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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|    |  |                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|[x] |  | Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2002.
|   
|[ ] |  | Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from      to      

Commission File Number 1-12222

BEDFORD PROPERTY INVESTORS, INC.
(Exact name of Registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|MARYLAND                                                       |  | 68-0306514                          
|                                                               |  |                                     
|(state or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|270 Lafayette Circle, Lafayette, CA                            |  | 94549                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

(925) 283-8910
(Registrants telephone number, including area code)

Indicate by check mark whether 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 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 the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

|                              |  |                                  
|----------------------------- |  | ---------------------------------
|Class                         |  | Outstanding as of August 13, 2002
|                              |  |                                  
|Common Stock, $0.02 par value |  | 16,752,376                       





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TABLE OF CONTENTS



|                              |                                                                                               |                                                             |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              |                                                                                               | STATEMENT                                                  
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | BALANCE SHEETS                                             
|                              |                                                                                               | STATEMENTS OF INCOME                                       
|                              |                                                                                               | STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
|                              |                                                                                               | STATEMENTS OF CASH FLOWS                                   
|                              |                                                                                               | NOTES TO FINANCIAL STATEMENTS                              
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | Item 1. LEGAL PROCEEDINGS                                                                    
|                              | Item 2. CHANGES IN SECURITIES                                                                
|                              | Item 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                    
|                              | Item 5. OTHER INFORMATION                                                                    
|                              | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   



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BEDFORD PROPERTY INVESTORS, INC.

PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

STATEMENT

We have prepared the following unaudited interim financial statements in
accordance with accounting principles generally accepted in the United States
of America and pursuant to the rules and regulations of the Securities and
Exchange Commission. In our opinion, the interim financial statements
presented reflect all adjustments, consisting only of normally recurring
adjustments, which are necessary for a fair presentation of our financial
condition and results of operations. These financial statements should be read
in conjunction with the notes to consolidated financial statements appearing in
the annual report to stockholders for the year ended December 31, 2001.

When used in this Form 10-Q, the words believes, expects, intends,
anticipates and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements are subject to certain risks and uncertainties
and actual results could differ materially from those expressed, expected or
implied by the forward-looking statements. The risks and uncertainties that
could cause our actual results to differ from managements estimates and
expectations are contained in our filings with the Securities and Exchange
Commission, including our 2001 Annual Report on Form 10-K, and as set forth in
the section entitled Potential Factors Affecting Future Operating Results
below. Readers are cautioned not to place undue reliance on these
forward-looking statements since they only reflect information available as of
the date of this filing. We do not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.

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BEDFORD PROPERTY INVESTORS, INC.
BALANCE SHEETS
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001(Unaudited)
(in thousands, except share and per share amounts)

|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                        |         | 
|--------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------- | ------- | ----------------- | ------- | ---------------------- | ------- | 
|                                              |                                                                                                                                                       |                            |         | June 30, 2002 |         | December 31, 2001
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         | (Restated, see Note 2)
|                                              |                                                                                                                                                       |                            |         |               |         |                  
|Assets:                                       |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|Real estate investments:                      |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|                                              | Industrial buildings                                                                                                                                  |                            | $       | 293,399       |         |                   | $       | 303,169                |        
|                                              | Office buildings                                                                                                                                      |                            |         | 334,452       |         |                   |         | 326,459                |        
|                                              | Operating properties held for sale                                                                                                                    |                            |         |              |         |                   |         | 11,036                 |        
|                                              | Properties under development                                                                                                                          |                            |         | 1,049         |         |                   |         |                       |        
|                                              | Land held for development                                                                                                                             |                            |         | 12,599        |         |                   |         | 13,398                 |        
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|                                              |                                                                                                                                                       |                            | 641,499 |               |         |                   | 654,062 |                       
|                                              | Less accumulated depreciation                                                                                                                         |                            |         | 55,351        |         |                   |         | 48,984                 |        
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|Total real estate investments                 |                                                                                                                                                       |                            | 586,148 |               |         |                   | 605,078 |                       
|Cash and cash equivalents                     |                                                                                                                                                       |                            | 6,090   |               |         |                   | 5,512   |                       
|Other assets                                  |                                                                                                                                                       |                            | 20,423  |               |         |                   | 20,215  |                       
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|                                              |                                                                                                                                                       | $                          | 612,661 |               |         | $                 | 630,805 |                       
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|Liabilities and Stockholders Equity:         |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|Bank loan payable                             |                                                                                                                                                       | $                          | 66,622  |               |         | $                 | 80,925  |                       
|Mortgage loans payable                        |                                                                                                                                                       |                            | 239,554 |               |         |                   | 242,066 |                       
|Accounts payable and accrued expenses         |                                                                                                                                                       |                            | 6,949   |               |         |                   | 11,653  |                       
|Dividend and distributions payable            |                                                                                                                                                       |                            | 8,036   |               |         |                   | 7,962   |                       
|Other liabilities                             |                                                                                                                                                       |                            | 9,726   |               |         |                   | 11,184  |                       
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|                                              | Total liabilities                                                                                                                                     |                            |         | 330,887       |         |                   |         | 353,790                |        
|Minority interest in consolidated partnership |                                                                                                                                                       |                            |        |               |         |                   | 1,135   |                       
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|Stockholders equity:                         |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|                                              | Common stock, par value $0.02 per share;
authorized 50,000,000 shares; issued and
outstanding 16,741,697 shares in 2002 and
16,515,200 shares in 2001 |                            |         | 335           |         |                   |         | 330                    |        
|Additional paid-in capital                    |                                                                                                                                                       |                            | 295,923 |               |         |                   | 292,731 |                       
|Accumulated dividends in
excess of net income |                                                                                                                                                       |                            | (14,484 | )             |         |                   | (16,871 | )                     
|Accumulated other comprehensive loss          |                                                                                                                                                       |                            |        |               |         |                   | (310    | )                     
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       
|                                              |                                                                                                                                                       | Total stockholders equity |         |               | 281,774 |                   |         |                        | 275,880 | 
|                                              |                                                                                                                                                       | $                          | 612,661 |               |         | $                 | 630,805 |                       
|                                              |                                                                                                                                                       |                            |         |               |         |                   |         |                       

See accompanying notes to financial statements.

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BEDFORD PROPERTY INVESTORS, INC.
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001(Unaudited)
(in thousands, except share and per share amounts)

|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |        |      |       | 
|---------------------------------------------------------- | ------------------------------------------ | ----------------------------------- | ----------------------------- | ------ | ------------ | ----- | ---------------------- | ------ | ---- | ----- | ---------------------- | ------ | ---- | ----- | ---------- | ------ | ---- | ----- | 
|                                                           |                                            |                                     |                               |        | Three Months |       | Six Months            
|                                                           |                                            |                                     |                               |        |              |       |                       
|                                                           |                                            |                                     |                               |        | 2002         |       | 2001                   |        | 2002 |       | 2001                  
|                                                           |                                            |                                     |                               |        |              |       | (Restated, see Note 2) |        |      |       | (Restated, see Note 2)
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                       
|Property operations:                                       |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|                                                           | Rental income                              |                                     | $                             | 24,824 |              |       | $                      | 24,451 |      |       | $                      | 49,098 |      |       | $          | 48,246 |     
|                                                           | Rental expenses:                           |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |        |     
|                                                           |                                            |                                     | Operating expenses            |        |              | 4,269 |                        |        |      | 4,190 |                        |        |      | 8,312 |            |        |      | 7,912 | 
|                                                           |                                            |                                     | Real estate taxes             |        |              | 2,288 |                        |        |      | 2,226 |                        |        |      | 4,402 |            |        |      | 4,452 | 
|                                                           |                                            |                                     | Depreciation and amortization |        |              | 4,162 |                        |        |      | 3,833 |                        |        |      | 8,229 |            |        |      | 7,566 | 
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Income from property operations                            |                                            |                                     | 14,105                        |        |              |       | 14,202                 |        |      |       | 28,155                 |        |      |       | 28,316     |       
|General and administrative expenses                        |                                            |                                     | (1,052                        | )      |              |       | (3,114                 | )      |      |       | (2,031                 | )      |      |       | (4,052     | )     
|Interest income                                            |                                            |                                     | 49                            |        |              |       | 47                     |        |      |       | 85                     |        |      |       | 103        |       
|Interest expense                                           |                                            |                                     | (4,933                        | )      |              |       | (5,477                 | )      |      |       | (9,940                 | )      |      |       | (11,194    | )     
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Income from continuing operations
before minority interest |                                            |                                     | 8,169                         |        |              |       | 5,658                  |        |      |       | 16,269                 |        |      |       | 13,173     |       
|Minority interest                                          |                                            |                                     |                              |        |              |       | (35                    | )      |      |       |                       |        |      |       | (70        | )     
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Income from continuing operations                          |                                            |                                     | 8,169                         |        |              |       | 5,623                  |        |      |       | 16,269                 |        |      |       | 13,103     |       
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Discontinued operations:                                   |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|                                                           | Income from operating properties sold,
net |                                     |                               | 90     |              |       |                        | 199    |      |       |                        | 365    |      |       |            | 426    |     
|                                                           | Gain on sale of operating properties       |                                     |                               | 1,798  |              |       |                        |       |      |       |                        | 1,798  |      |       |            |       |     
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Income from discontinued operations                        |                                            |                                     | 1,888                         |        |              |       | 199                    |        |      |       | 2,163                  |        |      |       | 426        |       
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Net income                                                 |                                            | $                                   | 10,057                        |        |              | $     | 5,822                  |        |      | $     | 18,432                 |        |      | $     | 13,529     |       
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Earnings per share  basic:                                |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|                                                           |                                            | Income from continuing operations   |                               | $      | 0.50         |       |                        | $      | 0.33 |       |                        | $      | 1.00 |       |            | $      | 0.76 |      
|                                                           |                                            | Income from discontinued operations |                               |        | 0.12         |       |                        |        | 0.01 |       |                        |        | 0.14 |       |            |        | 0.03 |      
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Net income per share  basic                               |                                            | $                                   | 0.62                          |        |              | $     | 0.34                   |        |      | $     | 1.14                   |        |      | $     | 0.79       |       
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Weighted average number of shares  basic                  |                                            |                                     | 16,249,105                    |        |              |       | 16,877,182             |        |      |       | 16,223,388             |        |      |       | 17,139,474 |       
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Earnings per share  diluted:                              |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|                                                           |                                            | Income from continuing operations   |                               | $      | 0.49         |       |                        | $      | 0.33 |       |                        | $      | 0.98 |       |            | $      | 0.75 |      
|                                                           |                                            | Income from discontinued operations |                               |        | 0.11         |       |                        |        | 0.01 |       |                        |        | 0.13 |       |            |        | 0.03 |      
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Net income per share  diluted                             |                                            | $                                   | 0.60                          |        |              | $     | 0.34                   |        |      | $     | 1.11                   |        |      | $     | 0.78       |       
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       
|Weighted average number of shares 
diluted                |                                            |                                     | 16,637,353                    |        |              |       | 17,220,131             |        |      |       | 16,605,650             |        |      |       | 17,474,559 |       
|                                                           |                                            |                                     |                               |        |              |       |                        |        |      |       |                        |        |      |       |            |       

See accompanying notes to financial statements.

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BEDFORD PROPERTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002(Unaudited)
(in thousands, except per share amounts)

|                                                   |  |        |     |         |  |              |         |               |  |             |         |             |  |       |      |   |  |   |         |  
|-------------------------------------------------- |  | ------ | --- | ------- |  | ------------ | ------- | ------------- |  | ----------- | ------- | ----------- |  | ----- | ---- | - |  | - | ------- | -
|                                                   |  |        |     |         |  |              |         |               |  | Accumulated |         | Accumulated |  | Total
|                                                   |  |        |     |         |  | Additional   |         | dividends     |  | other       |         | stock-     
|                                                   |  | Common |     | paid-in |  | in excess of |         | comprehensive |  | holders    
|                                                   |  | stock  |     | capital |  | net income   |         | loss          |  | equity     
|                                                   |  |        |     |         |  |              |         |               |  |            
|Balance, December 31, 2001 (Restated,
see Note 2)  |  | $      | 330 |         |  | $            | 292,731 |               |  | $           | (16,871 | )           |  | $     | (310 | ) |  | $ | 275,880 |  
|Issuance of common stock                           |  |        | 5   |         |  |              | 2,751   |               |  |             |        |             |  |       |     |   |  |   | 2,756   |  
|Repurchase and retirement of common stock          |  |        |    |         |  |              | (599    | )             |  |             |        |             |  |       |     |   |  |   | (599    | )
|Amortization of deferred compensation              |  |        |    |         |  |              | 1,040   |               |  |             |        |             |  |       |     |   |  |   | 1,040   |  
|Dividends to common stockholders
($0.96 per share) |  |        |    |         |  |              |        |               |  |             | (16,045 | )           |  |       |     |   |  |   | (16,045 | )
|                                                   |  |        |     |         |  |              |         |               |  |             |         |             |  |       |      |   |  |   |         |  
|Subtotal                                           |  |        | 335 |         |  |              | 295,923 |               |  |             | (32,916 | )           |  |       | (310 | ) |  |   | 263,032 |  
|                                                   |  |        |     |         |  |              |         |               |  |             |         |             |  |       |      |   |  |   |         |  
|Net income                                         |  |        |    |         |  |              |        |               |  |             | 18,432  |             |  |       |     |   |  |   | 18,432  |  
|Other comprehensive income                         |  |        |    |         |  |              |        |               |  |             |        |             |  |       | 310  |   |  |   | 310     |  
|                                                   |  |        |     |         |  |              |         |               |  |             |         |             |  |       |      |   |  |   |         |  
|Comprehensive income                               |  |        |    |         |  |              |        |               |  |             | 18,432  |             |  |       | 310  |   |  |   | 18,742  |  
|                                                   |  |        |     |         |  |              |         |               |  |             |         |             |  |       |      |   |  |   |         |  
|Balance, June 30, 2002                             |  | $      | 335 |         |  | $            | 295,923 |               |  | $           | (14,484 | )           |  | $     |     |   |  | $ | 281,774 |  
|                                                   |  |        |     |         |  |              |         |               |  |             |         |             |  |       |      |   |  |   |         |  

See accompanying notes to financial statements.

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BEDFORD PROPERTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001(Unaudited)
( in thousands)

|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |         |        |  
|--------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------- | ------- | ------- | ------ | ---------------------- | ------- | ------- | ------ | -
|                                                                                                    |                                                                                   |                                                 |         | 2002    |        | 2001                  
|                                                                                                    |                                                                                   |                                                 |         |         |        | (Restated, see Note 2)
|                                                                                                    |                                                                                   |                                                 |         |         |        |                       
|Operating Activities:                                                                               |                                                                                   |                                                 |         |         |        |                        |         |        
|                                                                                                    | Net income                                                                        |                                                 | $       | 18,432  |        |                        | $       | 13,529  |       
|                                                                                                    | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                 |         |         |        |                        |         |         |       
|                                                                                                    |                                                                                   | Minority interest                               |         |         |       |                        |         |         | 70     |  
|                                                                                                    |                                                                                   | Depreciation and amortization                   |         |         | 8,990  |                        |         |         | 8,880  |  
|                                                                                                    |                                                                                   | Gain on sale of operating properties            |         |         | (1,798 | )                      |         |         |       |  
|                                                                                                    |                                                                                   | Stock compensation amortization                 |         |         | 1,040  |                        |         |         | 849    |  
|                                                                                                    |                                                                                   | Uncollectible accounts expense                  |         |         | 257    |                        |         |         | 213    |  
|                                                                                                    |                                                                                   | Change in other assets                          |         |         | (2,109 | )                      |         |         | 336    |  
|                                                                                                    |                                                                                   | Change in accounts payable and accrued expenses |         |         | (3,955 | )                      |         |         | (4,812 | )
|                                                                                                    |                                                                                   | Change in other liabilities                     |         |         | (1,148 | )                      |         |         | (1,654 | )
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Net cash provided by operating activities                                                           |                                                                                   |                                                 | 19,709  |         |        |                        | 17,411  |        
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Investing Activities:                                                                               |                                                                                   |                                                 |         |         |        |                        |         |        
|                                                                                                    | Investments in real estate                                                        |                                                 |         | (5,742  | )      |                        |         | (12,087 | )     
|                                                                                                    | Proceeds from sales of real estate investments, net                               |                                                 |         | 19,081  |        |                        |         |        |       
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Net cash provided (used) by investing activities                                                    |                                                                                   |                                                 | 13,339  |         |        |                        | (12,087 | )      
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Financing Activities:                                                                               |                                                                                   |                                                 |         |         |        |                        |         |        
|                                                                                                    | Proceeds from bank loan payable, net of loan costs                                |                                                 |         | 16,270  |        |                        |         | 27,252  |       
|                                                                                                    | Repayments of bank loan payable                                                   |                                                 |         | (30,732 | )      |                        |         | (1,924  | )     
|                                                                                                    | Refund of loan costs                                                              |                                                 |         | 2       |        |                        |         | 42      |       
|                                                                                                    | Repayments of mortgage loans payable                                              |                                                 |         | (2,511  | )      |                        |         | (1,907  | )     
|                                                                                                    | Issuance of common stock                                                          |                                                 |         | 1,273   |        |                        |         | 602     |       
|                                                                                                    | Repurchase and retirement of common stock                                         |                                                 |         | (599    | )      |                        |         | (15,988 | )     
|                                                                                                    | Redemption of Operating Partnership Units                                         |                                                 |         | (202    | )      |                        |         |        |       
|                                                                                                    | Payment of dividends and distributions                                            |                                                 |         | (15,971 | )      |                        |         | (16,056 | )     
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Net cash used by financing activities                                                               |                                                                                   |                                                 | (32,470 | )       |        |                        | (7,979  | )      
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Net increase (decrease) in cash and cash equivalents                                                |                                                                                   |                                                 | 578     |         |        |                        | (2,655  | )      
|Cash and cash equivalents at beginning of period                                                    |                                                                                   |                                                 | 5,512   |         |        |                        | 3,160   |        
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Cash and cash equivalents at end of period                                                          |                                                                                   | $                                               | 6,090   |         |        | $                      | 505     |        
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Supplemental disclosure of cash flow information:                                                   |                                                                                   |                                                 |         |         |        |                        |         |        
|Cash paid during the year for interest, net of
amounts capitalized of
$526 in 2002 and $629 in 2001 |                                                                                   | $                                               | 9,710   |         |        | $                      | 10,656  |        
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        
|Non-cash investing and financing transactions:                                                      |                                                                                   |                                                 |         |         |        |                        |         |        
|Redemption of Operating Partnership Units paid in
common stock                                      |                                                                                   | $                                               | (1,483  | )       |        | $                      |        |        
|Investment in real estate assets                                                                    |                                                                                   | $                                               | 550     |         |        | $                      |        |        
|Minority interest in consolidated partnership                                                       |                                                                                   | $                                               | 933     |         |        | $                      |        |        
|                                                                                                    |                                                                                   |                                                 |         |         |        |                        |         |        

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##### Table of Contents






BEDFORD PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS(Unaudited)JUNE 30, 2002

Note 1  Organization and Summary of Significant Accounting Policies and
Practices

The Company
Bedford Property Investors, Inc. is a real estate investment trust (REIT)
formed in 1993 as a Maryland corporation. We are a self-administered and
self-managed equity REIT engaged in the business of owning, managing, acquiring
and developing industrial and suburban office properties concentrated in the
western United States. Our common stock trades under the symbol BED on both
the New York Stock Exchange and the Pacific Exchange.

Basis of Presentation
We have prepared the accompanying unaudited interim financial statements in
accordance with the requirements of Form 10-Q as set forth by the Securities
and Exchange Commission. Therefore, they do not include all information and
footnotes necessary for a presentation of financial condition, results of
operations and cash flows in conformity with accounting principles generally
accepted in the United States of America. In our opinion, the interim
financial statements presented reflect all adjustments, consisting only of
normally recurring adjustments, which are necessary for a fair presentation of
our financial condition and results of operations.

Real Estate Investments Held for Sale
We record real estate investments that are considered held for sale at the
lower of carrying amount or fair value less costs to sell and such properties
are no longer depreciated. We adopted Financial Accounting Standards Boards
Statement of Financial Accounting Standard (FAS) 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, on January 1, 2002. FAS 144
supersedes FAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The primary objectives of FAS 144 are to
develop one accounting model based on the framework established in FAS 121 for
long-lived assets to be disposed of by sale, and to address significant
implementation issues regarding impairment of long-lived assets held for use.
In accordance with FAS 144, we classify real estate assets as held for sale in
the period in which all of the following criteria are met: (a) management,
having the authority to approve the action, commits to a plan to sell the
asset; (b) the asset is available for immediate sale in its present condition
subject only to terms that are usual and customary for sales of such assets;
(c) an active program to locate a buyer and other actions required to complete
the plan to sell the asset have been initiated; (d) the sale of the asset is
probable and the transfer of the asset is expected to qualify for recognition
as a completed sale within one year; (e) the asset is being actively marketed
for sale at a price that is reasonable in relation to its current fair value;
and (f) 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. Our adoption of FAS 144 resulted in: (i) the presentation of the
net operating results of properties sold during the three and six months ended
June 30, 2002, less allocated interest expense, as income from discontinued
operations for all periods presented and (ii) the presentation of the gain on
sale of operating properties sold, net of sale costs, as income from
discontinued operations for the three and six months ended June 30, 2002. We
allocated interest expense based on the percentage of the cost basis of
properties sold to the total cost basis of real estate assets as of June 30,
2002, and pro-rated the allocated interest for the number of days prior to
sale. Implementation of FAS 144 only impacted income statement classification
but had no effect on results of operations.

Per Share Data
Per share data are based on the weighted average number of common shares
outstanding during the year. We include stock options issued under our stock
option plans, non-vested restricted stock, and the Operating Partnership (OP)
Units of Bedford Realty Partners, L.P. (prior to their redemption on January
15, 2002) in the calculation of diluted per share data if, upon exercise or
vestiture, they would have a dilutive effect.

6



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##### Table of Contents



Cash and Cash Equivalents
We consider all demand deposits, money market accounts and temporary cash
investments to be cash equivalents. We maintain our cash and cash equivalents
at financial institutions. The combined account balances at each institution
periodically exceed the Federal Depository Insurance Corporation (FDIC)
insurance coverage, and, as a result, there is a concentration of credit risk
related to amounts on deposit in excess of FDIC insurance coverage. However,
we believe that the risk is not significant as we do not anticipate their
non-performance.

Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued FAS 143,
Accounting for Asset Retirement Obligations. Under FAS 143, the fair value
of a liability for an asset retirement obligation must be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. FAS 143 is effective for fiscal years
beginning after June 15, 2002. We do not believe that FAS 143 will have a
material impact on our financial position, cash flows, or results of
operations.

In April 2002, the FASB issued FAS 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FAS Statement No. 13, and Technical Correction. FAS
145 eliminates extraordinary accounting treatment for reporting a loss on debt
extinguishments, and amends other existing authoritative pronouncements to make
various technical corrections, clarifies meanings, or describes their
applicability under changed conditions. The provisions of FAS 145 are
effective for us with the beginning of fiscal year 2003; however, early
application of FAS 145 is encouraged. Debt extinguishments reported as
extraordinary items prior to scheduled or early adoption of FAS 145 would be
reclassified in most cases following adoption. We do not anticipate a
significant impact on our financial position, cash flows, or results of
operations from adopting FAS 145.

In June 2002, the FASB issued FAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. FAS 146 requires recording costs associated with
exit or disposal activities at their fair values when a liability has been
incurred. Under previous guidance, certain exit costs were accrued upon
managements commitment to an exit plan, which is generally before an actual
liability has been incurred. Adoption of FAS 146 is required for our fiscal
year beginning January 1, 2003. We do not believe that the adoption of FAS 146
will have a significant impact on our financial position, cash flows, or
results of operations.

Reclassifications
Certain amounts in the prior period financial statements have been reclassified
to conform to the current period presentation, with no effect on our financial
position, cash flows, or results of operations.

Note 2  Restatement

Effective July 2002, we corrected our accounting treatment for fees incurred
under our contractual relationship with Bedford Acquisitions, Inc. (BAI) (see
Note 8), commencing in the fourth quarter of 1997 and continuing through the
quarter ended June 30, 2002. This new treatment was based on our independent
auditors advice that they would no longer support the prior method of
accounting for BAI. The Company has been advised by its independent
auditors that the correction of the accounting treatment for fees
paid to BAI has not arisen from any change in the operations of BAI
or the Company or the discovery of any new facts relating to these
operations. Effective October 1, 1997, fees charged by BAI should have
been deemed internal costs that are to be expensed to the extent that such fees
do not represent payments to BAI for direct and incremental development costs
or for independent third party costs incurred by BAI on our behalf. We have
restated our financial statements for all quarters commencing with the fourth
quarter of 1997 through the first quarter of 2002 to correct the accounting for
these services. The previously reported amounts and the restated amounts for
the periods included in this quarterly report are as follows:

7



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##### Table of Contents



(Dollars in thousand, except per share amounts)

|                                                          |             |  |                |         |                   |  |   |         | 
|--------------------------------------------------------- | ----------- |  | -------------- | ------- | ----------------- |  | - | ------- | 
|                                                          |             |  | March 31, 2002 |         | December 31, 2001
|                                                          |             |  |                |         |                  
|Real estate investments (net of
accumulated depreciation) |             |  |                |         |                   |  |   |        
|                                                          | As Reported |  | $              | 605,773 |                   |  | $ | 607,654 | 
|                                                          | Restated    |  |                | 603,288 |                   |  |   | 605,078 | 
|Other Assets:                                             |             |  |                |         |                   |  |   |        
|                                                          | As Reported |  |                | 22,599  |                   |  |   | 22,728  | 
|                                                          | Restated    |  |                | 20,319  |                   |  |   | 20,215  | 
|Total Assets:                                             |             |  |                |         |                   |  |   |        
|                                                          | As Reported |  |                | 633,446 |                   |  |   | 635,894 | 
|                                                          | Restated    |  |                | 628,681 |                   |  |   | 630,805 | 
|Stockholders equity:                                     |             |  |                |         |                   |  |   |        
|                                                          | As Reported |  |                | 283,471 |                   |  |   | 280,969 | 
|                                                          | Restated    |  |                | 278,706 |                   |  |   | 275,880 | 

|                                        |              |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |        |      | 
|--------------------------------------- | ------------ | ------- |  | ------------------ | ---- | ------------------ |  | ------------------ | ---- | ---------------- |  | ----- | ---- |  |  | ------ | ---- | 
|                                        |              |         |  | Three months ended |      | Three months ended |  | Three months ended |      | Six months ended
|                                        |              |         |  | March
31, 2002(1)  |      | March
31, 2001(1)  |  | June
30, 2001(2)   |      | June 30, 2001   
|                                        |              |         |  |                    |      |                    |  |                    |      |                 
|Depreciation and amortization
expenses: |              |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |       
|                                        | As Reported  |         |  | 4,112              |      |                    |  | 3,779              |      |                  |  | 3,845 |      |  |  | 7,591  |     
|                                        | Restated     |         |  | 4,101              |      |                    |  | 3,766              |      |                  |  | 3,833 |      |  |  | 7,566  |     
|General and administrative
expenses:    |              |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |       
|                                        | As Reported  |         |  | 1,059              |      |                    |  | 1,018              |      |                  |  | 1,005 |      |  |  | 2,023  |     
|                                        | Restated     |         |  | 979                |      |                    |  | 938                |      |                  |  | 3,114 |      |  |  | 4,052  |     
|Interest expense:                       |              |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |       
|                                        | As Reported  |         |  | 5,293              |      |                    |  | 5,791              |      |                  |  | 5,617 |      |  |  | 11,349 |     
|                                        | Restated     |         |  | 5,060              |      |                    |  | 5,776              |      |                  |  | 5,477 |      |  |  | 11,194 |     
|Net income:                             |              |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |       
|                                        | As Reported  |         |  | 8,051              |      |                    |  | 7,599              |      |                  |  | 7,779 |      |  |  | 15,378 |     
|                                        | Restated     |         |  | 8,375              |      |                    |  | 7,707              |      |                  |  | 5,822 |      |  |  | 13,529 |     
|Net income per share:                   |              |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |       
|                                        | As Reported: |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |        |     
|                                        |              | Basic   |  | $                  | 0.50 |                    |  | $                  | 0.44 |                  |  | $     | 0.46 |  |  | $      | 0.90 | 
|                                        |              | Diluted |  | $                  | 0.48 |                    |  | $                  | 0.43 |                  |  | $     | 0.45 |  |  | $      | 0.88 | 
|                                        | Restated:    |         |  |                    |      |                    |  |                    |      |                  |  |       |      |  |  |        |     
|                                        |              | Basic   |  | $                  | 0.52 |                    |  | $                  | 0.44 |                  |  | $     | 0.34 |  |  | $      | 0.79 | 
|                                        |              | Diluted |  | $                  | 0.50 |                    |  | $                  | 0.44 |                  |  | $     | 0.34 |  |  | $      | 0.78 | 



---

|(1) |  | Excludes a reclassification for the three months ended March 31, 2002
and 2001 to reflect the operations of one
property classified as held for sale during the quarter ended June 30,
2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes a reclassification for the three months ended June 30, 2001 to
reflect the operations of five properties
sold as discontinued operations.                                          

The 2001 financial statements included herein and the accompanying footnotes
reflect these restated amounts.

8



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##### Table of Contents



Note 3  Real Estate Investments

As of June 30, 2002, our real estate investments were diversified by property
type as follows (dollars in
thousands):

|                             |  |           |    |          |  |   |         |         |  |  |     |  
|---------------------------- |  | --------- | -- | -------- |  | - | ------- | ------- |  |  | --- | -
|                             |  | Number of |    |          |  |   |         | Percent
|Properties                   |  | Cost      |    | of Total
|                             |  |           |    |          |  |   |         |         |  |  |     |  
|Industrial buildings         |  |           | 55 |          |  | $ | 293,399 |         |  |  | 46  | %
|Office buildings             |  |           | 30 |          |  |   | 334,452 |         |  |  | 52  | %
|Properties under development |  |           | 1  |          |  |   | 1,049   |         |  |  | *   |  
|Land held for development    |  |           | 10 |          |  |   | 12,599  |         |  |  | 2   | %
|                             |  |           |    |          |  |   |         |         |  |  |     |  
|Total                        |  |           | 96 |          |  | $ | 641,499 |         |  |  | 100 | %
|                             |  |           |    |          |  |   |         |         |  |  |     |  



---

|* |  | Represents less than 1% of the total cost.
|- |  | ------------------------------------------

9



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##### Table of Contents





| |  | The following table sets forth our real estate investments at June 30, 2002 (in
thousands):
| |  | -------------------------------------------------------------------------------------------

|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|------------------------------- |  | ---- | ------- | -------- |  | ----------- | ------- | ------------ |  | ----------- | --- | ----------- |  | ---- | ------ |  |  | - | ------- | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  | Less |        |  |  |  
|                                |  |      |         |          |  |             |         |              |  | Development |     | Accumulated |  |      |        | 
|                                |  | Land |         | Building |  | In-Progress |         | Depreciation |  | Total      
|                                |  |      |         |          |  |             |         |              |  |            
|Industrial buildings            |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Northern California             |  | $    | 44,660  |          |  | $           | 113,126 |              |  | $           |    |             |  | $    | 16,848 |  |  | $ | 140,938 | 
|Northwest                       |  |      | 3,409   |          |  |             | 10,795  |              |  |             |    |             |  |      | 1,811  |  |  |   | 12,393  | 
|Southern California             |  |      | 16,345  |          |  |             | 38,542  |              |  |             |    |             |  |      | 5,126  |  |  |   | 49,761  | 
|Arizona                         |  |      | 16,987  |          |  |             | 49,535  |              |  |             |    |             |  |      | 6,385  |  |  |   | 60,137  | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Total industrial buildings      |  |      | 81,401  |          |  |             | 211,998 |              |  |             |    |             |  |      | 30,170 |  |  |   | 263,229 | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Office buildings                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Northern California             |  |      | 6,221   |          |  |             | 25,939  |              |  |             |    |             |  |      | 2,873  |  |  |   | 29,287  | 
|Northwest                       |  |      | 16,669  |          |  |             | 99,927  |              |  |             |    |             |  |      | 9,652  |  |  |   | 106,944 | 
|Southern California             |  |      | 9,340   |          |  |             | 22,052  |              |  |             |    |             |  |      | 2,644  |  |  |   | 28,748  | 
|Arizona                         |  |      | 10,588  |          |  |             | 25,636  |              |  |             |    |             |  |      | 2,493  |  |  |   | 33,731  | 
|Colorado                        |  |      | 13,706  |          |  |             | 91,393  |              |  |             |    |             |  |      | 6,173  |  |  |   | 98,926  | 
|Nevada                          |  |      | 2,102   |          |  |             | 10,879  |              |  |             |    |             |  |      | 1,346  |  |  |   | 11,635  | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Total office buildings          |  |      | 58,626  |          |  |             | 275,826 |              |  |             |    |             |  |      | 25,181 |  |  |   | 309,271 | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Properties under development    |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Southern California             |  |      | 889     |          |  |             |        |              |  |             | 160 |             |  |      |       |  |  |   | 1,049   | 
|Land held for development       |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Northern California             |  |      | 5,699   |          |  |             |        |              |  |             |    |             |  |      |       |  |  |   | 5,699   | 
|Northwest                       |  |      | 110     |          |  |             |        |              |  |             |    |             |  |      |       |  |  |   | 110     | 
|Southern California             |  |      | 2,211   |          |  |             |        |              |  |             |    |             |  |      |       |  |  |   | 2,211   | 
|Arizona                         |  |      | 637     |          |  |             |        |              |  |             |    |             |  |      |       |  |  |   | 637     | 
|Colorado                        |  |      | 3,942   |          |  |             |        |              |  |             |    |             |  |      |       |  |  |   | 3,942   | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Total land held for development |  |      | 12,599  |          |  |             |        |              |  |             |    |             |  |      |       |  |  |   | 12,599  | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Total as of June 30, 2002       |  | $    | 153,515 |          |  | $           | 487,824 |              |  | $           | 160 |             |  | $    | 55,351 |  |  | $ | 586,148 | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 
|Total as of December 31, 2001   |  | $    | 157,861 |          |  | $           | 496,201 |              |  | $           |    |             |  | $    | 48,984 |  |  | $ | 605,078 | 
|                                |  |      |         |          |  |             |         |              |  |             |     |             |  |      |        |  |  |   |         | 

Our personnel directly manage all but one of our properties from regional
offices in Lafayette, California; Tustin, California; Phoenix, Arizona; Denver,
Colorado; and Seattle, Washington. We have retained an outside manager to
assist in some of the management functions for U.S. Bank Centre in Reno,
Nevada. All financial record-keeping is centralized at our corporate office in
Lafayette, California.

Income from property operations for operating properties sold as of June 30,
2002 was $90,000 and $199,000 for the three months ended June 30, 2002 and
2001, respectively. Income from operating properties sold includes allocated
interest expense of $44,000 and $168,000 for the three months ended June 30,
2002 and 2001, respectively.

Income from property operations for operating properties sold as of June 30,
2002 was $365,000 and $426,000 for the six months ended June 30, 2002 and 2001,
respectively. Income from operating properties sold includes allocated
interest expense of $197,000 and $338,000 for the six months ended June 30,
2002 and 2001, respectively.

10



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##### Table of Contents



Note 4. Debt

Bank Loan Payable

In May 2001, we renewed our revolving credit facility with a bank group led by
Bank of America. The facility, which matures on June 1, 2004, consists of a
$150 million secured line with an accordion feature that gives us the option to
expand the facility to $175 million, if needed. Interest on the facility is at
a floating rate equal to either the lenders prime rate or LIBOR plus a margin
ranging from 1.30% to 1.55%, depending on our leverage level as defined in the
credit agreement. As of June 30, 2002, the facility had an outstanding balance
of $66,622,000 and was secured by our interests in 28 properties, which
collectively accounted for approximately 32% of our annualized base rent and
approximately 33% of our total real estate assets.

The credit facility contains various restrictive covenants including, among
other things, a covenant limiting quarterly dividends to 95% of our average
Funds From Operations (FFO). We were in compliance with the covenants and
requirements of our revolving credit facility during the quarter ended June 30,
2002.

The daily weighted average amount we owed to the bank was $78,460,000 and
$91,603,000 for the six months ended June 30, 2002 and 2001, respectively. The
weighted average annual interest rates under our bank line of credit in each of
these periods were 4.84% and 6.73%, respectively. The effective interest rate
at June 30, 2002 was 4.14%.

Mortgage Loans Payable

Mortgage loans payable at June 30, 2002 consist of the following (in
thousands):

|                  |  |                     |      |         |  |   |         | 
|----------------- |  | ------------------- | ---- | ------- |  | - | ------- | 
|                  |  | Interest Rate as of |      |         |  |  
|Maturity Date     |  | June 30, 2002       |      | Balance
|                  |  |                     |      |        
|March 15, 2003    |  |                     | 7.02 | %       |  | $ | 18,357  | 
|November 19, 2004 |  |                     | 4.02 | %(1)    |  |   | 21,506  | 
|January 1, 2005   |  |                     | 6.00 | %(2)    |  |   | 4,435   | 
|June 1, 2005      |  |                     | 7.17 | %       |  |   | 26,034  | 
|August 1, 2005    |  |                     | 5.55 | %(3)    |  |   | 22,556  | 
|August 1, 2005    |  |                     | 5.55 | %(3)    |  |   | 3,497   | 
|July 31, 2006     |  |                     | 8.90 | %       |  |   | 8,040   | 
|July 31, 2006     |  |                     | 6.91 | %       |  |   | 19,319  | 
|December 1, 2006  |  |                     | 7.95 | %       |  |   | 21,373  | 
|June 1, 2007      |  |                     | 7.17 | %       |  |   | 35,411  | 
|June 1, 2009      |  |                     | 7.17 | %       |  |   | 41,360  | 
|August 1, 2011    |  |                     | 6.92 | %(4)    |  |   | 17,666  | 
|                  |  |                     |      |         |  |   |         | 
|Total             |  |                     |      |         |  | $ | 239,554 | 
|                  |  |                     |      |         |  |   |         | 



---

|(1) |  | Floating rate based on LIBOR plus 1.60%. The LIBOR rate was locked
for one year at 2.42% and will
expire on December 20, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Floating rate based on 3 month LIBOR plus 2.50% (adjusted quarterly).                                                         
|   
|   
|   
|   
|(3) |  | Floating rate based on fixed rate on interest swap agreements. See
Note 4.                                                    
|   
|   
|   
|   
|(4) |  | Floating rate based on a 12-month average of U.S. Treasury Security
Yields plus 2.60% (adjusted semi-annually).               

11



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##### Table of Contents



The mortgage loans are collaterized by our interests in 49 properties, which
collectively accounted for approximately 62% of our annualized base rents and
approximately 57% of our total real estate assets as of June 30, 2002. We were
in compliance with the covenants and requirements of our various mortgages
during the quarter ended June 30, 2002.

The following table presents scheduled principal payments on mortgage loans as
of June 30, 2002 (in thousands):

|                                         |  |   |         | 
|---------------------------------------- |  | - | ------- | 
|Twelve month period ending June 30, 2003 |  | $ | 23,236  | 
|Twelve month period ending June 30, 2004 |  |   | 5,192   | 
|Twelve month period ending June 30, 2005 |  |   | 53,857  | 
|Twelve month period ending June 30, 2006 |  |   | 27,360  | 
|Twelve month period ending June 30, 2007 |  |   | 78,180  | 
|Total thereafter                         |  |   | 51,729  | 
|                                         |  | $ | 239,554 | 

Note 5. Derivative Instruments and Hedging Activities

In the normal course of business, we are exposed to the effects of interest
rate changes. We limit these risks by following established risk management
policies and procedures, including the occasional use of derivatives. For
interest rate exposures, interest rate swaps are used primarily to hedge the
cash flow risk of our variable rate borrowing obligations.

We do not use derivatives for trading or speculative purposes. Further, we
have a policy of only entering into contracts with major financial
institutions. When viewed in conjunction with the underlying and offsetting
exposure that the derivatives are designed to hedge, we have not sustained a
material loss from those instruments, and we do not anticipate any material
adverse effect on our net income, cash flows, or financial position in the
future from the use of derivatives.

Interest rate swaps that convert variable payments to fixed payments are cash
flow hedges. Hedging relationships that are fully effective have no effect on
net income or FFO. The unrealized gains and losses in the fair value of these
interest rate swaps are reported on the balance sheet, as a component of other
assets or other liabilities as appropriate, with a corresponding adjustment to
accumulated other comprehensive income (loss).

On June 18, 2001, we entered into interest swap agreements with United
California Bank. The swap agreements allow us to hedge our exposure to
variable interest rates on two mortgages with remaining principal balances
totaling $26,053,000 as of June 30, 2002, by effectively paying a fixed rate of
interest over the term of the swap agreement. Interest rate pay differentials
that arise under these swap agreements are recognized in interest expense over
the term of the contracts. These interest rate swap agreements were considered
to be fully effective in hedging the variable rate risk associated with the two
mortgages.

The following summarizes the principal value and fair value of our interest
swap contracts. The principal value below provides an indication of the amount
that has been hedged in these contracts but does not represent an obligation or
exposure to credit risk at June 30, 2002 (dollars in thousands):

|          |  |       |       |          |  |                |  |               |     |  |  |            
|--------- |  | ----- | ----- | -------- |  | -------------- |  | ------------- | --- |  |  | -----------
|          |  |       |       |          |  |                |  |               |     |  |  | Approximate
|Principal |  | Fixed |       | Contract |  | Cumulative     |  | Liability at 
|Amount    |  | Rate  |       | Maturity |  | Cash Paid, Net |  | June 30, 2002
|          |  |       |       |          |  |                |  |              
|$22,556   |  |       | 5.55% |          |  | July 1, 2002   |  | $             | 386 |  |  | $         
|3,497     |  |       | 5.55% |          |  | July 1, 2002   |  |               | 69  |  |  |           
|          |  |       |       |          |  |                |  |               |     |  |  |            
|$26,053   |  |       |       |          |  |                |  | $             | 455 |  |  | $         
|          |  |       |       |          |  |                |  |               |     |  |  |            

12



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| |  | To determine the fair values of derivative instruments in accordance with SFAS
133, we use the discounted cash flow method, which requires the use of
assumptions about market conditions and risks existing at the balance sheet
date. Judgment is required in interpreting market data to develop estimates of
market value. Accordingly, estimated fair value is a general approximation of
value, and such value may or may not actually be realized.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The swap agreements matured on July 1, 2002; therefore there were no remaining
amounts included on the balance sheet in connection with these agreements as of
June 30, 2002.                                                                                                                                                                                                                                                                            
|
| |  | Note 6. Segment Disclosure                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | We have five reportable segments organized by the region in which they operate:
Northern California (Northern California and Nevada), Arizona, Southern
California, Northwest (greater Seattle, Washington) and Colorado.                                                                                                                                                                                                                                
|
| |  | The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. We evaluate performance based upon
income from real estate from the combined properties in each segment.                                                                                                                                                                                                                      

|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |       | 
|--------------------------------------------------- | ------------------------------------------ | - | ------------------------------------------------------------------------- | - | ------- | - | ---------- | ----- | --------- | - | -------- | --- | ------- | - | ------------ | - |  | - | --------- | - |  | - | ------- | - |  | - | ------- | ----- | 
|                                                    |                                            |   | For the
six months ended June 30, 2002 (in thousands, except
percentages)
|                                                    |                                            |   |                                                                          
|                                                    |                                            |   | Northern                                                                  |   |         |   |            |       | Southern  |   |          |     |         |   |              |   |  |   | Corporate |   |  |   |        
|                                                    |                                            |   | California                                                                |   | Arizona |   | California |       | Northwest |   | Colorado |     | & Other |   | Consolidated
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |             
|Rental income                                       |                                            | $ | 18,497                                                                    |   |         | $ | 7,334      |       |           | $ | 6,582    |     |         | $ | 9,671        |   |  | $ | 7,014     |   |  | $ |        |   |  | $ | 49,098  |      
|Operating expenses and
real estate taxes            |                                            |   | 3,940                                                                     |   |         |   | 2,084      |       |           |   | 1,228    |     |         |   | 2,825        |   |  |   | 2,637     |   |  |   |        |   |  |   | 12,714  |      
|Depreciation and
amortization                       |                                            |   | 2,809                                                                     |   |         |   | 1,395      |       |           |   | 942      |     |         |   | 1,867        |   |  |   | 1,216     |   |  |   |        |   |  |   | 8,229   |      
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Income from property
operations                     |                                            |   | 11,748                                                                    |   |         |   | 3,855      |       |           |   | 4,412    |     |         |   | 4,979        |   |  |   | 3,161     |   |  |   |        |   |  |   | 28,155  |      
|Percent of income from
property operations          |                                            |   | 42                                                                        | % |         |   | 14         | %     |           |   | 16       | %   |         |   | 17           | % |  |   | 11        | % |  |   |        |   |  |   | 100     | %    
|General and administrative
expenses                 |                                            |   |                                                                          |   |         |   |           |       |           |   |         |     |         |   |             |   |  |   |          |   |  |   | (2,031  | ) |  |   | (2,031  | )    
|Interest
income(1)                                  |                                            |   | 12                                                                        |   |         |   |           |       |           |   |         |     |         |   | 8            |   |  |   |          |   |  |   | 65      |   |  |   | 85      |      
|Interest expense                                    |                                            |   |                                                                          |   |         |   |           |       |           |   |         |     |         |   |             |   |  |   |          |   |  |   | (9,940  | ) |  |   | (9,940  | )    
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Income (loss) from
continuing operations            |                                            |   | 11,760                                                                    |   |         |   | 3,855      |       |           |   | 4,412    |     |         |   | 4,987        |   |  |   | 3,161     |   |  |   | (11,906 | ) |  |   | 16,269  |      
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Discontinued operations:                            |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|                                                    | Income from operating
properties sold, net |   |                                                                           |  |         |   |            | 108   |           |   |          | 257 |         |   |              |  |  |   |           |  |  |   |         |  |  |   |         | 365   | 
|                                                    | Gain on sale of
operating properties       |   |                                                                           |  |         |   |            | 1,475 |           |   |          | 323 |         |   |              |  |  |   |           |  |  |   |         |  |  |   |         | 1,798 | 
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Income from discontinued
operations                 |                                            |   |                                                                          |   |         |   | 1,583      |       |           |   | 580      |     |         |   |             |   |  |   |          |   |  |   |        |   |  |   | 2,163   |      
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Net income (loss)                                   |                                            | $ | 11,760                                                                    |   |         | $ | 5,438      |       |           | $ | 4,992    |     |         | $ | 4,987        |   |  | $ | 3,161     |   |  | $ | (11,906 | ) |  | $ | 18,432  |      
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Real estate investments                             |                                            | $ | 208,626                                                                   |   |         | $ | 103,383    |       |           | $ | 89,539   |     |         | $ | 130,910      |   |  | $ | 109,041   |   |  | $ |        |   |  | $ | 641,499 |      
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Additions (dispositions)
of
real estate investments |                                            | $ | 675                                                                       |   |         | $ | (5,507     | )     |           | $ | (9,489   | )   |         | $ | 144          |   |  | $ | 1,614     |   |  | $ |        |   |  | $ | (12,563 | )    
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      
|Total assets                                        |                                            | $ | 219,870                                                                   |   |         | $ | 100,212    |       |           | $ | 101,972  |     |         | $ | 114,035      |   |  | $ | 75,488    |   |  | $ | 1,084   |   |  | $ | 612,661 |      
|                                                    |                                            |   |                                                                           |   |         |   |            |       |           |   |          |     |         |   |              |   |  |   |           |   |  |   |         |   |  |   |         |      



---

|(1) |  | The interest income in the Northern California and Northwest
segments represents interest earned from tenant notes receivable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------

13



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|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ------- | ------- |  | ---------- | ------- | --------- |  | -------- | ------- | ------- |  | ------------ | ------- | - |  | --------- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                        |  | For the six months ended June 30, 2001 (in thousands, except percentages)
|                                                                        |  |                                                                          
|                                                                        |  | Northern                                                                  |         |         |  |            |         | Southern  |  |          |         |         |  |              |         |   |  | Corporate |         |   |  |  
|                                                                        |  | California                                                                |         | Arizona |  | California |         | Northwest |  | Colorado |         | & Other |  | Consolidated
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |             
|Rental income                                                           |  | $                                                                         | 17,438  |         |  | $          | 7,940   |           |  | $        | 6,358   |         |  | $            | 9,251   |   |  | $         | 7,259   |   |  | $ |        |   |  | $ | 48,246  |  
|Operating expenses and
real estate taxes                                |  |                                                                           | 3,666   |         |  |            | 2,186   |           |  |          | 1,260   |         |  |              | 2,634   |   |  |           | 2,618   |   |  |   |        |   |  |   | 12,364  |  
|Depreciation and
amortization(2)                                        |  |                                                                           | 2,419   |         |  |            | 1,423   |           |  |          | 854     |         |  |              | 1,790   |   |  |           | 1,080   |   |  |   |        |   |  |   | 7,566   |  
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|Income from property
Operations(2)                                      |  |                                                                           | 11,353  |         |  |            | 4,331   |           |  |          | 4,244   |         |  |              | 4,827   |   |  |           | 3,561   |   |  |   |        |   |  |   | 28,316  |  
|Percent of income from
property operations                              |  |                                                                           | 40      | %       |  |            | 15      | %         |  |          | 15      | %       |  |              | 17      | % |  |           | 13      | % |  |   |        |   |  |   | 100     | %
|General and administrative
expenses(2)                                  |  |                                                                           |        |         |  |            |        |           |  |          |        |         |  |              |        |   |  |           |        |   |  |   | (4,052  | ) |  |   | (4,052  | )
|Interest income(1)                                                      |  |                                                                           | 13      |         |  |            |        |           |  |          |        |         |  |              | 6       |   |  |           |        |   |  |   | 84      |   |  |   | 103     |  
|Interest expense(2)                                                     |  |                                                                           |        |         |  |            |        |           |  |          |        |         |  |              |        |   |  |           |        |   |  |   | (11,194 | ) |  |   | (11,194 | )
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|Income (loss) before
minority interest(2)                               |  |                                                                           | 11,366  |         |  |            | 4,331   |           |  |          | 4,244   |         |  |              | 4,833   |   |  |           | 3,561   |   |  |   | (15,162 | ) |  |   | 13,173  |  
|Minority interest                                                       |  |                                                                           |        |         |  |            |        |           |  |          |        |         |  |              |        |   |  |           |        |   |  |   | (70     | ) |  |   | (70     | )
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|Income (loss) from
Continuing
operations(2)                             |  |                                                                           | 11,366  |         |  |            | 4,331   |           |  |          | 4,244   |         |  |              | 4,833   |   |  |           | 3,561   |   |  |   | (15,232 | ) |  |   | 13,103  |  
|Discontinued operations -
income from operating
properties sold, net(2) |  |                                                                           |        |         |  |            | 116     |           |  |          | 310     |         |  |              |        |   |  |           |        |   |  |   |        |   |  |   | 426     |  
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|Net income (loss)(2)                                                    |  | $                                                                         | 11,366  |         |  | $          | 4,447   |           |  | $        | 4,554   |         |  | $            | 4,833   |   |  | $         | 3,561   |   |  | $ | (15,232 | ) |  | $ | 13,529  |  
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|Real estate investments(2)                                              |  | $                                                                         | 203,308 |         |  | $          | 117,084 |           |  | $        | 96,861  |         |  | $            | 129,885 |   |  | $         | 109,366 |   |  | $ |        |   |  | $ | 656,504 |  
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|Additions of real estate
investments(2)                                 |  | $                                                                         | 2,929   |         |  | $          | 440     |           |  | $        | 953     |         |  | $            | 152     |   |  | $         | 7,696   |   |  | $ |        |   |  | $ | 12,170  |  
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  
|Total assets(2)                                                         |  | $                                                                         | 216,800 |         |  | $          | 110,334 |           |  | $        | 108,208 |         |  | $            | 116,542 |   |  | $         | 81,583  |   |  | $ | 1,351   |   |  | $ | 634,818 |  
|                                                                        |  |                                                                           |         |         |  |            |         |           |  |          |         |         |  |              |         |   |  |           |         |   |  |   |         |   |  |   |         |  



---

|(1) |  | The interest income in the Northern California and Northwest
segments represents interest earned from tenant notes receivable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | As restated, see Note 2.                                                                                                      

14



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##### Table of Contents



Note 7. Earnings per Share (Restated, see Note 2)

Following is a reconciliation of earnings per share (in thousands, except share
and per share amounts):

|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |      | 
|----------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | - | --------------------------- | ---- | ------------------------- | - | ---------- | ---- | ---- | - | ---------- | ---- |  | - | ---------- | ---- | 
|                                                                                                                        |                                     |   | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                                                                                                        |                                     |   |                             |      |                          
|                                                                                                                        |                                     |   | 2002                        |      | 2001                      |   | 2002       |      | 2001
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |     
|Basic:                                                                                                                  |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Income from continuing operations                                                                                       |                                     | $ | 8,169                       |      |                           | $ | 5,623      |      |      | $ | 16,269     |      |  | $ | 13,103     |     
|Income from discontinued operations                                                                                     |                                     |   | 1,888                       |      |                           |   | 199        |      |      |   | 2,163      |      |  |   | 426        |     
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Net income for basic earnings per share                                                                                 |                                     | $ | 10,057                      |      |                           | $ | 5,822      |      |      | $ | 18,432     |      |  | $ | 13,529     |     
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Weighted average number of shares  basic                                                                               |                                     |   | 16,249,105                  |      |                           |   | 16,877,182 |      |      |   | 16,223,388 |      |  |   | 17,139,474 |     
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Earnings per share:                                                                                                     |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|                                                                                                                        | Income from continuing operations   |   | $                           | 0.50 |                           |   | $          | 0.33 |      |   | $          | 1.00 |  |   | $          | 0.76 | 
|                                                                                                                        | Income from discontinued operations |   |                             | 0.12 |                           |   |            | 0.01 |      |   |            | 0.14 |  |   |            | 0.03 | 
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|                                                                                                                        | Earnings per share  basic          |   | $                           | 0.62 |                           |   | $          | 0.34 |      |   | $          | 1.14 |  |   | $          | 0.79 | 
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Diluted:                                                                                                                |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Income from continuing operations                                                                                       |                                     | $ | 8,169                       |      |                           | $ | 5,623      |      |      | $ | 16,269     |      |  | $ | 13,103     |     
|Income from discontinued operations                                                                                     |                                     |   | 1,888                       |      |                           |   | 199        |      |      |   | 2,163      |      |  |   | 426        |     
|Add: minority interest                                                                                                  |                                     |   |                            |      |                           |   | 35         |      |      |   |           |      |  |   | 70         |     
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Net income for diluted earnings per share                                                                               |                                     | $ | 10,057                      |      |                           | $ | 5,857      |      |      | $ | 18,432     |      |  | $ | 13,599     |     
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Weighted average number of shares  basic                                                                               |                                     |   | 16,249,105                  |      |                           |   | 16,877,182 |      |      |   | 16,223,388 |      |  |   | 17,139,474 |     
|Weighted average shares of dilutive stock
options using average period stock price
under the treasury stock method      |                                     |   | 226,958                     |      |                           |   | 45,036     |      |      |   | 209,507    |      |  |   | 46,687     |     
|Weighted average shares issuable upon the
conversion of Operating Partnership Units                                     |                                     |   |                            |      |                           |   | 77,992     |      |      |   | 5,574      |      |  |   | 77,992     |     
|Weighted average shares of non-vested
restricted stock using average period
stock price under the treasury stock method |                                     |   | 161,290                     |      |                           |   | 219,921    |      |      |   | 167,181    |      |  |   | 210,406    |     
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Weighted average number of shares  diluted                                                                             |                                     |   | 16,637,353                  |      |                           |   | 17,220,131 |      |      |   | 16,605,650 |      |  |   | 17,474,559 |     
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|Earnings per share:                                                                                                     |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|                                                                                                                        | Income from continuing operations   |   | $                           | 0.49 |                           |   | $          | 0.33 |      |   | $          | 0.98 |  |   | $          | 0.75 | 
|                                                                                                                        | Income from discontinued operations |   |                             | 0.11 |                           |   |            | 0.01 |      |   |            | 0.13 |  |   |            | 0.03 | 
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     
|                                                                                                                        | Earnings per share  diluted        |   | $                           | 0.60 |                           |   | $          | 0.34 |      |   | $          | 1.11 |  |   | $          | 0.78 | 
|                                                                                                                        |                                     |   |                             |      |                           |   |            |      |      |   |            |      |  |   |            |     

15



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Note 8. Related Party Transactions

Our activities relating to the acquisition of new properties, sales of real
estate, development of real property, and financing arrangements are currently
performed by Bedford Acquisitions, Inc. (BAI), a corporation wholly-owned by
Peter Bedford, our Chairman of the Board and Chief Executive Officer. We use
the services of BAI for our acquisition, disposition, financing and development
activities because we incur expenses relating only to those transactions that
are successfully completed (see Note 10).

This arrangement provides that BAI earns a success fee in an amount equal to
1 1/2% of the purchase price of property acquisitions, 1 1/2% of the sale
price of dispositions, up to 1 1/2% of the amount of any loans secured (less
third-party commissions), and up to 7% of the development costs incurred. The
total amount of such fees payable to BAI by us is limited to the lesser of: (i)
the aggregate amount of such fees earned, or (ii) the aggregate amount of
approved expenses incurred by BAI through the time of such acquisition,
disposition, financing or development activity.

As discussed in Note 2, BAI fees incurred and reported as capitalized costs
during the period from October 1, 1997 through March 31, 2002 have been
restated on the prior periods and accompanying financial statements
as
expenses. Such activities have also been expensed for the quarter ended June
30, 2002.

For the six months ended June 30, 2002 and 2001, we paid BAI an aggregate
amount of approximately $1,785,000 and $1,817,000, respectively, for
acquisition, disposition, financing, and development activities performed
pursuant to this arrangement. As of June 30, 2002 and December 31, 2001, we
had an accrued liability of $590,000 and $1,945,000, respectively, for fees
earned by BAI in excess of the amounts paid to BAI by us under the agreement.

At June 30, 2002 and 2001, we did not have any other relationships with
unconsolidated entities or financial partnerships, including entities often
referred to as structured finance or special purpose entities, that would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. Therefore, we are not
materially exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in such relationships.

Note 9. Commitments and Contingencies

As of June 30, 2002, we had outstanding contractual construction commitments
generally relating to tenant improvements on our developed properties of
approximately $2,659,000. We had outstanding undrawn letters of credit against
our credit facility of approximately $2,100,000 as of June 30, 2002.

From time to time, we are subject to legal claims in the ordinary course of
business. As of June 30, 2002, we have reserved on our balance sheet an
accrued liability for potential uninsured losses. We are not aware of any
legal proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, prospects, financial
condition, operating results or cash flows.

Note 10. Subsequent Events

In July 2002, we purchased a 214,000 square foot research and development
property in Phoenix, Arizona for a purchase price of approximately $24,300,000.
The acquisition was funded with proceeds from the sale of the five operating
properties in the second quarter of 2002 of approximately $20 million and
additional borrowings from our line of credit.

We are currently in negotiations with our bank group to obtain an unsecured
bridge facility that will be used to acquire additional real estate in our core
markets.

On August 14, 2002, we announced that effective
July 1, 2002 we were terminating our agreement with BAI and had
hired its former employees.

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

Restatement

The financial statements for 2001 and March 31, 2002 have been restated
as explained in Note 2 to Financial Statements. Managements discussion and
analysis below compares the restated 2002 results to the restated 2001 results.

Results of Operations

Our operations consist of developing, owning and operating industrial and
suburban office properties located primarily in the western United States.

Variances in revenues, expenses, net income and cash flows for the six months
ended June 30, 2002 when compared with the same period in 2001 were due
primarily to the development and sale of operating properties during the
following periods:

|            |                   |  |                                 |   |                              |  |            |        |        |  |   |   |  |  |         |         | 
|----------- | ----------------- |  | ------------------------------- | - | ---------------------------- |  | ---------- | ------ | ------ |  | - | - |  |  | ------- | ------- | 
|            |                   |  | Activities from January 1, 2001 |   | Activities from July 1, 2001
|            |                   |  | to June 30, 2001                |   | to June 30, 2002            
|            |                   |  |                                 |   |                             
|            |                   |  | Number of                       |   | Square                       |  | Number of  |        | Square
|            |                   |  | Properties                      |   | Feet                         |  | Properties |        | Feet  
|            |                   |  |                                 |   |                              |  |            |        |       
|Development |                   |  |                                |   |                              |  |           |        |        |  | 2 |   |  |  | 78,611  |        
|            | Industrial
Office |  |                                 | 1 |                              |  |            | 29,400 |        |  |   | 3 |  |  |         | 155,289 | 
|            |                   |  |                                 |   |                              |  |            |        |        |  |   |   |  |  |         |        
|            |                   |  | 1                               |   |                              |  | 29,400     |        |        |  | 5 |   |  |  | 233,900 |        
|            |                   |  |                                 |   |                              |  |            |        |        |  |   |   |  |  |         |        
|Sales       |                   |  |                                |   |                              |  |           |        |        |  | 8 |   |  |  | 551,932 |        
|            | Industrial
Office |  |                                 |  |                              |  |            |       |        |  |   | 1 |  |  |         | 52,000  | 
|            |                   |  |                                 |   |                              |  |            |        |        |  |   |   |  |  |         |        
|            |                   |  |                                |   |                              |  |           |        |        |  | 9 |   |  |  | 603,932 |        
|            |                   |  |                                 |   |                              |  |            |        |        |  |   |   |  |  |         |        

Three Months Ended June 30, 2002 Compared with Three Months Ended June 30, 2001

Income from Property Operations

Income from property operations (defined as rental income less rental expenses)
decreased $97,000 or less than 1% in 2002 compared with 2001. This decrease is
attributable to an increase in rental income of $373,000, offset by an increase
in rental expenses (which include operating expenses, real estate taxes, and
depreciation and amortization) of $470,000.

The net increases in rental income and rental expenses are primarily
attributable to an increase in rental rates, an increase in operating expenses,
and development activities, partially offset by the sales of properties during
the year 2001. Increases in rental rates, expense recovery income, and early
termination fees in 2002 increased rental income by $600,000. An increase in
depreciation and amortization increased rental expenses by $293,000. Our
development activities increased rental income and rental expenses in 2002 by
$392,000 and $362,000, respectively, as compared to 2001. These increases were
offset by the sale of three industrial properties and one office property in
2001 which resulted in a reduction in rental income and rental expenses in 2002
of $619,000 and $185,000, respectively, as compared to 2001.

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Expenses

General and administrative expense decreased $2,062,000 or 66% in 2002 compared
with 2001, primarily as a result of $2,250,000 of BAI financing fees incurred
in connection with the renewal of our $150 million credit facility, partially
offset by increased compensation costs associated with restricted stock grants.
Interest expense, which includes amortization of loan fees, decreased $544,000
or 10% in 2002 compared with 2001. The decrease is attributable to lower
interest rates on our variable rate debt and a lower weighted average
outstanding balance of debt in 2002. The amortization of loan fees was
$293,000 and $476,000 in 2002 and 2001, respectively.

Discontinued Operations

In the second quarter 2002, we sold four industrial properties in Vista,
California and one industrial property in Scottsdale, Arizona for net sale
prices totaling $19,081,000, which resulted in an aggregate gain of $1,798,000.
Current and prior net operating income relating to these properties is
classified as discontinued operations for all periods presented.

Dividends

Common stock dividends to stockholders declared for the second quarter of 2002
were $0.48 per share. Common stock dividends to stockholders and distributions
to Operating Partnership (OP) Unitholders declared for the second quarter of
2001 were $0.45 per share or OP Unit. The outstanding OP Units were redeemed
on January 15, 2002. Consistent with our policy, dividends and distributions
were paid in the quarter following the quarter in which they were declared.

Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001

Income from Property Operations

Income from property operations (defined as rental income less rental expenses)
decreased $161,000 or less than 1% in 2002 compared with 2001. This decrease
is attributable to an increase in rental income of $852,000, offset by an
increase in rental expenses (which include operating expenses, real estate
taxes, and depreciation and amortization) of $1,013,000.

The net increases in rental income and rental expenses are primarily
attributable to an increase in rental rates, an increase in operating expenses,
and development activities, partially offset by the sales of properties during
the year 2001. Increases in rental rates, expense recovery income, and early
termination fees in 2002 increased rental income by $1,298,000. Increases in
gas and electricity costs, and depreciation and amortization increased rental
expenses by $667,000. Our development activities increased rental income and
rental expenses in 2002 by $788,000 and $710,000, respectively, as compared to
2001. These increases were offset by the sale of three industrial properties
and one office property in 2001 which resulted in a reduction in rental income
and rental expenses in 2002 of $1,234,000 and $364,000, respectively, as
compared to 2001.

Expenses

General and administrative expense decreased $2,021,000 or 50% in 2002 compared
with 2001, primarily as a result of $2,250,000 of BAI financing fees incurred
in connection with the renewal of our $150 million credit facility, partially
offset by increased compensation costs associated with restricted stock grants.
Interest expense, which includes amortization of loan fees, decreased
$1,254,000 or 11% in 2002 compared with 2001. The decrease is attributable to
lower interest rates on our variable rate debt. The amortization of loan fees
was $577,000 and $976,000 in 2002 and 2001, respectively.

Discontinued Operations

In the second quarter 2002, we sold four industrial properties in Vista,
California and one industrial property in Scottsdale, Arizona for net sale
prices totaling $19,081,000, which resulted in an aggregate gain of $1,798,000.
Current and prior net operating income relating to these properties is
classified as discontinued operations for all periods presented.

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Dividends
Common stock dividends to stockholders declared for the first and second
quarters of 2002 were $0.48 per share. Common stock dividends to stockholders
and distributions to OP Unitholders declared for the first and second quarters
of 2001 were $0.45 per share or OP Unit. The outstanding OP Units were
redeemed on January 15, 2002. Consistent with our policy, dividends and
distributions were paid in the quarter following the quarter in which they were
declared.

Liquidity and Capital Resources

We expect to fund the cost of acquisitions, capital expenditures, costs
associated with lease renewals and reletting of space, repayment of
indebtedness, share repurchases, development of properties, and dividends from
(i) cash flow from operations, (ii) borrowings under our credit facility and,
if available, other indebtedness which may include indebtedness assumed in
acquisitions, and (iii) the sale of certain real estate investments.

Our cash and cash equivalents increased to $6,090,000 at June 30, 2002, from
$5,512,000 at December 31, 2001. This increase is due to $19,709,000 of cash
provided by operations and $13,339,000 provided by investing activities,
partially offset by $32,470,000 used by financing activities.

Net cash of $19,709,000 provided by operating activities consisted primarily of
$18,432,000 of net income and $8,489,000 of adjustments for non-cash items,
offset by $7,212,000 used in working capital and other activities. Net cash
used in working capital and other activities resulted from expenditures
incurred in acquiring other assets and payments for accounts payable, accrued
expenses, and other liabilities.

Net cash of $13,339,000 provided by investing activities consisted of proceeds
from sales of the five operating properties in the second quarter of 2002 of
$19,081,000, offset by cash used for investments in real estate of $5,742,000.
Investments in real estate consisted of $3,292,000 invested in developed
properties, and approximately $2,450,000 invested in our existing operating
portfolio. Investments in real estate include the cost of land, buildings,
building improvements, and tenant improvements. We expect to incur additional
capital expenditures for our current portfolio of approximately $13,400,000 for
the remainder of 2002.

Net cash used by financing activities of $32,470,000 consisted of repayments of
bank borrowings and mortgage loans of $33,243,000, payment of dividends and
distributions of $15,971,000, the repurchase of 24,970 shares of our common
stock for $599,000, and the redemption of 8,623 shares of OP Units for $202,000
in cash, offset by net proceeds from bank borrowings of $16,270,000, refund of
loan costs of $2,000, and net proceeds from stock options exercised by
employees and directors of $1,273,000.

Our ability to continue to finance operations is subject to several
uncertainties. For example, our ability to obtain mortgage loans on income
producing property is dependent upon our ability to attract and retain tenants
and the economics of the various markets in which the properties are located,
as well as the willingness of mortgage-lending institutions to make loans
secured by real property. Approximately 90% of our real estate investments
served as collateral for our existing indebtedness as of June 30, 2002. Our
ability to sell real estate investments is partially dependent upon the ability
of purchasers to obtain financing at reasonable commercial rates.

In May 2001, we renewed our revolving credit facility with a bank group led by
Bank of America. The facility, which matures on June 1, 2004, consists of a
$150 million secured line with an accordion feature that allows us at our
option to expand the facility to $175 million, if needed. Interest on the
facility is at a floating rate equal to either the lenders prime rate or LIBOR
plus a margin ranging from 1.30% to 1.55% depending on our leverage level. As
of June 30, 2002, the facility had an outstanding balance of $66,622,000 and an
effective interest rate of 4.14%.

Mortgage loans payable at June 30, 2002 consist of the following (in
thousands):

|                  |  |                     |      |         |  |   |        | 
|----------------- |  | ------------------- | ---- | ------- |  | - | ------ | 
|                  |  | Interest Rate as of |      |         |  |  
|Maturity Date     |  | June 30, 2002       |      | Balance
|                  |  |                     |      |        
|March 15, 2003    |  |                     | 7.02 | %       |  | $ | 18,357 | 
|November 19, 2004 |  |                     | 4.02 | %(1)    |  |   | 21,506 | 
|January 1, 2005   |  |                     | 6.00 | %(2)    |  |   | 4,435  | 
|June 1, 2005      |  |                     | 7.17 | %       |  |   | 26,034 | 

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|                 |  |                     |      |         |  |   |         | 
|---------------- |  | ------------------- | ---- | ------- |  | - | ------- | 
|                 |  | Interest Rate as of |      |         |  |  
|Maturity Date    |  | June 30, 2002       |      | Balance
|                 |  |                     |      |        
|August 1, 2005   |  |                     | 5.55 | %(3)    |  |   | 22,556  | 
|August 1, 2005   |  |                     | 5.55 | %(3)    |  |   | 3,497   | 
|July 31, 2006    |  |                     | 8.90 | %       |  |   | 8,040   | 
|July 31, 2006    |  |                     | 6.91 | %       |  |   | 19,319  | 
|December 1, 2006 |  |                     | 7.95 | %       |  |   | 21,373  | 
|June 1, 2007     |  |                     | 7.17 | %       |  |   | 35,411  | 
|June 1, 2009     |  |                     | 7.17 | %       |  |   | 41,360  | 
|August 1, 2011   |  |                     | 6.92 | %(4)    |  |   | 17,666  | 
|                 |  |                     |      |         |  |   |         | 
|Total            |  |                     |      |         |  | $ | 239,554 | 
|                 |  |                     |      |         |  |   |         | 



---

|(1) |  | Floating rate based on LIBOR plus 1.60%. The LIBOR rate was locked for
one year at 2.42% and will expire
on December 20, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Floating rate based on 3 month LIBOR plus 2.50% (adjusted quarterly).                                                         
|   
|   
|   
|   
|(3) |  | Floating rate based on fixed rate on interest swap agreements. See Note
4 of the notes to financial statements.               
|   
|   
|   
|   
|(4) |  | Floating rate based on a 12-month average of U.S. Treasury Security
Yields plus 2.60% (adjusted semi-annually).               

We were in compliance with the covenants and requirements of our various debt
financings during the quarter ended June 30, 2002. We anticipate that the cash
flow generated by our real estate investments and funds available under the
credit facility will be sufficient to meet our short-term liquidity
requirements.

Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations and other commitments at
June 30, 2002, and the effect such obligations could have on our liquidity and
cash flow in future periods (in thousands):

|                                  |  |                                         |        |       |  |       |         |        |  |       |         |  |  |   |        |  |  |   |         | 
|--------------------------------- |  | --------------------------------------- | ------ | ----- |  | ----- | ------- | ------ |  | ----- | ------- |  |  | - | ------ |  |  | - | ------- | 
|                                  |  | Amount of Commitment Expiring by Period
|                                  |  |                                        
|                                  |  | Less                                    |        |       |  |       |         |        |  |       |         |  |  |   |        |  |  |  
|                                  |  | Than                                    |        | 1-3   |  | 4-5   |         | Over 5 |  |       |         | 
|                                  |  | 1 Year                                  |        | Years |  | Years |         | Years  |  | Total
|                                  |  |                                         |        |       |  |       |         |        |  |      
|Bank Loan Payable                 |  | $                                       |       |       |  | $     | 66,622  |        |  | $     |        |  |  | $ |       |  |  | $ | 66,622  | 
|Mortgage Loans Payable            |  |                                         | 23,236 |       |  |       | 59,049  |        |  |       | 105,540 |  |  |   | 51,729 |  |  |   | 239,554 | 
|Construction Contract Commitments |  |                                         | 2,659  |       |  |       |        |        |  |       |        |  |  |   |       |  |  |   | 2,659   | 
|Standby Letters of Credit         |  |                                         | 2,096  |       |  |       |        |        |  |       |        |  |  |   |       |  |  |   | 2,096   | 
|                                  |  |                                         |        |       |  |       |         |        |  |       |         |  |  |   |        |  |  |   |         | 
|Total                             |  | $                                       | 27,991 |       |  | $     | 125,671 |        |  | $     | 105,540 |  |  | $ | 51,729 |  |  | $ | 310,931 | 
|                                  |  |                                         |        |       |  |       |         |        |  |       |         |  |  |   |        |  |  |   |         | 

Related Party Transactions

Our activities relating to the acquisition of new properties, sales of real
estate, development of real property, and financing arrangements were performed
by BAI, a corporation wholly-owned by Peter Bedford, Chairman of the Board and
Chief Executive Officer of Bedford Property Investors, Inc. We use the
services of BAI for our acquisition, disposition, financing and development
activities because we incur expenses related only to those transactions that
are successfully completed. These services have been provided pursuant to
written agreements (renewable annually since January 1, 1995), which provide
that BAI is obligated to provide services to us with respect to our
acquisition, disposition, financing and development activities, and that BAI is
responsible for the payment of expenses incurred for these activities. BAI
must submit to us a cost estimate for our approval relating to each activity,
setting forth the estimated timing and amount of all projected BAI costs
relating to such activities. Pursuant to the agreement, Mr. Bedford is
obligated to pay BAIs expenses described above if BAI fails to make any such
payments in a timely fashion, provided that Mr. Bedford is not obligated to pay
any such amounts exceeding $1 million or following a termination of BAIs
obligations based on the expiration or termination of the term of the
agreement. On August 14, 2002, we announced that effective
July 1, 2002, we were terminating the agreement with BAI and had
hired its former employees.

This arrangement provides that BAI earns a success fee in an amount equal to
1 1/2% of the purchase price of property

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acquisitions, 1 1/2% of the sale price of
dispositions, up to 1 1/2% of the
amount of any loans secured (less third-party commissions), and up to 7% of the
development costs incurred. The total amount of such fees payable to BAI by us
is limited to the lesser of: (i) the aggregate amount of such fees earned, or
(ii) the aggregate amount of approved expenses incurred by BAI through the time
of such acquisition, disposition, financing or development activity.

For the six months ended June 30, 2002 and 2001, we paid BAI an aggregate
amount of approximately $1,785,000 and $1,817,000, respectively, for
acquisition, disposition, financing, and development activities performed
pursuant to this arrangement. As of June 30, 2002 and December 31, 2001, we
had an accrued liability of $590,000 and $1,945,000, respectively, for fees
earned by BAI in excess of the amounts paid to BAI by us under the agreement.
We believe that the fees charged under the foregoing arrangements are
comparable to those charged by other real estate service entities or other
third party service providers under similar arrangements.

At June 30, 2002 and 2001, we did not have any other relationships with
unconsolidated entities or financial partnerships, including entities often
referred to as structured finance or special purpose entities, that would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. Therefore, we are not
materially exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in such relationships.

Potential Factors Affecting Future Operating Results

Many factors affect our actual financial performance and may cause our future
results to be different from past performance or trends. These factors include
the following:

Change in Accounting for Costs Associated with Acquisitions, Financings and
Development costs

We are currently evaluating the impact of the accounting treatment for certain
costs related to development, acquisitions and financings on future operating
results.Based on the first and second quarters 2002 net income, we
anticipate that the effect will not be material.

Economic Environment

Both the national economy and the economies of the western states in which we
own, manage and develop properties have been and continue to be weak. The weak
economy affects the real estate industry in general, and us in particular, with
slightly reduced occupancy rates, flattening of growth in market rental rates,
and reduced activity levels in the flow of prospective tenants for space
currently available for lease.

Our property types and locations provide some degree of risk diversification
but are not immune to a prolonged down cycle in the real estate markets in
which we operate. Although we believe we are well positioned to meet the
challenges ahead, it is possible that further reductions in occupancy rates and
the absence of rental rate growth, or even reductions in market rental rates,
will result in reduction of rental revenues, operating income, cash flows, and
the market value of our shares. A prolonged recession could also affect our
ability to obtain financing at acceptable rates of interest and to access funds
from the disposition of properties at acceptable disposition prices.

These conditions, the risks that follow, and many other factors affect our
actual financial performance and may cause future results to be markedly
outside of our current expectations.

Interest Rate Fluctuations

At the present time, borrowings under our credit facility, the $4.6 million and
$21.8 million mortgage loans from Union Bank, the $30.9 million mortgage loans
from Security Life of Denver Insurance Company, and the $18.0 million mortgage
loan from Washington Mutual bear interest at floating rates. The LIBOR rate on
the $21.8 million mortgage loan has been fixed for a period of one year. Its
effective interest rate of 4.02% expires on December 20, 2002. We recognize
that our results from operations may be negatively impacted by future increases
in interest rates and substantial additional borrowings to finance property
acquisitions, development projects and share repurchases.

Lease Renewals

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##### Table of Contents



While we historically have been successful in renewing and reletting space, we
are subject to the risk that certain leases expiring in 2002 and beyond may not
be renewed, or the terms of renewal may be less favorable to us than current
lease terms. We expect to incur costs in making improvements or repairs to our
portfolio of properties required by new or renewing tenants and expect to incur
expenses associated with brokerage commissions payable in connection with the
reletting of space.

Inflation

Most of the leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes and insurance,
thereby reducing our exposure to increases in costs and operating expenses
resulting from inflation. Inflation, including escalations in electricity
costs in California and neighboring states, however, could result in an
increase in our borrowing and other operating expenses.

Government Regulations

Our properties are subject to various federal, state and local regulatory
requirements such as local building codes and other similar regulations. We
believe our properties are currently in substantial compliance with all
applicable regulatory requirements, although expenditures at our properties may
be required to comply with changes in these laws. No material expenditures are
contemplated at this time in order to comply with any such laws or regulations.

Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of hazardous or toxic substances released on, above, under, or in
the property. These laws often impose liability without regard to whether the
owner knew of, or was responsible for, the presence of such hazardous or toxic
substances. The costs of removal or remediation could be substantial.
Additionally, the presence of such substances or the failure to properly
remediate them may adversely affect the owners ability to borrow using such
real estate as collateral.

We believe we are in compliance in all material respects with all federal,
state and local laws regarding hazardous or toxic substances. Further, we have
not been notified by any governmental authority of any non-compliance or other
claim in connection with any of our present or former properties. Accordingly,
we do not currently anticipate that compliance with federal, state and local
environmental protection regulations will have any material adverse impact on
our financial position, results of operations or liquidity. There can be no
assurance, however, that future discoveries or events at our properties, or
changes to current environmental regulations, will not result in such a
material adverse impact.

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Financial Performance

Management considers Funds From Operations, or FFO, to be one measure of the
performance of an equity REIT. FFO during the three and six months ended June
30, 2002 was $12,432,000 and $24,907,000, respectively. During the same period
in 2001, FFO was $9,777,000 and $21,338,000, respectively. FFO is used by
financial analysts in evaluating REITs and can be one measure of a REITs
ability to make cash distributions. Presentation of this information provides
the reader with an additional measure to compare the performance of REITs. FFO
is generally defined by the National Association of Real Estate Investment
Trusts as net income (loss) (computed in accordance with accounting principles
generally accepted in the United States of America), excluding extraordinary
items and gains (losses) from sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. We computed FFO in accordance with this definition. FFO does not
represent cash generated by operating activities in accordance with accounting
principles generally accepted in the United States of America; it is not
necessarily indicative of cash available to fund cash needs and should not be
considered as an alternative to net income (loss) as an indicator of our
operating performance or as an alternative to cash flow as a measure of
liquidity. Further, FFO as disclosed by other REITs may not be comparable to
our presentation.

|                      |                                             |                                      |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |            |    |       | 
|--------------------- | ------------------------------------------- | ------------------------------------ | ----------------------- | ---------- | ------------------ | ----- | ---------------- | ---------- | ----------- | ----- | ---- | ---------- | ------ | ----- | ----------- | ---------- | -- | ----- | 
|                      |                                             |                                      |                         |            | Three Months Ended |       | Six Months Ended
|                      |                                             |                                      |                         |            | June 30,           |       | June 30,        
|                      |                                             |                                      |                         |            |                    |       |                 
|                      |                                             |                                      |                         |            | 2002               |       | 2001             |            | 2002        |       | 2001
|                      |                                             |                                      |                         |            |                    |       |                  |            |             |       |     
|                      |                                             |                                      |                         |            |                    |       |                  |            | (Restated,  |       |      |            |        |       | (Restated, 
|                      |                                             |                                      |                         |            |                    |       |                  |            | see Note 2) |       |      |            |        |       | see Note 2)
|Funds
From Operations |                                             |                                      |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |           
|                      | (in thousands, except share amounts):       |                                      |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |            |   
|                      | Net income                                  |                                      | $                       | 10,057     |                    |       | $                | 5,822      |             |       | $    | 18,432     |        |       | $           | 13,529     |   
|                      | Adjustments:                                |                                      |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |            |   
|                      |                                             | Depreciation and amortization:       |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |            |    |      
|                      |                                             |                                      | Continuing operations   |            |                    | 4,162 |                  |            |             | 3,833 |      |            |        | 8,229 |             |            |    | 7,566 | 
|                      |                                             |                                      | Discontinued operations |            |                    | 11    |                  |            |             | 87    |      |            |        | 44    |             |            |    | 173   | 
|                      |                                             | Minority interest                    |                         |            |                   |       |                  |            | 35          |       |      |            |       |       |             |            | 70 |      
|                      |                                             | Gain on sale of operating properties |                         |            | (1,798             | )     |                  |            |            |       |      |            | (1,798 | )     |             |            |   |      
|                      |                                             |                                      |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |           
|                      | Funds From Operations                       |                                      | $                       | 12,432     |                    |       | $                | 9,777      |             |       | $    | 24,907     |        |       | $           | 21,338     |   
|                      |                                             |                                      |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |           
|                      | Weighted average number of
shares  diluted |                                      |                         | 16,637,353 |                    |       |                  | 17,220,131 |             |       |      | 16,605,650 |        |       |             | 17,474,559 |   
|                      |                                             |                                      |                         |            |                    |       |                  |            |             |       |      |            |        |       |             |           

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate changes primarily as a result of our line of
credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of our real estate investment portfolio and
operations. Our interest rate risk management objective is to limit the impact
of interest rate changes on earnings and cash flows and to lower our overall
borrowing costs. To achieve these objectives, we balance our borrowings
between fixed and variable rate debt. While we have entered into interest swap
agreements to minimize our exposure to interest rate fluctuations, we do not
enter into derivative or interest rate transactions for speculative purposes.

Our interest rate risk is monitored using a variety of techniques. The table
below presents the principal amounts, weighted average annual interest rates,
fair values and other terms required by year of expected maturity to evaluate
the expected cash flows and sensitivity to interest rate changes (dollars in
thousands):

|                               |  |                                     |        |      |  |      |        |      |  |      |        |            |  |       |        |       |  |   |        |   |  |   |        |   |  |   |         |   |  |   |         |  
|------------------------------ |  | ----------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                               |  | Twelve Month Period Ending June 30, |        |      |  |      |        |      |  |     
|                               |  |                                     |        |      |  |      |        | Fair
|                               |  | 2003                                |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter |  | Total |        | Value
|                               |  |                                     |        |      |  |      |        |      |  |      |        |            |  |       |        |      
|Variable rate LIBOR
debt       |  | $                                   | 1,871  |      |  | $    | 68,578 |      |  | $    | 25,970 |            |  | $     | 24,238 |       |  | $ | 604    |   |  | $ | 15,021 |   |  | $ | 136,282 |   |  | $ | 136,282 |  
|Weighted average
interest rate |  |                                     | 4.51   | %    |  |      | 4.15   | %    |  |      | 4.38   | %          |  |       | 3.33   | %     |  |   | 6.92   | % |  |   | 6.92   | % |  |   | 4.37    | % |  |   | 4.37    | %
|Fixed rate debt                |  | $                                   | 21,365 |      |  | $    | 3,237  |      |  | $    | 27,887 |            |  | $     | 3,122  |       |  | $ | 77,575 |   |  | $ | 36,708 |   |  | $ | 169,894 |   |  | $ | 174,913 |  
|Weighted average
interest rate |  |                                     | 7.07   | %    |  |      | 7.35   | %    |  |      | 7.19   | %          |  |       | 7.40   | %     |  |   | 7.47   | % |  |   | 7.17   | % |  |   | 7.30    | % |  |   | 6.50    | %

As the table incorporates only those exposures that existed as of June 30,
2002, it does not consider those exposures or positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
above, the information presented therein has limited predictive value. As a
result, our ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the period, our
hedging strategies at that time, and interest rates.

On June 18, 2001, we entered into interest swap agreements with United
California Bank. The swap agreements allow us to hedge our exposure to
variable interest rates on two mortgages with remaining principal balances
totaling $26,053,000 as of June 30, 2002, by effectively paying a fixed rate of
interest over the term of the swap agreement. Interest rate pay differentials
that arise under these swap agreements are recognized in interest expense over
the term of the contracts. These interest rate swap agreements were considered
to be fully effective in hedging the variable rate risk associated with the two
mortgages.

The following summarizes the principal value and fair value of our interest
swap contracts. The principal value below provides an indication of the amount
that has been hedged in these contracts but does not represent an obligation or
exposure to credit risk at June 30, 2002 (dollars in thousands):

|           |         |       |  |          |      |                |                       |              |   |     |    |     |   |   |   |   |  | 
|---------- | ------- | ----- |  | -------- | ---- | -------------- | --------------------- | ------------ | - | --- | -- | --- | - | - | - | - |  | 
|Principal  |         | Fixed |  | Contract |      | Cumulative     | Approximate Liability
|Amount (1) |         | Rate  |  | Maturity |      | Cash Paid, Net | at June 30, 2002     
|           |         |       |  |          |      |                |                      
|           | $22,556 |       |  | 5.55     | %    |                | July 1, 2002          |              | $ | 386 |    |     | $ |  |  
|           |         | 3,497 |  |          | 5.55 | %              |                       | July 1, 2002 |   |     | 69 |     |   |   |  |  
|           |         |       |  |          |      |                |                       |              |   |     |    |     |   |  
|           | $26,053 |       |  |          |      |                |                       |              |   |     | $  | 455 |   |   | $ |  | 
|           |         |       |  |          |      |                |                       |              |   |     |    |     |   |  



---

|(1) |  | The principal amount is included in the table of qualitative and
quantitative disclosure about market risk as variable rate LIBOR debt and
fixed rate debt, as applicable.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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To determine the fair values of derivative instruments in accordance with SFAS
133, we use the discounted cash flow method, which requires the use of
assumptions about market conditions and risks existing at the balance sheet
date. Considerable judgment is required in interpreting market data to develop
estimates of market value. Accordingly, estimated fair value is a general
approximation of value, and such value may or may not actually be realized.

The swap agreements matured on July 1, 2002; therefore there were no remaining
amounts included on the balance sheet in connection with these agreements as of
June 30, 2002.




PART II. OTHER INFORMATION




Item 1. LEGAL PROCEEDINGS

We are not presently subject to material litigation. Moreover, to our
knowledge, we are not aware of any threatened litigation against us, other than
routine actions for negligence, other claims and proceedings arising in the
ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse impact on our liquidity, results of operations, business or
financial position.




Item 2. CHANGES IN SECURITIES

None




Item 3. DEFAULTS UPON SENIOR SECURITIES

None




Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

We held our annual stockholders meeting on May 16, 2002 to consider the
following proposals:



| | 1. |  | To elect five directors by the holders of our Common Stock for the
ensuing year.                                                
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | To approve the Bedford Property Investors, Inc. 2002 Directors Stock
Option Plan                                               
|
| | 3. |  | To ratify the appointment by the Board of Directors of our
independent public accountants for the year ending December 31, 2002.

All proposals were approved. Following are the results of the voting for
proposals 1, 2 and 3:



|   |  |                                                                                           |  |     |            |         |  |           |  |  |         | 
|-- |  | ----------------------------------------------------------------------------------------- |  | --- | ---------- | ------- |  | --------- |  |  | ------- | 
|   |  |                                                                                           |  | For |            | Against |  | Abstain  
|   |  |                                                                                           |  |     |            |         |  |          
|1. |  | To elect five directors to serve until the
next annual meeting of stockholders            |  |     | 15,269,678 |         |  |          |  |  | 130,204 | 
|2. |  | To approve the 2002 Directors Stock Option Plan                                          |  |     | 10,758,866 |         |  | 4,546,296 |  |  | 94,720  | 
|3. |  | To ratify the appointment by the Board of
Directors of our independent public accountants |  |     | 15,236,985 |         |  | 124,868   |  |  | 38,029  | 




Item 5. OTHER INFORMATION

None




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

A.  Exhibits

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##### Table of Contents



|            |  |                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                           
|3.1(a)      |  | Articles of Incorporation of Bedford Property Investors,
Inc. is incorporated herein by reference to Exhibit 4.2 of
our Registration Statement on Form S-2 (File No.
333-00921) filed on February 14, 1996.               
|3.1(b)      |  | Charter of Bedford Property Investors, Inc., as amended,
is incorporated herein by reference to Exhibit 4.2 of our
Amendment No. 1 to our Registration Statement on Form S-2
(File No. 333-00921) filed on March 29, 1996.
|3.1(c)      |  | Articles of Amendment of Charter of Bedford Property
Investors, Inc. is incorporated herein by reference to
Exhibit 3.1 to our Form 10-Q for the quarter ended June
30, 1997.                                             
|3.2         |  | Amended and Restated Bylaws of Bedford
Property Investors, Inc. is incorporated herein by
reference to Exhibit 3.2 to our Form 10-K for the year
ended December 31, 2000.                                                 

B.  Reports on Form 8-K

None

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##### Table of Contents






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 of the
undersigned, hereunto duly authorized.

Dated: August 14, 2002

BEDFORD PROPERTY INVESTORS, INC.
                                           (Registrant)

| |  |     |  |                                                              
| |  | --- |  | -------------------------------------------------------------
| |  | By: |  | /s/ HANH KIHARA                                              
| |  |     |  |                                                              
| |  |     |  | Hanh Kihara
Senior Vice President and
Chief Financial Officer
|
| |  | By: |  | /s/ KRISTA K. ROWLAND                                        
| |  |     |  |                                                              
| |  |     |  | Krista K. Rowland
Vice President and Controller              

27