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

                                    Form 10-Q


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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

                          COMMISSION FILE NUMBER 1-8383


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

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

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

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


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

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

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:

              18,421,291 shares outstanding as of November 4, 2005


<PAGE>



                          Mission West Properties, Inc.

                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2005


<TABLE>
<CAPTION>

                                      INDEX


<S>          <C>                                                                                                    <C>
                                                                                                                     PAGE
PART I        FINANCIAL INFORMATION                                                                                  ----

   Item 1.    Financial Statements:

              Consolidated Balance Sheets as of September 30, 2005 (unaudited)
              and December 31, 2004 ..................................................................................2

              Consolidated Statements of Operations for the
              three and nine months ended September 30, 2005 and 2004 (unaudited).....................................3

              Consolidated Statements of Cash Flows for the
              nine months ended September 30, 2005 and 2004 (unaudited)...............................................4

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

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

   Item 3.    Quantitative and Qualitative Disclosures about Market Risk.............................................24

   Item 4.    Controls and Procedures................................................................................25


PART II       OTHER INFORMATION

   Item 1.    Legal Proceedings......................................................................................26

   Item 6.    Exhibits...............................................................................................26

   EXHIBITS
              Exhibit 31.1 - Certification Pursuant to Rule 13a-14 of the
                             Securities Exchange Act of 1934
              Exhibit 31.2 - Certification Pursuant to Rule 13a-14 of the
                             Securities Exchange Act of 1934
              Exhibit 31.3 - Certification Pursuant to Rule 13a-14 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

SIGNATURES...........................................................................................................27
</TABLE>


                                     - 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)
                                   (unaudited)
                                    ---------
<TABLE>
<CAPTION>
                                                                                  September 30, 2005       December 31, 2004
                                                                                 ---------------------   ----------------------
                                     ASSETS                                                                        (A)
Real estate assets, at cost:
<S>                                                                                 <C>                     <C>
    Land                                                                             $   273,933             $   273,663
    Buildings and improvements                                                           766,209                 770,757
    Real estate related intangible assets                                                 17,410                  18,284
                                                                                 ---------------------   ----------------------
       Total investments in properties                                                 1,057,552               1,062,704
    Less accumulated depreciation and amortization                                      (124,670)               (110,062)
    Assets held for sale, net of accumulated depreciation of $1,770 and $1,578
       at 9/30/05 and 12/31/04, respectively                                              14,245                   8,221
                                                                                 ---------------------   ----------------------
       Net investments in properties                                                     947,127                 960,863
Cash and cash equivalents                                                                 40,443                   1,519
Restricted cash                                                                            1,551                   1,551
Deferred rent receivable, net of $2,000 allowance at 9/30/05 and 12/31/04                 19,302                  18,511
Investment in unconsolidated joint venture                                                 3,472                   3,559
Other assets, net of accumulated amortization of $7,317 and $5,667
   at 9/30/05 and 12/31/04, respectively                                                  24,812                  19,653
                                                                                 ---------------------   ----------------------
       Total assets                                                                   $1,036,707              $1,005,656
                                                                                 =====================   ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Mortgage notes payable                                                           $   359,891             $   292,822
    Mortgage notes payable (related parties)                                              10,146                  10,420
    Line of credit (related parties)                                                           -                   9,560
    Revolving line of credit                                                                   -                  24,208
    Interest payable                                                                         327                     327
    Security deposits                                                                      8,434                   8,544
    Deferred rental income                                                                11,691                  11,038
    Liabilities related to assets held for sale                                               80                      14
    Dividend/distribution payable                                                         16,727                  16,718
    Accounts payable and accrued expenses                                                 10,971                   6,704
                                                                                 ---------------------   ----------------------
       Total liabilities                                                                 418,267                 380,355
                                                                                 ---------------------   ----------------------

Commitments and contingencies

Minority interests                                                                       503,769                 512,089
                                                                                 ---------------------   ----------------------

Stockholders' equity:
  Preferred stock, $.001 par value, 20,000,000 shares authorized,
      none issued and outstanding                                                              -                       -
  Common stock, $.001 par value, 200,000,000 shares authorized,
      18,367,691 and 18,097,191 shares issued and outstanding
      at 9/30/05 and 12/31/04, respectively                                                   18                      18
  Paid-in-capital                                                                        137,217                 134,539
  Accumulated deficit                                                                    (22,564)                (21,345)
                                                                                 ---------------------   ----------------------
     Total stockholders' equity                                                          114,671                 113,212
                                                                                 ---------------------   ----------------------
     Total liabilities and stockholders' equity                                       $1,036,707              $1,005,656
                                                                                 =====================   ======================
</TABLE>
        The accompanying notes are an integral part of these consolidated
                             financial statements.

 (A) Derived from the Company's 2004 audited 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 September 30,          Nine months ended September 30,
                                                          2005                 2004                2005                 2004
                                                   -------------------- ------------------- -------------------- -------------------
Revenues:
<S>                                                    <C>                  <C>               <C>                   <C>
   Rental revenue from real estate                         $24,692              $29,494           $76,043               $90,526
   Tenant reimbursements                                     4,031                3,740            11,254                11,623
   Other income, including lease terminations,
       settlements and interest                                426                  396             3,018                 5,401
                                                   -------------------- ------------------- -------------------- -------------------
        Total revenues                                      29,149               33,630            90,315               107,550
                                                   -------------------- ------------------- -------------------- -------------------

Expenses:
   Property operating, maintenance and real estate taxes     5,301                4,805            14,101                15,241
   Interest                                                  5,494                4,468            16,046                13,051
   Interest (related parties)                                  229                  256               779                   760
   General and administrative                                  424                  395             1,542                 1,628
   Depreciation and amortization of real estate              5,268                5,269            16,005                16,168
                                                   -------------------- ------------------- -------------------- -------------------
        Total expenses                                      16,716               15,193            48,473                46,848
                                                   -------------------- ------------------- -------------------- -------------------
Income before equity in earnings of unconsolidated
   joint venture and minority interests                     12,433               18,437            41,842                60,702
Equity in earnings of unconsolidated joint venture             291                  345               677                 1,564
Minority interests                                         (10,551)             (15,590)          (35,172)              (51,757)
                                                   -------------------- ------------------- -------------------- -------------------
   Income from continuing operations                         2,173                3,192             7,347                10,509
                                                   -------------------- ------------------- -------------------- -------------------

Discontinued operations, net minority interests:
Gain from disposal of discontinued operations                  291                    -               305                     -
(Loss) attributable to discontinued operations                 (13)                 (19)              (98)                  (18)
                                                   -------------------- ------------------- -------------------- -------------------
   Income/(loss) from discontinued operations                  278                  (19)              207                   (18)
                                                   -------------------- ------------------- -------------------- -------------------

Net income to common stockholders                          $ 2,451              $ 3,173           $ 7,554               $10,491
                                                   ==================== =================== ==================== ===================
Net income to minority interests                           $11,541              $15,488           $35,823               $51,596
                                                   ==================== =================== ==================== ===================
Income per share from continuing operations:
   Basic                                                     $0.12                $0.18             $0.40                 $0.58
                                                   ==================== =================== ==================== ===================
   Diluted                                                   $0.12                $0.18             $0.40                 $0.58
                                                   ==================== =================== ==================== ===================
Income per share from discontinued operations:
   Basic                                                     $0.01                    -             $0.01                     -
                                                   ==================== =================== ==================== ===================
   Diluted                                                   $0.01                    -             $0.01                     -
                                                   ==================== =================== ==================== ===================
Net income per share to common stockholders:
   Basic                                                     $0.13                $0.18             $0.41                 $0.58
                                                   ==================== =================== ==================== ===================
   Diluted                                                   $0.13                $0.18             $0.41                 $0.58
                                                   ==================== =================== ==================== ===================
Weighted average shares of
  common stock outstanding (basic)                      18,356,278           18,071,484        18,242,495            18,019,277
                                                   ==================== =================== ==================== ===================
Weighted average shares of
  common stock outstanding (diluted)                    18,407,891           18,098,174        18,289,699            18,077,854
                                                   ==================== =================== ==================== ===================
</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>
                                                                                                Nine months ended September 30,
                                                                                                    2005                2004
                                                                                             ------------------- -------------------
Cash flows from operating activities:
<S>                                                                                             <C>                 <C>
     Net income                                                                                  $   7,554           $   10,491
     Adjustments to reconcile net income to net cash provided by operating activities:
            Income allocated to minority interests, including discontinued operations               35,823               51,596
            Depreciation and amortization of real estate and in place leases                        16,005               16,167
            Depreciation and amortization from discontinued operations                                 316                  477
            Amortization of above market rent intangible asset                                       1,416                1,416
            Gain on sale of real estate                                                             (1,408)                   -
            Equity in earnings of unconsolidated joint venture                                        (677)              (1,564)
            Distributions from unconsolidated joint venture                                            765                1,418
     Changes in operating assets and liabilities, net of liabilities assumed:
            Deferred rent receivable                                                                  (791)                (141)
            Other assets                                                                            (5,159)               1,608
            Interest payable                                                                             -                   (2)
            Security deposits                                                                         (110)              (1,477)
            Deferred rental income                                                                     653               (1,101)
            Accounts payable and accrued expenses                                                    4,346                3,479
                                                                                             ------------------- -------------------
     Net cash provided by operating activities                                                      58,733               82,367
                                                                                             ------------------- -------------------

Cash flows from investing activities:
     Improvements to real estate assets                                                               (871)                (371)
     Net proceeds from sales of real estate                                                         12,447                    -
     Purchase of real estate                                                                       (14,184)                   -
                                                                                             ------------------- -------------------
     Net cash used in investing activities                                                          (2,608)                (371)
                                                                                             ------------------- -------------------

Cash flows from financing activities:
    Proceeds from mortgage loan                                                                    150,800                    -
    Principal payments on mortgage notes payable                                                    (5,021)              (4,574)
    Principal payments on mortgage notes payable (related parties)                                    (274)                (254)
    Net payments under line of credit (related parties)                                             (9,560)              (5,118)
    Payment on mortgage loan payable                                                               (78,710)                   -
    Net payments under revolving line of credit                                                    (24,208)                   -
    Proceeds from revolving line of credit                                                               -                2,527
    Restricted cash                                                                                      -               (1,551)
    Proceeds from stock options exercised                                                              480                  165
    Minority interest distributions                                                                (41,979)             (62,769)
    Dividends                                                                                       (8,729)             (12,954)
                                                                                             ------------------- -------------------
     Net cash used in financing activities                                                         (17,201)             (84,528)
                                                                                             ------------------- -------------------
     Net increase/(decrease) in cash and cash equivalents                                           38,924               (2,532)
Cash and cash equivalents, beginning of period                                                       1,519                4,129
                                                                                             ------------------- -------------------
Cash and cash equivalents, end of period                                                         $  40,443           $    1,597
                                                                                             =================== ===================
Supplemental information:
    Cash paid for interest                                                                       $  16,471           $   13,602
                                                                                             =================== ===================
Supplemental schedule of non-cash investing and financing activities:
    Issuance of common stock upon conversion of O.P. units                                       $   2,197           $    2,047
                                                                                             =================== ===================
</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  September  30,  2005,  the  Company  owns  a  controlling   general
     partnership interest of 17.44%,  21.65%,  16.15% and 12.39% 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  17.46%  general   partnership   interest  in  the  operating
     partnerships, taken as a whole, on a consolidated weighted average basis.

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

     The  Company  has  elected to be taxed as a real  estate  investment  trust
     ("REIT") under the Internal Revenue Code of 1986, as amended.  Accordingly,
     no  provision  has been made for income taxes for the three and nine months
     ended September 30, 2005.

     BUSINESS SEGMENT INFORMATION
     The  Company's   primary  business  is  the  ownership  and  management  of
     R&D/office  real  estate  with a  geographic  concentration  in the Silicon
     Valley  of the  San  Francisco  Bay  Area.  Accordingly,  the  Company  has
     concluded it currently  has a single  reportable  segment for  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 September 30,
     2005,  and its  consolidated  results of operations  for the three and nine
     months ended  September 30, 2005 and 2004,  and its cash flows for the nine
     months ended  September 30, 2005 and 2004,  respectively.  All  significant
     intercompany   balances  have  been   eliminated  in   consolidation.   The
     consolidated  financial  statements  as of  September  30, 2005 and for the
     three  and nine  months  ended  September  30,  2005  and 2004 and  related
     footnote disclosures are unaudited. The results of operations for the three
     and nine months ended September 30, 2005 are not necessarily  indicative of
     the results to be expected for the entire year.

     The following notes,  which present interim  disclosures as required by the
     SEC, highlight  significant  changes to the notes to the Company's December
     31,  2004  audited  consolidated  financial  statements  and should be read
     together  with the  consolidated  financial  statements  and notes  thereto
     included in the Company's 2004 Form 10-K filed on March 16, 2005.

     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 82.54% of the ownership interests
     in the real estate  operations  of the Company as of  September  30,  2005.
     Minority  interest in net income is  calculated by taking the net income of
     the  operating  partnerships  (on a  stand-alone  basis)  multiplied by the
     respective minority interest ownership percentage.

                                     - 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)

     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 2004
     consolidated   financial  statements  in  order  to  conform  to  the  2005
     presentation.

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

     The  following  table   illustrates  the  unaudited  pro  forma  effect  on
     consolidated net income  available to common  stockholders and consolidated
     earnings  per  share if the fair  value  method  had  been  applied  to all
     outstanding  and unvested stock options for the three and nine months ended
     September 30, 2005 and 2004.

<TABLE>
<CAPTION>
                                                            Three Months Ended September 30,    Nine Months Ended September 30,
                                                                 2005             2004              2005             2004
                                                            ---------------  ---------------   ---------------  ---------------
                                                                      (dollars in thousands, except per share data)
<S>                                                             <C>             <C>                <C>            <C>
           Historical net income to common stockholders          $2,451          $3,173             $7,554         $10,491
           Deduct compensation expense for stock options
              determined under fair value based method              (51)            (44)              (110)           (132)
           Allocation of expense to minority interest                42              36                 91             109
                                                            ---------------  ---------------   ---------------  ---------------
           Pro forma net income to common stockholders           $2,442          $3,165             $7,535         $10,468
                                                            ===============  ===============   ===============  ===============

           Earnings per share - basic:
           Historical net income to common stockholders           $0.13           $0.18              $0.41           $0.58
           Pro forma net income to common stockholders            $0.13           $0.18              $0.41           $0.58
           Earnings per share - diluted:
           Historical net income to common stockholders           $0.13           $0.18              $0.41           $0.58
           Pro forma net income to common stockholders            $0.13           $0.17              $0.41           $0.58
</TABLE>


     Options were granted to four employees and three directors totaling 710,000
     in 2005,  which vest  monthly for 33 months from date of grant,  subject to
     continued employment or other service to the Company. Each option grant has
     a term of six years from the date of grant  subject to earlier  termination
     in certain events  related to  termination of employment.  The options were
     granted at an exercise price of $10.00 per share.  The estimated fair value
     of the  options  granted  in 2005 was  $1.12 per share on the date of grant
     using  the   Black-Scholes   option   pricing   model  with  the  following
     assumptions:  dividend yield of 6.4%, volatility of 21.97%, risk free rates
     of 4.2% and an expected life of six years.

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

<TABLE>
<CAPTION>
                                                                2004 Equity      Weighted Average
                                                                 Incentive        Option Price
                                                                   Plan             Per Share
                                                              --------------    ----------------
<S>                                                           <C>                   <C>
                         Balance, December 31, 2004              767,000             $11.44
                            Options granted                      710,000             $10.00
                            Options exercised                    (55,000)             $8.73
                            Options cancelled                          -
                                                              --------------
                         Balance, September 30, 2005           1,422,000             $10.83
                                                              ==============
</TABLE>


                                     - 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)

3.   STOCK TRANSACTIONS

     During the nine months ended September 30, 2005,  stock options to purchase
     40,000  shares of common stock were  exercised at $8.25 per share and stock
     options to purchase  15,000 shares of common stock were exercised at $10.00
     per share. Total proceeds to the Company were $480. During the same period,
     four limited  partners  exchanged  215,500 O.P. units for 215,500 shares of
     the  Company's  common stock under the terms of the December  1998 Exchange
     Rights  Agreement  among  the  Company  and  all  limited  partners  of the
     operating  partnerships  resulting  in a  reclassification  of $2,197  from
     minority interest to paid-in-capital.

4.   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. Prior period consolidated statements of operations presented in
     this report have been reclassified to reflect the income or loss related to
     properties  that were held for sale or sold and  presented as  discontinued
     operations  during the three and nine  months  ended  September  30,  2005.
     Additionally,  all periods  presented  in this  report will likely  require
     further  reclassification  in future  periods if additional  properties are
     held for sale or property sales occur.

     As of September 30, 2005,  there was one property under contract to be sold
     or otherwise  disposed of which would  qualify as an asset held for sale or
     discontinued operation. That property was sold for $15,105 in October 2005.
     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 and nine months ended  September 30, 2005 and 2004
     are as follows:

<TABLE>
<CAPTION>
                                                             Three Months Ended September 30,  Nine Months Ended September 30,
                                                                 2005             2004             2005             2004
                                                              --------------------------------------------------------------
                                                                                  (dollars in thousands)
                                                                                       (unaudited)
         Revenues
<S>                                                           <C>              <C>             <C>                <C>
            Rental revenue from real estate                    $    -           $  86           $  14             $ 531
            Tenant reimbursements                                   -              26               1                98
            Other income                                            -               1               -                 3
                                                              -----------     ------------     ------------     ------------
               Total revenues                                       -             113              15               632
                                                              -----------     ------------     ------------     ------------

         Expenses
            Property operating, maintenance and real estate  taxes  -              76             250               335
            Depreciation                                           77             159             316               476
                                                              -----------     ------------     ------------     ------------
              Total expenses                                       77             235             566               811
                                                              -----------     ------------     ------------     ------------

         (Loss) from discontinued operations                      (77)           (122)           (551)             (179)
         Gain on disposition of property                        1,345               -           1,408                 -
         Minority interest in earnings/(loss) attributable
            to discontinued operations                           (990)            103            (650)              161
                                                              -----------     ------------     ------------     ------------
         Income/(loss) from discontinued operations            $  278          ($  19)          $ 207            ($  18)
                                                              ===========     ============     ============     ============
</TABLE>

     For the three and nine months  ended  September  30, 2005 and 2004,  income
     from discontinued  operations included results of operations from one asset
     held for sale at September 30, 2005 and the two  properties  that were sold
     in the first quarter of 2005.

     A deferred gain of approximately $1,408 was recorded on one of the disposed
     properties.  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 received the remaining balance of the sales price
     from the purchaser in September 2005 and all of the remaining deferred gain
     was  recognized  in the third quarter of 2005.  The Company  recorded a $63
     gain in the first  quarter of 2005 and $1,345 gain in the third  quarter of
     2005.

5.   NET INCOME PER SHARE

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

                                     - 7 -

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

     The computation for weighted average shares is detailed below:

<TABLE>
<CAPTION>
                                                          Three Months Ended September 30,      Nine Months Ended September 30,
                                                               2005              2004               2005               2004
                                                         ---------------    --------------     --------------    ---------------
<S>                                                       <C>                <C>                <C>                <C>
         Weighted average shares outstanding (basic)       18,356,278         18,071,484         18,242,495         18,019,277
         Incremental shares from assumed option exercise       51,613             26,690             47,204             58,577
                                                         ---------------    --------------     --------------    ---------------
         Weighted average shares outstanding (diluted)     18,407,891         18,098,174         18,289,699         18,077,854
                                                         ===============    ==============     ==============    ===============
</TABLE>

     Outstanding options to purchase 647,000 and 272,000 shares in 2005 and 2004
     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 September
     30, 2005 and 2004 was 86,169,195 and 86,404,695, respectively.

6.   RELATED PARTY TRANSACTIONS

     As of September 30, 2005, the Berg Group owned  77,572,028 O.P. units.  The
     Berg Group's combined ownership of O.P. units and shares of common stock as
     of September  30, 2005  represented  approximately  74% of the total equity
     interests,  assuming  conversion of the 86,169,195  O.P. units  outstanding
     into the Company's common stock.

     The Berg Group has  extended to the  Company a $20,000  line of credit that
     bears interest at LIBOR plus 1.30%,  or 4.99% as of September 30, 2005, and
     matures in March  2006.  The  Company  believes  that the terms of the Berg
     Group  line  of  credit  are  more  favorable  than  those  available  from
     commercial  lenders.  As of September  30, 2005,  $0 was due the Berg Group
     under the line of credit,  and debt in the  amount of  $10,146  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  and  mortgage  note was $229 and $256 for the three  months
     ended September 30, 2005 and 2004, respectively,  and $779 and $760 for the
     nine months ended September 30, 2005 and 2004, respectively.

     During the first  nine  months of 2005 and 2004,  Carl E. Berg or  entities
     controlled by Mr. Berg held financial  interests in several  companies that
     lease space from the operating partnerships,  which include three companies
     in which Mr. Berg has a greater than 10% ownership interest.  These related
     tenants occupy  approximately  48,000 square feet and contributed  $160 and
     $217 in rental revenue during the three months ended September 30, 2005 and
     2004,  respectively,  and $570 and $650 in rental  revenue  during the nine
     months ended September 30, 2005 and 2004, 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.

     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 September 30, 2005 and 2004 and $68
     for each of the nine-month periods ended September 30, 2005 and 2004.

7.   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

                                     - 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)

     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, which is scheduled to occur in
     December 2005.

     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 September 30, 2005.

     The  Company  also  enters  into   indemnification   provisions  under  its
     agreements  with  other  companies  in the  ordinary  course  of  business,
     typically with lenders, joint venture partners,  contractors,  and tenants.
     Under these  provisions the Company  typically agrees to indemnify and hold
     harmless  the  indemnified  party for losses  suffered  or  incurred by the
     indemnified  party as a result of certain  kinds of activities or inactions
     of  the  Company.   These  indemnification   provisions  generally  survive
     termination of the underlying  agreement.  The maximum  potential amount of
     future  payments  the  Company  could  be  required  to  make  under  these
     indemnification  provisions  is  unlimited.  To date,  the  Company has not
     incurred  material  costs to defend  lawsuits or settle  claims  related to
     these  indemnification  agreements.  As a result,  the Company believes the
     estimated  fair value of these  agreements  is  minimal.  Accordingly,  the
     Company has recorded no  liabilities  for these  agreements as of September
     30, 2005.

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

     ENVIRONMENTAL ISSUES
     The environmental  investigations that have been conducted on the Company's
     properties have not revealed any  environmental  liability that 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.

                                     - 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)

     BERG LAND HOLDINGS OPTION AGREEMENT
     On April 27, 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 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.

8.   MORTGAGE NOTES PAYABLE AND OTHER DEBT

     The following  information is an update of mortgage notes payable  obtained
     during the second quarter of 2005 and other debt transactions that occurred
     during the third  quarter of 2005.  For  additional  details  regarding the
     Company's mortgage notes payable and other debt outstanding as of September
     30, 2005,  see Item 2,  "Management's  Discussion and Analysis of Financial
     Condition and Results of Operations - Debt."

     ALLIANZ LOAN I
     On April 6, 2005, the Company obtained a $25,800 secured mortgage loan from
     Allianz Life  Insurance  Company of North America  ("Allianz  Loan I"). The
     Allianz  Loan I  originally  matures on April 10,  2020 and must be paid in
     full at that time unless  payment is  accelerated by reason of a default or
     sale of the property that secures the loan. The Company paid  approximately
     $251 in loan fees and financing  costs,  which are being amortized over the
     20 year amended loan  period,  and used the proceeds  primarily to pay down
     short-term  debt and the Berg Group line of credit.  On July 26,  2005,  in
     connection  with the  Allianz  Loan II, the  Company  entered  into a "Loan
     Modification  Agreement"  with  Allianz,  which  extended the  amortization
     period and  maturity  date of the  Allianz  Loan I from  April 10,  2020 to
     August  10,  2025.  This  loan  bears a fixed  interest  rate of 5.56%  and
     principal  payments  are  amortized  over 20 years.  The  mortgage  loan is
     secured by one property.

     ALLIANZ LOAN II
     On July 27, 2005,  the Company  obtained a $125,000  secured  mortgage loan
     from Allianz Life Insurance  Company of North America  ("Allianz Loan II").
     The Allianz Loan II matures on August 10, 2025, and must be paid in full at
     that time,  unless payment is accelerated by reason of a default or sale of
     any property that secures the loan.  This loan bears a fixed  interest rate
     of 5.22% and principal  payments are amortized over 20 years.  The mortgage
     loan is secured by eight properties. The Company paid approximately $838 in
     loan fees and financing  costs,  which are being amortized over the 20 year
     loan period,  and used the proceeds  primarily to pay down  short-term debt
     and the Berg Group line of credit.

     CUPERTINO NATIONAL BANK LINE OF CREDIT
     The  Company  entered  into a "Change in Terms  Agreement"  with  Cupertino
     National Bank ("CNB") on July 22, 2005, which reduced the maximum borrowing
     amount on the Company's  revolving  line of credit  facility with that bank
     from $40,000 to $9,000.

9.   SUBSEQUENT EVENTS

     On October 6, 2005, the Company paid dividends of $0.16 per share of common
     stock to all common stockholders of record as of September 30, 2005. On the
     same date, the operating partnerships paid a distribution of $0.16 per O.P.
     unit to all holders of O.P. units.

     On October 12, 2005, the Company  completed the sale of a 239,000  rentable
     square foot R&D property at 800 Embedded Way, San Jose, California.  A gain
     of  approximately  $800 will be recognized in the fourth quarter of 2005 on
     the total sales price of $15,105.

     On October 26, 2005, the  Independent  Directors  Committee of the Board of
     Directors of the Company  approved the  termination  of the $20,000 line of
     credit agreement  between the Company and the Berg Group (as defined in the
     Company's  previously filed periodic reports),  effective October 31, 2005.
     The Berg Group line of credit was  originally  scheduled to mature in March
     2006.  Based on existing cash reserves and credit  facilities,  the Company
     has determined that it no longer foresees a need for the Berg Group line of
     credit. There are no borrowings currently  outstanding under the Berg Group
     line of  credit.  The  Company  will  not  incur  any fees or  charges  for
     terminating the Berg Group line of credit.

                                     - 10 -
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  should be read in  conjunction  with the  accompanying  consolidated
financial  statements and notes thereto  contained  herein and our  consolidated
financial  statements  and notes thereto  contained in our Annual Report on Form
10-K as of and for the year ended  December 31, 2004.  The results for the three
and nine months ended September 30, 2005 are not  necessarily  indicative of the
results to be expected for the entire fiscal year ending  December 31, 2005. The
following  discussion  includes  forward-looking  statements,  including but not
limited  to,  statements  with  respect  to our  future  financial  performance,
operating  results,  plans and objectives.  Actual results may differ materially
from those currently anticipated depending upon a variety of factors,  including
those described under the sub-heading, "Forward-Looking Information."

FORWARD-LOOKING INFORMATION

This quarterly report contains forward-looking  statements within the meaning of
the federal  securities  laws. We intend such  forward-looking  statements to be
covered by the safe harbor provisions for forward-looking  statements  contained
in the Private  Securities  Reform Act of 1995, and 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 September 30,
2005, we owned and managed 108  properties  totaling  approximately  8.0 million
rentable   square  feet  through  four   limited   partnerships,   or  operating
partnerships,  for which we are the sole general partner. This class of property
is designed  for research  and  development  and office uses and, in some cases,
includes space for light manufacturing operations with loading docks. We believe
that we have one of the  largest  portfolios  of  R&D/office  properties  in the
Silicon  Valley.  As of September  30, 2005,  the six tenants who each leased in
excess of  300,000  rentable  square  feet from us were  Microsoft  Corporation,
Fujitsu America (a subsidiary of Fujitsu Limited), JDS Uniphase Corporation, NEC
Electronics America, Inc. (a subsidiary of NEC Electronics  Corporation),  Ciena
Corporation  and Apple Computer,  Inc. For federal income tax purposes,  we have
operated as a self-managed,  self-administered  and fully integrated real estate
investment trust ("REIT") since fiscal 1999.

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

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

                                     - 11 -
<PAGE>

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

CURRENT ECONOMIC ENVIRONMENT

All of our  properties  are  located in the  Northern  California  area known as
Silicon  Valley,  which  generally  consists of portions of Santa Clara  County,
Southwestern  Alameda  County,  Southeastern  San Mateo County and Eastern Santa
Cruz County. The Silicon Valley 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  22.4% in late 2004 and 20.6% at
the end of the third quarter of 2005. Total vacant R&D square footage in Silicon
Valley at the end of the third quarter of 2005  amounted to 31.8 million  square
feet,  of which 23.0%,  or 7.3 million  square  feet,  was being  offered  under
subleases.  Total  negative net  absorption  (which is the  computation of gross
square  footage  leased  less gross new square  footage  vacated  for the period
presented) in 2004 amounted to approximately  (0.3) million square feet.  During
the first  nine  months of 2005,  there was total  positive  net  absorption  of
approximately  2.1 million  square feet.  Average  asking market rent per square
foot at the end of the third quarter of 2005 remained the same at $0.88 compared
to late 2004,  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  September  30,  2005  was  67.5%  compared  to 69.0% at
September  30, 2004. We believe that our  occupancy  rate could decline  further
going forward if key tenants seek the protection of bankruptcy laws, consolidate
operations  or  discontinue  operations.  In  addition,  leases with  respect to
approximately  558,000  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.

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  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  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

                                     - 12 -
<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.

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 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

                                     - 13 -
<PAGE>

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.

                                     - 14 -
<PAGE>


RESULTS OF OPERATIONS

COMPARISON  OF THE THREE AND NINE MONTHS ENDED  SEPTEMBER  30, 2005 TO THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2004

As of September  30, 2005,  through our  controlling  interests in the operating
partnerships,  we  owned  108  properties  totaling  approximately  8.0  million
rentable  square feet  compared to 109  properties  totaling  approximately  7.9
million  rentable  square  feet  owned  by us as of  September  30,  2004.  This
represents a net increase of  approximately 1% in total rentable square footage,
as we acquired one property consisting of approximately  203,800 rentable square
feet and disposed of two properties consisting of approximately 103,350 rentable
square feet during the first quarter of 2005.

RENTAL REVENUE FROM REAL ESTATE FROM CONTINUING OPERATIONS
For the quarter  ended  September  30,  2005,  rental  revenue  from real estate
decreased by approximately  ($4.8) million, or 16.3%, from $29.5 million for the
three months ended  September  30, 2004 to $24.7  million for the same period of
2005.  For the nine months ended  September 30, 2005,  rental  revenue from real
estate decreased by approximately  ($14.5) million, or 16.0%, from $90.5 million
for the nine  months  ended  September  30,  2004 to $76.0  million for the nine
months ended  September 30, 2005.  Rental revenue  includes  approximately  $0.5
million in  amortization  for the three months ended September 30, 2005 and 2004
and  approximately  $1.4  million  in  amortization  for the nine  months  ended
September  30,  2005 and 2004 for the  amortization  of the  above-market  lease
intangible  asset  pursuant to SFAS No. 141.  The decline in rental  revenue was
primarily a result of the lower  rental rate under the new  Microsoft  blend and
extend  lease,  which was signed in the first  quarter of 2005 and accounted for
over half the  decline.  Other  factors  contributing  to the  decline in rental
revenue  were lower  rental  rates on new leases  and  renewals  and the loss of
several tenants due to their  bankruptcy,  relocation or cessation of operations
since  September 30, 2004,  all of which  resulted from current  adverse  market
conditions.  Our occupancy rate at September 30, 2005 was  approximately  67.5%,
compared to approximately  69.0% at September 30, 2004. 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 72,000  rentable square feet scheduled to
expire during the remainder of 2005 is not renewed or re-leased.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
As of September 30, 2005, we had  investments  in four R&D  buildings,  totaling
593,000 rentable square feet, through an unconsolidated joint venture,  TBI-MSW,
in which we acquired a 50%  interest  in January  2003 from the Berg Group under
the Berg Land  Holdings  Option  Agreement.  We have a  non-controlling  limited
partnership  interest  in this joint  venture,  which we  account  for using the
equity method of accounting.  For the three months ended  September 30, 2005, we
recorded   equity  in  earnings  from  the   unconsolidated   joint  venture  of
approximately  $0.29 million compared to equity in earnings of $0.34 million for
the same period in 2004. Our equity in earnings from this  unconsolidated  joint
venture  declined in the third quarter of 2005 due to lower rents  received as a
result of lower occupancy  rate. For the nine-month  periods ended September 30,
2005 and 2004,  equity in earnings  from the  unconsolidated  joint  venture was
approximately  $0.68  million and $1.56  million,  respectively.  The decline in
equity in earnings from  unconsolidated  joint venture for the nine-month period
ended September 30, 2005 resulted from the write-offs of leasing  commission and
tenant improvements for a tenant that terminated its lease agreement in December
2004 as well as lower rents  received from the properties of this joint venture.
The occupancy rate for the  properties  owned by this joint venture year to date
through September 30, 2005 was approximately 78.7% compared to 100% at September
30, 2004.

OTHER INCOME FROM CONTINUING OPERATIONS
Other income remained  relatively the same at approximately $0.4 million for the
three months ended September 30, 2005 compared to the third quarter of 2004. For
the nine months ended September 30, 2005 and 2004, other income was $3.0 million
and $5.4  million,  respectively.  Other  income was higher for the period ended
September 30, 2004 because we realized  higher lease  termination fee and tenant
bankruptcy  settlement income in 2004. We do not consider those  transactions to
be recurring items.

EXPENSES FROM CONTINUING OPERATIONS
Property  operating  expenses and real estate taxes during the third  quarter of
2005 increased by  approximately  $0.5 million,  or 10.4%,  from $4.8 million to
$5.3  million  for  the  three  months  ended   September  30,  2004  and  2005,
respectively,  due  primarily to higher  assessments  of our property  value and
increase in utility usage. Tenant reimbursements increased by approximately $0.3
million,  or 8.1%,  from $3.7 million for the three months ended  September  30,
2004 to $4.0 million for the three months ended September 30, 2005 due to tenant
direct billing of operating expenses during the third quarter of 2005.  Property
operating  expenses and real estate  taxes  decreased  by  approximately  ($1.1)
million,  or 7.2%, from $15.2 million to $14.1 million for the nine months ended
September 30, 2004 and 2005, respectively,  due to lower operating expenses from
lower occupancy of our properties,  the disposition of two properties during the
first  quarter of 2005 and  property  tax refunds  totaling  approximately  $0.7
million in 2005 and $0.09 million in 2004.  Tenant  reimbursements  decreased by
approximately  ($0.4)  million,  or 3.4%, from $11.6 million for the nine months
ended  September 30, 2004 to $11.2  million for the nine months ended  September
30,  2005.  The  decrease in tenant  reimbursements  for the nine  months  ended
September  30,  2005 as  compared  to the same  period  in 2004 was due to lower
occupancy.  Certain expenses such as property insurance,  real estate taxes, and
other fixed expenses are not  recoverable  from vacant  properties.  General and
administrative  expenses  remained  relatively  the same at  approximately  $0.4
million for the three months  ended  September  30, 2004 and 2005.  For the nine
months ended September 30, 2004 and 2005,  general and  administrative  expenses
decreased by  approximately  ($0.1) million,  or 6.3%, from $1.6 million to $1.5
million,  respectively.  General and administrative expenses for the nine months
ended September 30, 2004 included  additional  legal and accounting  expenses in
connection  with the  resignation  of  PricewaterhouseCoopers  LLP,  our  former
independent

                                     - 15 -
<PAGE>

accountants,  and the need to re-audit  consolidated  financial  statements  for
years 2001 and 2002 and audit 2003  results  during the second  quarter of 2004,
which did not recur in 2005.

Real estate  depreciation  and  amortization  expense  remained the same at $5.3
million for the three months ended September 30, 2004 and 2005. Depreciation and
amortization  expense of real estate decreased by approximately  ($0.2) million,
or 1.2%, from $16.2 million to $16.0 million for the nine months ended September
30,  2004  and  2005,  respectively.  The  decrease  for the nine  months  ended
September  30,  2005  compared  to the same  period  in 2004  was  attributable,
primarily, to the disposition of two properties during the first quarter of 2005
and a fully amortized  in-place lease  intangible asset in the second quarter of
2005.

Interest expense  increased by approximately  $1.0 million,  or 22.2%, from $4.5
million for the three  months ended  September  30, 2004 to $5.5 million for the
three months  ended  September  30, 2005.  Interest  expense  (related  parties)
decreased by  approximately  ($27,000),  or 10.5%,  from  $256,000 for the three
months ended September 30, 2004 to $229,000 for the three months ended September
30, 2005 due to a lower balance on the Berg Group line of credit in 2005.  Total
debt  outstanding,   including   amounts  due  related  parties,   increased  by
approximately  $36.6 million,  or 11.0%, from $333.4 million as of September 30,
2004 to $370.0  million as of September  30,  2005.  Overall  interest  expense,
including  amounts paid to related parties,  for the quarter ended September 30,
2005 increased by approximately $1.0 million compared to the same quarter a year
ago  principally  due to new debt and the  substitution  of new debt at slightly
higher rates for borrowings under the Berg Group line of credit.

Interest expense increased by approximately  $3.0 million,  or 23.1%, from $13.0
million for the nine months ended  September  30, 2004 to $16.0  million for the
nine months ended September 30, 2005. The increase in interest  expense resulted
principally  from losses of  approximately  $0.8 million  taken from a cash flow
interest rate  derivative,  higher interest rates on variable rate debt, and two
new fixed rate  secured  mortgage  loans of $25.8  million and $125 million from
Allianz Life Insurance  Company  ("Allianz Loan I" & "Allianz Loan II") obtained
in early April 2005 and July 2005, respectively,  which primarily paid off lower
interest  rate  debt.   Interest   expense   (related   parties)   increased  by
approximately  $19,000,  or  2.5%,  from  $760,000  for the  nine  months  ended
September 30, 2004 to $779,000 for the nine months ended  September 30, 2005 due
to higher interest rates.

INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the three and nine months ended September 30, 2005 and 2004.

<TABLE>
<CAPTION>
                                                             Three Months Ended September 30,  Nine Months Ended September 30,
                                                                 2005             2004             2005             2004
                                                              --------------------------------------------------------------
                                                                                  (dollars in thousands)
                                                                                       (unaudited)
<S>                                                           <C>              <C>             <C>                <C>
         Gain on disposition of property                       $1,345           $   -           $1,408             $   -
         (Loss) attributable to discontinued operations           (77)           (122)            (551)             (179)
         Minority interest in (loss)/earnings attributable
            to discontinued operations                           (990)            103             (650)              161
                                                              -----------     ------------     ------------     ------------
         Income/(loss) from discontinued operations            $  278           ($ 19)          $  207             ($ 18)
                                                              ===========     ============     ============     ============
</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.  In the third quarter of 2005,  we  classified  one property as an
asset held for sale and discontinued  operations because we have committed to an
action to sell the  property,  the  property  has a buyer and is  available  for
immediate  sale in its  present  condition  (subject to terms that are usual and
customary for sales of such property), the sale is probable and actions required
to complete the plan indicate that it is unlikely  that  significant  changes to
the plan will be made or that the plan will be withdrawn.

In  accordance  with SFAS No. 66, in the third  quarter of 2005 we received  the
remaining balance owed on one of the properties disposed of in the first quarter
of 2005 and recorded the remaining gain of approximately $1.3 million,  of which
$0.3 million and $1.0  million  were  attributable  to common  stockholders  and
minority interests, respectively.

The income/(loss) to common stockholders and minority interests  attributable to
discontinued  operations from these three  properties for the three months ended
September   30,  2005  and  2004  was   approximately   $278,000  and  $990,000,
respectively,  and ($19,000) and ($103,000),  respectively. The income/(loss) to
common   stockholders  and  minority  interests   attributable  to  discontinued
operations  from these three  properties for the nine months ended September 30,
2005  and  2004 was  approximately  $207,000  and  $650,000,  respectively,  and
($18,000) and ($161,000), respectively.

                                     - 16 -

<PAGE>


NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTEREST
Minority  interest in net income has been calculated by taking the net income of
the operating partnerships (on a stand-alone basis) multiplied by the respective
minority  interest  ownership  percentage.   Minority  interest  represents  the
ownership  interest of all limited partners in the operating  partnerships taken
as a whole,  which was  approximately  82% and 83% as of September  30, 2005 and
2004, respectively.

Net income to common stockholders  decreased by approximately ($0.7) million, or
21.9%,  from $3.2 million for the three months ended  September 30, 2004 to $2.5
million for the same period in 2005.  The  minority  interest  portion of income
decreased by approximately  ($4.0) million, or 25.8%, from $15.5 million for the
three  months  ended  September  30, 2004 to $11.5  million for the three months
ended September 30, 2005. For the nine months ended September 30, 2005 and 2004,
the minority  interest  portion of income was  approximately  $35.8  million and
$51.6 million,  respectively,  resulting in net income to common stockholders of
approximately $7.6 million and $10.5 million,  respectively.  The decline in net
income for both common  stockholders and minority interests was primarily due to
lower rental revenue,  the realization of higher  termination fee and settlement
income in 2004,  increases  in  interest  expense  and  higher  non-reimbursable
operating expenses from vacant properties.

                                     - 17 -
<PAGE>


CHANGES IN FINANCIAL CONDITION

The most significant  changes in our financial  condition during the nine months
ended September 30, 2005 resulted from the disposition of two R&D properties and
acquisition  of one  R&D  property.  In  addition,  total  stockholders'  equity
increased  from the  exchange of O.P.  units for common  stock and stock  option
exercises.

At September 30, 2005,  total  investments  in properties  had a net decrease of
approximately  ($5.2)  million  from  December  31,  2004  due to  two  property
dispositions and one asset held for sale  reclassification,  which was partially
offset by one  property  acquisition.  During the first nine months of 2005,  we
acquired one vacant R&D property  representing  approximately  203,800  rentable
square feet located in the Silicon Valley.  The purchase price for this property
was  approximately  $14.0  million.  We  also  disposed  of two  R&D  properties
consisting of approximately 103,350 rentable square feet for a total sales price
of approximately $12.8 million. One of the disposed properties was classified as
an asset  held for sale at  December  31,  2004 for $8.2  million.  In the third
quarter of 2005, we classified one R&D property  consisting of 239,000  rentable
square feet as asset held for sale.  That  property was sold in October 2005 for
approximately  $15.1  million.  A gain of  approximately  $0.8  million  will be
recognized on this property in the fourth quarter of 2005.

Total  stockholders'  equity,  net, increased by approximately $1.5 million from
December  31, 2004 as we obtained  additional  capital from the exchange of O.P.
units for shares of our common stock and stock option exercises, while incurring
a deficit of approximately ($1.2) million due to dividends declared in excess of
net income for the period.  During the first nine months of 2005,  four  limited
partners  exchanged  215,500 O.P.  units for 215,500  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 55,000 shares of
common stock were exercised.  The newly issued shares increased  additional paid
in capital by approximately $2.7 million.

LIQUIDITY AND CAPITAL RESOURCES

We expect a  continued  decline  in  operating  cash  flows  from our  operating
property  portfolio  in 2005 as compared to 2004.  The  reduction  in cash flows
reflects the overall  reduced  demand for R&D space,  lower rental rates for new
and renewed leases,  and an increase in vacant  properties in 2005. In addition,
if we are  unable to lease a  significant  portion of the  approximately  72,000
rentable  square feet  scheduled  to expire  during the  remainder of 2005 or an
equivalent amount of our currently  available space of approximately 2.5 million
rentable square feet, our operating cash flows may be affected  adversely.  With
the  expectation  of lower  revenues for the  remainder  of 2005,  we expect the
properties'  net  operating  income to continue to show year over year  declines
when  compared to 2004.  As noted  above,  we expect  cash flows from  operating
activities to continue to show declines primarily driven by the general downturn
in the Silicon  Valley's economy in recent years, the softening of the Company's
market specifically,  and the expected weaker performance of our properties.  We
are also subject to risks of decreased  occupancy  through  tenant  defaults and
bankruptcies and potential reduction in rental rates upon renewal of properties,
which would result in reduced cash flow from operations. It is reasonably likely
that vacancy  rates may continue to increase and  effective  rental rates on new
and renewed leases may continue to decrease.

We expect our principal  source of liquidity for  distributions  to stockholders
and O.P. unit holders,  debt service,  leasing commissions and recurring capital
expenditures  to come from cash  provided by  operations  and/or the  borrowings
under the 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 2005. We
expect to meet our long-term liquidity  requirements for the funding of property
development,  property  acquisitions  and other material  non-recurring  capital
improvements  through  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 as interest
rates rise and through new  financing  activities.  In the remainder of 2005, we
will be obligated to make payments totaling  approximately  $2.5 million of debt
principal  under mortgage  notes without  regard to any debt  refinancing or new
debt obligations that we might incur, or optional payments of debt principal.

DISTRIBUTIONS
On October 6, 2005, we paid  dividends of $0.16 per share of common stock to all
common  stockholders  of record as of September 30, 2005. On the same date,  the
operating partnerships paid a distribution of $0.16 per O.P. unit to all holders
of O.P.  units.  For the  remainder  of 2005,  we expect to maintain our current
quarterly dividend payment rate to common  shareholders and O.P. unit holders of
$0.16 per share.  However,  distributions  are declared at the discretion of our
Board of Directors and are subject to actual cash  available  for  distribution,
our financial  condition,  capital  requirements and such other factors,  as our
Board of Directors deems relevant.

DEBT
At September 30, 2005, we had total  indebtedness of $370.0  million,  including
$359.9  million of fixed rate  mortgage  debt and $10.1  million  under the Berg
Group mortgage note (related  parties),  as detailed in the table below. In July
2005,  the  Citicorp  USA and  Washington  Mutual  loans  were paid off in their
entirety  from  proceeds  received  from the Allianz Loan II.  Proceeds from the
Allianz  Loan II were also used to pay down  balances  on the CNB and Berg Group
lines of credit.  The CNB loan  contains  certain  financial  loan and reporting
covenants as defined in the loan  agreements.  As of September 30, 2005, we were
in compliance with these loan covenants.

                                     - 18 -
<PAGE>

On April 6, 2005, we obtained a $25.8 million secured mortgage loan from Allianz
Life  Insurance  Company of North America  ("Allianz Loan I") that bears a fixed
interest  rate at  5.56%  and  originally  matures  in 15 years  with  principal
payments  amortized over 20 years. The mortgage loan is secured by one property.
We paid approximately $251,000 in loan fees and financing costs, which are being
amortized over the 20 year amended loan period,  and used the proceeds primarily
to pay down short-term debt and the Berg Group line of credit. On July 26, 2005,
in  connection  with the Allianz Loan II, we entered  into a "Loan  Modification
Agreement"  with Allianz,  which extended the  amortization  period and maturity
date of the Allianz Loan I from April 10, 2020 to August 10, 2025.

On July 26, 2005, we obtained a $125 million secured  mortgage loan from Allianz
Life Insurance Company of North America ("Allianz Loan II"). The Allianz Loan II
matures  on  August  10,  2025,  and must be paid in full at that  time,  unless
payment  is  accelerated  by reason  of a default  or sale of one or more of the
properties  that secure the loan. This loan bears a fixed interest rate of 5.22%
and  principal  payments are  amortized  over 20 years.  The loan can be prepaid
subject  to certain  yield  maintenance  provisions  and is  assumable  with the
payment of an assumption fee. The mortgage loan is secured by eight  properties.
We paid  approximately $0.8 million in loan fees and financing costs, which will
be amortized  over the 20 year loan period.  The proceeds were used primarily to
repay the Citicorp loan,  retire the Washington  Mutual loan, reduce the balance
of the CNB and Berg Group lines of credit,  and for other working capital needs.
The Allianz Loans I and II now contain cross-default provisions.

On July 22, 2005, we entered into a "Change in Terms  Agreement"  with Cupertino
National  Bank,  which  reduced the maximum  borrowing  amount on the  Company's
revolving line of credit facility with that bank from $40 million to $9 million.

On  October  26,  2005,  the  Independent  Directors  Committee  of the Board of
Directors  of the Company  approved the  termination  of the $20 million line of
credit  agreement  between  the  Company  and the Berg Group (as  defined in the
Company's  previously filed periodic  reports),  effective October 31, 2005. The
Berg Group  line of credit was  originally  scheduled  to mature in March  2006.
Based on existing cash reserves and credit  facilities,  we have determined that
we no longer  foresee a need for the Berg  Group  line of  credit.  There are no
borrowings  currently  outstanding  under the Berg Group line of credit. We will
not incur any fees or charges for terminating the Berg Group line of credit.

                                     - 19 -
<PAGE>


The following table sets forth information regarding debt outstanding as of
September 30, 2005:

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

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

Mortgage Notes Payable (related parties):          5300 & 5350 Hellyer Avenue, San  Jose, CA    10,146            6/10       7.65%
                                                                                           ----------------
Mortgage Notes Payable (2):
Prudential Insurance Company of America (3)        10300 Bubb Road, Cupertino, CA               117,841          10/08       6.56%
                                                   10500 N. De Anza Blvd, Cupertino, CA
                                                   4050 Starboard Drive, Fremont, CA
                                                   45700 Northport Loop, Fremont, CA
                                                   45738 Northport Loop, Fremont, CA
                                                   450 National Avenue, Mountain View, CA
                                                   6311 San Ignacio Avenue, San Jose, CA
                                                   6321 San Ignacio Avenue, San Jose, CA
                                                   6325 San Ignacio Avenue, San Jose, CA
                                                   6331 San Ignacio Avenue, San Jose, CA
                                                   6341 San Ignacio Avenue, San Jose, CA
                                                   6351 San Ignacio Avenue, San Jose, CA
                                                   3236 Scott Boulevard, Santa Clara, CA
                                                   3560 Bassett Street, Santa Clara, CA
                                                   3570 Bassett Street, Santa Clara, CA
                                                   3580 Bassett Street, Santa Clara, CA
                                                   1135 Kern Avenue, Sunnyvale, CA
                                                   1212 Bordeaux Lane, Sunnyvale, CA
                                                   1230 E. Arques, Sunnyvale, CA
                                                   1250 E. Arques, Sunnyvale, CA
                                                   1170 Morse Avenue, Sunnyvale, CA
                                                   1600 Memorex Drive, Santa Clara, CA
                                                   1688 Richard Avenue, Santa Clara, CA
                                                   1700 Richard Avenue, Santa Clara, CA
                                                   3540 Bassett Street, Santa Clara, CA
                                                   3542 Bassett Street, Santa Clara, CA
                                                   3544 Bassett Street, Santa Clara, CA
                                                   3550 Bassett Street, Santa Clara, CA

Northwestern Mutual Life Insurance Company (5)     1750 Automation Parkway, San Jose, CA         92,198           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 Dr., Cupertino, CA

Allianz Life Insurance Co. (Allianz Loan I)(6)     5900 Optical Court, San Jose, CA              25,446           8/25       5.56%

Allianz Life Insurance Co. (Allianz Loan II)(6)    5325-5345 Hellyer Avenue, San Jose, CA       124,406           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
                                                                                           ----------------
Mortgage Notes Payable Subtotal                                                                 359,891
                                                                                           ----------------
TOTAL                                                                                          $370,037
                                                                                           ================
</TABLE>


(1)  The Berg Group line of credit was terminated by agreement effective October
     31, 2005.
(2)  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 September 30, 2005.
(3)  The  Prudential  Insurance  loan is  payable  in  monthly  installments  of
     $827,000,  which includes principal (based upon a 30-year amortization) and
     interest.  A  limited  partner  who is not a member  of the Berg  Group has
     guaranteed  approximately  $12.0  million  of this  debt.  Costs  and  fees
     incurred with obtaining this loan aggregated  approximately $900,000, which
     were deferred and amortized over the loan period.
(4)  Interest rate equal to LIBOR plus 2%. The  Cupertino  National Bank line of
     credit contains certain  financial loan and reporting  covenants as defined
     in the loan agreements,  including minimum tangible net worth, debt service
     coverage ratio and combined  average daily cash balances with the bank, and
     a maximum loan to value ratio. As of September 30, 2005, the Company was in
     compliance with these loan covenants.
(5)  The Northwestern loan is payable in monthly installments of $696,000, which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and  fees  incurred  with  obtaining  this  loan  aggregated  approximately
     $675,000, which were deferred and amortized over the loan period.
(6)  The Allianz loans are payable in monthly 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 September 30, 2005,  the Company was in compliance  with
     these loan covenants.

                                     - 20 -
<PAGE>

At September 30, 2005, our debt to total market  capitalization  ratio, which is
computed  as our  total  debt  outstanding  divided  by the  sum of  total  debt
outstanding  plus the market value of common stock (based upon the closing price
of $10.04 per share on September 30, 2005) on a fully diluted  basis,  including
the conversion of all O.P. units into common stock, was approximately  26.1%. On
September  30,  2005,  the  last  trading  day for  the  quarter,  total  market
capitalization was approximately $1.4 billion.

At September 30, 2005, 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, 2006.  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 NINE MONTHS ENDED  SEPTEMBER 30, 2005 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2004

Net cash provided by operating  activities  for the nine months ended  September
30,  2005 was $58.7  million  compared  to $82.4  million for the same period in
2004.  The decline  resulted  primarily from the decrease in rental revenue from
our current portfolio of property and reduction in tenant expense reimbursements
due to tenant  lease  obligation  defaults,  tenant  re-locations,  decrease  in
occupancy  and lower rent renewal rates during the last three months of 2004 and
the  first  nine  months  of 2005.  The  decline  in cash  flow  from  operating
activities was also caused by payments of leasing commissions (included in other
assets) which amounted to approximately  $4.0 million,  including  approximately
$2.9 million with respect to the  modification  and  extension of our lease with
Microsoft.

Net cash used in  investing  activities  was  approximately  ($2.6)  million and
($0.4)  million  for  the  nine  months  ended  September  30,  2005  and  2004,
respectively.  Cash used in  investing  activities  during the nine months ended
September 30, 2005 related  principally  to the  acquisition  of the property at
5521  Hellyer  Avenue for $14.2  million  and the  disposition  of two  existing
properties for a total of $12.4 million.  We partially financed one of the sales
with a note receivable for approximately  $4.1 million,  which was fully paid in
the  third  quarter  of  2005.  Capital  expenditures  relating  to real  estate
improvements  were  approximately  $0.9  million  and $0.4  million for the nine
months ended September 30, 2005 and 2004, respectively.

Net cash used in financing  activities  was ($17.2)  million for the nine months
ended  September 30, 2005 compared to ($84.5)  million for the nine months ended
September  30, 2004.  During the first nine months of 2005,  we received  $150.8
million from two new  mortgage  loans,  received  $0.5 million from stock option
exercises,  used $117.8 million to pay outstanding  debt, and paid $42.0 million
for minority  interest  distributions  and $8.7 million for  dividends to common
stockholders.  During  the same  period in 2004,  we used $9.9  million to repay
outstanding  debt, drew an additional  $2.5 million from the Cupertino  National
Bank line of credit,  deposited $1.5 million for an appeals bond,  received $0.2
million from stock option exercises and paid $62.8 million to minority interests
for distributions and $13.0 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.

                                     - 21 -
<PAGE>

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

FFO for the  three  and nine  months  ended  September  30,  2005 and  2004,  as
reconciled to net income to common stockholders, are summarized in the following
tables:

<TABLE>
<CAPTION>
                                                  Three Months Ended September 30,              Nine Months Ended September 30,
                                                    2005                   2004                   2005                   2004
                                             ------------------     ------------------     ------------------     ------------------
                                                       (dollars in thousands)                        (dollars in thousands)
<S>                                             <C>                    <C>                   <C>                    <C>
Net income to common stockholders                $ 2,451                $ 3,173               $ 7,554                $10,491
Add:
 Minority interests (1)                           11,414                 15,377                35,441                 51,228
 Depreciation & amortization of real estate (2)    6,008                  5,969                18,390                 18,619
Less:
 Gain on sale of asset                            (1,345)                     -                (1,408)                     -
                                             ------------------     ------------------     ------------------     ------------------
FFO                                              $18,528                $24,519               $59,977                $80,338
                                             ==================     ==================     ==================     ==================
</TABLE>

(1)  The minority  interest  for third  parties  totaling  $127 and $111 for the
     three months ended September 30, 2005 and 2004, respectively,  and $382 and
     $368 for the nine months ended  September 30, 2005 and 2004,  respectively,
     was deducted from total minority interest in calculating FFO.
(2)  Includes our portion of  depreciation  and  amortization of real estate and
     leasing commissions from our unconsolidated joint venture totaling $210 and
     $218 for the three months ended September 30, 2005 and 2004,  respectively,
     and $774 and 655 for the nine  months  ended  September  30, 2005 and 2004,
     respectively. Also includes amortization of leasing commissions of $453 and
     $322 for the three months ended September 30, 2005 and 2004,  respectively,
     and $1,295 and $1,320 for the nine  months  ended  September  30,  2005 and
     2004, respectively.  Amortization of leasing commissions is included in the
     property  operating,  maintenance  and real  estate  taxes line item in the
     Company's consolidated statements of operations.

DISTRIBUTION POLICY

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

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-monetary
Assets"  ("SFAS No.  153").  SFAS No. 153 amends the guidance in APB Opinion No.
29,  "Accounting for Non-monetary  Transactions" to eliminate certain exceptions
to the principle that exchanges of non-monetary  assets be measured based on the
fair value of the assets exchanged. SFAS No. 153 eliminates the exception

                                     - 22 -
<PAGE>

for non-monetary  exchanges of similar  productive assets and replaces it with a
general  exception  for  exchanges  of  non-monetary  assets  that  do not  have
commercial  substance.  This  statement  is  effective  for  non-monetary  asset
exchanges in fiscal years  beginning  after June 15, 2005.  The adoption of SFAS
No.  153 is not  expected  to have an  impact  on our  consolidated  results  of
operations, financial position or cash flows.

                                     - 23 -
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not generally hold market risk sensitive instruments for trading purposes.
We use fixed and variable rate debt to finance our  operations.  Our exposure to
market risk for  changes in  interest  rates  relates  primarily  to our current
variable rate debt and future debt obligations. We are vulnerable to significant
fluctuations  of  interest  rates on our  floating  rate debt and pricing on our
future debt. We manage our market risk by monitoring interest rates where we try
to recognize the  unpredictability  of the financial  markets and seek to reduce
potentially adverse effect on the results of our operations. This takes frequent
evaluation of available lending rates and examination of opportunities to reduce
interest  expense  through  new  sources  of  debt  financing.  Several  factors
affecting the interest rate risk include governmental monetary and tax policies,
domestic  and  international  economics  and other  factors  that are beyond our
control.  The following  table  provides  information  about the principal  cash
flows,  weighted average  interest rates,  and expected  maturity dates for debt
outstanding  as of  September  30,  2005.  The  current  terms of this  debt are
described  in  Item  2,  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations - Liquidity and Capital Resources."

For variable rate debt, the table presents the assumption  that the  outstanding
principal balance at September 30, 2005 will be paid upon maturity. There was no
variable rate debt at September 30, 2005.

For fixed rate debt,  the table  presents the  assumption  that the  outstanding
principal  balance at  September  30, 2005 will be paid  according  to scheduled
principal payments and that we will not prepay any of the outstanding  principal
balance.

<TABLE>
<CAPTION>
                                      Three
                                      Months             Year Ending December 31,
                                    Remaining  ----------------------------------------------
                                       2005        2006        2007       2008        2009     Thereafter     Total     Fair Value
                                    -----------------------------------------------------------------------------------------------
                                                                          (dollars in thousands)
Variable Rate Debt:
<S>                                 <C>         <C>         <C>        <C>           <C>       <C>          <C>         <C>
  Secured and unsecured debt              -            -           -           -           -           -            -           -
  Weighted average interest rate          -            -           -           -           -           -            -           -
Fixed Rate Debt:
  Secured notes payable              $2,504      $10,427     $11,046    $121,623      $9,598    $214,839     $370,037    $467,602
  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 Berg  Group  line of credit  and the CNB line of
credit,  which are tied to a LIBOR based interest rate, were $0.00, of the total
$370.0 million of outstanding debt as of September 30, 2005. As a result, we pay
lower rates of interest in periods of decreasing interest rates and higher rates
of  interest  in  periods  of  increasing  interest  rates.  All of our  debt is
denominated in United States  dollars.  We had no interest rate caps or interest
rate swap contracts at September 30, 2005.

As of  September  30,  2005,  we had no  interest  rate risk since  there was no
variable rate debt outstanding.

                                     - 24 -
<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.

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 were effective
in timely  alerting them to material  information  relating to us (including our
subsidiaries) required to be included in our periodic SEC filings.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There 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.

                                     - 25 -

<PAGE>


PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

Legal  proceedings are  incorporated  herein by reference from Part 1 "Item 1. -
Financial Statements - Note 7 - Commitments and Contingencies."


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

                                     - 26 -
<PAGE>



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

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


                                     Mission West Properties, Inc.
                                     (Registrant)


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


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

                                     - 27 -