notes has been extended to September 30, 2008. 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 THREE  MONTHS  ENDED MARCH 31, 2007 TO THE THREE MONTHS ENDED
MARCH 31, 2006

Net cash provided by operating  activities  for the three months ended March 31,
2007 was  approximately  $18.6  million  compared to $12.1  million for the same
period  in  2006.  The  increase  resulted  primarily  from  the  cash  receipts
associated with lease termination fees, a forfeited deposit under a contract for
the sale of  property,  rent  payments  from  M&M,  LLC (see  Note 5 of Notes to
Condensed  Consolidated  Financial Statements in Part I, Item 1, above) in 2007,
and because we incurred higher leasing  commission  payments  (included in Other
assets) in 2006 compared to 2007.

Net cash (used  in)/provided by investing  activities was  approximately  ($0.9)
million  and $1.8  million for the three  months  ended March 31, 2007 and 2006,
respectively.  Cash used in investing  activities  during the three months ended
March 31, 2007 related principally to the acquisition of 50 acres of vacant land
at the Morgan Hill Ranch for approximately $25.5 million.  The Morgan Hill Ranch
acquisition was completed as a tax-deferred  exchange transaction  involving our
former R&D  properties  at 2033-2243  Samaritan  Drive in San Jose,  California.
Capital  expenditures  for real  estate  improvements  were  approximately  $0.9
million for the three months ended March 31, 2007.

Cash  provided by investing  activities  during the three months ended March 31,
2006  related  principally  to the  acquisition  of the  property  at 233  South
Hillview  Drive for  approximately  $13.5  million,  pursuant to a  tax-deferred
exchange  transaction  involving  our former R&D property at 800 Embedded Way in
San Jose, California.  Excess restricted cash of approximately $1.8 million from
the sale of 800  Embedded  Way was  transferred  to our  general  cash  account.
Capital expenditures for real estate improvements were approximately $79,000 for
the three months ended March 31, 2006.

Net cash used in financing  activities was approximately  ($5.8) million for the
three months ended March 31, 2007 compared to  approximately  ($5.4) million for
the three months ended March 31, 2006. During the first three months of 2007, we
used  approximately  $2.7 million to pay outstanding debt and paid approximately
$3.1  million of  dividends  to common  stockholders.  During the same period in
2006, we received  approximately $0.1 million from stock option exercises,  used
approximately  $2.6 million to pay outstanding debt and paid  approximately $2.9
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 to 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 not be considered as an alternative for
net  income as a measure of  profitability  nor is it  comparable  to cash flows
provided by operating activities  determined in accordance with GAAP, nor is FFO
necessarily  indicative of funds available to meet our cash needs, including the
need to make cash distributions to satisfy REIT requirements.  For example,  FFO
is not adjusted for payments of debt  principal  required under our debt service
obligations.

Our definition of FFO also assumes  conversion at the beginning of the period of
all convertible  securities,  including minority  interests  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.

                                     - 20 -

<PAGE>


FFO for the three months  ended March 31, 2007 and 2006,  as  reconciled  to net
income available to common stockholders, are summarized in the following table:

<TABLE>
<CAPTION>
                                                    Three Months Ended March 31,
                                                    2007                   2006
                                             ------------------     ------------------
                                                        (dollars in thousands)
<S>                                              <C>                    <C>
Net income to common stockholders                 $ 3,375                $ 5,152
Add:
 Minority interests (1)                            13,755                 23,256
 Depreciation and amortization of real estate(2)    6,775                  6,118
                                             ------------------     ------------------
FFO                                               $23,905                $34,526
                                             ==================     ==================
</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.  The
     minority  interests for third parties totaling  approximately $124 and $135
     for the three  months  ended  March 31,  2007 and 2006,  respectively,  was
     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 and $211 for the three  months ended March 31, 2007 and
     2006,  respectively.  Also includes our amortization of leasing commissions
     of  approximately  $376 and $428 for the three  months ended March 31, 2007
     and 2006, respectively.  Amortization of leasing commissions is included in
     the property operating,  maintenance and real estate taxes line item in the
     Company's condensed consolidated statements of operations.

The  decline  in FFO  year-over-year  was  primarily  due to  lower  rental  and
termination fee income and higher amortization expense for an above-market lease
intangible asset in 2007 compared to 2006.

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 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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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

In June 2006, the FASB issued  Interpretation 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48").  FIN 48 clarifies the  accounting  for  uncertainty in
income taxes recognized in our financial  statements in accordance with SFAS No.
109,  "Accounting  for Income Taxes." The provisions of FIN 48 are effective for
our fiscal year beginning  January 1, 2007. The adoption of FIN 48 on January 1,
2007 is not expected to have a significant impact on our consolidated results of
operations or financial position.

In  September  2006,  the FASB issued SFAS No.  157,  "Fair Value  Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles,  and expands disclosures
about fair value measurements.  The provisions of SFAS 157 are effective for our
fiscal year beginning January 1, 2008. We are currently evaluating the impact of
the  provisions  of SFAS 157 and  currently  cannot  estimate  the impact to our
consolidated results of operations or financial position.

                                     - 21 -
<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 March 31, 2007.  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 March 31, 2007 will be paid according to scheduled
principal payments and that we will not prepay any of the outstanding principal
balance.

<TABLE>
<CAPTION>
                                        Nine
                                       Months             Year Ending December 31,
                                      Remaining -----------------------------------------------
                                        2007       2008        2009         2010        2011     Thereafter    Total     Fair Value
                                    ------------------------------------------------------------------------------------------------
                                                                          (dollars in thousands)
 Fixed Rate Debt:
<S>                                   <C>       <C>          <C>         <C>         <C>         <C>        <C>          <C>
   Secured notes payable               $8,300    $121,589     $9,561      $10,105     $10,681     $194,808   $355,044     $462,178
   Weighted average interest rate       5.84%       5.84%      5.84%        5.84%       5.84%        5.84%
</TABLE>

The primary  market risks we face are interest rate  fluctuations.  We pay lower
rates of interest in periods of  decreasing  interest  rates and higher rates of
interest in periods of increasing interest rates. All of our debt is denominated
in United  States  dollars.  We had no interest  rate caps or interest rate swap
contracts at March 31, 2007.

As of March 31, 2007,  we had no interest  rate risk since there was no variable
rate debt outstanding.

                                     - 22 -

<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 March 31, 2007.

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.

                                     - 23 -

<PAGE>


PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

Legal  proceedings are  incorporated  herein by reference from Part I "Item 1. -
Notes to Condensed Consolidated Financial Statements - Note 10 - 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,  you should  carefully  review the
factors  discussed  under Item 1A of our 2006 Form 10-K 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.

ITEM 6.  EXHIBITS

         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

                                     - 24 -
<PAGE>



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

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


                                              Mission West Properties, Inc.
                                              (Registrant)


Date: May 8, 2007                             By:    /s/ Carl E. Berg
                                                 -------------------------------
                                                 Carl E. Berg
                                                 Chief Executive Officer


Date: May 8, 2007                             By:    /s/ Wayne N. Pham
                                                 -------------------------------
                                                 Wayne N. Pham
                                                 Vice President of Finance and
                                                 Controller
                                                 (Principal Accounting Officer
                                                 and Duly Authorized Officer)

                                     - 25 -