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, 2006

                          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:

               18,511,291 shares outstanding as of April 30, 2006


<PAGE>



                          MISSION WEST PROPERTIES, INC.

                                    FORM 10-Q
                      FOR THE QUARTER ENDED MARCH 31, 2006


<TABLE>
<CAPTION>
                                      INDEX

                                                                                                                     PAGE
PART I        FINANCIAL INFORMATION                                                                                  ----

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

              Consolidated Balance Sheets as of March 31, 2006 (unaudited)
              and December 31, 2005 ..................................................................................2

              Consolidated Statements of Operations for the
              three months ended March 31, 2006 and 2005 (unaudited)..................................................3

              Consolidated Statements of Cash Flows for the
              three months ended March 31, 2006 and 2005 (unaudited)..................................................4

              Notes to 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.............................................23

   Item 4.    Controls and Procedures................................................................................24


PART II       OTHER INFORMATION

   Item 1.    Legal Proceedings......................................................................................25

   Item 1A.   Risk Factors...........................................................................................25

   Item 6.    Exhibits...............................................................................................25

   SIGNATURES........................................................................................................26
</TABLE>

   EXHIBITS

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

                                      - 1 -

<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

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

                                                                                    March 31, 2006         December 31, 2005
                                                                                 ---------------------   ----------------------
                                     ASSETS                                          (unaudited)               (audited)
Real estate assets, at cost:
<S>                                                                                  <C>                     <C>
    Land                                                                              $  277,269              $  273,933
    Buildings and improvements                                                           775,237                 766,457
    Real estate related intangible assets                                                 18,784                  17,410
                                                                                 ---------------------   ----------------------
       Total investments in properties                                                 1,071,290               1,057,800
    Less accumulated depreciation and amortization                                      (136,370)               (130,419)
                                                                                 ---------------------   ----------------------
       Net investments in properties                                                     934,920                 927,381
Cash and cash equivalents                                                                 39,937                  31,441
Restricted cash                                                                           12,698                  16,712
Deferred rent receivable, net                                                             18,540                  19,218
Investment in unconsolidated joint venture                                                 3,340                   3,263
Other assets, net                                                                         28,212                  25,362
                                                                                 ---------------------   ----------------------
       Total assets                                                                   $1,037,647              $1,023,377
                                                                                 =====================   ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Mortgage notes payable                                                            $  355,009              $  357,481
    Mortgage notes payable (related parties)                                               9,955                  10,051
    Interest payable                                                                         321                     321
    Security deposits                                                                      6,608                   8,047
    Deferred rental income                                                                10,585                   6,103
    Dividends and distributions payable                                                   16,729                  16,725
    Accounts payable and accrued expenses                                                 10,939                   8,952
                                                                                 ---------------------   ----------------------
       Total liabilities                                                                 410,146                 407,680
                                                                                 ---------------------   ----------------------

Commitments and contingencies (Note 10)

Minority interests                                                                       509,522                 500,682
                                                                                 ---------------------   ----------------------

Stockholders' equity:
  Preferred stock, $.001 par value, 20,000,000 shares authorized,
      none issued and outstanding                                                              -                       -
  Common stock, $.001 par value, 200,000,000 shares authorized,
      18,511,291 and 18,448,791 shares issued and outstanding
      at March 31, 2006 and December 31, 2005                                                 18                      18
  Paid-in-capital                                                                        138,811                 138,038
  Accumulated deficit                                                                    (20,850)                (23,041)
                                                                                 ---------------------   ----------------------
     Total stockholders' equity                                                          117,979                 115,015
                                                                                 ---------------------   ----------------------
     Total liabilities and stockholders' equity                                       $1,037,647              $1,023,377
                                                                                 =====================   ======================
</TABLE>


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

                                      - 2 -

<PAGE>


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

<TABLE>
<CAPTION>
                                                               Three months ended March 31,
                                                                 2006                2005
                                                           ------------------ -------------------
<S>                                                            <C>                <C>
Revenues:
   Rental revenue from real estate                                 $24,316            $26,247
   Tenant reimbursements                                             3,309              3,628
   Lease termination fees                                           16,056                  -
   Other income, including interest                                    732                303
                                                           ------------------ -------------------
        Total revenues                                              44,413             30,178
                                                           ------------------ -------------------

Expenses:
   Property operating, maintenance and real estate taxes             4,681              4,889
   Interest                                                          5,215              4,647
   Interest (related parties)                                          192                307
   General and administrative                                          635                675
   Depreciation and amortization of real estate                      5,479              5,574
                                                           ------------------ -------------------
        Total expenses                                              16,202             16,092
                                                           ------------------ -------------------
Income before equity in earnings of unconsolidated
   joint venture and minority interests                             28,211             14,086
Equity in earnings/(loss) of unconsolidated joint venture              331                 (6)
Minority interests                                                 (23,390)           (11,677)
                                                           ------------------ -------------------
   Income from continuing operations                                 5,152              2,403
                                                           ------------------ -------------------
Discontinued operations, net minority interests:
Gain from disposal of discontinued operations                            -                 14
Loss attributable to discontinued operations                             -                 (9)
                                                           ------------------ -------------------
   Income from discontinued operations                                   -                  5
                                                           ------------------ -------------------

Net income available to common stockholders                        $ 5,152            $ 2,408
                                                           ================== ===================
Net income available to minority interests                         $23,390            $11,695
                                                           ================== ===================
Income per common share from continuing operations:
   Basic                                                             $0.28              $0.13
                                                           ================== ===================
   Diluted                                                           $0.28              $0.13
                                                           ================== ===================
Income per common share from discontinued operations:
   Basic                                                                 -                  -
                                                           ================== ===================
   Diluted                                                               -                  -
                                                           ================== ===================
Net income per common share:
   Basic                                                             $0.28              $0.13
                                                           ================== ===================
   Diluted                                                           $0.28              $0.13
                                                           ================== ===================
Weighted average shares of
  common stock outstanding (basic)                              18,455,897         18,110,524
                                                           ================== ===================
Weighted average shares of
  common stock outstanding (diluted)                            18,520,297         18,136,797
                                                           ================== ===================
</TABLE>

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

                                      - 3 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
                                   (unaudited)
                                    ---------
<TABLE>
<CAPTION>
                                                                                                   Three months ended March 31,
                                                                                                     2006                2005
                                                                                              ------------------- ------------------
<S>                                                                                              <C>                  <C>
Cash flows from operating activities:
     Income from continuing operations                                                            $  5,152             $  2,403
     Income from discontinued operations                                                                 -                    5
     Adjustments to reconcile income from continuing operations to net cash provided by
        operating activities:
            Minority interest income from continuing operations                                     23,390               11,677
            Minority interest income from discontinued operations                                        -                   18
            Minority interest distributions                                                        (13,967)             (11,695)
            Depreciation and amortization of real estate and in-place leases                         5,479                5,573
            Depreciation and amortization from discontinued operations                                   -                   33
            Amortization of above market lease                                                         472                  472
            Gain on sale of real estate                                                                  -                  (63)
            Equity in (earnings)/loss of unconsolidated joint venture                                 (331)                   6
            Distributions from unconsolidated joint venture                                            255                  255
            Interest earned on restricted cash                                                        (121)                   -
            Lease termination fee income related to restricted cash                                (11,147)                   -
            Stock-based compensation expense                                                            59                    -
            Other                                                                                        7                    -
     Changes in operating assets and liabilities:
            Deferred rent receivable                                                                   678                 (615)
            Other assets                                                                            (2,823)              (4,477)
            Security deposits                                                                       (1,439)                (443)
            Deferred rental income                                                                   4,482                1,622
            Accounts payable and accrued expenses                                                    1,987                2,966
                                                                                              ------------------- ------------------
     Net cash provided by operating activities                                                      12,133                7,737
                                                                                              ------------------- ------------------

Cash flows from investing activities:
     Improvements to real estate assets                                                                (79)                (285)
     Proceeds from sale of real estate                                                                   -                8,387
     Purchase of real estate                                                                       (13,447)             (14,184)
     Restricted cash used for purchase of real estate                                               13,447                    -
     Excess restricted cash                                                                          1,835                    -
                                                                                              ------------------- ------------------
     Net cash provided by/(used in) investing activities                                             1,756               (6,082)
                                                                                              ------------------- ------------------

Cash flows from financing activities:
    Principal payments on mortgage notes payable                                                    (2,472)              (1,967)
    Principal payments on mortgage notes payable (related parties)                                     (96)                 (90)
    Net payments under line of credit (related parties)                                                  -               (1,651)
    Proceeds from revolving line of credit                                                               -                8,296
    Proceeds from exercised stock options                                                              125                    -
    Distributions paid to minority interests in excess of earnings                                       -               (2,306)
    Dividends paid                                                                                  (2,950)              (2,895)
                                                                                              ------------------- ------------------
     Net cash used in financing activities                                                          (5,393)                (613)
                                                                                              ------------------- ------------------
     Net increase in cash and cash equivalents                                                       8,496                1,042
Cash and cash equivalents, beginning of period                                                      31,441                1,519
                                                                                              ------------------- ------------------
Cash and cash equivalents, end of period                                                          $ 39,937             $  2,561
                                                                                              =================== ==================
Supplemental information:
    Cash paid for interest                                                                        $  5,338             $  4,864
                                                                                              =================== ==================
Supplemental schedule of non-cash investing and financing activities:
    Issuance of common stock upon conversion of O.P. units                                        $    589             $    535
                                                                                              =================== ==================
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      - 4 -
<PAGE>


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

1.   ORGANIZATION AND FORMATION OF THE COMPANY

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

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

     As of March 31, 2006,  the Company owns a controlling  general  partnership
     interest of 17.83%,  21.68%,  16.18% and 12.42% 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 a 17.66%
     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 109 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, 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 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 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   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, 2006,
     and its consolidated results of operations for the three months ended March
     31, 2006 and 2005,  and its cash flows for the three months ended March 31,
     2006 and 2005. All significant  intercompany  balances have been eliminated
     in  consolidation.  The consolidated  financial  statements as of March 31,
     2006 and for the three  months  ended  March 31,  2006 and 2005 and related
     footnote disclosures are unaudited. The results of operations for the three
     months ended March 31, 2006 are not  necessarily  indicative of the results
     to be expected for the entire year.

     The Company also  consolidates  all variable  interest  entities ("VIE") in
     which it is deemed to be the primary  beneficiary  in accordance  with FASB
     Interpretation  No. 46R ("FIN  46R").  As of March 31,  2006,  the  Company
     consolidated  one VIE in the  accompanying  consolidated  balance sheets in
     connection with an assignment of lease  agreement with an unrelated  party,
     M&M Real  Estate  Control  &  Restructuring,  LLC (see  Note 5 for  further
     discussion  of this  transaction).  Under the terms of the  agreement,  the
     Company,  who is the  primary  beneficiary  of that  entity,  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.

                                     - 5 -

<PAGE>


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

     STOCK-BASED OPTION COMPENSATION ACCOUNTING
     In December  2004,  the FASB issued SFAS No.  123R,  "Share-Based  Payment"
     ("SFAS No. 123R"), which addresses the accounting for employee and director
     stock  options.  Statement  123R requires that the cost of all employee and
     director  stock  options,  as  well  as  other  equity-based   compensation
     arrangements,  be  reflected  in  the  financial  statements  based  on the
     estimated  fair value of the awards.  SFAS No. 123R is an amendment to SFAS
     No.  123 and  supersedes  APB  Opinion  25 ("APB  25").  SFAS  No.  123R is
     applicable  to any award that is settled or  measured  in stock,  including
     stock options,  restricted stock, stock appreciation  rights,  stock units,
     and employee stock purchase  plans.  At March 31, 2006, the Company had one
     stock-based   option   compensation  plan.  The  Company  has  adopted  the
     requirements of SFAS No. 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 consolidated statements of operations or financial position.

     The Company measures  compensation cost for its stock options at fair value
     on the date of grant and recognizes  compensation  expense 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  expense  within  the  Company's
     consolidated statements of operations.

     MINORITY INTERESTS
     Minority  interest   represents  the  separate  private  ownership  of  the
     operating  partnerships  by the Berg Group  (defined  as Carl E. Berg,  his
     brother Clyde J. Berg, members of their respective immediate families,  and
     certain entities they control) and other non-affiliate interests. In total,
     these interests account for approximately 82.34% of the ownership interests
     in the real estate operations of the Company as of March 31, 2006. Minority
     interest  in net  income  is  calculated  by taking  the net  income of the
     operating   partnerships  (on  a  stand-alone   basis)  multiplied  by  the
     respective minority interest ownership percentage.

     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 2005
     consolidated   financial  statements  in  order  to  conform  to  the  2006
     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,  2005  audited  consolidated  financial  statements  and should be read
     together  with the  consolidated  financial  statements  and notes  thereto
     included in the Company's 2005 Form 10-K filed on March 16, 2006.

3.   REAL ESTATE

     On March 9, 2006, the Company acquired a fully leased  office/R&D  property
     with  approximately  95,700  rentable  square  feet  located  at 233  South
     Hillview  Drive  in  Milpitas,  California  from  Sipex  Corporation  in  a
     tax-deferred  exchange  under section 1031 of the Internal  Revenue Code of
     1986.  The total  acquisition  price for this  property  was  approximately
     $13,450 and was funded from the proceeds received from the 800 Embedded Way
     property  sale,  which  were  held  by a  third  party  and  classified  as
     restricted cash as of December 31, 2005.

     The  purchase  price  of the  233  South  Hillview  Drive  acquisition  was
     allocated  to  long-lived  assets and the value of an in-place  lease.  The
     in-place  lease was valued at fair market so there was no intangible  asset
     allocated to above-or-below market lease value. The Company recorded $1,374
     of the  purchase  price as real  estate  related  intangible  assets in the
     accompanying  consolidated  balance  sheets  for the  value of an  in-place
     lease.  The  intangible  assets  will  be  amortized  over  the  applicable
     remaining  lease  terms.  Amortization  expense of $18 was recorded for the
     three months ended March 31, 2006.

     The purchase  price  allocation  for this  acquisition  was  determined  in
     accordance with the following principles under SFAS No. 141:

     The fair  value of the  tangible  assets  of an  acquired  property,  which
     includes land, building and tenant  improvements,  is determined by valuing
     the property as if it were  vacant,  and the  "as-if-vacant"  value is then
     allocated to land,  building and tenant  improvements based on management's
     determination  of  the  relative  fair  values  of  these  assets.  Factors
     considered by management in performing these analyses include certain costs
     during the lease-up periods considering current market conditions and costs
     to execute  similar  leases.  These costs include  estimates of lost rental
     revenue, leasing commissions and tenant improvements.

     The  capitalized  in-place  lease  value,  included in real estate  related
     intangible  assets in the  accompanying  consolidated  balance  sheets,  is
     amortized  to expense as  amortization  of real estate  over the  remaining
     non-cancelable  lease term. If a lease were to be

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

     terminated prior to its stated expiration, all unamortized amounts relating
     to that  lease  would  be  written  off in the  period  that  the  lease is
     terminated.

4.   RESTRICTED CASH

     Restricted  cash  totaled  $12,698 as of March 31,  2006.  Of this  amount,
     $11,147  represents a balance we consolidated due to the Company's adoption
     of FIN 46R, "Consolidation of Variable Interest Entities." 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. See Note 5 below for further discussion.
     The remaining  $1,551  represents a bond the Company posted in the Republic
     Properties  Corporation v. Mission West  Properties,  L.P.  litigation (see
     Note 10).

5.   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.

     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.  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  consolidated  this  entity  for  financial
     reporting  purposes.  Upon  consolidation,  the Company  recognized a lease
     termination fee of $11,147 in March 2006.

6.   STOCK TRANSACTIONS

     During the three  months ended March 31,  2006,  stock  options to purchase
     12,500  shares of common stock were  exercised  at $10.00 per share.  Total
     proceeds  to the Company  were $125.  During the same  period,  one limited
     partner  exchanged  50,000 O.P.  units for 50,000  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 $589 from  minority  interest  to  paid-in-capital.
     Neither the Company nor the  operating  partnership  received  any proceeds
     from the issuance of the common stock in exchange for O.P. units.

7.   DISCONTINUED OPERATIONS

     Effective  January 1, 2002, the Company  adopted SFAS No. 144,  "Accounting
     for the  Impairment  or Disposal of  Long-Lived  Assets,"  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  consolidated  statements of
     operations.  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.

     As of March 31, 2006, there were no properties under contract to be sold or
     otherwise  disposed  of which  would  qualify  as  assets  held for sale or
     discontinued operations. During the first quarter of 2005, the Company sold
     two properties for a combined sales price of $12,750.  Condensed results of
     operations  for these  properties for the three months ended March 31, 2005
     are as follows:

                                     - 7 -
<PAGE>

                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
           (dollars in thousands, except share, per share, O.P. units
                        and per square footage amounts)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                              Three Months Ended March 31,
                                                                 2006             2005
                                                              -----------     ------------
                                                                 (dollars in thousands)
                                                                       (unaudited)
         Revenues
<S>                                                                <C>         <C>
            Rental revenue from real estate                         -           $  14
            Tenant reimbursements                                   -               1
                                                              -----------     ------------
               Total revenues                                       -              15
                                                              -----------     ------------

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

         Loss from discontinued operations                          -             (40)
         Gain from disposal of discontinued operations              -              63
         Minority interest in earnings attributable to
             discontinued operations                                -             (18)
                                                              -----------     ------------
         Income from discontinued operations                        -           $   5
                                                              ===========     ============

</TABLE>


     A deferred gain of approximately $1,408 was recorded on one of the disposed
     properties  in 2005.  The  gain  was  recognized  as  revenue  based on the
     installment  method of profit  recognition  because  the  purchaser  of the
     property did not make a sufficiently  large down payment under SFAS No. 66,
     "Accounting  for  Sales of Real  Estate"  ("SFAS  No.  66").  SFAS  No.  66
     establishes accounting standards for recognizing profit or loss on sales of
     real estate.  Gain on the sale is recognized  proportionately as the seller
     receives  payments from the purchaser.  Interest income is recognized on an
     accrual basis,  when  appropriate.  The Company  recorded a $63 gain in the
     first  quarter of 2005,  and the balance of the expected  gain was deferred
     until the Company  received the  remaining  balance of the sales price from
     the purchaser.

8.   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,
                                                               2006              2005
                                                         ---------------    --------------
<S>                                                        <C>              <C>
         Weighted average shares outstanding (basic)       18,455,897       18,110,524
         Incremental shares from assumed option exercise       64,400           26,273
                                                         ---------------    --------------
         Weighted average shares outstanding (diluted)     18,520,297       18,136,797
                                                         ===============    ==============
</TABLE>

     Outstanding  options  to  purchase  647,000  shares  in 2006 and 2005  were
     excluded  from the  computation  of diluted  net income per share under the
     treasury  stock method  because the option  exercise price was greater than
     the weighted  average  exercise price of the Company's  common stock during
     the respective periods.  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, 2006
     and 2005 was 86,038,095 and 86,334,695, respectively.

9.   RELATED PARTY TRANSACTIONS

     As of March 31, 2006, the Berg Group owned  77,490,528 O.P. units. The Berg
     Group's  combined  ownership of O.P. units and shares of common stock as of
     March 31, 2006 represented approximately 74% of the total equity interests,
     assuming  conversion of the  86,038,095  O.P.  units  outstanding  into the
     Company's common stock.

     As of March 31,  2006,  debt in the amount of $9,955 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 Berg Group line of credit,
     which was  terminated in October 2005,  and mortgage note was $192 and $307
     for the three months ended March 31, 2006 and 2005, respectively.

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

     During the first  three  months of 2006 and 2005,  Carl E. Berg or entities
     controlled by Mr. Berg held financial  interests in several  companies that
     lease space from the operating partnerships,  which include three companies
     in which Mr. Berg has a greater than 10% ownership interest.  These related
     tenants occupy  approximately  48,000 square feet and contributed  $132 and
     $217 in rental  revenue  during the three  months  ended March 31, 2006 and
     2005, 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.

     The Berg Group has an approximately  $2,500  commitment to complete certain
     tenant  improvements in connection  with the Company's 2002  acquisition of
     5345 Hellyer Avenue in San Jose.  The Company  recorded this portion of the
     purchase  price  paid  to  the  Berg  Group  as an  "other  asset"  on  its
     consolidated   balance  sheets.  The  Berg  Group  plans  to  satisfy  this
     commitment to complete  certain tenant  improvements  when requested by the
     Company  following the approval of the Independent  Directors  Committee of
     the Company's Board of Directors (the "Independent Directors Committee").

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

     The Company currently leases office space owned by Berg & Berg Enterprises,
     Inc.,  an affiliate of Carl E. Berg and Clyde J. Berg.  Rental  amounts and
     overhead reimbursements paid to Berg & Berg Enterprises,  Inc. were $23 for
     each of the three-month periods ended March 31, 2006 and 2005.

10.  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.

     Republic Properties  Corporation  ("RPC") v. Mission West Properties,  L.P.
     ("MWP"),  in the Circuit  Court of  Maryland  for  Baltimore  City Case No.
     24-C-00-005675.  RPC is a former partner with Mission West Properties, L.P.
     in the Hellyer Avenue Limited  Partnership  ("Hellyer  LP"). In April 2004,
     the Circuit Court for Baltimore City,  Maryland issued a Memorandum Opinion
     in  the  case  and  awarded  damages  of  approximately  $934  to  the  RPC
     plaintiffs,  which  represented  a  liability  of the  Company or MWP.  The
     Company  has a  receivable  from a Berg Group  affiliate  for the amount of
     distributions it received as the successor to RPC's interest in the Hellyer
     LP, which exceeds the amount of the damages  awarded to the RPC parties and
     would be used to pay those damages in the event the decision of the Circuit
     Court is upheld  ultimately.  The Company has never  accounted  for the 50%
     interest  in Hellyer LP that is claimed by RPC as an asset of the  Company.
     In February 2001, the Company filed a suit against RPC in Superior Court of
     the State of  California  for the County of Santa  Clara Case No. CV 796249
     which was stayed  pending  resolution of the Maryland  case. In March 2005,
     the Company  voluntarily  dismissed its California  suit. On March 1, 2005,
     the Maryland Appeals Court ruled in favor of Mission West Properties, L.P.,
     finding that the Circuit  Court of Maryland  lacked  personal  jurisdiction
     over MWP. In April 2005, the decision of the Maryland  Appeals Court became
     final,  and the Company  obtained a court order for the release of a $1,551
     bond, which it posted to remove an attachment order issued to RPC. In April
     2005,  RPC  submitted  a  motion  to the  Superior  Court  of the  State of
     California  effectively asking the court to prevent MWP from dismissing the
     previously  dismissed  California  suit. In July 2005, the Maryland Supreme
     Court  agreed to hear an appeal  filed by RPC.  In April 2006 the  Maryland
     Supreme Court upheld an earlier  Maryland  Appeals Court ruling in favor of
     MWP,  finding that the Circuit Court of Maryland could not assert  personal
     jurisdiction  in the RPC suit.  All  litigation in the Maryland  portion of
     this dispute over the Hellyer Avenue  limited  partnership is now concluded
     in our favor.  The lawsuit in the Santa Clara County,  California  Superior
     Court is still unresolved.

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

     In January 2004, the Global Crossing Estate Representative,  for itself and
     the Liquidating Trustee of the Global Crossing Liquidating Trust v. Mission
     West Properties filed an action in United States  Bankruptcy Court Southern
     District of New York Case No.  02-40188  (REG)  asserting  that payments of
     approximately  $815 made in the ordinary  course of business within 90 days
     of the Global  Crossing  bankruptcy  filing were preference  payments.  The
     Company has engaged legal counsel to defend itself in this claim and intend
     to  vigorously  contest the matter.  On February 9, 2005,  the Court held a
     hearing  to  consider  the  objection  filed with  respect to Mission  West
     Properties'  claim.  In April 2005,  the Company filed a motion for summary
     judgment in the United States  Bankruptcy  Court  Southern  District of New
     York requesting the Court to dismiss the preference  claim.  The motion for
     summary  judgment  was denied.  Discovery  continues by both parties and no
     trial date has been set.

     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, 2006.

     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,
     2006.

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

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

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

     In light of the  overcapacity in the Silicon Valley R&D properties  market,
     the Berg Group currently is seeking local government approval of a proposed
     rezoning of the 160-acre Evergreen site to permit  residential  development
     on a substantial portion of the site. The Independent  Directors Committee,
     which is responsible for reviewing,  evaluating and authorizing action with
     respect to any  transaction  between the Company and any member of the Berg
     Group,  authorized removal of the Evergreen site from the scope of the Berg
     Land Holdings Option  Agreement,  subject to the completion of the rezoning
     of the  160-acre  Evergreen  site,  or  portion  thereof,  for  residential
     development.  In  making  this  determination,  the  Independent  Directors
     Committee  considered  a number  of  factors,  including  risks  and  other
     potentially adverse  consequences that could be associated with large scale
     residential development

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

     activities.  Any  portion  of the  Evergreen  site that is not  rezoned  as
     residential property is not deemed to be removed from the scope of the Berg
     Land  Holdings  Option  Agreement  and would remain  eligible for potential
     future  acquisition  by the  Company  under the Berg Land  Holdings  Option
     Agreement.

11.  SUBSEQUENT EVENTS

     On April 6, 2006,  the Company paid  dividends of $0.16 per share of common
     stock to all common  stockholders  of record as of March 31,  2006.  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 $16,728.

     In May 2006, one limited partner  exchanged  789,796 O.P. units for 789,796
     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.  Neither the Company nor the operating  partnership  received
     any  proceeds  from the  issuance of the common  stock in exchange for O.P.
     units.

                                     - 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  consolidated
financial  statements and notes thereto  contained  herein and our  consolidated
financial  statements  and notes thereto  contained in our Annual Report on Form
10-K as of and for the year ended  December 31, 2005.  The results for the three
months ended March 31, 2006 are not necessarily  indicative of the results to be
expected for the entire  fiscal year ending  December 31,  2006.  The  following
discussion includes  forward-looking  statements,  including but not limited to,
statements with respect to our future financial performance,  operating results,
plans and objectives.  Actual results may differ materially from those currently
anticipated depending upon a variety of factors, including those described under
the sub-heading, "Forward-Looking Information."

FORWARD-LOOKING INFORMATION

This quarterly report contains forward-looking  statements within the meaning of
the federal  securities  laws. We intend such  forward-looking  statements to be
covered by the safe harbor provisions for forward-looking  statements  contained
in the Private  Securities  Reform Act of 1995, and 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,
     -    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  from time to time in our reports and
other  documents  filed with the Securities and Exchange  Commission,  should be
considered in evaluating  forward-looking  statements and undue reliance  should
not be placed on such statements.

OVERVIEW

We acquire,  market, lease, and manage R&D/office properties,  primarily located
in the Silicon  Valley  portion of the San  Francisco  Bay Area. As of March 31,
2006, we owned and managed 109  properties  totaling  approximately  7.9 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, 2006, 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 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  vacancy  rate for
Silicon  Valley R&D property was  approximately  19.6% in late 2005 and 20.1% at
the end of the first quarter of 2006. Total vacant R&D square footage in Silicon
Valley at the end of the first quarter of 2006  amounted to 31.0 million  square
feet,  of which 22.4%,  or 7.0 million  square  feet,  was being  offered  under
subleases.  Total  positive net  absorption  (which is the  computation of gross
square  footage  leased  less gross new square  footage  vacated  for the period
presented) in 2005 amounted to approximately 3.6 million square feet. During the
first  three  months  of 2006,  there  was  total  negative  net  absorption  of
approximately  (0.97) million square feet. Average asking market rent per square
foot at the end of the first quarter of 2006 was $0.89 compared to $0.88 in late
2005, although individual  properties within any particular  submarket presently
may be leased  above or below the current  average  asking  market  rental rates
within  that  submarket.  The  Silicon  Valley  R&D  property  market  has  been
characterized by a substantial number of submarkets, with rent and vacancy rates
varying by submarket and location within each submarket.

Our  occupancy  rate at March 31, 2006 was 67.3%  compared to 67.7% at March 31,
2005. 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
245,000  rentable  square  feet  are  expiring  prior  to the end of  2006.  The
properties  subject to these  leases may take  anywhere  from 24 to 36 months or
longer to re-lease.  We believe  that the average 2006 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 consolidated  financial  statements in conformity with accounting
principles  generally  accepted in the United States of America ("GAAP"),  which
requires us to make certain estimates, judgments and assumptions that affect the
reported  amounts  in  the  accompanying   consolidated   financial  statements,
disclosure  of  contingent   assets  and  liabilities  and  related   footnotes.
Accounting and disclosure  decisions with respect to material  transactions that
are subject to significant  management judgments or estimates include impairment
of long lived assets,  deferred rent reserves,  and allocation of purchase price
relating to property  acquisitions and the related  depreciable  lives assigned.
Actual results may differ from these estimates  under  different  assumptions or
conditions.

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

BUSINESS COMBINATIONS.  Statement of Financial Accounting Standards ("SFAS") No.
141, "Business  Combinations"  ("SFAS No. 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
No. 141 are based on an allocation of the  acquisition  cost to land,  building,
tenant improvements,  and intangibles for at market, including lease origination
and lease up period costs,  and above and below market in place leases,  and the
determination  of their useful lives are guided by a combination of SFAS No. 141
and management's estimates. If we do not appropriately allocate these

                                     - 13 -
<PAGE>

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 No.  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  consolidated  financial
statements,  with appropriate  allocation to minority interest,  because we have
operational  and financial  control of the  investments.  We make  judgments and
assumptions  about the estimated  monthly payments made to our minority interest
joint  venture  partners,  which  are  reported  with our  periodic  results  of
operations.  Actual  results may differ  from these  estimates  under  different
assumptions or conditions.

INVESTMENT  IN   UNCONSOLIDATED   JOINT   VENTURE.   We,  through  an  operating
partnership,  have a 50%  non-controlling  limited  partnership  interest in one
unconsolidated joint venture.  This investment is not consolidated because 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 No.  123R,
"Share-Based  Payment"  ("SFAS No.  123R"),  which  addresses the accounting for
employee and director  stock  options.  Statement 123R requires that the cost of
all  employee  and  director  stock  options,  as  well  as  other  equity-based
compensation arrangements, be reflected in the financial statements based on the
estimated  fair value of the awards.  SFAS No. 123R is an  amendment to SFAS No.
123 and supersedes APB Opinion 25 ("APB 25"). SFAS No. 123R is applicable to any
award that is settled or measured in stock, including stock options,  restricted
stock,  stock  appreciation  rights,  stock units,  and employee  stock purchase
plans. We have adopted the  requirements  of SFAS No. 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  consolidated  statements  of  operations  or  financial
position.  Compensation  cost  under SFAS No.  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  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 No. 66"),  establishes
accounting standards for recognizing profit or loss on sales of real estate. The
gain on the  sale is only  recognized  proportionately  as the  seller  receives
payments from the purchaser.  Interest income is recognized on an accrual basis,
when appropriate.

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

                                     - 15 -
<PAGE>


RESULTS OF OPERATIONS

COMPARISON  OF THE THREE  MONTHS  ENDED MARCH 31, 2006 TO THE THREE MONTHS ENDED
MARCH 31, 2005

As of March  31,  2006,  through  our  controlling  interests  in the  operating
partnerships,  we  owned  109  properties  totaling  approximately  7.9  million
rentable  square feet  compared to 108  properties  totaling  approximately  8.0
million rentable square feet owned by us as of March 31, 2005. This represents a
net  decrease  of  approximately  1% in total  rentable  square  footage,  as we
acquired one property  consisting of  approximately  95,700 rentable square feet
and disposed of one property consisting of approximately 239,000 rentable square
feet since the first quarter of 2005.

RENTAL REVENUE FROM REAL ESTATE FROM CONTINUING OPERATIONS
For the quarter ended March 31, 2006,  rental revenue from real estate decreased
by  approximately  ($1.9)  million,  or 7.4%,  from $26.2  million for the three
months ended March 31, 2005 to $24.3 million for the same period of 2006. Rental
revenue  includes  approximately  ($0.5) million in  amortization  for the three
months  ended March 31, 2006 and 2005 for the  amortization  of an  above-market
lease  intangible  asset pursuant to SFAS No. 141. The decline in rental revenue
was  primarily a result of lower rental rates on new leases and renewals and the
loss of several  tenants due to  bankruptcy,  relocation  or  cessation of their
operations  since March 31, 2005,  all of which  resulted  from current  adverse
market conditions. Our occupancy rate at March 31, 2006 was approximately 67.3%,
compared to approximately  67.7% at March 31, 2005. Due to an over supply of R&D
properties  and  competition  from other  landlords in the Silicon  Valley,  our
occupancy rate may drop further if the 245,000 rentable square feet scheduled to
expire during the remainder of 2006 is not renewed or re-leased.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
As of March 31, 2006, we had investments in four R&D buildings, totaling 593,000
rentable square feet, through an unconsolidated joint venture, TBI-MSW, in which
we acquired a 50%  interest  in January  2003 from the Berg Group under the Berg
Land Holdings Option Agreement.  We have a non-controlling  limited  partnership
interest in this joint venture,  which we account for using the equity method of
accounting.  For the three months ended March 31,  2006,  we recorded  equity in
earnings from the  unconsolidated  joint venture of approximately  $0.33 million
compared to equity in loss of ($6,000)  for the same period in 2005.  Our equity
in  earnings  from this  unconsolidated  joint  venture  increased  in the first
quarter of 2006 resulted from the  write-offs of leasing  commission  and tenant
improvements in the first quarter of 2005 for a tenant that terminated its lease
agreement in December 2004 that did not recur in 2006.  The  occupancy  rate for
the  properties  owned by this  joint  venture  at March  31,  2006 and 2005 was
approximately 78.7%.

LEASE TERMINATION  INCOME FROM CONTINUING  OPERATIONS
Lease  termination  fees  for  the  three  months  ended  March  31,  2006  were
approximately $16.1 million. These fees were paid by four tenants who terminated
their lease  obligations  before the end of the  contractual  term of the lease.
There was no lease  termination  income in the first  quarter of 2005. We do not
consider those transactions to be recurring items.

OTHER INCOME FROM CONTINUING OPERATIONS
Other income of approximately  $0.7 million for the three months ended March 31,
2006 included  approximately  $0.4 million from interest income and $0.3 million
from  management  fee income.  Other income for the three months ended March 31,
2005 consisted primarily of management fee income and miscellaneous income.

EXPENSES FROM CONTINUING OPERATIONS
Property  operating  expenses and real estate taxes during the first  quarter of
2006 decreased by  approximately  ($0.2) million,  or 4.3%, from $4.9 million to
$4.7 million for the three  months ended March 31, 2005 and 2006,  respectively,
due primarily to property tax refunds totaling approximately $0.2 million in the
first quarter of 2006 and two R&D property  dispositions in the first quarter of
2005. Tenant reimbursements  decreased by approximately ($0.3) million, or 8.8%,
from $3.6  million for the three months ended March 31, 2005 to $3.3 million for
the three months ended March 31, 2006 due to lower  occupancy.  Certain expenses
such as  property  insurance,  real  estate  taxes,  and other  fixed  operating
expenses are not recoverable from vacant properties.  General and administrative
expenses remained  relatively the same for the three months ended March 31, 2006
and 2005.

Depreciation and amortization  expense of real estate decreased by approximately
($0.1) million,  or 1.7%, from $5.6 million to $5.5 million for the three months
ended March 31,  2005 and 2006,  respectively.  The  decrease  was  attributable
primarily to the  disposition of two R&D properties  during the first quarter of
2005.

Interest expense  increased by approximately  $0.6 million,  or 12.2%, from $4.6
million for the three  months ended March 31, 2005 to $5.2 million for the three
months ended March 31, 2006.  Interest  expense (related  parties)  decreased by
approximately  ($0.1) million,  or 37.5%, from $0.3 million for the three months
ended March 31, 2005 to $0.2  million for the three  months ended March 31, 2006
due to the  termination of the Berg Group line of credit in October 2005.  Total
debt  outstanding,   including   amounts  due  related  parties,   increased  by
approximately  $23.4 million,  or 6.9%, from $341.6 million as of March 31, 2005
to $365.0  million as of March 31, 2006.  Overall  interest  expense,  including
amounts paid to related parties,  for the quarter ended March 31, 2006 increased
by approximately  $0.5 million compared to the same quarter a year ago primarily
due to two new fixed  rate  secured  mortgage  loans of $25.8  million  and $125
million  from  Allianz Life  Insurance  Company  obtained in April 2005 and July
2005, respectively.

                                     - 16 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                              Three Months Ended March 31,
                                                                 2006             2005
                                                              -----------     ------------
                                                                 (dollars in thousands)
                                                                       (unaudited)
<S>                                                                <C>         <C>
         Gain from disposal of discontinued operations              -           $  63
         Loss attributable to discontinued operations               -             (40)
         Minority interest in earnings attributable to
             discontinued operations                                -             (18)
                                                              -----------     ------------
         Income from discontinued operations                        -           $   5
                                                              ===========     ============
</TABLE>

In accordance with our adoption of SFAS No. 144, in the first quarter of 2005 we
sold and classified as  discontinued  operations  two  properties  consisting of
103,350  rentable  square feet and recorded a gain of $63,000,  of which $14,000
and $49,000 were  attributable to common  stockholders  and minority  interests,
respectively.

The  income  to common  stockholders  and  minority  interests  attributable  to
discontinued  operations  from these two  properties  for the three months ended
March 31, 2005 was approximately $5,000 and $18,000, respectively.

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS AND NET INCOME AVAILABLE TO MINORITY
INTERESTS
Minority  interest in net income has been calculated by taking the net income of
the operating partnerships (on a stand-alone basis) multiplied by the respective
minority  interest  ownership  percentage.   Minority  interest  represents  the
ownership  interest of all limited partners in the operating  partnerships taken
as a whole,  which was  approximately 82% and 83% as of March 31, 2006 and 2005,
respectively.

Net income  available to common  stockholders  increased by  approximately  $2.7
million,  or 114.0%, from $2.4 million for the three months ended March 31, 2005
to $5.1 million for the same period in 2006.  The minority  interest  portion of
income increased by approximately $11.7 million, or 100%, from $11.7 million for
the three  months  ended  March 31, 2005 to $23.4  million for the three  months
ended March 31, 2006.  The  increase in net income for both common  stockholders
and minority interests was primarily due to the realization of lease termination
fees and lower operating  expenses and property taxes in 2006,  partially offset
with increases in interest expense.

                                     - 17 -
<PAGE>


CHANGES IN FINANCIAL CONDITION

The most significant  changes in our financial condition during the three months
ended March 31, 2006  resulted  from the  acquisition  of one R&D  property.  In
addition, total stockholders' equity increased from the issuance of common stock
for the exchange of O.P. units and stock option exercises.

At March 31,  2006,  total  investments  in  properties  had a net  increase  of
approximately  $13.5  million  from  December  31, 2005 due to one R&D  property
acquisition. During the first three months of 2006, we acquired one R&D property
consisting  approximately  95,700  rentable  square feet  located in the Silicon
Valley. The purchase price for this property was approximately $13.5 million.

Total  stockholders'  equity,  net, increased by approximately $3.0 million from
December 31, 2005 as we obtained  additional capital from the issuance of 50,000
shares of our common stock for the exchange of O.P.  units and 12,500  shares of
our  common  stock  from  stock  option  exercises  and  incurred  a surplus  of
approximately  $2.2 million due to the  realization of higher lease  termination
fees for the period.  During the first three months of 2006, one limited partner
exchanged  50,000  O.P.  units for 50,000  shares of our common  stock under the
Exchange  Rights  Agreement  among us and the limited  partners in the operating
partnerships.  In addition,  stock  options to purchase  12,500 shares of common
stock were  exercised.  The newly issued  shares  increased  additional  paid in
capital by approximately $0.7 million.

LIQUIDITY AND CAPITAL RESOURCES

We expect a  continued  decline  in  operating  cash  flows  from our  operating
property  portfolio  in 2006 as compared to 2005.  The  reduction  in cash flows
reflects the overall reduced demand for R&D  properties,  lower rental rates for
new and  renewed  leases,  and an  increase  in vacant  properties  in 2006.  In
addition,  if we are unable to lease a significant  portion of the approximately
245,000 rentable square feet scheduled to expire during the remainder of 2006 or
an  equivalent  amount of our currently  available  space of  approximately  2.9
million  rentable  square  feet,  our  operating  cash  flows  may  be  affected
adversely.  With the  expectation of lower rental  revenues for the remainder of
2006, we expect the  properties'  net operating  income to continue to show year
over year declines  when compared to 2005. As noted above,  we expect cash flows
from operating  activities to continue to show declines  primarily driven by the
general  downturn in the Silicon Valley's economy in recent years, the softening
of the Company's market specifically, and the expected weaker performance of our
properties.  We are also subject to risks of decreased  occupancy through tenant
defaults and bankruptcies  and potential  reduction in rental rates upon renewal
of properties,  which would result in reduced cash flow from  operations.  It is
reasonably  likely that vacancy  rates may  continue to increase  and  effective
rental rates on new and renewed leases may continue to decrease.

We expect our principal  source of liquidity for  distributions  to stockholders
and O.P. unit holders,  debt service,  leasing commissions and recurring capital
expenditures  to come from cash  provided by  operations  and/or the  borrowings
under the line of credit with Cupertino  National Bank ("CNB").  We expect these
sources  of  liquidity  to  be  adequate  to  meet  projected  distributions  to
stockholders and other presently anticipated liquidity  requirements in 2006. 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 a line
of credit with CNB. We expect our total interest expense to increase through new
financing  activities.  In the  remainder of 2006,  we will be obligated to make
payments  totaling  approximately  $7.8 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  $8.5 million from $31.4
million as of December 31, 2005 to $39.9 million as of March 31, 2006  primarily
from cash flow from operations and excess remaining  restricted cash from a 1031
tax-deferred exchange transaction.

Restricted  cash totaled  $12.7  million as of March 31,  2006.  Of this amount,
$11.1 million  represents a balance we  consolidated  due to our adoption of FIN
46R,  "Consolidation of Variable Interest  Entities" (see Note 5). The remaining
$1.6 million represents a bond we posted in the Republic Properties  Corporation
v. Mission West Properties,  L.P. litigation (see Note 10). We do not possess or
control these funds or have any rights to receive them except as provided in the
applicable  agreements.   Therefore,   restricted  cash  is  not  available  for
distribution to stockholders.

DISTRIBUTIONS
On April 6, 2005,  we paid  dividends  of $0.16 per share of common stock to all
common  stockholders  of record  as of March 31,  2006.  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 2006,  we expect to maintain our current
quarterly dividend payment rate to common  shareholders and O.P. unit holders of
$0.16 per share.  However,  distributions  are declared at the discretion of our
Board of Directors and are subject to actual cash  available  for  distribution,
our financial  condition,  capital  requirements and such other factors,  as our
Board of Directors deems relevant.

                                     - 18 -

<PAGE>


DEBT
At March 31, 2006, we had total indebtedness of $365.0 million, including $355.0
million  of fixed  rate  mortgage  debt and $10.0  million  under the Berg Group
mortgage note (related  parties),  as detailed in the table below.  The CNB loan
contains certain  financial loan and reporting  covenants as defined in the loan
agreements.  As of  March  31,  2006,  we were in  compliance  with  these  loan
covenants.

CONTRACTUAL OBLIGATIONS
The following table identifies our contractual  obligations as of March 31, 2006
that will impact our liquidity and cash flow in future periods:

<TABLE>
<CAPTION>
                                   2006          2007         2008         2009          2010      Thereafter      Total
                               --------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                              <C>         <C>          <C>           <C>           <C>         <C>          <C>
Long-Term Debt Obligations(1)     $7,847      $11,029      $121,605      $9,580        $10,125     $204,778     $364,964
Operating Lease Obligations(2)        68           23             -           -              -            -           91
                               ------------ ------------- ------------ ------------ ------------- ------------ ------------
Total                             $7,915      $11,052      $121,605      $9,580        $10,125     $204,778     $365,055
                               ============ ============= ============ ============ ============= ============ ============
</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.

                                     - 19 -
<PAGE>


The following table sets forth information regarding debt outstanding as of
March 31, 2006:

<TABLE>
<CAPTION>
                                                                                                             Maturity      Interest
                Debt Description                         Collateral Properties                 Balance         Date          Rate
------------------------------------------------ --------------------------------------  ----------------- ------------- -----------
                                                                                      (dollars in thousands)
Line of Credit:
<S>                                                                                       <C>                 <C>          <C>
Cupertino National Bank                          Not Applicable                                     -          11/06          (3)
                                                                                         -----------------

Mortgage Notes Payable (related parties):        5300 & 5350 Hellyer Avenue, San Jose, CA  $    9,955           6/10        7.65%
                                                                                         -----------------
Mortgage Notes Payable (1):
Prudential Insurance Company of America (2)      10300 Bubb Road, Cupertino, CA               116,730          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 Company (4)   1750 Automation Parkway, San Jose, CA         90,598           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              25,089           8/25        5.56%

Allianz Life Insurance Co. (Allianz Loan II)(5)  5325-5345 Hellyer Avenue, San Jose, CA       122,592           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
                                                                                         -----------------
                                                                                              355,009
                                                                                         -----------------
TOTAL                                                                                        $364,964
                                                                                         =================
</TABLE>


(1)  Mortgage notes payable generally  require monthly  installments of interest
     and  principal  ranging  from  $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, 2006.
(2)  The  Prudential  Insurance  loan is  payable  in  monthly  installments  of
     $827,000,  which includes principal (based upon a 30-year amortization) and
     interest.  A  limited  partner  who is not a member  of the Berg  Group has
     guaranteed  approximately  $12.0  million  of this  debt.  Costs  and  fees
     incurred with obtaining this loan aggregated  approximately $900,000, which
     were deferred and amortized over the loan period.
(3)  Interest rate equal to LIBOR plus 1.75%.  The Cupertino  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,  2006,  the Company was in
     compliance with these loan covenants.
(4)  The Northwestern loan is payable in monthly installments of $696,000, which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and  fees  incurred  with  obtaining  this  loan  aggregated  approximately
     $675,000, which were deferred and amortized over the loan period.
(5)  The  Allianz  loans  are  payable  in  monthly  aggregate  installments  of
     $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, 2006, the Company was in compliance
     with these loan covenants.

At March 31,  2006,  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 $11.75 per share on March 31, 2006) on a fully diluted  basis,  including the
conversion of all O.P.  units into common stock,  was  approximately  22.9%.  On
March  31,  2006,   the  last   trading  day  for  the  quarter,   total  market
capitalization was approximately $1.6 billion.

                                     - 20 -

<PAGE>

At March 31, 2006, the outstanding balance remaining under certain notes that we
owed to the operating partnerships was $1.7 million. The due date of these notes
has been  extended to September 30, 2007.  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 consolidated financial statements.  However,
the interest  income  earned by the  operating  partnerships,  which is interest
expense to us, in connection  with this debt, is included in the  calculation of
minority  interest as  reported on the  consolidated  statement  of  operations,
thereby reducing our net income by this same amount. At present,  our only means
for  repayment  of this debt is through  distributions  that we receive from the
operating  partnerships that are in excess of the amount of dividends to be paid
to our stockholders or by raising additional equity capital.

HISTORICAL CASH FLOWS

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2006 TO THE THREE MONTHS ENDED
MARCH 31, 2005

Net cash provided by operating  activities  for the three months ended March 31,
2006 was $12.1 million compared to $7.7 million for the same period in 2005. The
increase  resulted  primarily from the increase in deferred  rental income.  The
increase in cash flow from  operating  activities was also caused by payments of
higher leasing commissions (included in other assets) in 2005, which amounted to
approximately $3.6 million compared to $0.3 million in 2006.

Net cash  provided  by/(used in) investing  activities  was  approximately  $1.8
million and ($6.1)  million for the three  months ended March 31, 2006 and 2005,
respectively.  Cash used in 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.  That property acquisition
was completed as a tax-deferred  exchange  transaction  involving our former R&D
property  at 800  Embedded  Way,  San Jose,  California.  The  remaining  excess
restricted  cash of  approximately  $1.8 million was  transferred to our general
cash account.  Capital  expenditures  relating to real estate  improvements were
approximately $79,000 and $0.3 million for the three months ended March 31, 2006
and 2005, respectively.

Net cash used in financing  activities  was ($5.4)  million for the three months
ended March 31, 2006 compared to ($0.6) million for the three months ended March
31, 2005.  During the first three months of 2006,  we received $0.1 million from
stock option exercises, used $2.6 million to pay outstanding debt, and paid $2.9
million to common stockholders for dividends. During the same period in 2005, we
used $3.7 million to pay outstanding  debt, drew an additional $8.3 million from
the Cupertino  National  Bank line of credit,  and paid $2.3 million to minority
interests  for  distributions  in excess of earnings  and $2.9 million to common
stockholders for dividends.

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 the Company's 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 the
Company's  financial  performance  when  compared  to other  REITs  since 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 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.

                                     - 21 -

<PAGE>


FFO for the three months  ended March 31, 2006 and 2005,  as  reconciled  to net
income available to common stockholders, are summarized in the following tables:

<TABLE>
<CAPTION>
                                                    Three Months Ended March 31,
                                                    2006                   2005
                                             ------------------     ------------------
                                                         (dollars in thousands)
<S>                                              <C>                   <C>
Net income available to common stockholders      $ 5,152                $ 2,408
Add:
 Minority interests (1)                           23,256                 11,574
 Depreciation & amortization of real estate (2)    6,118                  6,389
Less:
 Gain on sale of asset                                 -                    (63)
                                             ------------------     ------------------
FFO                                              $34,526                $20,308
                                             ==================     ==================
</TABLE>

(1)  The minority  interest  for third  parties  totaling  $135 and $121 for the
     three months ended March 31, 2006 and 2005, respectively, was deducted from
     total minority interest in calculating FFO.
(2)  Includes our portion of  depreciation  and  amortization of real estate and
     leasing commissions from our unconsolidated joint venture totaling $211 and
     $354 for the three months ended March 31, 2006 and 2005, respectively. Also
     includes  amortization of leasing  commissions of $428 for the three months
     ended  March 31,  2006 and 2005.  Amortization  of leasing  commissions  is
     included in the property operating,  maintenance and real estate taxes line
     item in the Company's consolidated statements of operations.


DISTRIBUTION POLICY

Our board of directors  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 May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections" ("SFAS No. 154"), to replace APB Opinion 20, "Reporting  Accounting
Changes in Interim  Financial  Statements"  ("APB 20"). SFAS No. 154 changes the
requirements  for the  accounting  for and  reporting of a change in  accounting
principle and requires  retrospective  application to prior  periods'  financial
statements,  unless it is  impracticable to determine period specific effects or
the  cumulative  effect  of the  change.  SFAS  No.  154 will be  effective  for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after  December 15, 2005. The adoption of this statement is not expected to have
a  material  effect on our  consolidated  results  of  operations  or  financial
condition.

In December 2004, the FASB issued SFAS No. 123R,  "Share-Based  Payment"  ("SFAS
No.  123R"),  which  addresses the  accounting  for employee and director  stock
options.  Statement  123R  requires  that the cost of all  employee and director
stock  options,  as well as other  equity-based  compensation  arrangements,  be
reflected in the financial  statements  based on the estimated fair value of the
awards. SFAS No. 123R is an amendment to SFAS No. 123 and supersedes APB Opinion
No. 25 ("APB No. 25").  SFAS No. 123R is applicable to any award that is settled
or  measured  in  stock,  including  stock  options,   restricted  stock,  stock
appreciation  rights,  stock units,  and employee stock purchase  plans. We have
adopted the  requirements  of SFAS No. 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 consolidated statements of operations or financial position.

                                     - 22 -


<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, 2006.  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,  the table  presents the  assumption  that the  outstanding
principal  balance  at  March  31,  2006  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 ----------------------------------------------
                                         2006        2007        2008       2009        2010     Thereafter     Total     Fair Value
                                     -----------------------------------------------------------------------------------------------
                                                                         (dollars in thousands)
<S>                                     <C>        <C>       <C>           <C>        <C>        <C>          <C>         <C>
Fixed Rate Debt:
  Secured notes payable                  $7,847     $11,029   $121,605      $9,580     $10,125    $204,778     $364,964    $432,689
  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.  Principal
amounts outstanding under the CNB line of credit, which had a balance of zero at
March 31, 2006,  is tied to a LIBOR based  interest  rate.  As a result,  we pay
lower rates of interest in periods of decreasing interest rates and higher rates
of  interest  in  periods  of  increasing  interest  rates.  All of our  debt is
denominated in United States  dollars.  We had no interest rate caps or interest
rate swap contracts at March 31, 2006.

As of March 31, 2006,  we had no interest  rate risk since there was no variable
rate debt outstanding.

                                     - 23 -



<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, 2006.

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.

                                     - 24 -

<PAGE>


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Legal  proceedings are  incorporated  herein by reference from Part 1 "Item 1. -
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 2005 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

                                     - 25 -
<PAGE>



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

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


                                    Mission West Properties, Inc.
                                    (Registrant)


Date: May 9, 2006                   By:    /s/ Carl E. Berg
                                       ---------------------------------------
                                        Carl E. Berg
                                        Chief Executive Officer


Date: May 9, 2006                   By:    /s/ Wayne N. Pham
                                       ---------------------------------------
                                        Wayne N. Pham
                                        Vice President of Finance and Controller
                                        (Principal Accounting Officer and Duly
                                        Authorized Officer)


                                     - 26 -