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

                                    FORM 10-K

                                   (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    For Fiscal Year Ended: December 31, 2008

                                       OR

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

          For the transition period from______________ to______________

                           Commission File No. 1-8383

                          MISSION WEST PROPERTIES, INC.
             (Exact name of registrant as specified in its charter)

           Maryland                                    95-2635431
           --------                                    ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

             10050 Bandley Drive, Cupertino, CA            95014
          (Address of principal executive offices)       (Zip Code)

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

           Securities Registered Pursuant to Section 12(b) of the Act:

     Title of each class Name of each exchange on which registered Common Stock,
$.001 par value per share The Nasdaq Stock Market LLC


        Securities Registered Pursuant to Section 12(g) of the Act: NONE

     Indicate by check mark if the Registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

     Indicate by check mark if the  Registrant  is not  required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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

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

     As of June 30, 2008, the aggregate market value of the Registrant's  common
stock held by  non-affiliates  of the registrant was  $213,611,025  based on the
closing price as reported on the NASDAQ Stock Market LLC.

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common stock, as of the latest practicable date.

                Class                           Outstanding at February 28, 2009
---------------------------------------         --------------------------------
Common Stock, $.001 par value per share                  21,748,211 shares

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's  proxy statement to be delivered to stockholders in
connection with the Registrant's  2009 Annual Meeting of Stockholders to be held
May 20, 2009 are  incorporated by reference into Part III of this Form 10-K. The
Registrant  intends to file its proxy statement within 120 days after its fiscal
year end.

<PAGE>


                           FORWARD LOOKING INFORMATION

This annual report contains forward-looking statements within the meaning of the
federal securities laws. We intend such forward-looking statements to be covered
by the safe harbor provisions for  forward-looking  statements  contained in the
Private  Securities  Litigation  Reform  Act of  1995,  and are  including  this
statement  for  purposes  of  complying  with  these  safe  harbor   provisions.
Forward-looking   statements   include  our  discussion  of  "Quantitative   and
Qualitative  Disclosures  about Market Risks" in Item 7A below.  Forward-looking
statements,  which are based on certain  assumptions  and describe future plans,
strategies  and  expectations  of us, are generally  identifiable  by use of the
words "believe,"  "expect,"  "intend,"  "anticipate,"  "estimate,"  "project" or
similar  expressions.  Our  ability to predict  results or the actual  effect of
future plans or strategies is inherently  uncertain.  Factors which could have a
material  adverse effect on the  operations and future  prospects or would cause
actual   results   in  the  future  to  differ   materially   from  any  of  our
forward-looking  statements  of the  Company  include,  but are not  limited to,
changes in: the credit markets and the overall  availability and cost of credit,
economic  conditions   generally  and  the  real  estate  market   specifically,
legislative or regulatory provisions affecting the Company (including changes to
laws  governing  the  taxation  of Real  Estate  Investment  Trusts  ("REITs")),
availability of capital, interest rates,  competition,  supply of and demand for
office and  industrial  properties  in our current and  proposed  market  areas,
tenant defaults and bankruptcies,  and general accounting  principles,  policies
and  guidelines  applicable  to  REITs.  In  addition,   the  actual  timing  of
development, construction, and leasing on the projects that the Company believes
it  may   acquire  in  the  future  is  unknown   presently.   These  risks  and
uncertainties,  together with the other risks described from time to time in our
reports and documents filed with the Securities and Exchange Commission,  should
be considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements (see Item 1A, "Risk Factors").

                                     - i -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                          2008 FORM 10-K ANNUAL REPORT

                                Table of Contents


<TABLE>
<CAPTION>
                                     PART I
                                                                                                                Page No.
                                                                                                                --------
<S>              <C>                                                                                              <C>
Item 1.           Business                                                                                         1
Item 1A.          Risk Factors                                                                                     9
Item 1B.          Unresolved Staff Comments                                                                        15
Item 2.           Properties                                                                                       16
Item 3.           Legal Proceedings                                                                                21
Item 4.           Submission of Matters to a Vote of Security Holders                                              21

                                     PART II

Item 5.           Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities                                                                   22
Item 6.           Selected Financial Data                                                                          24
Item 7.           Management's Discussion and Analysis of Financial Condition and Results of Operations            26
Item 7A.          Quantitative and Qualitative Disclosures About Market Risk                                       42
Item 8.           Financial Statements and Supplementary Data                                                      43
Item 9.           Changes in and Disagreements with Accountants on Accounting and Financial Disclosure             80
Item 9A.          Controls and Procedures                                                                          80
Item 9B.          Other Information                                                                                80

                                    PART III

Item 10.          Directors, Executive Officers and Corporate Governance                                           81
Item 11.          Executive Compensation                                                                           81
Item 12.          Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
                  Matters                                                                                          81
Item 13.          Certain Relationships and Related Transactions, and Director Independence                        81
Item 14.          Principal Accountant Fees and Services                                                           81

                                     PART IV

Item 15.          Exhibits and Financial Statement Schedules                                                       82
                  Signatures                                                                                       83
                  Rule 13a-14(a) Certifications                                                                    88
                  Section 1350 Certifications                                                                      91

                                     - ii -
</TABLE>

<PAGE>


PART I

ITEM 1.   BUSINESS

ORGANIZATION AND GENERAL BUSINESS DESCRIPTION

Mission West Properties,  Inc. (the "Company")  acquires,  markets,  leases, and
manages research and development  ("R&D")  properties,  primarily located in the
Silicon  Valley  portion of the San Francisco Bay Area. As of December 31, 2008,
we owned and managed 111 properties totaling  approximately 8.0 million rentable
square feet of R&D properties  through four limited  partnerships,  or operating
partnerships,  for  which we are the  sole  general  partner.  R&D  property  is
designed  for  research  and  development  and office  uses and,  in some cases,
includes space for light manufacturing operations with loading docks. We believe
that we have one of the  largest  portfolios  of R&D  properties  in the Silicon
Valley.  There are two  tenants  who  individually  lease in  excess of  300,000
rentable square feet from us: Microsoft Corporation and Apple Computer, Inc. For
federal   income   tax   purposes   we   have   operated   as  a   self-managed,
self-administered  and fully  integrated Real Estate  Investment  Trust ("REIT")
since fiscal 1999.

Prior to July 1,  1998,  most of our  properties  were  under the  ownership  or
control of Carl E. Berg,  his brother  Clyde J. Berg,  certain  members of their
respective immediate families, and certain entities in which Carl E. Berg and/or
Clyde J. Berg held  controlling or other ownership  interests,  including Berg &
Berg Developers, Berg & Berg Enterprises,  Inc. and Berg & Berg Enterprises, LLC
(the "Berg Group").  We acquired these properties as of July 1, 1998 by becoming
the  general  partner of each of the four  operating  partnerships  in an UPREIT
transaction.   At  that  time,  we  also  acquired  ten  properties   comprising
approximately  560,000  rentable  square feet from entities  controlled by third
parties in which the Berg Group members were significant owners.

Through various property acquisition  agreements with the Berg Group and subject
to  the  approval  of the  Independent  Directors  Committee  of  the  Board  of
Directors, we have the right to purchase, on pre-negotiated terms, R&D and other
types of office and light industrial  properties that the Berg Group develops in
the future. With in-house development, architectural and construction personnel,
the  Berg  Group  continues  to  focus  on a full  range  of  land  acquisition,
development and construction activities for R&D properties, often build-to-suit,
to meet the demands of Silicon Valley information  technology companies.  As the
developer,  the Berg Group takes on the risks of purchasing the land,  obtaining
regulatory  approvals and permits and financing  construction.  Since  September
1998, we have acquired  approximately  3,386,000 additional rentable square feet
of R&D properties from the Berg Group under these agreements.

Our executive offices are located at 10050 Bandley Drive, Cupertino,  California
95014,  and our telephone  number is (408)  725-0700.  Our website is located at
http://www.missionwest.com.  On our website, you can access, free of charge, our
annual reports on Form 10-K,  quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished  pursuant to Section
13(a) or 15(d) of the Exchange Act of 1934,  as amended,  as soon as  reasonably
practicable after such material is  electronically  filed with, or furnished to,
the Securities and Exchange  Commission (the "SEC").  A copy of these filings is
available to all interested parties upon written request to "Investor Relations"
at our corporate offices.

We file  annual,  quarterly  and special  reports,  proxy  statements  and other
information  with the SEC.  You may read and copy any  document we file with the
SEC at the SEC's Public Reference Room at 100 F Street, N.W.,  Washington,  D.C.
20549.  You may  obtain  information  about the  operation  of the SEC's  Public
Reference  Room by calling the SEC at  1-800-SEC-0330.  The SEC also maintains a
website that  contains  reports,  proxy and  information  statements,  and other
information   regarding  registrants  that  file  electronically  with  the  SEC
(http://www.sec.gov).

OUR RELATIONSHIP WITH THE BERG GROUP

Through a series of transactions  occurring  between May 1997 and December 1998,
we became the vehicle for  substantially  all of the Silicon Valley R&D property
operating  activities of the Berg Group. We are the general partner  pursuant to
the partnership agreements of the operating partnerships and, along with members
of the Berg Group and other individuals,  are party to an acquisition  agreement
dated as of May 14,  1998  and  amended,  as of July 1,  1998,  exchange  rights
agreement and the Berg Land Holdings Option  Agreement.  Each agreement  defines
the material rights and obligations among us, the Berg Group members,  and other
parties to those agreements. Among other things, these agreements give us rights
to:

-    control the operating partnerships;
-    until December 31, 2010,  acquire,  subject to approval of the  Independent
     Directors Committee of the Board of Directors, on pre-negotiated terms, all
     future R&D properties  developed by the Berg Group on land currently  owned
     or acquired in the future; and
-    acquire R&D, office and industrial  properties identified by the Berg Group
     in  California,   Oregon  and  Washington,   subject  to  approval  of  the
     Independent Directors Committee of the Board of Directors.

                                     - 1 -
<PAGE>

Under these agreements,  our charter or our bylaws, the Berg Group has the right
to:

-    designate  two  of  five  nominees  for  director  to  be  elected  by  our
     stockholders,  subject to the Berg Group's maintenance of certain ownership
     interests;
-    participate in our securities offerings;
-    exchange their operating partnership interests ("O.P. Units") for shares of
     our common stock;
-    vote on major  transactions,  subject to maintenance  of certain  ownership
     thresholds; and
-    prevent us from  selling  properties  when the sale will have  adverse  tax
     consequences to the Berg Group members.

To comply with REIT requirements that restrict the percentage of the total value
of our stock that may be owned by five or fewer  individuals to 50% or less, our
charter generally  prohibits the direct or indirect ownership of more than 9% of
our common stock by any stockholder.  This limit excludes the Berg Group,  which
has an  aggregate  ownership  limit of 20%.  Currently,  the Berg Group  members
collectively  own  approximately  9.2% of the  outstanding  shares of our common
stock.

Carl E.  Berg,  the  Company's  Chairman  of the  Board of  Directors  and Chief
Executive Officer and the controlling member of the Berg Group, has been engaged
in the  development  and long-term  ownership of Silicon  Valley real estate for
almost 40 years.  In 1969,  Mr. Berg  foresaw the rising  demand for  efficient,
multi-purpose facilities for the rapidly growing information technology industry
in the Silicon  Valley.  Since 1972, in addition to his real estate  activities,
Mr. Berg also has been actively involved in venture capital  investments in many
information technology companies in the Silicon Valley, including such companies
as  Amdahl   Corporation,   Sun   Microsystems,   Inc.,  and  Integrated  Device
Technologies,  Inc. He serves on the board of directors of numerous  electronics
and energy technology companies. These activities have helped Mr. Berg develop a
detailed  understanding of the real estate requirements of technology companies,
acquire valuable market information and increase his name recognition within the
venture capital and entrepreneurial communities.  These activities also manifest
his commitment to the growth and success of Silicon Valley companies. We believe
that Mr.  Berg's  substantial  knowledge of and  contacts in various  technology
industries provide a significant benefit to the Company.

BUSINESS STRATEGY

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

-    working  with  the Berg  Group to take  advantage  of their  abilities  and
     resources to pursue  development  opportunities  which we have an option to
     acquire until December 31, 2010, on  pre-negotiated  terms, upon completion
     and leasing;
-    capitalizing   on   opportunistic   acquisitions   from  third  parties  of
     high-quality  R&D  properties  that provide  attractive  initial yields and
     significant potential for growth in cash-flow;
-    focusing on general  purpose,  single-tenant  Silicon Valley R&D properties
     for technology  companies in order to maintain low operating costs,  reduce
     tenant  turnover and capitalize on our  relationships  with these companies
     and our extensive knowledge of their real estate needs; and
-    maintaining prudent financial management  principles that emphasize current
     cash flow while building  long-term  value,  the  acquisition of pre-leased
     properties to reduce  development  and leasing risks and the maintenance of
     sufficient liquidity to acquire and finance properties on desirable terms.

ACQUIRING PROPERTIES DEVELOPED BY THE BERG GROUP

We entered into the Berg Land Holdings  Option  Agreement in December 1998 under
which we have an option to purchase all land  acquired,  directly or indirectly,
by Carl E.  Berg or Clyde J.  Berg  that has not been  improved  with  completed
buildings and which is zoned,  intended or  appropriate  for R&D,  office and/or
industrial  development  or  use  in  the  states  of  California,   Oregon  and
Washington.  Currently,  the Berg Land Holdings  Option  Agreement  gives us the
right to acquire future R&D property  developments by the Berg Group on up to 84
additional  acres of land  currently  controlled by the Berg Group,  which could
support  approximately  1.4 million square feet of new development.  In light of
the continued overcapacity in the Silicon Valley R&D properties market, however,
at this time we do not anticipate acquiring any additional newly constructed R&D
properties  from the Berg Group for several years because of the current  market
conditions in the Silicon Valley.

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

                                     - 2 -
<PAGE>

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

As of December  31, 2008,  we have  acquired 23 leased R&D  properties  totaling
approximately 2,243,000 rentable square feet under the Berg Land Holdings Option
Agreement at a cost of  approximately  $237.8 million,  for which we have issued
8,482,085  O.P.  Units and assumed debt of  approximately  $141.4  million.  The
principal terms of the agreement include the following:

-    So long as the Berg  Group  members  and their  affiliates  own or have the
     right to acquire shares  representing at least 65% of our common stock on a
     Fully Diluted basis, or until December 31, 2010, whichever occurs first, we
     will have the option to acquire any building developed by any member of the
     Berg Group on the land subject to the Berg Land Holdings  Option  Agreement
     at such time as the  building  has been  leased.  Upon our  exercise of the
     option,  the option  price will equal the sum of the  following or a lesser
     amount as approved by the Independent Directors Committee:

     1.   the full construction cost of the building; plus
     2.   10% of the full construction cost of the building; plus
     3.   interest at LIBOR plus 1.65%,  on the amount of the full  construction
          cost of the building for the period from the date funds were disbursed
          by the developer to the close of escrow; plus
     4.   the original  acquisition cost of the parcel on which the improvements
          will be constructed,  which range from $8.50 to $20.00 per square foot
          for land currently owned or under option; plus
     5.   10% per annum of the amount of the  original  acquisition  cost of the
          parcel from the later of January 1, 1998 and the seller's  acquisition
          date, to the close of escrow; minus
     6.   the aggregate  principal  amount of all debt  encumbering the acquired
          property.

-    The  acquisition  cost,  net of any debt,  will be payable in cash, or O.P.
     Units  valued at the  average  closing  price of our common  stock over the
     30-trading-day  period preceding the acquisition or, in cash, at the option
     of the Berg Group .

-    We also must assume all property tax assessments.

-    If we elect not to exercise  the option with respect to any  property,  the
     Berg Group may hold and lease the property for its own account, or may sell
     it to a third party.

-    All  action  taken by us under the Berg  Land  Holdings  Option  Agreement,
     including any variations  from stated terms outlined above must be approved
     by a majority of the members of the Independent Directors Committee.

In addition,  under the  Acquisition  Agreement,  Carl E. Berg has agreed not to
directly or indirectly  acquire or develop any real  property  zoned for office,
industrial or R&D use in the states of California, Oregon and Washington without
first  disclosing and making the  acquisition  opportunity  available to us. The
Independent  Directors Committee decides whether we will pursue each opportunity
presented to us by Mr. Berg. This  restriction will expire when there is no Berg
Group  nominee on our board of  directors  and the Berg  Group's  fully  diluted
ownership  percentage,  which is calculated  based on all outstanding  shares of
common  stock and all shares of common  stock that  could be  acquired  upon the
exercise of all outstanding  options to acquire our voting stock, as well as all
shares  of  common  stock  issuable  upon  exchange  of all O.P.  Units  ("Fully
Diluted"), falls below 25%.

As a general  policy which has been  established  by the  Independent  Directors
Committee,  we do not acquire  properties  under the Berg Land  Holdings  Option
Agreement  until they have been leased.  We are  responsible  for a  significant
portion of the leasing process in connection with such acquisitions, however.

The following table presents certain information concerning currently identified
land that we have the right to  acquire  under  the Berg  Land  Holdings  Option
Agreement.

<TABLE>
<CAPTION>
                                                                 Approximate Rentable Area
    Available Land:                           Net Acres                (Square Feet)
    ----------------------------------- ---------------------- ------------------------------
<S>                                              <C>                    <C>
    Piercy & Hellyer                              30                       490,000
    Morgan Hill (1)                               18                       288,000
    King Ranch                                    12                       207,000
    Fremont & Cushing                             24                       387,000
                                        ---------------------- ------------------------------
         Total                                    84                     1,372,000
                                        ====================== ==============================
</TABLE>

(1)  This land is owned by the TBI joint ventures partnership.  We expect to own
     an approximate 50% interest in the partnership through one of our operating
     partnerships.  The property will be operated and managed by the other joint
     venture partner in the entity.

                                     - 3 -

<PAGE>


Although we may acquire new properties or joint  ventures  available to us under
the terms of the Berg Land Holdings Option Agreement, subject to approval by the
Independent Directors Committee, there can be no assurance that we actually will
consummate any additional transactions.  Furthermore, we have not yet determined
the  means  by which we would  acquire  and pay for any such  properties  or the
impact  of any of the  acquisitions  on our  business,  results  of  operations,
financial  condition,  Funds  from  Operation  ("FFO")  or  available  cash  for
distribution   (see  Item  1A,  "Risk   Factors  -  Our   contractual   business
relationships with the Berg Group present additional conflicts of interest which
may result in the  realization  of  economic  benefits  or the  deferral  of tax
liabilities by the Berg Group without equivalent benefits to our stockholders").

OPPORTUNISTIC ACQUISITIONS

In  addition  to our  potential  acquisition  opportunities  under the Berg Land
Holdings Option Agreement, we believe our acquisitions  experience,  established
network of real estate and  information  technology  professionals,  and overall
financial condition will continue to provide  opportunities for external growth.
In  general,  we will seek  opportunistic  acquisitions  of high  quality,  well
located  Silicon  Valley R&D  properties  in  situations  where  illiquidity  or
inadequate  management permit their  acquisition at favorable prices,  and where
our management  skills and knowledge of Silicon Valley submarkets may facilitate
increases in cash flow and asset value.

Furthermore,  our use of the operating  partnership structure allows us to offer
prospective  sellers the opportunity to contribute  properties on a tax-deferred
basis  in  exchange  for  O.P.  Units.  Although  we have  not  consummated  any
transactions on this basis since our July 1, 1998  acquisition of the Berg Group
properties,  this capacity to complete tax-deferred transactions with sellers of
real property further enhances our ability to acquire additional properties.

FOCUS ON SINGLE TENANT SILICON VALLEY R&D PROPERTIES

We intend to continue to emphasize the acquisition of single-tenant  rather than
multi-tenant  properties,  a practice that has  historically  contributed to the
relatively low turnover and higher occupancy rates on our properties. We believe
that the relatively  small number of tenants (75 total) leasing our  properties,
mostly under the triple net lease structure, allows us to efficiently manage the
properties and to serve our tenants' needs without  extensive  in-house staff or
the assistance of a third-party property management  organization.  In addition,
this  emphasis  allows us to incur  less  expense  for tenant  improvements  and
leasing  commissions than  multi-tenant,  high turnover  property  owners.  This
strategy also reduces the time and expense  associated  with obtaining  building
permits and other governmental approvals. We believe that the relatively stable,
extended  relationships that we have developed with our key tenants are valuable
in the expansion of our business.

RECENT RENTAL MARKET DEVELOPMENTS AND THEIR IMPACT ON OUR BUSINESS

All of the  Company's  properties  are located in the Northern  California  area
known as Silicon  Valley,  which  generally  consists of portions of Santa Clara
County,  Southwestern Alameda County,  Southeastern San Mateo County and Eastern
Santa Cruz County.  In the past several  years,  the Silicon Valley R&D property
market has fluctuated  with the local  economy.  According to a recent report by
NAI BT  Commercial  Real Estate  (the "BT  Report"),  vacancy  rates for Silicon
Valley R&D property decreased from approximately  16.6% in late 2007 to 16.3% at
the end of 2008. Total vacant R&D square footage in Silicon Valley at the end of
the fourth  quarter of 2008  amounted to  approximately  25.1  million  rentable
square feet, of which 17.7%,  or 4.5 million  rentable square feet, was sublease
space. According to the BT Report, in 2007, total positive net absorption (which
is the  computation of gross square footage leased less gross new square footage
vacated for the period presented) amounted to approximately 2.9 million rentable
square  feet,  and  in  2008,   there  was  total  negative  net  absorption  of
approximately  33 thousand  rentable  square feet as local  economic  conditions
deteriorated  due  to  a  weakened  economy,  dysfunctional  financial  markets,
depressed  housing,  a falling  stock  market  and  rising  unemployment  rates.
According to the BT Report,  the average  asking market rent per square foot was
$1.26 at year-end for 2008 and 2007, although  individual  properties within any
particular  submarket presently may be leased above or below the current average
asking  market  rental  rates within that  submarket  and the region as a whole.
Moreover,  the impact of vacancies has not been uniform throughout the area. The
Silicon Valley R&D property market is characterized  by a substantial  number of
submarkets, with rent and vacancy rates varying by submarket and location within
each submarket.

In addition,  leasing activity for new  build-to-suit and vacated R&D properties
has slowed  considerably during the past several years. The time to complete the
marketing and lease up of vacant space has increased  from an average of several
months  to  as  much  as an  average  of 18 to 40  months  as a  result  of  the
over-supply of R&D properties in the market.

For the years ended December 31, 2008 and 2007,  the occupancy  rates for leased
properties in our portfolio were 66.4% and 61.7%, respectively.

                                     - 4 -

<PAGE>


Despite our strategic focus on single tenant  properties and leases, in order to
meet market  conditions we have been, and expect to continue,  leasing less than
the entire  premises of some of our R&D  properties to a single tenant from time
to time. Leasing our R&D properties,  which generally have been built for single
tenant  occupancy,  to multiple  tenants tends to increase our leasing costs and
operating  expenses  and reduce the  profitability  of our  leasing  activities.
Although  we  scrutinize  each   prospective   tenant's   creditworthiness   and
continually evaluate the financial capacity of both our prospective and existing
tenants, a downturn in tenants'  businesses may weaken their financial condition
and could result in defaults under their lease obligations.

We believe that the average 2009 renewal rental rates for our properties will be
approximately  equal  to,  or  perhaps,   below  current  market  rents.  Leases
representing  approximately  370,000  rentable  square feet, or 2.2% of our 2009
cash rent,  are  scheduled to expire  during  2009.  If we are unable to lease a
significant  portion of any vacant  space or space  scheduled  to expire;  if we
experience  significant  tenant  defaults  as a result of the  current  economic
downturn; if we restructure existing leases and lower existing rents in order to
retain  tenants  for an  extended  term;  if we  increase  our  lease  costs and
operating  expenses  substantially  to accommodate  multiple  tenants in our R&D
properties;  or if we are not able to lease  space  at or above  current  market
rates, our results of operations and cash flows will be affected adversely.

OPERATIONS

We operate as a  self-administered,  self-advised and self-managed REIT with our
own employees.  As the sole general  partner of the operating  partnerships,  we
control the business and assets of the operating  partnerships and have full and
complete authority,  discretion and responsibility with respect to the operating
partnerships'  operations  and  transactions,   including,  without  limitation,
acquiring additional properties,  borrowing funds, raising new capital,  leasing
buildings   and  selecting   and   supervising   all  agents  of  the  operating
partnerships.

Although most of our leases are triple net and building  maintenance  and tenant
improvements are the responsibility of the tenants,  from time to time we may be
required to undertake construction and repair work at our properties. We bid all
major  work  competitively  to  subcontractors.  Members  of the Berg  Group may
participate in the competitive  bidding for the work, but all contracts with the
Berg Group are  subject  to review and  approval  by the  Independent  Directors
Committee.

We generally market our properties and negotiate leases  ourselves.  We make the
availability of our properties known to the brokerage  community to garner their
assistance in locating prospective  tenants,  however. As a result, we expect to
retain our policy of paying fixed commissions to tenants' brokers.

We believe that our business  practices provide us with competitive  advantages,
including -

-    EXTERNAL DEVELOPMENT AFFILIATE. Until December 31, 2010, we have the option
     to purchase all future R&D, office, industrial property developments of the
     Berg Group under the Berg Land Holdings Option  Agreement on land currently
     held or acquired  directly or  indirectly  by Carl E. Berg or Clyde J. Berg
     that is zoned for those  purposes  and  located in  California,  Oregon and
     Washington  following   completion  and  lease-up  of  the  property.   The
     acquisition  terms and conditions for the existing and identified  projects
     have been  pre-negotiated  and are documented  under the Berg Land Holdings
     Option Agreement.  This relationship provides us with the economic benefits
     of development while eliminating development and initial lease-up risks. It
     also  provides  us with access to one of the most  experienced  development
     teams in the Silicon Valley without the expense of maintaining  development
     personnel.

-    LEAN  ORGANIZATION,  EXPERIENCED TEAM. In part because of our primary focus
     on Silicon Valley, our experience with the special real estate requirements
     of information technology tenants and the long-term triple-net structure of
     our  leases,  we are able to conduct and expand our  business  with a small
     management team comprised of highly qualified and experienced professionals
     working within a relatively flat organizational  structure. We believe that
     the  leanness  of our  organization  and our  experience  will enable us to
     rapidly  assess and  respond  to market  opportunities  and  tenant  needs,
     control operating expenses and develop and maintain excellent relationships
     with  tenants.  We further  believe that these  advantages  translate  into
     significantly  lower costs for  operations  and give us the ability,  along
     with  the  Berg  Group,  to  compete  favorably  with  other  R&D  property
     developers in Silicon Valley, especially for build-to-suit projects subject
     to competitive bidding.  Furthermore,  we believe this lower cost structure
     allows us to generate  better  returns from  properties  whose value can be
     increased through appropriate remodeling and efficient property management.

-    SOUND PROPERTY  MANAGEMENT  PRACTICES.  For each  property,  the management
     team,  along with the Berg Group staff,  develops a specific  marketing and
     property  management  program.  We select vendors and  subcontractors  on a
     competitive  bid basis from a select group of highly  qualified  firms with
     whom we maintain ongoing relationships and carefully supervise their work.

                                     - 5 -

<PAGE>


OPERATING PARTNERSHIP AGREEMENTS

MANAGEMENT

The operating partnerships consist of four separate limited partnerships engaged
in the combined  operation  and ownership of all our  properties.  The operating
partnership  agreements  are identical in all material  respects for all four of
the limited partnerships.  Pursuant to the operating partnership agreements,  we
act as the sole general partner of the operating partnerships, in which capacity
we  have  exclusive  control  of  the  business  and  assets  of  the  operating
partnerships  and generally  have full and complete  authority,  discretion  and
responsibility  with  respect  to the  operating  partnerships'  operations  and
transactions,   including,   without  limitation,   acquisitions  of  additional
properties,  borrowing funds, raising new capital, leasing buildings, as well as
selecting   and   supervising   all   employees  and  agents  of  the  operating
partnerships.  Through our  authority to manage our  business  and affairs,  our
Board of Directors directs the business of the operating partnerships.

Notwithstanding  our effective control of the operating  partnerships,  the Berg
Group holds a substantial majority of the outstanding O.P. Units and the consent
of the limited  partners  holding a majority of the  outstanding  O.P.  Units is
required with respect to certain  extraordinary  actions involving the operating
partnerships, including:

-    the amendment,  modification  or  termination of the operating  partnership
     agreements;
-    a general  assignment for the benefit of creditors or the  appointment of a
     custodian,  receiver  or  trustee  for any of the  assets of the  operating
     partnerships;
-    the   institution  of  any  proceeding  for  bankruptcy  of  the  operating
     partnerships;
-    the  transfer  of  any  general   partner   interests   in  the   operating
     partnerships,  including,  with certain exceptions,  transfers attendant to
     any merger, consolidation or liquidation of our corporation;
-    the  admission  of any  additional  or  substitute  general  partner in the
     operating partnerships; and
-    a change of control of the operating partnerships.

In addition,  until the ownership  interest of the Berg Group and its affiliates
is less than 15% of the common stock on a Fully  Diluted  basis,  the consent of
the limited  partners  holding a majority of the outstanding  O.P. Units is also
required with respect to:

-    the liquidation of the operating partnerships;
-    the sale or other transfer of all or substantially all of the assets of the
     operating  partnerships  and  certain  mergers  and  business  combinations
     resulting in the complete disposition of all O.P. Units; and
-    the  issuance  of limited  partnership  interests  having  seniority  as to
     distributions, assets and voting over the O.P. Units.

TRANSFERABILITY OF O.P. UNITS

The  operating  partnership  agreements  provide  that the limited  partners may
transfer their O.P. Units,  subject to certain  limitations.  Except for certain
transfers  by the  limited  partners  to or from  certain  of their  affiliates,
however,  all transfers  may be made only with our prior written  consent as the
sole general partner of the operating partnerships.

In addition,  no transfer of O.P.  Units by the limited  partners may be made in
violation  of  certain  regulatory  and  other  restrictions  set  forth  in the
operating  partnership  agreements.  Except  in the  case of  certain  permitted
transfers to or from certain  affiliates of the limited  partners,  the exchange
rights,  the put rights,  rights to participate in future equity  financings and
provisions  requiring  the  approval  of certain  limited  partners  for certain
matters  will no longer be  applicable  to O.P.  Units so  transferred,  and the
transferee  will  not  have any  rights  to  nominate  persons  to our  Board of
Directors.

ADDITIONAL CAPITAL CONTRIBUTIONS AND LOANS

Each operating partnership agreement provides that, if the operating partnership
requires additional funds to pursue its investment objectives,  we may fund such
investments  by  raising   additional   equity  capital  and  making  a  capital
contribution  to the  operating  partnerships  or by  borrowing  such  funds and
lending the net  proceeds  of such loans to the  operating  partnerships.  If we
intend to  provide  additional  funds  through a  contribution  to  capital  and
purchase of units of general partner  interest,  the limited  partners will have
the right to participate in such funding on a pro rata,  pari passu basis and to
acquire  additional O.P.  Units.  If the limited  partners do not participate in
such financing, we will acquire additional units of general partner interest. In
either case,  the number of  additional  units of  partnership  interest will be
increased based upon the amount of the additional capital  contributions and the
value of the operating partnerships as of the date such contributions are made.

                                     - 6 -

<PAGE>


In  addition,  as general  partner of the  operating  partnerships,  we have the
ability to cause the operating  partnerships to issue  additional O.P. Units. In
the event that the operating  partnerships issue new O.P. Units for cash but not
property, the limited partners will have the right to purchase new O.P. Units at
the price we offer in the transaction giving rise to such participation right in
order,  and to the extent  necessary,  to maintain their  respective  percentage
interests in the operating partnerships.

EXCHANGE RIGHTS, PUT RIGHTS AND REGISTRATION RIGHTS

Under the Exchange Rights  Agreement  between us and the limited  partners,  the
limited  partners have exchange  rights that  generally  became  exercisable  on
December 29, 1999. The Exchange Rights  Agreement  permits every limited partner
to tender O.P.  Units to us, and, at our election,  to receive common stock on a
one-for-one basis at then-current market value, an equivalent amount of cash, or
a combination of cash and common stock in exchange for the O.P. Units  tendered,
subject to the 9% overall ownership limit imposed on non-Berg Group stockholders
under our charter  document,  or the overall 20% Berg Group ownership  limit, as
the case may be. For more information,  please refer to Item 1A, "Risk Factors -
Failure to satisfy  federal income tax  requirements  for REITs could reduce our
distributions,  reduce  our  income  and cause our  stock  price to fall."  This
exchange  ratio is subject to  adjustment  for stock  splits,  stock  dividends,
recapitalizations of our common stock and similar types of corporate actions. In
addition,  once in each 12-month period  beginning each December 29, the limited
partners, other than Carl E. Berg and Clyde J. Berg, may exercise a put right to
sell their O.P.  Units to the  operating  partnerships  at a price  equal to the
average  market  price  of the  common  stock  for  the  10-trading  day  period
immediately  preceding the date of tender.  Upon any exercise of the put rights,
we will  have  the  opportunity  for a  period  of 15 days to  elect to fund the
purchase of the O.P. Units and purchase  additional general partner interests in
the  operating  partnerships  for cash,  unless the  purchase  price  exceeds $1
million in the aggregate for all tendering limited partners,  in which case, the
operating  partnerships  or we will be  entitled,  but not  required,  to reduce
proportionally  the  number of O.P.  Units to be  acquired  from each  tendering
limited  partner so that the total  purchase  price is not more than $1 million.
Through December 31, 2008 no limited partner ever has exercised this put right.

The number of shares of our common  stock  issuable  in  exchange  for the total
number  of O.P.  Units  outstanding  at July 1, 1998 and the O.P.  Units  issued
pursuant to the Pending Projects Acquisition Agreement were registered under the
Securities  Act  and  generally  may be sold  without  restriction  if they  are
acquired by limited partners that are not affiliates,  as defined under SEC Rule
144.  For more  information  please  refer to Item 1A,  "Risk  Factors  - Shares
eligible  for future  sale could  affect the  market  price of our  stock."  The
Exchange  Rights  Agreement  gives  the  holders  of O.P.  Units  the  right  to
participate in any registered  public  offering of the common stock initiated by
us to the extent of 25% of the total shares sold in the offering upon converting
O.P. Units to shares of common stock, but subject to the underwriters' unlimited
right to reduce the  participation of all selling  stockholders.  The holders of
O.P.  Units will be able to  request  resale  registrations  of shares of common
stock acquired on exchange of O.P.  Units on a Form S-3, or any equivalent  form
of registration statement,  subject to limitations and restrictions contained in
the Exchange  Rights  Agreement.  In April 2006,  we registered up to 86,088,095
shares of common stock issuable on exchange of O.P. Units for resale pursuant to
the  prospectus  included in a  registration  statement on Form S-3 that the SEC
declared effective on April 28, 2006. We intend to maintain the effectiveness of
this registration  statement in order to facilitate re-sales of shares of common
stock acquired by O.P. Unit holders from time to time without volume limitations
or other resale restrictions under SEC Rule 144.

OTHER MATTERS

The operating partnership  agreements require that the operating partnerships be
operated in a manner that will enable us to satisfy the  requirements  for being
classified as a REIT and to avoid any federal income or excise tax liability.

The  operating  partnership  agreements  provide that the combined net operating
cash  flow  from  all the  operating  partnerships,  as well  as net  sales  and
refinancing proceeds, will be distributed from time to time as determined by our
Board  of  Directors,  but not  less  frequently  than  quarterly,  pro  rata in
accordance   with  the   partners'   percentage   interests  in  the   operating
partnerships, taken as a whole. This provision is intended to cause the periodic
distributions  per O.P. Unit and per share of our common stock to be equal. As a
consequence of this provision,  the capital interest of a partner in each of the
operating partnerships,  including our capital interests,  might at times differ
significantly from the partner's  percentage interest in the net income and cash
flow of that  operating  partnership.  We do not believe  that such  differences
would have a  material  impact on our  business,  financial  condition  or funds
available for distributions, however.

Pursuant to the operating  partnership  agreements,  the operating  partnerships
will also assume and pay when due, or reimburse us for payment of, certain costs
and expenses relating to our continuity of existence and operations.

The  operating  partnership  agreements  provide  that,  upon the exercise of an
outstanding  option  under the 2004 Equity  Incentive  Plan  (including  options
granted originally under the 1997 Stock Option Plan), we may purchase additional
general partner  interests in the operating  partnerships  by  contributing  the
exercise proceeds to the operating partnerships.  Our increased interest will be
equal to the percentage of outstanding  shares of common stock and O.P. Units on
an  as-converted  basis  represented by the shares acquired upon exercise of the
option.

                                     - 7 -

<PAGE>


TERM

The operating partnerships will continue in full force and effect until December
31,  2048 or until  sooner  dissolved  pursuant  to the  terms of the  operating
partnership agreements.

EMPLOYEES

As of  February  28,  2009,  we  employed  six  people,  all of whom work at our
executive offices at 10050 Bandley Drive, Cupertino, California, 95014.

FACILITIES

We lease office space at 10050 Bandley Drive, Cupertino,  California from Berg &
Berg  Enterprises,  Inc. and share  clerical staff and other overhead on what we
consider to be favorable  terms.  The total monthly rent payable by us to Berg &
Berg Enterprises, Inc. is $10,000.

                                     - 8 -

<PAGE>


ITEM 1A. RISK FACTORS

YOU SHOULD  CAREFULLY  CONSIDER THE  FOLLOWING  RISKS,  TOGETHER  WITH THE OTHER
INFORMATION  CONTAINED  ELSEWHERE IN THIS FORM 10-K. THE FOLLOWING  RISKS RELATE
PRINCIPALLY TO OUR BUSINESS AND THE INDUSTRY IN WHICH WE OPERATE.  THE RISKS AND
UNCERTAINTIES CLASSIFIED BELOW ARE NOT THE ONLY ONES WE FACE.

SILICON VALLEY MARKET AND ECONOMIC CONDITIONS.

In  the  Silicon  Valley,  recent  market  and  economic  conditions  have  been
unprecedented  and challenging with tighter credit  conditions and slower growth
through  the fourth  quarter  of 2008.  For the year ended  December  31,  2008,
continued  concerns about the systemic  impact of inflation,  energy costs,  the
availability  and  cost of  credit  and a  declining  real  estate  market  have
contributed to increased market  volatility and diminished  expectations for the
Silicon Valley economy.  These conditions,  combined with declining business and
consumer confidence and increased unemployment have contributed to volatility of
unprecedented levels.

As a result of these market conditions,  the cost and availability of credit has
been and may continue to be adversely  affected by illiquid  credit  markets and
wider credit spreads.  Concern about the stability of the markets  generally and
the  strength  of   counterparties   specifically   has  led  many  lenders  and
institutional  investors to reduce,  and in some cases, cease to provide funding
to borrowers.  Continued  turbulence in the Silicon Valley economy may adversely
affect the financial  condition and the liquidity and financial condition of our
tenants and result in a significantly higher level of defaults.  If these market
conditions continue,  they may limit our ability and the ability of our tenants,
to timely refinance maturing  liabilities and access the capital markets to meet
liquidity  needs,  resulting in adverse  effects on our financial  condition and
results of operations.

WE MAY NOT BE  ABLE  TO  OBTAIN  ADDITIONAL  CAPITAL  TO  FURTHER  OUR  BUSINESS
OBJECTIVES.

Our ability to acquire  properties  depends upon our ability to obtain  capital.
The real estate  industry is currently  experiencing a volatile  capital market.
The  lack of  capital  is  expected  to  cause a  decrease  in the  level of new
investment  activity.  An inability to obtain debt capital on  acceptable  terms
could delay or prevent us from acquiring desirable investments.

WE ARE DEPENDENT ON CARL E. BERG, AND IF WE LOSE HIS SERVICES OUR BUSINESS MAY
BE HARMED AND OUR STOCK PRICE COULD FALL.

We are substantially dependent upon the leadership of Carl E. Berg, our Chairman
and Chief  Executive  Officer.  Losing Mr. Berg's  knowledge and abilities could
have a  material  adverse  effect on our  business  and the value of our  common
stock.  Mr. Berg manages our  day-to-day  operations  and devotes a  significant
portion  of his  time to our  affairs,  but he has a number  of  other  business
interests as well.  These other  activities  reduce Mr. Berg's  attention to our
business.

MR.  BERG  AND  HIS  AFFILIATES  EFFECTIVELY  CONTROL  OUR  CORPORATION  AND THE
OPERATING  PARTNERSHIPS  AND MAY ACT IN WAYS THAT ARE  DISADVANTAGEOUS  TO OTHER
STOCKHOLDERS.

SPECIAL BOARD VOTING PROVISIONS
Our  governing  corporate  documents,  which are our articles of  amendment  and
restatement,  or charter, and our bylaws, provide substantial control rights for
the Berg Group. The Berg Group's control of our corporation means that the value
and returns from an investment in the Company's  common stock are subject to the
Berg Group's exercise of its rights. These rights include a requirement that Mr.
Berg or his designee as director approve certain fundamental  corporate actions,
including amendments to our charter and bylaws and any merger,  consolidation or
sale of all or substantially all of our assets. In addition,  our bylaws provide
that a quorum  necessary to hold a valid meeting of the Board of Directors  must
include Mr. Berg or his  designee.  The rights  described  in the two  preceding
sentences  apply only as long as the Berg Group  members  and their  affiliates,
other  than  us  and  the  operating  partnerships,  beneficially  own,  in  the
aggregate,  at least 15% of our  outstanding  shares of common  stock on a Fully
Diluted basis. Also, directors representing more than 75% of the entire Board of
Directors must approve other  significant  transactions,  such as incurring debt
above certain  amounts and conducting  business other than through the operating
partnerships.  Without the  approval of Mr. Berg or his  designee,  the Board of
Directors'  approval that we may need for actions that might result in a sale of
your stock at a premium or  raising  additional  capital  when  needed  could be
difficult or impossible to obtain.

BOARD OF DIRECTORS REPRESENTATION
The Berg Group members have the right to designate two of the director  nominees
submitted by our Board of Directors to stockholders for election, as long as the
Berg  Group  members  and  their  affiliates,  other  than us and the  operating
partnerships,   beneficially  own,  in  the  aggregate,  at  least  15%  of  our
outstanding  shares of common stock  calculated on a Fully Diluted basis. If the
Fully Diluted  ownership of the Berg Group members and their  affiliates,  other
than us and the operating partnerships,  is less than 15% but is at least 10% of
the common stock,  the Berg Group members have the right to designate one of the
director  nominees  submitted  by our Board of  Directors  to  stockholders  for
election.  Its right to  designate  director  nominees  affords  the Berg  Group
substantial  control and  influence  over the  management  and  direction of our
corporation. The Berg Group's interests could conflict with the interests of our
stockholders and could adversely affect the price of our common stock.

                                     - 9 -
<PAGE>

SUBSTANTIAL OWNERSHIP INTEREST
The Berg Group currently owns O.P. Units representing approximately 74.1% of the
equity interests in the operating  partnerships and  approximately  73.7% of our
equity  interests on a Fully  Diluted  basis as of December  31, 2008.  The O.P.
Units may be converted into shares of common stock,  subject to limitations  set
forth  in our  charter  and  other  agreements  with the  Berg  Group,  and upon
conversion would represent  voting control of our corporation.  The Berg Group's
ability  to  exchange  its O.P.  Units  for  common  stock  permits  it to exert
substantial influence over the management and direction of our corporation. This
influence increases our dependence on the Berg Group.

LIMITED PARTNER APPROVAL RIGHTS
Mr. Berg and other limited partners,  including other members of the Berg Group,
may restrict our  operations and  activities  through rights  provided under the
terms of the amended and restated agreement of limited partnership which governs
each of the operating  partnerships and our legal relationship to each operating
partnership as its general partner. Matters requiring approval of the holders of
a majority of the O.P. Units,  which  necessarily  would include the Berg Group,
include the following:

-    the  amendment,  modification  or  termination  of  any  of  the  operating
     partnership agreements;
-    the transfer of any general partner interest in the operating partnerships,
     including,  with  certain  exceptions,  transfers  attendant to any merger,
     consolidation or liquidation of our corporation;
-    the  admission of any  additional  or  substitute  general  partners in the
     operating partnerships;
-    any other change of control of the operating partnerships;
-    a general  assignment for the benefit of creditors or the  appointment of a
     custodian,  receiver  or  trustee  for any of the  assets of the  operating
     partnerships; and
-    the institution of any bankruptcy proceeding for any operating partnership.

In addition, as long as the Berg Group members and their affiliates,  other than
us and the operating partnerships,  beneficially own, in the aggregate, at least
15% of the  outstanding  shares of common stock on a Fully  Diluted  basis,  the
consent of the  limited  partners  holding  the right to vote a majority  of the
total number of O.P. Units outstanding is also required with respect to:

-    the sale or other transfer of all or substantially all of the assets of the
     operating  partnerships  and  certain  mergers  and  business  combinations
     resulting in the complete disposition of all O.P. Units;
-    the issuance of limited  partnership  interests senior to the O.P. Units as
     to distributions, assets and voting; and
-    the liquidation of the operating partnerships.

The  liquidity of an investment  in the  Company's  common stock,  including our
ability to respond to  acquisition  offers,  will be subject to the  exercise of
these rights.

OUR CONTRACTUAL  BUSINESS  RELATIONSHIPS  WITH THE BERG GROUP PRESENT ADDITIONAL
CONFLICTS OF INTEREST,  WHICH MAY RESULT IN THE REALIZATION OF ECONOMIC BENEFITS
OR THE DEFERRAL OF TAX LIABILITIES BY THE BERG GROUP WITHOUT EQUIVALENT BENEFITS
TO OUR STOCKHOLDERS.

Our contracts  with the Berg Group provide it with interests that could conflict
with those of our other stockholders, including the following:

-    our headquarters are leased from an entity owned by the Berg Group, to whom
     we pay rent of $10,000 per month;
-    the Berg Group is permitted to conduct real estate and business  activities
     other than our business;
-    if we decline an  opportunity  that has been  offered to us, the Berg Group
     may pursue it,  which  would  reduce the amount of time that Mr. Berg could
     devote to our affairs and could result in the Berg Group's  development  of
     properties that compete with our properties for tenants;
-    in general,  we have agreed to limit the liability of the Berg Group to our
     corporation and our  stockholders  arising from the Berg Group's pursuit of
     these other opportunities;
-    we acquired most of our  properties  from the Berg Group on terms that were
     not negotiated at arm's length and without many  customary  representations
     and  warranties  that  we  would  have  sought  in an  acquisition  from an
     unrelated party; and
-    we have assumed liability for debt to the Berg Group and debt for which the
     Berg Group was liable.

The Berg Group has agreed that the Independent  Directors Committee of our Board
of  Directors  must  approve  all  new  transactions  between  us and any of its
members, or between us and any entity in which it directly or indirectly owns 5%
or more of the equity interests,  including the operating  partnerships for this
purpose.   This  committee   currently  consists  of  three  directors  who  are
independent of the Berg Group.

                                     - 10 -

<PAGE>


BERG LAND HOLDINGS
The Berg Group owns several  parcels of  unimproved  land in the Silicon  Valley
that the operating partnerships and we have the right to acquire under the terms
of the Berg Land  Holdings  Option  Agreement.  We have  agreed to pay an amount
based on pre-negotiated  terms for any of the properties that we do acquire.  We
must pay the  acquisition  price in cash  unless the Berg Group  elects,  in its
discretion,  to receive O.P. Units valued at the average market price of a share
of common stock during the 30-trading-day period preceding the acquisition date.
At the time of acquisition,  which is subject to the approval of the Independent
Directors  Committee,  these properties may be encumbered by debt that we or the
operating  partnerships will be required to assume or repay. The use of our cash
or an increase in our  indebtedness  to acquire  these  properties  could have a
material  adverse effect on our financial  condition,  results of operations and
ability to make cash  distributions  to our  stockholders.  This  agreement will
expire on  December  31,  2010,  after which we will no longer have the right to
acquire properties from the Berg Group or the  pre-determined  terms provided in
that agreement.

TERMS OF TRANSFERS: ENFORCEMENT OF AGREEMENT OF LIMITED PARTNERSHIP
The terms of the Pending Projects Acquisition Agreement,  the Berg Land Holdings
Option Agreement,  the partnership  agreement of each operating  partnership and
other  material  agreements  through which we have acquired our interests in the
operating  partnerships and the properties formerly controlled by the Berg Group
were  not  determined  through  arm's-length  negotiations  and  could  be  less
favorable to us than those obtained from an unrelated  party.  In addition,  Mr.
Berg and representatives of the Berg Group sitting on our Board of Directors may
be subject to conflicts of interests  with respect to their  obligations  as our
directors to enforce the terms of the  partnership  agreement of each  operating
partnership when such terms conflict with their personal interests. The terms of
our  charter  and  bylaws  also  were  not   determined   through   arm's-length
negotiations.  Some of these terms,  including  representations  and  warranties
applicable to acquired  properties,  are not as favorable as those that we would
have sought  through  arm's-length  negotiations  with unrelated  parties.  As a
result,  an  investment  in our  common  stock  may  involve  risks not found in
businesses  in which the terms of material  agreements  have been  negotiated at
arm's length.

RELATED PARTY DEBT
We are liable under a mortgage loan of approximately $8.8 million due June 2013,
which was extended  from the original  maturity date of June 2010, in connection
with our  acquisition of the 5300-5350  Hellyer  Avenue R&D  properties  that we
acquired in May 2000 under the Berg Land Holdings  Option  Agreement.  If we are
unable to repay our debt to the Berg Group when due,  the Berg Group  could take
action to enforce our payment  obligations.  Potential actions by the Berg Group
to enforce these  obligations  could result in the foreclosure in one or more of
our  properties  and a  reduction  in the  amount of cash  distributions  to our
stockholders. In turn, if we fail to meet the minimum distributions test because
of a loan default or another reason, we could lose our REIT  classification  for
federal income tax purposes. For more information please refer to Item 1A, "Risk
Factors - Failure to satisfy  federal  income tax  requirements  for REITs could
reduce our distributions, reduce our income and cause our stock price to fall."

OUR  OPTION TO  ACQUIRE  R&D  PROPERTIES  DEVELOPED  ON  EXISTING  LAND AND LAND
ACQUIRED IN THE FUTURE BY THE BERG GROUP WILL  TERMINATE  WHEN THE BERG  GROUP'S
OWNERSHIP INTEREST HAS BEEN REDUCED, OR IF EARLIER, ON DECEMBER 31, 2010.

The Berg Land Holdings  Option  Agreement,  as amended,  which  provides us with
significant benefits and opportunities to acquire additional R&D properties from
the Berg Group,  will expire on the earlier of December 31, 2010 and the date on
which the Berg  Group  and  their  affiliates  (excluding  us and the  operating
partnerships)  own less than 65% of our common stock on a Fully  Diluted  basis.
Although we do not currently perceive growth opportunities from the land that is
subject to the Berg Land  Holdings  Option  Agreement,  it is possible  that the
termination  of that  agreement  will result in limitation of our growth,  which
could cause our stock price to fall.

WE MAY CHANGE OUR  INVESTMENT  AND  FINANCING  POLICIES AND  INCREASE  YOUR RISK
WITHOUT STOCKHOLDER APPROVAL.

Our Board of Directors  determines the investment and financing  policies of the
operating   partnerships   and  our  policies  with  respect  to  certain  other
activities,  including our business growth, debt  capitalization,  distribution,
and operating  policies.  Our Board of Directors may amend these policies at any
time  without  a vote of the  stockholders.  Changes  in  these  policies  could
materially adversely affect our financial  condition,  results of operations and
ability to make cash  distributions  to our  stockholders,  which could harm our
business and cause our stock price to fall. For more information please refer to
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Policies with Respect to Certain Activities."

ANTI-TAKEOVER  PROVISIONS IN OUR CHARTER COULD PREVENT ACQUISITIONS OF OUR STOCK
AT A SUBSTANTIAL PREMIUM.

Provisions  of our  charter  and our  bylaws  could  delay,  defer or  prevent a
transaction or a change in control of our corporation, or a similar transaction,
that might  involve a premium  price for our shares of common stock or otherwise
be in the best interests of our stockholders. Provisions of the Maryland general
corporation  law,  which would apply to  potential  business  combinations  with
acquirers  other  than the Berg  Group or  stockholders  who  invested  in us in
December 1998, also could prevent the acquisition of our stock for a premium, as
discussed in "Certain Provisions of Maryland Law and of our Charter and Bylaws."

                                     - 11 -
<PAGE>

AN INVESTMENT  IN OUR STOCK  INVOLVES  RISKS RELATED TO REAL ESTATE  INVESTMENTS
THAT COULD HARM OUR BUSINESS AND CAUSE OUR STOCK PRICE TO FALL.

RENTAL INCOME VARIES
Real property  investments  are subject to varying  degrees of risk.  Investment
returns available from equity investments in real estate depend in large part on
the  amount of income  earned and  capital  appreciation,  which our  properties
generate,  as well as our related  expenses  incurred.  If our properties do not
generate  revenues  sufficient  to meet  operating  expenses,  debt  service and
capital  expenditures,  our income  and  ability  to make  distributions  to our
stockholders will be adversely affected.  Income from our properties may also be
adversely  affected by general economic  conditions,  local economic  conditions
such  as  oversupply  of  commercial  real  estate,  the  attractiveness  of our
properties to tenants and prospective tenants,  competition from other available
rental property, our ability to provide adequate maintenance and insurance,  the
cost of tenant improvements,  leasing commissions and tenant inducements and the
potential of increased operating costs, including real estate taxes.

EXPENDITURES FOR PROPERTY OWNERSHIP ARE FIXED
Income from  properties and real estate values also are affected by a variety of
other factors,  such as governmental  regulations and applicable laws, including
real estate,  zoning and tax laws,  interest rate levels and the availability of
financing.  Various  significant  expenditures  associated with an investment in
real  estate,  such as  mortgage  payments,  real estate  taxes and  maintenance
expenses,  generally  are not reduced  when  circumstances  cause a reduction in
revenue from the investment.  Thus, our operating  results and our cash flow may
decline materially if our rental income is reduced.

ILLIQUIDITY
Real estate  investments  are relatively  illiquid,  which limits our ability to
restructure   our  portfolio  in  response  to  changes  in  economic  or  other
conditions.

GEOGRAPHIC CONCENTRATION
All of our properties  are located in the southern  portion of the San Francisco
Bay Area  commonly  referred to as the  "Silicon  Valley."  The  Silicon  Valley
economy has weakened after relatively recent years and there remains significant
excess  capacity for R&D properties in the Silicon  Valley.  At present,  future
increases in values and rents for our properties depend to a significant  extent
on a  strong  recovery  of this  region's  economy,  which  we do not  currently
foresee.

LOSS OF KEY TENANTS
Single tenants, many of whom are large,  publicly traded information  technology
companies,  occupy most of our  properties.  We may lose tenants  when  existing
leases  expire  because it may be difficult to re-lease the same property due to
substantial  overcapacity  of R&D  properties in the Silicon  Valley at present.
Losing a key tenant could adversely affect our operating results and our ability
to make  distributions  to stockholders  if we are unable to obtain  replacement
tenants  promptly.  Moreover,  to retain  key  tenants  upon the  expiration  of
existing leases we may need to reduce rents,  which also could adversely  affect
our operating results and ability to make distributions.

TENANT BANKRUPTCIES
Key tenants could seek the protection of the bankruptcy laws, which could result
in the rejection and termination of their leases, thereby causing a reduction in
our rental income.  Under the bankruptcy  laws, these tenants may have the right
to reject  their  leases  with us and our claim for rent will be  limited to the
greater  of one year or 15% of the total  amount  owing  under the  leases  upon
default,  but not to  exceed  three  years of the  remaining  term of the  lease
following the earlier of the petition filing date or the date on which we gained
repossession of the property, as well as any rent that was unpaid on the earlier
of those dates.

OUR SUBSTANTIAL INDEBTEDNESS
Our properties are subject to substantial indebtedness. If we are unable to make
required mortgage  payments,  we could sustain a loss as a result of foreclosure
on our  properties  by the  mortgagor.  Furthermore,  our mortgage  loans may be
subject to covenants  that we are obligated to satisfy.  For example,  under our
mortgage loan agreements with Northwestern  Mutual Life Insurance  Company,  the
payment of all $100 million  outstanding  could be accelerated  upon the sale or
certain other  transfers of more than 51% of the total number of O.P.  Units and
shares of common stock of the Company held by the members of the Berg Group.  We
have no reason to expect such a sale or transfer in the foreseeable  future, but
the members of the Berg Group have no  obligation to us to refrain from any such
sale or other  transfer.  We have adopted a policy of maintaining a consolidated
ratio of debt to total market  capitalization,  which  includes for this purpose
the market value of all shares of common stock for which  outstanding O.P. Units
are  exchangeable,  of less than 50%. This ratio may not be exceeded without the
approval  of more  than 75% of our  entire  Board  of  Directors.  Our  Board of
Directors  may vote to change this  policy,  however,  and we could  become more
highly  leveraged,  resulting in an increased risk of default on our obligations
and an increase in debt service  requirements  that could  adversely  affect our
financial condition, our operating results and our ability to make distributions
to our stockholders.

                                     - 12 -

<PAGE>


ENVIRONMENTAL CLEAN-UP LIABILITIES
Our properties may expose us to liabilities  under applicable  environmental and
health and  safety  laws.  If these  liabilities  are  material,  our  financial
condition and ability to pay cash distributions may be affected adversely, which
would cause our stock price to fall.

UNINSURED LOSSES
We may sustain uninsured losses with respect to some of our properties. If these
losses are material,  our  financial  condition,  our operating  results and our
ability to make distributions to our stockholders may be affected adversely.

EARTHQUAKE DAMAGES ARE UNINSURED
All of our  properties  are  located  in areas that are  subject  to  earthquake
activity.  Our insurance policies do not cover damage caused by seismic activity
although  they do cover losses from fires after an  earthquake.  We generally do
not consider such insurance  coverage to be economical.  If an earthquake occurs
and  results  in  substantial  damage  to our  properties,  we  could  lose  our
investment in those properties,  which loss could have a material adverse effect
on our  financial  condition,  our  operating  results  and our  ability to make
distributions to our stockholders.

OUR REAL ESTATE ASSETS MAY BE SUBJECT TO IMPAIRMENT CHARGES.

We  continually  evaluate the  recoverability  of the carrying value of our real
estate  assets for  impairment  indicators.  Factors  considered  in  evaluating
impairment of our existing real estate assets  include  significant  declines in
property  operating  profits,  recurring  property  operating  losses  and other
significant  adverse  changes in general market  conditions  that are considered
permanent in nature.  Generally,  a real estate asset is not considered impaired
if the undiscounted, estimated future cash flows of the asset over its estimated
holding  period are in excess of the asset's net book value at the balance sheet
date.  Assumptions used to estimate annual and residual cash flow, the estimated
holding  period of such assets,  the lease up period when  properties are vacant
and future  rental income  require the judgment of  management.  Actual  results
could be different than our estimates.

There can be no assurance that we will not take impairment charges in the future
related to the impairment of our assets. As of the years ended December 31, 2008
and 2007,  management believed it had applied reasonable estimates and judgments
in determining  the proper  classification  of its real estate assets.  However,
should external or internal  circumstances  change requiring the need to shorten
the holding periods or adjust the estimated  future cash flows of certain of our
assets, we could be required to record  additional  impairment  charges.  If any
real estate asset held for sale is  considered  impaired,  a loss is provided to
reduce the carrying  value of the asset to its fair value,  less selling  costs.
Any future  impairment  could have a material  adverse  affect on the  Company's
results  of  operations  and funds  from  operations  in the period in which the
charge is taken.

FAILURE TO SATISFY  FEDERAL INCOME TAX  REQUIREMENTS  FOR REITS COULD REDUCE OUR
DISTRIBUTIONS, REDUCE OUR INCOME AND CAUSE OUR STOCK PRICE TO FALL.

FAILURE TO QUALIFY AS A REIT
Although we currently  operate in a manner  designed to enable us to qualify and
maintain our REIT status,  it is possible that economic,  market,  legal, tax or
other  considerations may cause us to fail to qualify as a REIT or may cause our
Board of Directors  either to refrain from making the REIT election or to revoke
that election once made. To maintain REIT status, we must meet certain tests for
income, assets,  distributions to stockholders,  ownership interests,  and other
significant conditions.  If we fail to qualify as a REIT in any taxable year, we
will not be  allowed  a  deduction  for  distributions  to our  stockholders  in
computing  our  taxable  income  and would be subject  to  federal  income  tax,
including  any  applicable  alternative  minimum  tax, on our taxable  income at
regular  corporate  rates.  Moreover,  unless we were  entitled to relief  under
certain provisions of the tax laws, we would be disqualified from treatment as a
REIT for the four taxable years  following  the year in which our  qualification
was lost. As a result,  funds available for  distributions  to our  stockholders
would be reduced for each of the years  involved  and, in addition,  we would no
longer be required to make distributions to our stockholders.

REIT DISTRIBUTION REQUIREMENTS
To maintain REIT status, we must distribute as a dividend to our stockholders at
least 90% of our otherwise net taxable income, after certain  adjustments,  with
respect to each tax year. We also may be subject to a 4%  non-deductible  excise
tax in the event our  distributions  to stockholders  fail to meet certain other
requirements.  Failure to comply  with these  requirements  could  result in our
income being subject to tax at regular  corporate rates and could cause us to be
liable for the excise tax.

OWNERSHIP LIMIT NECESSARY TO MAINTAIN REIT QUALIFICATION
As a REIT,  the federal tax laws  restrict the  percentage of the total value of
our stock  that may be owned by five or fewer  individuals  to 50% or less.  Our
charter generally  prohibits the direct or indirect ownership of more than 9% of
our common stock by any stockholder.  This limit excludes the Berg Group,  which
has an  aggregate  ownership  limit of 20%. In  addition,  as  permitted  by our
charter,  our Board of Directors has  authorized an exception  applicable to two
other   stockholders   that  permits  them  to  collectively  own,  directly  or
indirectly,  up to 18.5% of our common stock on an aggregate  basis,  subject to
the terms of an ownership limit  exemption  agreement.  In general,  our charter
prohibits the transfer of shares that result in a loss of our REIT qualification
and  provides  that  any

                                     - 13 -
<PAGE>

such  transfer or any other  transfer  that causes a  stockholder  to exceed the
ownership limit will result in the shares being  automatically  transferred to a
trust for the benefit of a  charitable  beneficiary.  Accordingly,  in the event
that  either  the  Berg  Group  or the two  stockholders  increase  their  stock
ownership in our  corporation,  a stockholder  who acquires shares of our common
stock, even though his, her or its aggregate  ownership may be less than 9%, may
be required to transfer a portion of that  stockholder's  shares to such a trust
in order to preserve our status as a REIT.

STOCKHOLDERS ARE NOT ASSURED OF RECEIVING CASH DISTRIBUTIONS FROM US.

Our  income  consists  primarily  of our share of the  income  of the  operating
partnerships, and our cash flow consists primarily of our share of distributions
from the operating  partnerships.  Differences  in timing between the receipt of
income and the payment of  expenses  in  arriving  at our taxable  income or the
taxable  income of the  operating  partnerships  and the effect of required debt
amortization  payments could require us to borrow funds, directly or through the
operating partnerships,  on a short-term basis to meet our intended distribution
policy.

Our Board of Directors will determine the amount and timing of  distributions by
the operating  partnerships and of distributions to our stockholders.  Our Board
of  Directors  will  consider  many factors  prior to making any  distributions,
including the following:

-    the amount of cash available for distribution;
-    availability of financing;
-    our financial condition;
-    whether to reinvest funds rather than to distribute such funds;
-    our committed and projected capital expenditures;
-    the  amount  of cash  required  for new  property  acquisitions,  including
     acquisitions under our existing agreements with the Berg Group;
-    the amount of our annual debt service requirements;
-    the  annual  distribution  requirements  under the REIT  provisions  of the
     federal income tax laws;
-    our projected rental rates and revenues;
-    our ability to collect rent payments;
-    prospects  of tenant  renewals  and  re-leases  of  properties  subject  to
     expiring leases;
-    cash required for  re-leasing  activities;  and o such other factors as our
     Board of Directors deem relevant.

We  cannot  assure  you  that we will be  able  to  meet or  maintain  our  cash
distribution objectives.

OUR PROPERTIES COULD BE SUBJECT TO PROPERTY TAX REASSESSMENTS.

We do not believe that the  acquisition of any of our interests in the operating
partnerships  has resulted in a statutory  change in  ownership  that could give
rise to a reassessment  of any of our  properties  for  California  property tax
purposes.  We cannot  assure you,  however,  that county  assessors or other tax
administrative  agencies  in  California  will not attempt to assert that such a
change occurred as a result of these transactions. Although we believe that such
a challenge would not be successful  ultimately,  we cannot assure you regarding
the outcome of any related dispute or proceeding. A reassessment could result in
increased real estate taxes on our properties  that, as a practical  matter,  we
may be unable to pass through to our tenants in full.  This could reduce our net
income and our funds  available for  distributions  and cause our stock price to
fall.

OUR   OBLIGATION  TO  PURCHASE   TENDERED  O.P.  UNITS  COULD  REDUCE  OUR  CASH
DISTRIBUTIONS.

Each of the limited partners of the operating  partnerships,  other than Carl E.
Berg and Clyde J. Berg, has the annual right to cause the operating partnerships
to purchase the limited  partner's  O.P.  Units at a purchase price based on the
average  market  value  of the  common  stock  for  the  ten-trading-day  period
immediately  preceding the date of tender.  Upon a limited partner's exercise of
any such right, we will have the option to purchase the tendered O.P. Units with
available  cash,  borrowed  funds or the proceeds of an offering of newly issued
shares of common  stock.  These put rights  became  exercisable  on December 29,
1999,  and are available  once during a 12-month  period.  If the total purchase
price of the O.P. Units tendered by all of the eligible  limited partners in one
year exceeds $1 million, the operating  partnerships or we will be entitled, but
not required, to reduce  proportionately the number of O.P. Units to be acquired
from each  tendering  limited  partner so that the total purchase price does not
exceed $1 million.  Thus, we might  repurchase  O.P.  Units for a total purchase
price of more than $1 million in one year.  The exercise of these put rights may
reduce  the  amount  of  cash  that  we  have  available  to  distribute  to our
stockholders and could cause our stock price to fall.

In addition, all O.P. Unit holders may tender their O.P. Units to us in exchange
for shares of common stock on a one-for-one  basis at then-current  market value
or an equivalent  amount in cash,  at our election.  If we elect to pay cash for
the O.P. Units, our liquidity may

                                     - 14 -
<PAGE>

be reduced and we may lack sufficient funds to continue paying the amount of our
anticipated or historical cash  distributions.  This could cause our stock price
to fall.

SHARES ELIGIBLE FOR FUTURE SALE COULD AFFECT THE MARKET PRICE OF OUR STOCK.

We cannot  predict the  effect,  if any,  that future  sales of shares of common
stock, or the  availability of shares for future sale,  could have on the market
price of our common stock.  As of December 31, 2008, all  outstanding  shares of
our common stock, other than shares controlled by affiliates,  were eligible for
sale  in the  public  market  without  resale  restrictions  under  the  federal
securities laws. Sales of substantial amounts of common stock,  including shares
issued in  connection  with the  exercise  of the  exchange  rights  held by the
limited  partners of the operating  partnerships,  or the  perception  that such
sales could occur,  could  adversely  affect  prevailing  market  prices for the
common  stock.  Additional  shares  of common  stock  may be  issued to  limited
partners,  subject to the applicable REIT qualification ownership limit, if they
exchange  their O.P. Units for shares of common stock pursuant to their exchange
rights, or may be sold by us to raise funds required to purchase such O.P. Units
if eligible  limited  partners  elect to tender O.P. Units to us using their put
rights. Shares of stock controlled by our affiliates may be sold subject to Rule
144, including the limitation under Rule 144(e) on the number of shares that may
be sold within a three-month  period.  In addition,  pursuant to a  registration
statement on Form S-3 declared effective by the SEC in April 2006, all shares of
common stock acquired upon exchange of currently  outstanding  O.P. Units may be
resold without any such restrictions. Additional common stock reserved under our
2004 Equity  Incentive Plan,  including  stock options,  also may be sold in the
market at some  time in the  future.  Future  sales of our  common  stock in the
market could adversely affect the price of our common stock.

MARKET INTEREST RATES MAY REDUCE THE VALUE OF THE COMMON STOCK.

One of the factors that investors  consider important in deciding whether to buy
or  sell  shares  of a REIT  is the  distribution  rate  on  such  shares,  as a
percentage of the price of such shares,  relative to market  interest  rates. If
market interest rates go up, prospective  purchasers of REIT shares may expect a
higher distribution rate. Higher interest rates would not, however, increase the
funds  available for us to distribute,  and, in fact,  would likely increase our
borrowing costs and decrease funds  available for  distributions.  Thus,  higher
market interest rates could cause the price of our common stock to fall.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

                                     - 15 -
<PAGE>


ITEM 2. PROPERTIES

GEOGRAPHIC AND TENANT FOCUS

We focus  principally on the facility  requirements  of  information  technology
companies in the Silicon  Valley,  which  include space for office,  R&D,  light
manufacturing  and  assembly.  With the Silicon  Valley's  highly  educated  and
skilled work force,  history of numerous successful start-up companies and large
contingent of venture capital firms, we believe that this region will, following
the current significant slowdown in the market, continue to spawn successful new
high-growth  industries  and  entrepreneurial  businesses  to an extent  matched
nowhere  else in the  United  States.  We  believe  that our focus and  thorough
understanding of the Silicon Valley real estate market enables us to:

-    anticipate trends in the market;
-    identify  and  concentrate  our  efforts  on  the  most  favorably  located
     sub-markets;
-    take advantage of our experience and extensive  contacts and  relationships
     with local government agencies, real estate brokers and subcontractors,  as
     well as with tenants and prospective tenants; and
-    identify strong tenants.

All of our properties are general-purpose  R&D/office type properties located in
desirable  sub-markets of the Silicon  Valley.  Many of our properties have been
developed  for or leased to single  tenants,  many of whom are  large,  publicly
traded information technology companies. Most of our major tenants have occupied
our properties for many years under triple-net leases that require the tenant to
pay substantially all operating costs, including property insurance, real estate
taxes and general operating costs.

LEASING

The current leases for our properties have terms ranging from  month-to-month to
12 years.  Most of the  leases  provide  for fixed  periodic  rental  increases.
Substantially  all of the leases are  triple-net  leases  pursuant  to which the
tenant is required to pay substantially all of the property operating  expenses,
including  all  maintenance  and  repairs,  property  taxes and  insurance,  and
excluding only certain  structural  repairs to the building  shell.  Most of the
leases contain  renewal  options that allow the tenant to extend the lease based
on  adjustments  to then  prevailing  market  rates,  or based  on fixed  rental
adjustments, which may be at or below market rates.

PROPERTY PORTFOLIO

All  of  our  properties  are  R&D/office  type  properties.   Generally,  these
properties  are one- to two-story  buildings of tilt-up  concrete  construction,
have on average 3.5 or more parking  spaces per thousand  rentable  square feet,
clear ceiling heights of less than 18 feet, and range in size from approximately
4,500 to 211,000  rentable  square  feet.  Most of the office  space is open and
suitable for  configuration  to meet the tenants'  requirements  with the use of
movable dividers.

The following table sets forth certain information relating to our properties as
of December 31, 2008:


<TABLE>
<CAPTION>
                                                                                                             Major
                                                                                                            Tenants'
                                          Total     Percentage     Average                                 Rentable
                              No. of    Rentable  Occupied as of    2008                                    Sq. Ft.    2008 Annual
Location                    Properties   Sq. Ft.   Dec. 31, 2008  Occupancy  Major Tenants                at 12/31/08  Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>     <C>              <C>          <C>      <C>                            <C>        <C>
5300-5350 Hellyer Avenue (2)    2       160,000        100%         100%     Tyco Electronics Corporation   160,000     $3,844,283

10401-10411 Bubb Road (2)       1        20,330         78%          78%     Aeroflex, Inc.                  15,830        216,080

45365 Northport Loop West       1        64,218          0%           0%     Vacant                               -              -

45738 Northport Loop West       1        44,256        100%         100%     Quicksil, Inc.                  44,256        606,307

4050 Starboard Drive            1        52,232        100%         100%     Flash Electronics, Inc.         52,232        531,726

3501 West Warren Avenue &       1        67,864         24%          63%     Oakland Fluid System Tech, Inc. 16,524        697,869
46600 Fremont Boulevard

48800 Milmont Drive             1        53,000          0%           0%     Vacant                                -             -

4750 Patrick Henry Drive        1        63,105        100%         100%     Infoblox, Inc.                   63,105       513,675

Triangle Technology Park (2)    7       416,927         73%          77%     Intevac Corporation             169,795     3,308,177
                                                                             Xicom Technology, Inc.           72,336
                                                                             LSA Cleanpart, LLC               28,300
                                                                             SASCO                            25,350

                                     - 16 -
<PAGE>


                                                                                                             Major
                                                                                                            Tenants'
                                          Total     Percentage     Average                                 Rentable
                              No. of    Rentable  Occupied as of    2008                                    Sq. Ft.    2008 Annual
Location                    Properties   Sq. Ft.   Dec. 31, 2008  Occupancy  Major Tenants                at 12/31/08  Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
5830-5870 Hellyer Avenue        1       109,715         24%          24%     MeiVac, Inc.                    26,557        261,321

5750 Hellyer Avenue             1        73,312        100%         100%     NDS Surgical Imaging, LLC       73,312        691,270

5500-5550 Hellyer Avenue        2       196,534         66%          20%     CTS Corporation                 78,794        450,646
                                                                             Snap-on, Inc.                   50,643

5400 Hellyer Avenue             1        77,184         73%          69%     Nortel Networks, Inc.           34,702        578,072
                                                                             Capella, Inc.                   21,750

5325-5345 Hellyer Avenue        2       256,500        100%         100%     Celestica Asia, Inc.           256,500      5,726,892

5905-5965 Silver Crk Valley Rd. 4       346,000          0%           0%     Vacant                               -              -

5845 Hellyer Avenue             1        98,500          0%           0%     Vacant                               -              -

855 Embedded Way                1        67,912        100%          47%     Celestica Asia, Inc.            39,039        666,473
                                                                             Lynuxworks, Inc.                28,873

1065-1105 La Avenida Street     5       515,700        100%         100%     Microsoft Corporation          515,700     12,576,156

1875 Charleston Road            1        42,126        100%         100%     Netlogic Microsystems, Inc.     42,126        872,004

1750 Automation Parkway         1        80,641        100%         100%     JDS Uniphase Corporation        80,641      1,466,533

1756 Automation Parkway         1        80,640         36%          36%     A&D Engineering, Inc.           28,739        317,364

1762 Automation Parkway         1        61,100        100%         100%     Hermes Microvision, Inc.        61,100        642,620

1768 Automation Parkway         1       110,592         67%          86%     2Wire, Inc.                     74,584      1,306,014

255 Caspian Drive               1       119,756        100%         100%     Equinix Operating Company, Inc.119,756      2,532,839

245 Caspian Drive (3)           1             -          -            -       -                                   -              -

5981 Optical Court              1       110,542        100%         100%     SoloPower, Inc.                110,542      1,563,751

5970 Optical Court              1       128,520        100%         100%     Photon Dynamics, Inc.          128,520      2,018,460

5900 Optical Court              1       165,000        100%         100%     Stryker Corporation            165,000      3,515,430

2630 Orchard Parkway            1        60,633          0%           0%     Vacant                               -              -

2610 Orchard Parkway            1        54,093          0%           0%     Vacant                               -              -

55 West Trimble Road            1        91,722          0%           0%     Vacant                               -              -

2001 Walsh Avenue               1        80,000        100%         100%     Nvidia Corporation              80,000        952,830

2880 Scott Boulevard            1       200,000        100%         100%     NEC Electronics America, Inc.  200,000      2,522,730

2890 Scott Boulevard            1        75,000        100%          50%     Nvidia Corporation              75,000        787,500

2770-2800 Scott Boulevard       1        99,800        100%         100%     Nvidia Corporation              99,800      1,292,914

2300 Central Expressway         1        46,338        100%         100%     Juniper Networks, Inc.          46,338        660,204

2220 Central Expressway         1        62,522        100%         100%     Tellabs, Inc.                   62,522        705,874

2330 Central Expressway         1        62,522        100%         100%     Tellabs, Inc.                   62,522        705,873

233 South Hillview Drive        2        95,690        100%         100%     Exar Corporation                95,690      1,330,272

2251 Lawson Lane                1       125,000         51%           7%     Synaptics, Inc.                 64,270        154,249

1230 East Arques                1        60,000        100%         100%     Fujitsu                         60,000        349,964

1250 East Arques                4       200,000        100%         100%     Fujitsu                        200,000        869,311

                                     - 17 -
<PAGE>
                                                                                                             Major
                                                                                                            Tenants'
                                          Total     Percentage     Average                                 Rentable
                              No. of    Rentable  Occupied as of    2008                                    Sq. Ft.    2008 Annual
Location                    Properties   Sq. Ft.   Dec. 31, 2008  Occupancy  Major Tenants                at 12/31/08  Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------


20400 Mariani Avenue            1       105,000        100%          75%     Apple, Inc.                    105,000        723,006

10500 De Anza Boulevard         1       211,000        100%         100%     Apple, Inc.                    211,000      4,070,567

20605-705 Valley Green Drive    2       142,000        100%         100%     Apple, Inc.                    142,000      2,487,840

10300 Bubb Road                 1        23,400        100%         100%     Apple, Inc.                     23,400        267,462

10440 Bubb Road                 1        19,500        100%         100%     Novare Surgical Systems, Inc.   10,833        271,302

10450-10460 Bubb Road           1        45,460        100%         100%     Ricoh Corporation               30,460        656,800
                                                                             VMWare, Inc.                    15,000

1135 Kern Avenue                1        18,300          0%           0%     Vacant                               -              -

450 National Avenue             1        36,100          0%          20%     Vacant                               -        105,820

3301 Olcott Street              1        64,500          0%           0%     Vacant                               -              -

2800 Bayview Avenue             1        59,736          0%           0%     Vacant                               -              -

5521 Hellyer Avenue             1       203,800         44%          44%     Nanosolar, Inc.                 89,040        587,664

6850 Santa Teresa Boulevard     1        30,000         41%          41%     Bio-Medical Applications of CA  12,350        123,341

6810 Santa Teresa Boulevard &   1        54,996         87%          87%     ZiLOG, Inc.                     40,527        587,340
180 Great Oaks Boulevard

140-160 Great Oaks Boulevard    2       105,300         75%          75%     Semiconductor Tooling Services  53,300        809,616
& 6781 Via Del Oro                                                           Santa Clara Valley Water Dist.  25,429

6540-6541 Via Del Oro &         2        66,600         71%          73%     Modutek Corporation             21,376        466,635
6385-6387 San Ignacio Avenue

6311-6351 San Ignacio Avenue    5       362,767         55%          48%     Saint Gobain                    95,953      2,917,008
                                                                             Stion Corporation               64,435
                                                                             Teledex, LLC                    30,000

6320-6360 San Ignacio Avenue    1       157,292         12%          12%     Quantum 3D, Inc.                19,600        368,190

75 East Trimble Road &          2       170,810         59%          59%     Comerica, Inc.                  93,984      1,149,828
2610 North First Street

2904 Orchard Parkway            1        75,335        100%         100%     BAE Systems Land & Armaments    75,335      1,020,529

3236 Scott Boulevard            1        54,672        100%         100%     Mimix Broadband, Inc.           54,672        726,462

1212 Bordeaux Lane              1        71,800        100%         100%     Loral Space &                   71,800        722,334
                                                                             Communications, Inc.

McCandless Technology Park     14       705,958         22%          24%     ST Assembly Test Services, Inc. 33,984      1,261,013
                                                                             Consentry Networks, Inc.        33,821

1600 Memorex Drive              1       107,500         21%          21%     International Network           22,800        223,326
                                                                             Services, Inc.

1688 Richard Avenue             1        52,800        100%         100%     NWE Technology, Inc.            52,800        393,444

1700 Richard Avenue             1        58,783        100%         100%     Cincinnati Bell, Inc.           58,783        861,175

Morgan Hill Land (4)            -             -          -            -      -                                    -              -

300 Montague Expressway         1        49,457          0%           1%     Vacant                               -         30,767

337 Trade Zone Boulevard        1        42,912          0%           0%     Vacant                               -              -

324-368 Montague Expressway     1        56,265          0%           0%     Vacant                               -              -

                             --------------------                                                                    ---------------
  TOTAL                       111     8,047,569         66%                                                            $76,067,152
                             ====================                                                                    ===============
</TABLE>

                                     - 18 -
<PAGE>

(1)  Annual cash rents do not include the  recognition  of rental  income on the
     straight-line  method  of  accounting  required  by  accounting  principles
     generally  accepted in the United  States of America  ("GAAP")  under which
     contractual  rent payment  increases are  recognized  evenly over the lease
     term.
(2)  Joint venture properties.
(3)  Property  represents  a  commitment  by the  Berg  Group  to  construct  an
     approximate  75,000 to 90,000 square foot building on land acquired  during
     2001.
(4)  This  property  comprises of 55 acres of vacant land,  which could  support
     approximately  800,000  rentable  square feet of space.  The vacant land is
     currently  zoned for  industrial  use and a portion has the potential to be
     rezoned for residential use.

We own 100% of all of the  properties  listed in the table,  except:  one of the
buildings in the Triangle  Technology Park, which is owned by a joint venture in
which we, through an operating partnership,  own a 75% interest; the property at
10401-10411 Bubb Road, which is owned by a joint venture in which we, through an
operating  partnership,  own an 83.33% interest; and the properties at 5300-5350
Hellyer  Avenue,  which are owned by a joint  venture  in which we,  through  an
operating  partnership,  own a 50% interest, and a Berg affiliate owns the other
50% venture interest.

SCHEDULE OF LEASE EXPIRATIONS

The  following  table  sets forth a schedule  of the lease  expirations  for the
properties  beginning  with 2009,  assuming  that none of the  tenants  exercise
existing  renewal options or termination  rights.  The table excludes  2,701,554
rentable square feet that were vacant as of December 31, 2008.

<TABLE>
<CAPTION>
                        Number of                                                           Percentage of Total Annual
       Year of Lease    Expiring     Rentable Square Footage      2009 Annual Base Rent      Base Rent Represented By
        Expiration       Leases    Subject to Expiring Leases   Under Expiring Leases (1)       Expiring Leases (2)
     --------------------------------------------------------------------------------------------------------------------
<S>       <C>               <C>           <C>                         <C>                             <C>
           2009              22              369,613                    $1,777,373                      2.2%

           2010              12              572,000                     9,298,560                     11.3%

           2011              15              827,605                    12,225,746                     14.9%

           2012              13            1,001,452                    14,883,768                     18.1%

           2013               6              459,737                     5,801,817                      7.1%

           2014              11            1,281,952                    23,158,141                     28.2%

           2015               4              328,211                     6,313,276                      7.7%

           2016               2              144,600                     2,959,748                      3.6%

           2017               3              241,089                     3,050,940                      3.7%

        Thereafter            1              119,756                     2,608,286                      3.2%

                       --------------------------------------------------------------------------------------------------

                             89            5,346,015                   $82,077,655                     100%
                       ==================================================================================================
</TABLE>


(1)  The base rent for  expiring  leases is based on 2009  scheduled  cash rent,
     which is different than annual rent determined in accordance with GAAP.
(2)  Based upon 2009 cash rent as discussed in Note (1).

If we are unable to lease a significant  portion of the available space or space
scheduled to expire in 2009 and thereafter at any of our properties; if existing
tenants do not renew their leases;  or if rental rates decrease,  our results of
operations, financial condition and cash flows would be affected adversely.

ENVIRONMENTAL MATTERS

To date,  compliance with laws and regulations relating to the protection of the
environment,  including  those  regarding  the  discharge of materials  into the
environment  has not had any  material  effects  upon our capital  expenditures,
earnings or competitive position.

Under various  federal,  state and local laws,  ordinances and  regulations,  an
owner or operator of real  property  may be held liable for the costs of removal
or remediation  of certain  hazardous or toxic  substances  located on or in the
property.  Such laws often impose liability on the owner and expose the owner to
governmental  proceedings  without  regard to whether  the owner knew of, or was
responsible for, the presence of the hazardous or toxic substances.  The cost of
any required  remediation or removal of such substances may be  substantial.  In
addition,  the owner's  liability as to any specific  property is generally  not
limited and could exceed the value of the property  and/or the aggregate  assets
of the owner. The presence of such substances, or the failure to properly remove
or remediate such  substances,  may also adversely affect the owner's ability to
sell or rent the property or to borrow using the property as collateral. Persons
who arrange for treatment or the disposal of hazardous or toxic  substances  may
also be liable  for the costs of any  required

                                     - 19 -
<PAGE>


remediation  or  removal  of the  hazardous  or toxic  substances  at a disposal
facility,  regardless of whether the facility is owned or operated by such owner
or entity.  In connection  with the ownership of the properties or the treatment
or disposal of hazardous or toxic substances, we may be liable for such costs.

Some  of  our  properties  are  leased,   in  part,  to  businesses,   including
manufacturers  that use, store or otherwise handle hazardous or toxic substances
in their  business  operations.  These  operations  create a  potential  for the
release of hazardous or toxic substances. In addition,  groundwater contaminated
by chemicals used in various manufacturing  processes,  including  semiconductor
fabrication, underlies a significant portion of northeastern Santa Clara County,
where many of our properties are located.

Environmental  laws  also  govern  the  presence,  maintenance  and  removal  of
asbestos.  These laws require  that owners or operators of buildings  containing
asbestos properly manage and maintain the asbestos,  that they adequately inform
or train those who may come into contact with  asbestos and that they  undertake
special  precautions,  including  removal or other  abatement  in the event that
asbestos is disturbed during renovation or demolition of a building.  These laws
may impose fines and  penalties on building  owners or operators  for failure to
comply with these requirements and may allow third parties to seek recovery from
owners or operators  for personal  injury  associated  with exposure to asbestos
fibers.  We are aware that  there are  asbestos-containing  materials,  or ACMs,
present at several of the properties,  primarily in floor coverings.  We believe
that the ACMs present at these  properties  are generally in good  condition and
that no ACMs are  present  at the  remaining  properties.  We  believe we are in
compliance in all material  respects with all present  federal,  state and local
laws  relating to ACMs and that if we were given limited time to remove all ACMs
present at the  properties,  the cost of such removal  would not have a material
adverse effect on our financial condition,  results of operations and ability to
make cash distributions to our stockholders.

Phase I assessments are intended to discover and evaluate information  regarding
the environmental condition of the surveyed property and surrounding properties.
Phase I assessments  generally  include a historical  review,  a public  records
review, an investigation of the surveyed site and surrounding properties and the
preparation and issuance of a written  report,  but do not include soil sampling
or subsurface  investigations  and typically do not include an asbestos  survey.
Environmental assessments have been conducted for about half of the properties.

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


                                     - 20 -
<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

Neither the operating  partnerships,  our  properties  nor we are subject to any
material litigation nor, to our knowledge, is any material litigation threatened
against the operating partnerships,  our properties or us. From time to time, we
are engaged in legal proceedings arising in the ordinary course of our business.
We do not expect any of such  proceedings  to have a material  adverse effect on
our cash flows,  financial condition or results of operations.  We are currently
involved in the  following  legal  proceedings  and we believe that the ultimate
outcome  of these  proceedings  will not have a material  adverse  effect on our
operating results, cash flows or financial condition.

Mission West Properties,  L.P. v. Republic Properties Corporation,  et al. Santa
Clara County Superior  Court,  Case No. CV 796249.  In February 2001,  while the
Maryland case was pending,  we filed a suit against RPC in the Superior Court of
the State of California for the County of Santa Clara,  Case No. CV 796249.  The
case was stayed  pending  resolution of the Maryland  case, and we dismissed our
suit on March 4, 2005. In April 2005, RPC submitted a motion asking the Superior
Court to reinstate the case, which the Court granted on May 25, 2005. On July 5,
2006, RPC filed a cross-complaint in the case seeking partnership  distributions
to which we demurred.  The Court  sustained  our  demurrer  with leave to amend.
Subsequently,  RPC filed an amended complaint, and we submitted another demurrer
seeking dismissal of the claims on statute of limitations  grounds.  On February
20, 2007, the Court overruled our demurrer. We sought a writ from the California
State  Court of Appeal  for the Sixth  District  to  direct  the lower  court to
reverse its decision,  but the petition for the writ was denied.  In April 2008,
we filed a motion for summary  judgment in the  California  Superior Court which
was denied.  In October 2008, a motion filed by RPC for summary  judgment in the
California  Superior Court was denied. A trial in the California  Superior Court
commenced in February 2009.

The Independent  Directors Committee of the Board of Directors has exercised the
right to acquire on behalf of the  Company the former RPC  interest  and related
distributions  from Berg & Berg  Enterprises,  Inc.  under the terms of the Berg
Land  Holdings  Option  Agreement  between the Company and the Berg Group if the
litigation  is  ultimately  decided  in  favor  of the  Company,  as more  fully
explained under Item 8, "Financial Statements and Supplementary Data - Note 13."

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of stockholders during the fourth quarter of
the year ended December 31, 2008.


                                     - 21 -


<PAGE>


PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

HISTORICAL PERFORMANCE COMPARISON

The following graph compares the change in the Company's cumulative  stockholder
return on its  shares  of common  stock to the  cumulative  total  return of the
NAREIT Equity REIT Total Return Index ("NAREIT Equity Index") and the Standard &
Poor's 500 Stock Index ("S&P 500 Index") from  December 31, 2003 to December 31,
2008. The line graph starts  December 31, 2003. The graph assumes that the value
of the  investment in the  Company's  common stock was $100 at December 31, 2003
and that all dividends were reinvested. The common stock's price on December 31,
2003 was $12.95.  The Company  obtained the information  about the NAREIT Equity
Index and S&P 500 Index from each entity respectively,  and has assumed that the
information is reliable, but cannot assume its accuracy.


                                [OBJECT OMITTED]

        The stock price performance shown in the graph is not necessarily
         indicative of future performance of the Company's common stock.


Our common stock is listed on the Nasdaq Stock Market, LLC ("NASDAQ") and trades
under the symbol  "MSW." The closing  price of our common  stock on December 31,
2008,  the last trading day of the year,  was $7.65 per share.  The high and low
closing  price per share of  common  stock as  reported  on NASDAQ  during  each
quarter of 2008 and 2007 were as follows:

<TABLE>
<CAPTION>
                                                     2008                              2007
                                         -----------------------------     -----------------------------
                                             High            Low               High            Low
                                         -------------   -------------     -------------   -------------
<S>            <C>                          <C>             <C>               <C>            <C>
                1st Quarter                  $10.13          $8.36             $14.60         $11.89
                2nd Quarter                  $12.39          $9.45             $14.85         $13.00
                3rd Quarter                  $11.36          $8.58             $14.01         $11.30
                4th Quarter                   $9.27          $6.11             $12.50          $9.23

</TABLE>

                                     - 22 -
<PAGE>


On February 28, 2009, there were 171 registered holders of the Company's common
stock.

DIVIDEND POLICY

We declared and paid  dividends  in each quarter of 2008 and 2007.  We expect to
pay quarterly  dividends  during 2009. The following tables show information for
quarterly dividends for 2008 and 2007.

<TABLE>
<CAPTION>
                                                              2008
                                         -----------------------------------------------
                                                                             Dividend
                                         Record Date     Payment Date        Per Share
                                         -------------   -------------     -------------
<S>            <C>                        <C>             <C>                 <C>
                1st Quarter                03/31/08        04/03/08            $0.20
                2nd Quarter                06/30/08        07/03/08             0.20
                3rd Quarter                09/30/08        10/09/08             0.20
                4th Quarter                12/31/08        01/08/09             0.20
                                                                           -------------
                   Total                                                       $0.80
                                                                           =============


                                                              2007
                                         -----------------------------------------------
                                                                             Dividend
                                         Record Date     Payment Date        Per Share
                                         -------------   -------------     -------------
                1st Quarter                03/30/07        04/05/07            $0.16
                2nd Quarter                06/30/07        07/05/07             0.16
                3rd Quarter                09/28/07        10/04/07             0.16
                4th Quarter                12/31/07        01/03/08             0.16
                                                                           -------------
                   Total                                                       $0.64
                                                                           =============
</TABLE>

The declaration and payment of dividends and  distributions  will continue to be
determined  by the Board of  Directors  in light of  conditions  then  existing,
including the Company's earnings,  financial  condition,  capital  requirements,
debt service requirements and other factors.

For federal income tax purposes, we have characterized the dividends declared in
2008 as follows:  73.3%  taxable  ordinary  income,  22.2% capital gain and 4.5%
unrecaptured section 1250 gain (unaudited).  For 2007, we have characterized 97%
taxable ordinary income,  2% capital gain and 1% unrecaptured  section 1250 gain
(unaudited).

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

See Item 12 of Part III of this Report  regarding  information  about securities
authorized for issuance under our equity compensation plans.

                                     - 23 -

<PAGE>


Item 6.   Selected Financial Data

The following  table sets forth selected  historical  financial  information for
Mission West Properties, Inc. (see Item 7, "Management's Discussion and Analysis
of Financial  Condition and Results of Operations - Overview and Background" for
discussion of business  combinations and property  dispositions  that materially
affect the comparability of the selected financial data).

Selected  consolidated  financial  data is derived  from the  audited  financial
statements   and  notes  thereto  (see  Item  8,   "Financial   Statements   and
Supplementary Data") and is as follows:

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                       --------------------------------------------------------------------------
                                                           2008           2007           2006           2005            2004
                                                       -------------  -------------  -------------  --------------  -------------
                                                                     (dollars in thousands, except per share data)
     OPERATING INFORMATION: (1)
     Operating revenues:
<S>                                                     <C>            <C>            <C>            <C>            <C>
       Rental revenue from real estate                   $79,075        $80,337        $91,457        $99,082        $116,410
       Above market lease intangible asset
          amortization                                         -         (4,091)        (1,888)        (1,888)         (1,888)
       Tenant reimbursements                              16,406         13,355         13,061         14,030          14,054
       Other income, including lease terminations and
          settlements                                      4,223         61,982         18,222          4,023           6,861
                                                       -------------  -------------  -------------  --------------  -------------
     Total operating revenues                             99,704        151,583        120,852        115,247         135,437
                                                       -------------  -------------  -------------  --------------  -------------

     Operating expenses:
        Property operating, maintenance and real
           estate taxes                                   23,460         20,371         18,505         18,613          18,952
        General and administrative                         2,635          3,035          2,248          1,910           2,011
        Depreciation and amortization of real estate      23,224         22,588         21,579         20,329          20,602
                                                       -------------  -------------  -------------  --------------  -------------
     Total operating expenses                             49,319         45,994         42,332         40,852          41,565
                                                       -------------  -------------  -------------  --------------  -------------

     Operating income                                     50,385        105,589         78,520         74,395          93,872

     Other income (expenses):
        Equity in earnings of unconsolidated joint
           venture                                        19,617          1,408          1,985            724           2,947
        Interest and dividend income                       1,735          3,086          2,344            567               -
        Unrealized loss from investment in marketable
           securities                                       (278)             -              -              -               -
        Interest expense                                 (19,787)       (20,131)       (20,708)       (21,294)        (17,581)
        Interest expense - related parties                (1,332)          (724)          (755)          (972)         (1,077)
                                                       -------------  -------------  -------------  --------------  -------------
          Income from continuing operations before
            minority interests                            50,340         89,228         61,386         53,420          78,161
        Minority interests from continuing operations    (40,206)       (71,471)       (49,928)       (44,136)        (64,936)
                                                       -------------  -------------  -------------  --------------  -------------
              Income from continuing operations           10,134         17,757         11,458          9,284          13,225

     Discontinued operations, net of minority interests:
        Gain from disposal of discontinued operations(2)       -          1,126          2,935            445               -
        Income attributable to discontinued operations (2)     -              5            237            298              87
                                                       -------------  -------------  -------------  --------------  -------------
          Income from discontinued operations                  -          1,131          3,172            743              87
                                                       -------------  -------------  -------------  --------------  -------------

     Net income to common stockholders                   $10,134        $18,888        $14,630        $10,027         $13,312
                                                       =============  =============  =============  ==============  =============
     Net income to minority interests                    $40,206        $76,960        $66,358        $47,524         $66,100
                                                       =============  =============  =============  ==============  =============

     Basic net income per share from continuing            $0.51          $0.90          $0.60          $0.51           $0.73
     operations
                                                       =============  =============  =============  ==============  =============
     Diluted net income per share from continuing          $0.51          $0.89          $0.59          $0.51           $0.73
     operations
                                                       =============  =============  =============  ==============  =============

     Basic net income per share from discontinued           -             $0.06          $0.17          $0.04           $0.01
     operations
                                                       =============  =============  =============  ==============  =============
     Diluted net income per share from discontinued         -             $0.06          $0.17          $0.04           $0.01
     operations
                                                       =============  =============  =============  ==============  =============

     Basic net income per share to common stockholders     $0.51          $0.96          $0.77          $0.55           $0.74
                                                       =============  =============  =============  ==============  =============
     Diluted net income per share to common                $0.51          $0.95          $0.76          $0.55           $0.74
     stockholders
                                                       =============  =============  =============  ==============  =============

     PROPERTY AND OTHER INFORMATION:
        Total properties, end of period (3)                  111            109            107            107             109
        Total rentable square feet, end of period(000's)   8,048          7,862          7,701          7,780           7,917
        Average monthly rental revenue per square foot(4)  $1.25          $1.42          $1.57          $1.58           $1.80
        Occupancy for leased properties, end of period       66%            62%            69%            69%             71%

     Dividends per share to common stockholders            $0.80          $0.64          $0.64          $0.64           $0.88

     Funds from operations (5)                           $55,334       $114,867        $86,585        $79,152        $103,320
     Funds from operations per share (5)(6)                $0.52          $1.09          $0.83          $0.76           $0.99

     CASH FLOW INFORMATION:
        Cash flows provided by operating activities      $39,775        $23,501        $27,012        $21,898         $38,970
        Cash flows used in investing activities         ($29,605)       ($8,548)       ($5,369)       ($2,875)        ($1,519)
        Cash flows (used in) provided by financing
           activities                                   ($33,861)      ($25,047)      ($19,299)       $10,899        ($40,061)
</TABLE>


                                     - 24 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                     December 31,
                                                       --------------------------------------------------------------------------
                                                           2008            2007           2006           2005           2004
                                                       -------------  -------------  -------------  --------------  -------------
                                                                                (dollars in thousands)
        BALANCE SHEET INFORMATION:
<S>                                                  <C>            <C>            <C>            <C>             <C>
        Real estate assets, net of accumulated depr.
          & amort.                                      $943,579       $922,117       $898,889       $927,381        $960,863
        Total assets                                  $1,034,285     $1,053,885     $1,027,487     $1,023,377      $1,005,656
        Mortgage notes payable                          $330,908       $337,520       $348,101       $357,481        $292,822
        Mortgage notes payable - related parties          $8,761         $9,224         $9,654        $10,051         $10,420
        Revolving line of credit                         $13,079              -              -              -         $24,208
        Line of credit - related parties                       -              -              -              -          $9,560
        Total liabilities                               $402,382       $388,581       $397,327       $407,680        $380,355
        Minority interests                              $497,485       $526,626       $501,282       $500,682        $512,089
        Stockholders' equity                            $134,418       $138,678       $128,878       $115,015        $113,212
        Common stock outstanding                      19,748,211     19,664,087     19,443,587     18,448,791      18,097,191
        O.P. Units issued and outstanding             85,526,965     85,533,935     85,206,199     86,088,095      86,384,695
</TABLE>

(1)  Certain  reclassifications  have been made to prior period amounts in order
     to conform to current period presentation.
(2)  Upon the  implementation  of SFAS 144,  "Accounting  for the  Impairment or
     Disposal of Long-Lived  Assets," on January 1, 2002, the operating  results
     of real  estate  held  for  sale and  sold  are  reported  as  discontinued
     operations for all years presented.  Additionally,  all gains and losses on
     the sale of assets  classified  as held for sale  subsequent  to January 1,
     2002 are included in discontinued operations.
(3)  As of December  31,  2008,  2007,  2006,  2005 and 2004,  total  properties
     include a property at 245 Caspian in Sunnyvale  with no building.  In 2001,
     we paid the Berg Group  approximately  $7.5 million for their commitment to
     complete  an  approximate  75,000 to 90,000  square  foot  building  on the
     property.
(4)  Average  monthly  rental  revenue  per square foot has been  determined  by
     taking  the total  cash base rent for the  period  divided by the number of
     months in the period,  and then divided by the average occupied square feet
     in the period.
(5)  Funds from Operations ("FFO") is a non-GAAP financial term used by REITs to
     measure  and  compare  operating  performance.  As defined by the  National
     Association of Real Estate Investment Trusts ("NAREIT"), FFO represents net
     income  (loss)  before  minority  interest  of unit  holders  (computed  in
     accordance   with  GAAP),   including   non-recurring   events  other  than
     "extraordinary  items" under GAAP and excluding gains and losses from sales
     of discontinued  operations or depreciable operating properties,  plus real
     estate related  depreciation  and amortization  (excluding  amortization of
     deferred  financing  costs and  depreciation of non-real estate assets) and
     after adjustments for unconsolidated  partnerships and joint ventures.  FFO
     does include  impairment  losses for properties  held for sale and held for
     use.  Additionally,  our 2008,  2007,  2006,  2005 and 2004 FFO calculation
     includes our portion of the  depreciation  and  amortization of real estate
     from our unconsolidated  joint venture, but excludes the above-market lease
     intangible asset, which was recorded as a reduction of revenues. Management
     considers FFO to be an  appropriate  supplemental  measure of our operating
     and financial performance because when compared year over year, it reflects
     the impact to  operations  from trends in occupancy  rates,  rental  rates,
     operating costs,  general and  administrative  expenses and interest costs,
     providing a  perspective  not  immediately  apparent  from net  income.  In
     addition,  management  believes that FFO provides useful  information about
     our  financial  performance  when  compared to other  REITs  because FFO is
     generally  recognized as the industry standard for reporting the operations
     of REITs.  FFO should neither be considered as an  alternative  for neither
     net income as a measure of profitability nor is it comparable to cash flows
     provided by operating activities determined in accordance with GAAP. FFO is
     not comparable to similarly  entitled items reported by other REITs that do
     not define them exactly as we define FFO.
(6)  Considering  the  potential  effect of all O.P.  Units being  exchanged for
     shares of the Company's common stock.

Our definition of FFO also assumes  conversion at the beginning of the period of
all convertible securities,  including O.P. Units represented by O.P. Units that
may be exchanged  for shares of common  stock.  Our FFO does not  represent  the
amount available for management's discretionary use; as such funds may be needed
for  capital  replacement  or  expansion,  debt  service  obligations  or  other
commitments and uncertainties.  Furthermore,  FFO is not comparable to similarly
entitled items reported by other REITs that do not define FFO exactly as we do.

A reconciliation of net income to common stockholders to FFO for the years ended
December 31, 2008, 2007, 2006, 2005 and 2004 follows:

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                        ------------------------------------------------------------------------
                                                            2008           2007          2006           2005          2004
                                                        -------------- ------------- -------------- ------------- --------------
                                                                      (dollars in thousands, except per share data)
<S>                                                     <C>            <C>           <C>            <C>           <C>
    Net income to common stockholders                     $10,134        $18,888       $14,630        $10,027       $13,312
    Add:
        Minority interests (1)                             39,838         76,458        65,859         47,045        65,614
        Depreciation and amortization of real estate (2)   25,833         26,050        24,636         24,286        24,394
    Less:
        Gain on sales of assets or joint venture assets   (20,471)        (6,529)      (18,540)        (2,206)            -
                                                        -------------- ------------- -------------- ------------- --------------
    FFO                                                   $55,334       $114,867       $86,585        $79,152      $103,320
                                                        ============== ============= ============== ============= ==============

    Weighted average common shares and
       O.P. Units-diluted                                105,524,677    105,016,651   104,809,155    104,545,776    104,521,271
    FFO per common share and O.P. Unit-diluted              $0.52          $1.09         $0.83         $0.76          $0.99
</TABLE>

(1)  Minority  interests in net income is calculated by taking the net income of
     the  operating  partnerships  (on a  stand-alone  basis)  multiplied by the
     respective  weighted  average  minority  interests'  ownership  percentage.
     Minority  interests for third parties  totaling  approximately  $368, $502,
     $499, $479 and $486 in 2008, 2007, 2006, 2005 and 2004,  respectively,  was
     deducted  from total  minority  interest in  calculating  FFO.  (dollars in
     thousands)
(2)  Also includes our portion of depreciation  and  amortization of real estate
     from our unconsolidated  joint venture totaling  approximately  $900, $757,
     $849, $984 and $874 in 2008, 2007, 2006, 2005 and 2004,  respectively,  and
     amortization of leasing commissions totaling  approximately $1,709, $2,558,
     $1,513, $1,703 and $1,644 in 2008, 2007, 2006, 2005 and 2004, respectively.
     Amortization of leasing  commissions is included in the property operating,
     maintenance and real estate taxes line item in our consolidated  statements
     of operations. (dollars in thousands)

                                     - 25 -
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT
LIMITED  TO,  STATEMENTS  WITH  RESPECT  TO THE  FUTURE  FINANCIAL  PERFORMANCE,
OPERATING RESULTS, PLANS AND OBJECTIVES OF MISSION WEST PROPERTIES,  INC. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY  ANTICIPATED DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED IN PART I - ITEM 1A, RISK FACTORS.

OVERVIEW AND BACKGROUND

Our original  predecessor was formed in 1969 as Palomar  Mortgage  Investors,  a
California  business  trust,  which operated as a mortgage REIT until 1979 when,
under the name of Mission  Investment  Trust, it terminated its status as a REIT
and began to develop  and  market  its own  properties.  In 1982,  Mission  West
Properties was incorporated as a successor to Mission Investment Trust. In 1997,
our predecessor, Mission West Properties, sold all of its real estate assets and
paid a  special  dividend  of $9.00 per share to  stockholders,  after  which it
retained only nominal assets.  Subsequently,  the Berg Group acquired control of
the corporation as a vehicle to acquire R&D properties, or interests in entities
owning such properties, in a transaction completed on September 2, 1997. At that
time the Berg Group and other investors  acquired an aggregate 79.6% controlling
ownership  position.  In May 1998,  we, the Berg Group  members,  an independent
limited partner, and certain other persons entered into an acquisition agreement
providing,  among other  things,  for our  acquisition  of interests as the sole
general  partner  in the  operating  partnerships.  At the time,  the  operating
partnerships  held  approximately  4.34  million  rentable  square  feet  of R&D
property located in Silicon Valley.  The agreement also provided for the parties
to enter into the Pending Projects Acquisition Agreement, the Berg Land Holdings
Option  Agreement  and the  Exchange  Rights  Agreement,  following  stockholder
approval.  Effective July 1, 1998, we consummated our acquisition of the general
partner  interests  in the  operating  partnerships  through the purchase of the
general  partner  interests,  and  all  limited  partnership  interests  in  the
operating   partnerships  were  converted  into  59,479,633  O.P.  Units,  which
represented ownership of approximately 87.89% of the operating partnerships. Our
general  partner  interests  represented  the  balance of the  ownership  of the
operating partnerships. At December 31, 2008, we owned an 18.73% general partner
interest in the operating partnerships,  taken as a whole, on a weighted average
basis.

Since the  beginning  of calendar  year 1999,  we have been taxed as a qualified
REIT.

Our  reincorporation  under the laws of the State of Maryland through the merger
of Mission  West  Properties  into  Mission West  Properties,  Inc.  occurred on
December  30,  1998,  at  which  time  all  outstanding  shares  issued  by  our
predecessor  California  corporation  were  converted  into shares of our common
stock on a one-for-one basis.

In July 1999, we completed a public  offering of 8,680,000  shares of our common
stock at $8.25 per share. The net proceeds of approximately $66.9 million, after
deducting  underwriting  discounts and other offering costs, were used primarily
to repay indebtedness.

We have grown  through  property  acquisitions.  Since  September  1998, we have
acquired a total of  approximately  7.14  million  rentable  square  feet of R&D
buildings and vacant land under the Pending Project Acquisition  Agreement,  the
Berg Land Holdings Option Agreement, and from unrelated third parties. The total
cost of these  properties was  approximately  $739.3  million.  To acquire these
properties,  we paid cash or exchanged  existing  properties,  issued a total of
28,510,261 O.P. Units and assumed debt totaling approximately $331.3 million.

Since 1998, we have sold a total of  approximately  1.0 million  rentable square
feet  of  R&D  buildings.   The  total  sales  price  of  these  properties  was
approximately $144.2 million.

Almost all of our earnings and cash flow is derived from rental revenue received
pursuant  to leased R&D space at our  properties.  Key  factors  that affect our
business and financial results include the following:

-    the current turmoil in the credit markets;
-    economic conditions generally and the real estate market specifically;
-    the occupancy rates of the properties;
-    rental rates on new and renewed leases;
-    tenant improvement and leasing costs incurred to obtain and retain tenants;
-    operating expenses;
-    cost and availability of capital;
-    interest rates;
-    the extent of acquisitions and sales of real estate;
-    legislative or regulatory  provisions  (including changes to laws governing
     the taxation of REITs);
-    competition;

                                     - 26 -
<PAGE>


-    supply of and  demand  for R&D,  office and  industrial  properties  in our
     current and proposed market areas;
-    tenant defaults and bankruptcies;
-    lease term expirations and renewals;
-    changes  in  general   accounting   principles,   policies  and  guidelines
     applicable to REITs; and
-    ability to timely refinance  maturing debt obligations and the terms of any
     such refinancing.

Negative  effects from any of these factors could cause a  deterioration  in our
operating results, cash flows and financial condition.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated  financial  statements in conformity with accounting
principles  generally  accepted in the United States of America ("GAAP"),  which
requires us to make certain estimates, judgments and assumptions that affect the
reported  amounts  in  the  accompanying   consolidated   financial  statements,
disclosure  of  contingent   assets  and  liabilities  and  related   footnotes.
Accounting and disclosure  decisions with respect to material  transactions that
are subject to significant  management judgments or estimates include impairment
of long lived assets,  deferred  rent  receivables,  and  allocation of purchase
price  relating  to property  acquisitions  and the  related  depreciable  lives
assigned.  Actual  results  may differ  from  these  estimates  under  different
assumptions or conditions.

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

REAL ESTATE ASSETS
Real  estate  assets  are  stated  at  cost.  Cost  includes   expenditures  for
improvements or replacements.  Maintenance and repairs are charged to expense as
incurred.  Gains and losses from sales are included in income in accordance with
Statement of Financial Accounting Standard ("SFAS") 66, "Accounting for Sales of
Real  Estate." The gain on the sale is only  recognized  proportionately  as the
seller receives payments from the purchaser. Interest income is recognized on an
accrual basis, when appropriate.

BUSINESS COMBINATIONS
Statement of Financial Accounting Standards 141, "Business  Combinations" ("SFAS
141"),  was  effective  July 1, 2001.  The  acquisition  costs of each  property
acquired prior to July 1, 2001 were allocated only to building, land and leasing
commission  with  building  depreciation  being  computed  based on an estimated
weighted  average  composite  useful  life of 40 years  and  leasing  commission
amortization  being  computed  over  the  term  of the  lease.  Acquisitions  of
properties  made  subsequent to the  effective  date of SFAS 141 are based on an
allocation of the acquisition cost to land, building,  tenant improvements,  and
intangibles   for  at  market  and  above  market  in  place  leases,   and  the
determination  of their  useful lives are guided by a  combination  SFAS 141 and
management's  estimates.  Amortization  expense of above and below  market lease
intangible  asset is offset against rental revenue in the revenue  section while
amortization   of  in-place  lease  value   intangible   asset  is  included  in
depreciation  and  amortization  of real  estate in the  expense  section of our
consolidated statements of operations. If we do not appropriately allocate these
components or we incorrectly estimate the useful lives of these components,  our
computation  of  depreciation  and  amortization  expense may not  appropriately
reflect the actual impact of these costs over future periods,  which will affect
net income.

IMPAIRMENT OF LONG-LIVED ASSETS
We review  real  estate  assets  for  impairment  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable in accordance with Statement of Financial  Accounting Standards 144,
"Accounting for the Impairment and Disposal of Long-Lived  Assets" ("SFAS 144").
If the carrying amount of the asset exceeds its estimated  undiscounted net cash
flow,  before  interest,  we will  recognize  an  impairment  loss  equal to the
difference  between  its  carrying  amount  and its  estimated  fair  value.  If
impairment  is  recognized,  the  reduced  carrying  amount of the asset will be
accounted  for as its new cost.  For a depreciable  asset,  the new cost will be
depreciated over the asset's remaining useful life.  Generally,  fair values are
estimated using  discounted  cash flow,  replacement  cost or market  comparison
analyses.  The process of evaluating  for  impairment  requires  estimates as to
future events and conditions,  which are subject to varying market factors, such
as the vacancy rates, future rental rates and operating costs for R&D facilities
in the Silicon Valley area and related submarkets.  The analysis that we prepare
in connection with  determining if there may be any asset  impairment loss under
SFAS 144 considers several  assumptions:  holding period of ten years, 36 months
lease up period and cap rate ranging from 8% to 9%. Therefore,  it is reasonably
possible that a change in estimate  resulting from judgments as to future events
could occur which would affect the recorded amounts of the property.

ALLOWANCE FOR DEFERRED RENT AND DOUBTFUL ACCOUNTS
The preparation of the  consolidated  financial  statements  requires us to make
estimates   and   assumptions.   As  such,   we  must  make   estimates  of  the
uncollectability  of our  accounts  receivable  based on the  evaluation  of our
tenants'  financial  position,  analyses  of  accounts  receivable  and  current
economic trends. We also make estimates for a straight-line  adjustment  reserve
for existing  tenants with the  potential of early  termination,  bankruptcy  or
ceasing  operations.  Our estimates are based on our review of tenants'  payment

                                     - 27 -
<PAGE>


histories,  the  remaining  lease term,  whether or not the tenant is  currently
occupying  our  building,  publicly  available  financial  information  and such
additional information about their financial condition as tenants provide to us.
The information  available to us might lead us to overstate or understate  these
reserve  amounts.  The use of different  estimates or assumptions  could produce
different results. Moreover, actual future collections of accounts receivable or
reductions in future reported rental income due to tenant  bankruptcies or other
business failures could differ materially from our estimates.

CONSOLIDATION OF JOINT VENTURES
We, through an operating  partnership,  own three  properties  that are in joint
ventures of which we have controlling interests. We manage and operate all three
properties.  The recognition of these properties and their operating results are
100%  reflected  on our  consolidated  financial  statements,  with  appropriate
allocation  to minority  interest,  because we have  operational  and  financial
control  of the  investments.  We  make  judgments  and  assumptions  about  the
estimated monthly payments made to our minority interest joint venture partners,
which are reported with our periodic  results of operations.  Actual results may
differ from these estimates under different assumptions or conditions.

INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
We,  through  an  operating  partnership,  have  a 50%  non-controlling  limited
partnership interest in one unconsolidated joint venture. This investment is not
consolidated because we do not exercise significant control over major operating
and  financial  decisions.  We account  for the joint  venture  using the equity
method of accounting.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES
We consolidate all variable  interest entities ("VIE") in which we are deemed to
be the  primary  beneficiary  in  accordance  with  FASB  Interpretation  No. 46
(Revised December 2003),  "Consolidation  of Variable  Interest  Entities" ("FIN
46R").  As of December 31, 2008,  we  consolidated  one VIE in the  accompanying
consolidated  financial  statements in connection  with an assignment of a lease
agreement with an unrelated party, M&M Real Estate Control & Restructuring,  LLC
(see Item 8, "Financial  Statements and Supplementary Data - Note 7" for further
discussion of this transaction).

REVENUE RECOGNITION
Rental revenue is recognized on the straight-line  method of accounting required
by GAAP under which  contractual  rent payment  increases are recognized  evenly
over the lease term,  regardless  of when the rent  payments are received by us.
The  difference  between  recognized  rental  income and rental cash receipts is
recorded as "Deferred rent receivable" on the consolidated balance sheets.

Rental revenue is affected if existing tenants  terminate or amend their leases.
We try to  identify  tenants  who may be likely  to  declare  bankruptcy,  cease
operations or are likely to seek a negotiated settlement of their obligation. By
anticipating these events in advance,  we expect to take steps to minimize their
impact on our  reported  results of  operations  through  lease  renegotiations,
reserves against deferred rent receivable,  and other appropriate measures.  Our
judgments  and  estimations  about  tenants'  capacity to continue to meet their
lease   obligations  will  affect  the  rental  revenue   recognized.   Material
differences  may result in the amount and timing of our rental  revenue  for any
period if we made different judgments or estimations.

Lease  termination  fees are  recognized  as other income when there is a signed
termination  letter agreement,  all of the conditions of the agreement have been
met, and when the tenant no longer has the right to occupy the  property.  These
fees are paid by tenants who want to terminate  their lease  obligations  before
the end of the  contractual  term of the lease by  agreement  with us. We cannot
predict or forecast the timing or amounts of future lease termination fees.

We recognize income from rent, tenant  reimbursements and lease termination fees
and other income once all of the following  criteria are met in accordance  with
SEC Staff Accounting Bulletin 104:

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

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

                                     - 28 -

<PAGE>


RESULTS OF OPERATIONS

COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2008 TO THE YEAR ENDED  DECEMBER 31,
2007

RENTAL REVENUE FROM CONTINUING PROPERTY OPERATIONS
As of December  31,  2008 and 2007,  through our  controlling  interests  in the
operating   partnerships,   we  owned  111  and  109  R&D  properties   totaling
approximately  8.0  and 7.9  million  rentable  square  feet,  respectively.  We
acquired two R&D properties during 2008.

The  following  table  depicts the  amounts of rental  revenue  from  continuing
operations  for the years ended  December 31, 2008 and 2007  represented  by our
historical properties and the percentage of the total decrease in rental revenue
over the period that is represented by each group of properties.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                 <C>                 <C>
    Same Property (1)                   $76,375            $80,282             ($3,907)            (4.9%)
    2007 Acquisitions (2)                    33                 55                 (22)           (40.0%)
    2008 Acquisitions (3)                 3,389                  -               3,389            100.0%
                                     --------------     ---------------     --------------
         Total                          $79,797            $80,337               ($540)            (0.7%)
                                     ==============     ===============     ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2007 that we
     still owned as of December 31, 2008.
(2)  Operating  rental  revenue for 2007  Acquisitions  do not reflect a full 12
     months of  operations  in 2007 because  these  properties  were acquired at
     various times during the year.
(3)  Operating  rental  revenue for 2008  Acquisitions  do not reflect a full 12
     months of  operations  in 2008 because  these  properties  were acquired at
     various times during the year.

For the year ended  December  31,  2008,  our rental  revenue  from real  estate
decreased by  approximately  ($0.5)  million,  or (0.7%).  Pursuant to SFAS 141,
approximately $4.1 million of amortization  expense with respect to above-market
leases that we obtained through property acquisitions was offset against revenue
for the year ended  December 31,  2007.  The ($0.5)  million  decrease in rental
revenue resulted from current adverse market conditions as "Same Property" rents
decreased due to lease  terminations,  cessation of tenant operations and tenant
relocations since December 31, 2007.

Our overall  occupancy rate for leased  properties at December 31, 2008 and 2007
was approximately 66.4% and 61.7%, respectively. According to the BT Report, the
leased  occupancy  rate for R&D  property in the Silicon  Valley at December 31,
2008 was  approximately  83.7%.  Due to an over  supply  of R&D  properties  and
competitive bidding for tenants by other landlords in the Silicon Valley bidding
for tenants,  our occupancy  rate may drop further in 2009 if the  approximately
370,000  rentable  square feet  scheduled to expire is not renewed or re-leased.
Factors that  contributed  to our low occupancy  rate were primarily the general
downturn in the Silicon  Valley's  economy in recent years, the softening of the
R&D property market specifically,  as well as the weaker relative performance of
certain  properties  due  to  their  location  and  the  weak  demand  in  those
submarkets.

OTHER INCOME FROM CONTINUING PROPERTY OPERATIONS
The  following  table  depicts  the  amounts of other  income,  including  lease
terminations  and  settlements,  from continuing  operations for the years ended
December 31, 2008 and 2007.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                     <C>               <C>                <C>                 <C>
    Other income                         $4,223            $61,982            ($57,759)           (93.2%)
</TABLE>

Other income,  including lease  terminations and  settlements,  of approximately
$4.2 million for the year ended  December 31, 2008 included  approximately  $3.0
million from lease termination fees, $1.0 million from management fees, and $0.2
million from miscellaneous  income.  Other income,  including lease terminations
and settlements,  of approximately $62.0 million for the year ended December 31,
2007 included  approximately  $57.5 million from lease  termination  fees,  $1.8
million from security  deposit  forfeitures,  $1.0 million from management fees,
$0.3  million  from  tenant   bankruptcy   settlements  and  $1.4  million  from
miscellaneous  income.  In 2007, of the $57.5 million in lease termination fees,
approximately  $46 million  was from the Ciena  Corporation  lease  termination.
Management  fees are paid by the tenants to the landlord for the  administration
and supervision of the property.  We do not consider termination fees and tenant
bankruptcy settlements to be recurring items.

EXPENSES FROM CONTINUING PROPERTY OPERATIONS
The following  table reflects the amounts of property  operating and maintenance
expenses and real estate taxes ("operating expenses") from continuing operations
for the years  ended  December  31,  2008 and 2007 and the  percentage  of total
increase  in  expenses  over the  period  that is  represented  by each group of
properties.

                                     - 29 -

<PAGE>

<TABLE>
<CAPTION>

                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                  <C>                 <C>
    Same Property (1)                   $22,657            $20,107              $2,550              12.7%
    2007 Acquisitions (2)                   403                264                 139              52.7%
    2008 Acquisitions (3)                   400                  -                 400             100.0%
                                     --------------     ---------------     --------------
         Total                          $23,460            $20,371              $3,089              15.2%
                                     ==============     ===============     ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2007 that we
     still owned as of December 31, 2008.
(2)  Operating expenses for 2007 Acquisitions do not reflect a full 12 months of
     operations in 2007 because these  properties were acquired at various times
     during the year.
(3)  Operating expenses for 2008 Acquisitions do not reflect a full 12 months of
     operations in 2008 because these  properties were acquired at various times
     during the year.

Operating  expenses from continuing  operations  increased by approximately $3.1
million,  or 15.2%,  from $20.4 million for the year ended  December 31, 2007 to
$23.5 million for the year ended  December 31, 2008 primarily due to higher real
estate  taxes,   maintenance   and  repair  costs  and  utility  rates.   Tenant
reimbursements  from  continuing  operations  increased  by  approximately  $3.0
million,  or 22.8%,  from $13.4 million for the year ended  December 31, 2007 to
$16.4  million for the year ended  December  31,  2008.  The  increase in tenant
reimbursements resulted primarily from the increase in operating expenses. Total
operating  expenses  exceeded tenant  reimbursements  because of vacancies which
reached approximately 2.7 million rentable square feet by year-end 2008. Certain
operating  expenses such as property  insurance,  real estate  taxes,  and other
fixed expenses are not recoverable from vacant properties.  At December 31, 2008
our vacancy rate was approximately 34%.

The following table depicts the amounts of general and  administrative  expenses
from operations for the years ended December 31, 2008 and 2007.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                     <C>                <C>                 <C>                <C>
    General and administrative           $2,635             $3,035              $400               (13.2%)
</TABLE>

General and administrative  expenses decreased by approximately  ($0.4) million,
or  (13.2%),  from $3.0  million  for the year ended  December  31, 2007 to $2.6
million  for the year ended  December  31,  2008.  The  decrease  in general and
administrative  expenses was primarily a result of higher legal fees  associated
with a potential acquisition of the Company in 2007 that did not recur in 2008.

The following table depicts the amounts of depreciation and amortization expense
of real estate from continuing  operations for the years ended December 31, 2008
and 2007.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                 <C>                   <C>
    Depreciation and amortization       $23,224            $22,588             $636                  2.8%
</TABLE>


Depreciation and amortization expense of real estate from continuing  operations
increased by approximately $0.6 million, or 2.8%,  primarily due to two property
acquisitions,  new  construction  of tenant  improvements  and the  write-off of
tenant improvements in connection with a lease termination.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
The following table depicts the amounts of equity in earnings of  unconsolidated
joint venture from operations for the years ended December 31, 2008 and 2007.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
    Equity in earnings of
<S>                                    <C>                 <C>                 <C>                <C>
       unconsolidated joint venture     $19,617             $1,408              $18,209            1,293.3%
</TABLE>


As of December  31,  2008,  we had  investments  in one R&D  building,  totaling
approximately 155,500 rentable square feet in Morgan Hill,  California,  through
an  unconsolidated  joint  venture with TBI, in which we acquired a 50% interest
from  the  Berg  Group  in  January  2003.  We  have a  non-controlling  limited
partnership  interest  in this joint  venture,  which we  account  for using the
equity  method of  accounting.  For the years ended  December 31, 2008 and 2007,
equity in earnings from the unconsolidated joint venture was approximately $19.6
million  and $1.4  million,  respectively.  Our  equity  in  earnings  from this
unconsolidated  joint venture  increased  primarily due to a gain on sale of two
R&D  properties in 2008.  The occupancy  rate for the  properties  owned by this
joint venture at December 31, 2008 and 2007 was 100%.

                                     - 30 -
<PAGE>

The  following  table  depicts the amounts of interest and dividend  income from
operations for the years ended December 31, 2008 and 2007.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                     <C>                <C>                <C>                 <C>
    Interest and dividend income         $1,735             $3,086             ($1,351)            (43.8%)
</TABLE>


Interest and dividend  income  decreased by  approximately  ($1.4)  million,  or
(43.8%),  from $3.1 million for the year ended December 31, 2007 to $1.7 million
for the year ended  December  31,  2008.  The  decrease in interest and dividend
income was primarily a result of lower cash balance and interest rates.  For the
year ended December 31, 2008, interest and dividend income totaled approximately
$1.1 million and $0.6  million,  respectively.  For the year ended  December 31,
2007, interest income totaled approximately $3.1 million.

In 2008, we recorded an unrealized loss from investment in marketable securities
of approximately  ($0.3) million. As of December 31, 2008, the fair value of the
investment  totaled   approximately  $3.3  million  and  the  cost  thereof  was
approximately $3.6 million.

The following table depicts the amounts of interest  expense from operations for
the years ended December 31, 2008 and 2007.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2008                2007             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                   <C>               <C>
    Interest                            $19,787            $20,131               ($344)            (1.7%)
    Interest (related parties)            1,332                724                 608             84.0%
                                     --------------     ---------------     --------------
         Total                          $21,119            $20,855                $264              1.3%
                                     ==============     ===============     ==============
</TABLE>

Interest expense decreased by approximately ($0.3) million, or (1.7%).  Interest
expense (related parties) increased by approximately $0.6 million, or 84.0%, due
to  short-term  notes  payable  issued  to the  Berg  Group in  connection  with
quarterly dividend distributions.  As of December 31, 2008, the short-term notes
payable were paid off in full.

NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTERESTS
The  following  table  depicts the amounts of  earnings  attributable  to common
stockholders  and minority  interests for the years ended  December 31, 2008 and
2007.

<TABLE>
<CAPTION>
                                             Year Ended December 31,
                                          -------------------------------
                                              2008              2007            $ Change           % Change
                                          -------------     -------------     -------------      -------------
                                                        (dollars in thousands)
<S>                                        <C>               <C>               <C>                 <C>
    Net income to common stockholders       $10,134           $18,888           ($8,754)            (46.3%)
    Net income to minority interests         40,206            76,960           (36,754)            (47.8%)
                                          -------------     -------------     -------------
         Total                              $50,340           $95,848          ($45,508)            (47.5%)
                                          =============     =============     =============
</TABLE>

As of  December  31,  2008 and  2007,  we owned a  controlling  general  partner
interest of 20.02%,  21.85%,  16.31% and 12.52% and 19.94%,  21.78%,  16.26% and
12.48%  in the four  operating  partnerships,  Mission  West  Properties,  L.P.,
Mission West Properties,  L.P. I, Mission West  Properties,  L.P. II and Mission
West  Properties,  L.P. III,  respectively.  We owned an 18.73% general  partner
interest in the  operating  partnerships,  taken as a whole,  on a  consolidated
weighted  average  basis as of December 31, 2008 and 2007.  Net income to common
stockholders in 2008 decreased by approximately ($8.8) million, or (46.3%), from
2007.  Our net income  attributable  to minority  interests in 2008 decreased by
approximately  ($36.8) million, or (47.8%), from December 31, 2007. The decrease
in net  income  attributable  to  common  stockholders  and  minority  interests
resulted  primarily due to lower lease  termination  income and higher operating
expenses described above.

Minority interests  represent the limited partners' ownership interest of 81.27%
in the operating  partnerships,  on a weighted average basis, as of December 31,
2008 and 2007.

INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the years ended December 31, 2008 and 2007.

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                  --------------------------------------------------------------
                                                                              2008                             2007
                                                                  -----------------------------     ----------------------------
                                                                                      (dollars in thousands)
<S>                                                                              <C>                          <C>
    Income attributable to discontinued operations                                -                            $6,620
    Minority interests in earnings attributable to discontinued operations        -                            (5,489)
                                                                  -----------------------------     ----------------------------
         Income from discontinued operations                                      -                            $1,131
                                                                  =============================     ============================
</TABLE>

                                     - 31 -
<PAGE>

In 2007, we sold two R&D properties and in accordance  with our adoption of SFAS
144,  classified  the net gains on sale and  operating  results of the  disposed
properties as discontinued operations. SFAS 144 requires prior period results of
operations for these properties to be retrospectively  adjusted and presented in
discontinued operations in prior consolidated statements of operations.

We  recognized  total income of  approximately  $6.6  million from  discontinued
operations,  of which $1.1 million and $5.5 million were  attributable to common
stockholders and minority interests,  respectively,  for the year ended December
31, 2007.

COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2007 TO THE YEAR ENDED  DECEMBER 31,
2006

RENTAL REVENUE FROM CONTINUING PROPERTY OPERATIONS
As of December  31,  2007 and 2006,  through our  controlling  interests  in the
operating   partnerships,   we  owned  109  and  107  R&D  properties   totaling
approximately  7.9 and 7.7 million rentable square feet,  respectively.  We sold
two R&D  properties and acquired four R&D properties and 55 acres of vacant land
during 2007.

The  following  table  depicts the  amounts of rental  revenue  from  continuing
operations  for the years ended  December 31, 2007 and 2006  represented  by our
historical properties and the percentage of the total decrease in rental revenue
over the period that is represented by each group of properties.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                <C>                 <C>
    Same Property (1)                   $78,067            $89,685            ($11,618)           (13.0%)
    2006 Acquisitions (2)                 2,215              1,772                 443             25.0%
    2007 Acquisitions (3)                    55                  -                  55            100.0%
                                     --------------     ---------------     --------------
         Total                          $80,337            $91,457            ($11,120)           (12.2%)
                                     ==============     ===============     ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2006 that we
     still owned as of December 31, 2007. (
2)   Operating  rental  revenue for 2006  Acquisitions  do not reflect a full 12
     months of  operations  in 2006 because  these  properties  were acquired at
     various times during the year.
(3)  Operating  rental  revenue for 2007  Acquisitions  do not reflect a full 12
     months of  operations  in 2007 because  these  properties  were acquired at
     various times during the year.

For the year ended  December  31,  2007,  our rental  revenue  from real  estate
decreased by approximately  ($11.1) million,  or (12.2%).  Pursuant to SFAS 141,
approximately $4.1 million and $1.9 million of amortization expense with respect
to above-market leases that we obtained through property acquisitions was offset
against  revenue for the years ended  December 31, 2007 and 2006,  respectively.
The ($11.1)  million  decrease in rental revenue  resulted from current  adverse
market conditions as "Same Property" rents decreased due to lease  terminations,
cessation of tenant operations and tenant relocations since December 31, 2006.

Our overall  occupancy rate for leased  properties at December 31, 2007 and 2006
was approximately 61.7% and 69.5%, respectively. According to the BT Report, the
leased  occupancy  rate for R&D  property in the Silicon  Valley at December 31,
2007 was approximately 83.4%. Factors that contributed to our low occupancy rate
were primarily the general  downturn in the Silicon  Valley's  economy in recent
years,  the softening of the R&D property  market  specifically,  as well as the
weaker relative  performance of certain properties due to their location and the
weak demand in those submarkets.

OTHER INCOME FROM CONTINUING PROPERTY OPERATIONS
The  following  table  depicts  the  amounts of other  income,  including  lease
terminations  and  settlements,  from continuing  operations for the years ended
December 31, 2007 and 2006.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                 <C>                <C>
    Other income                        $61,982            $18,222             $43,760            240.1%
</TABLE>

Other income,  including lease  terminations and  settlements,  of approximately
$62.0 million for the year ended December 31, 2007 included  approximately $57.5
million  from  lease  termination  fees,  $1.8  million  from  security  deposit
forfeitures,  $1.0  million  from  management  fees,  $0.3  million  from tenant
bankruptcy  settlements and $1.4 million from miscellaneous  income. In 2007, of
the $57.5 million in lease termination fees,  approximately $46 million was from
the  Ciena  Corporation  lease  termination.   Other  income,   including  lease
terminations and settlements,  of approximately $18.2 million for the year ended
December 31, 2006 included  approximately  $16.0 million from lease  termination
fees,  $1.1  million  from  management  fees,  $0.5  million from a property tax
accrual,  $0.2 million  from tenant  bankruptcy  settlements,  $0.1 million from
security  deposit  forfeitures and $0.3 million from  miscellaneous  income.  In
2006,  of the $16.0  million  in lease  termination  fees,  approximately  $11.1
million was from the JDS Uniphase lease termination. Management fees are paid by
the  tenants to the  landlord  for the  administration  and  supervision  of the
property. We do not consider termination fees and tenant bankruptcy  settlements
to be recurring items.

                                     - 32 -
<PAGE>

EXPENSES FROM CONTINUING PROPERTY OPERATIONS
The following  table reflects the amounts of property  operating and maintenance
expenses and real estate taxes ("operating expenses") from continuing operations
for the years  ended  December  31,  2007 and 2006 and the  percentage  of total
increase  in  expenses  over the  period  that is  represented  by each group of
properties.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                  <C>                  <C>
    Same Property (1)                   $19,393            $18,001              $1,392               7.7%
    2006 Acquisitions (2)                   714                504                 210              41.7%
    2007 Acquisitions (3)                   264                  -                 264             100.0%
                                     --------------     ---------------     --------------
         Total                          $20,371            $18,505              $1,866              10.1%
                                     ==============     ===============     ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2006 that we
     still owned as of December 31, 2007.
(2)  Operating expenses for 2006 Acquisitions do not reflect a full 12 months of
     operations in 2006 because these  properties were acquired at various times
     during the year.
(3)  Operating expenses for 2007 Acquisitions do not reflect a full 12 months of
     operations in 2007 because these  properties were acquired at various times
     during the year.

Operating  expenses from continuing  operations  increased by approximately $1.9
million,  or 10.1%,  from $18.5 million for the year ended  December 31, 2006 to
$20.4 million for the year ended  December 31, 2007 primarily due to increase in
real estate  taxes,  higher  maintenance  and repair costs and lease  commission
write-offs  associated  with  lease  terminations.  Tenant  reimbursements  from
continuing  operations  increased by approximately  $0.3 million,  or 2.3%, from
$13.1 million for the year ended December 31, 2006 to $13.4 million for the year
ended  December  31,  2007.  The  increase  in  tenant  reimbursements  resulted
primarily  from the increase in operating  expenses.  Total  operating  expenses
exceeded tenant reimbursements because of vacancies, which reached approximately
3.0 million rentable square feet by year-end 2007.  Certain  operating  expenses
such as property insurance,  real estate taxes, and other fixed expenses are not
recoverable  from vacant  properties.  At December 31, 2007 our vacancy rate was
approximately 38%.

The following table depicts the amounts of general and  administrative  expenses
from operations for the years ended December 31, 2007 and 2006.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                     <C>                <C>                 <C>                 <C>
    General and administrative           $3,035             $2,248              $787                35.0%
</TABLE>

General and administrative  expenses increased by approximately $0.8 million, or
35.0%,  from $2.2  million for the year ended  December 31, 2006 to $3.0 million
for the year ended December 31, 2007. The increase in general and administrative
expenses was primarily a result of higher legal fees associated with a potential
acquisition  of the  Company,  salaries and wages and  share-based  compensation
expense.

The following table depicts the amounts of depreciation and amortization expense
of real estate from continuing  operations for the years ended December 31, 2007
and 2006.
<TABLE>
<CAPTION>

                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                  <C>                  <C>
    Depreciation and amortization       $22,588            $21,579              $1,009               4.7%
</TABLE>


Depreciation and amortization expense of real estate from continuing  operations
increased  by  approximately  $1.0  million,  or  4.7%,  primarily  due  to  new
construction   of  tenant   improvements   and  the   write-offs  of  additional
amortization expense relating to in-place lease value intangible assets pursuant
to SFAS 141 in connection with two lease terminations.

EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE
The following table depicts the amounts of equity in earnings of  unconsolidated
joint venture from operations for the years ended December 31, 2007 and 2006.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                   <C>                 <C>
    Equity in earnings of
       unconsolidated joint venture     $1,408             $1,985               ($577)              (29.1%)
</TABLE>


As of December 31, 2007, we had  investments  in three R&D  buildings,  totaling
approximately 466,600 rentable square feet in Morgan Hill,  California,  through
an  unconsolidated  joint  venture with TBI, in which we acquired a 50% interest
from  the  Berg  Group  in

                                     - 33 -
<PAGE>


January 2003. We have a  non-controlling  limited  partnership  interest in this
joint venture,  which we account for using the equity method of accounting.  For
the years  ended  December  31,  2007 and  2006,  equity  in  earnings  from the
unconsolidated  joint venture was  approximately  $1.4 million and $2.0 million,
respectively.  Our equity in earnings  from this  unconsolidated  joint  venture
decreased  primarily  due to a gain on sale of one R&D property in 2006 that did
not recur in 2007.  The occupancy  rate for the  properties  owned by this joint
venture at December 31, 2007 and 2006 was 100%.

The  following  table  depicts the amounts of interest and dividend  income from
operations for the years ended December 31, 2007 and 2006.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                   <C>                 <C>
    Interest and dividend income        $3,086             $2,344                $742                31.7%
</TABLE>


Interest and dividend income increased by approximately $0.7 million,  or 31.7%,
from $2.3  million for the year ended  December 31, 2006 to $3.0 million for the
year ended December 31, 2007.  The increase in interest and dividend  income was
primarily a result of higher  interest  rates.  For the year ended  December 31,
2007,  interest income totaled  approximately  $3.0 million.  For the year ended
December 31, 2006, interest income totaled approximately $2.3 million.

The following table depicts the amounts of interest  expense from operations for
the years ended December 31, 2007 and 2006.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                     ----------------------------------
                                         2007                2006             $ Change            % Change
                                     --------------     ---------------     --------------     ---------------
                                                    (dollars in thousands)
<S>                                    <C>                <C>                   <C>               <C>
    Interest                            $20,131            $20,708               ($577)            (2.8%)
    Interest (related parties)              724                755                 (31)            (4.1%)
                                     --------------     ---------------     --------------
         Total                          $20,855            $21,463               ($608)            (2.8%)
                                     ==============     ===============     ==============
</TABLE>

Interest expense decreased by approximately ($0.6) million, or (2.8%). Interest
expense (related parties) decreased by ($0.03) million, or (4.1%).

NET INCOME TO COMMON STOCKHOLDERS AND NET INCOME TO MINORITY INTERESTS
The  following  table  depicts the amounts of  earnings  attributable  to common
stockholders  and minority  interests for the years ended  December 31, 2007 and
2006.

<TABLE>
<CAPTION>
                                             Year Ended December 31,
                                          -------------------------------
                                              2007              2006            $ Change           % Change
                                          -------------     -------------     -------------      -------------
                                                        (dollars in thousands)
<S>                                        <C>               <C>                <C>                 <C>
    Net income to common stockholders       $18,888           $14,630            $4,258              29.1%
    Net income to minority interests         76,960            66,358            10,602              16.0%
                                          -------------     -------------     -------------
         Total                              $95,848           $80,988           $14,860              18.3%
                                          =============     =============     =============
</TABLE>

As of  December  31,  2007 and  2006,  we owned a  controlling  general  partner
interest of 19.94%,  21.78%,  16.26% and 12.48% and 19.71%,  21.78%,  16.26% and
12.48%  in the four  operating  partnerships,  Mission  West  Properties,  L.P.,
Mission West Properties,  L.P. I, Mission West  Properties,  L.P. II and Mission
West Properties,  L.P. III, respectively.  We owned an 18.73% and 18.23% general
partner  interest  in  the  operating  partnerships,  taken  as  a  whole,  on a
consolidated   weighted  average  basis  as  of  December  31,  2007  and  2006,
respectively.   Net  income  to  common   stockholders   in  2007  increased  by
approximately  $4.3 million,  or 29.1%,  from December 31, 2006.  Our net income
attributable  to minority  interests in 2007  increased by  approximately  $10.6
million,  or  16.0%,  from  December  31,  2006.  The  increase  in  net  income
attributable to common  stockholders and minority  interests  resulted primarily
due to higher lease termination fee income described above.

Minority interests  represent the limited partners' ownership interest of 81.27%
and 81.77% in the operating  partnerships,  on a weighted  average basis,  as of
December 31, 2007 and 2006, respectively.  The decrease in the minority interest
ownership  percentage resulted from the exchange of O.P. Units for shares of the
Company's common stock.

INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from  discontinued  operations
for the years ended December 31, 2007 and 2006.

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                  --------------------------------------------------------------
                                                                              2007                             2006
                                                                  -----------------------------     ----------------------------
                                                                                    (dollars in thousands)
<S>                                                                         <C>                              <C>
    Income attributable to discontinued operations                           $6,620                           $19,603
    Minority interests in earnings attributable to discontinued operations   (5,489)                          (16,431)
                                                                  -----------------------------     ----------------------------
         Income from discontinued operations                                 $1,131                            $3,172
                                                                  =============================     ============================
</TABLE>

                                     - 34 -
<PAGE>

In 2007, we sold two R&D properties and in accordance  with our adoption of SFAS
144,  classified  the net gains on sale and  operating  results of the  disposed
properties as discontinued operations, and in 2006, we sold three R&D properties
and  classified  the net gains on sale and  operating  results  of the  disposed
properties as discontinued operations. SFAS 144 requires prior period results of
operations for these properties to be retrospectively  adjusted and presented in
discontinued operations in prior consolidated statements of operations.

We  recognized  total income of  approximately  $6.6  million from  discontinued
operations,  of which $1.1 million and $5.5 million were  attributable to common
stockholders and minority interests,  respectively,  for the year ended December
31, 2007. For the year ended December 31, 2006, we recognized  total income from
discontinued  operations of  approximately  $19.6 million.  The income to common
stockholders and minority interests attributable to discontinued operations from
these  properties  in 2006 was  approximately  $3.2  million and $16.4  million,
respectively.

CHANGES IN FINANCIAL CONDITION

YEAR ENDED DECEMBER 31, 2008
The most  significant  changes in our financial  condition in 2008 resulted from
the  acquisition  of two R&D  properties,  the exercise of stock options and the
exchange of O.P. Units for shares of the Company's common stock.

During 2008, we acquired two R&D properties  representing  approximately 186,000
rentable  square feet for an aggregate  gross  purchase  price of  approximately
$35.8  million.  We  acquired  one  R&D  property  in  a  tax-deferred  exchange
transaction  plus cash and paid cash to members of the Berg Group to acquire the
second R&D property.

Debt  outstanding,   including   amounts  due  related  parties,   increased  by
approximately $6.0 million, or 1.7%, from $346.7 million as of December 31, 2007
to $352.7  million as of December 31,  2008.  In 2008,  we repaid the  remaining
balance on the  Prudential  loan with  proceeds  from the $115 million  Hartford
loan,  borrowed from our revolving line of credit and made  recurring  scheduled
debt payments.

During the year ended December 31, 2008, stock options to purchase 70,487 shares
of the  Company's  common  stock  were  exercised  at $10.00 per share and stock
options to purchase 6,667 shares of the Company's common stock were exercised at
$9.51 per share. The total proceeds to the Company of approximately $0.8 million
increased additional paid-in-capital.

In 2008, three limited partners  exchanged a total of 6,970 O.P. Units for 6,970
shares of the Company's  common stock pursuant to the Exchange Rights  Agreement
resulting in a  reclassification  of  approximately  $0.07 million from minority
interests to additional paid-in-capital.

The conversion of O.P. Units to shares of the Company's common stock was applied
to  increase  our  percentage  interest  as  general  partner  in the  operating
partnerships.

YEAR ENDED DECEMBER 31, 2007
The most  significant  changes in our financial  condition in 2007 resulted from
the  acquisition of four R&D  properties,  the acquisition of 55 acres of vacant
land,  the  disposition of two R&D properties and the exchange of O.P. Units for
shares of the Company's common stock.

During 2007, we acquired four R&D properties representing  approximately 247,000
rentable  square feet for an aggregate  gross  purchase  price of  approximately
$26.3 million. We acquired three of the R&D properties in tax-deferred  exchange
transactions and paid cash and issued O.P. Units to members of the Berg Group to
acquire  the  fourth  property.  We also  acquired  55 acres of vacant  land for
approximately $27.8 million in a tax-deferred exchange transaction.  In addition
to those property  acquisitions,  we sold two R&D properties to unrelated  third
parties  for a total gross sales price of  approximately  $16.0  million.  Those
property  dispositions  reduced  approximately  87,000 rentable square feet. The
proceeds were  classified as restricted  cash for use in  tax-deferred  property
exchanges  and were  reflected on our  consolidated  balance sheet as restricted
cash at December 31, 2007 (see Item 8, "Financial  Statements and  Supplementary
Data - Note 6" for further discussion of this transaction).

Debt  outstanding,   including   amounts  due  related  parties,   decreased  by
approximately ($11.1) million, or (3.1%), from $357.8 million as of December 31,
2006 to $346.7  million as of  December  31, 2007 due to normal  scheduled  debt
payments.

In 2007,  two  limited  partners  exchanged  a total of 220,500  O.P.  Units for
220,500  shares  of common  stock  pursuant  to the  Exchange  Rights  Agreement
resulting in a  reclassification  of  approximately  $2.9 million from  minority
interests to additional paid-in-capital.

                                     - 35 -
<PAGE>


The conversion of O.P. Units to shares of the Company's common stock was applied
to  increase  our  percentage  interest  as  general  partner  in the  operating
partnerships.

LIQUIDITY AND CAPITAL RESOURCES

In 2009, we anticipate  operating  cash flows from our property  portfolio to be
lower  compared  to 2008.  We are still  experiencing  weak  demand  for our R&D
properties in certain  areas of the Silicon  Valley,  principally  the south San
Jose area. If we are unable to lease a significant  portion of the approximately
370,000  rentable  square  feet  scheduled  to  expire  in 2009,  as well as our
currently  available space, our operating cash flows will be affected adversely.
We are also subject to risks of decreased  occupancy through tenant defaults and
bankruptcies,   and  potential   reduction  in  rental  rates  upon  renewal  of
properties, which would result in reduction in cash flows from operations beyond
the level we are anticipating currently.

We expect our principal  source of liquidity for  distributions  to stockholders
and O.P. Unit holders,  debt service,  leasing commissions and recurring capital
expenditures to come from cash provided by operations  and/or future  borrowings
under our $17.5 million line of credit with the Heritage Bank of Commerce, which
we obtained in early 2008.  We expect these  sources of liquidity to be adequate
to meet projected  distributions to stockholders and other presently anticipated
liquidity  requirements  in 2009.  We  expect  to meet our  long-term  liquidity
requirements for the funding of property development,  property acquisitions and
other material  non-recurring capital improvements through cash and investments,
long-term  secured and  unsecured  indebtedness  and the issuance of  additional
equity  securities by us. We have the ability to meet short-term  obligations or
other liquidity  needs based on our existing cash reserves.  In 2009, we will be
obligated  to  make  payments  totaling  approximately  $25.7  million  of  debt
principal under our existing mortgage notes and line of credit without regard to
any debt  refinancing or new debt  obligations  that we might incur, or optional
payments of debt principal.

On March 4, 2008, we established a $10 million  uncollateralized  revolving line
of credit with Heritage Bank of Commerce ("HBC"). We paid approximately  $26,000
in loan and legal fees.  On April 17,  2008,  we entered into a "Change in Terms
Agreement"  with HBC that  increased  the  facility  from $10  million  to $17.5
million.  The line of credit  bears an  interest  rate of LIBOR  plus  1.75% and
matures June 15, 2009. The HBC line of credit  contains  certain  financial loan
and reporting  covenants as defined in the loan  agreements.  As of December 31,
2008, we were in compliance with these loan covenants. The proceeds from the HBC
line of credit may be used to repay  debt,  complete  acquisitions  and  finance
other working capital requirements.

We expect to renew the HBC line of credit in June 2009 when it matures.

On October 1, 2008,  we entered  into a fixed rate term  agreement  and  related
contracts and instruments for a secured mortgage loan totaling $115 million from
Hartford Life Insurance  Company,  Hartford Life and Accident  Insurance Company
and Hartford  Life and Annuity  Insurance  Company (the  "Hartford  Loan").  The
proceeds  were used  primarily  to repay the  remaining  balance of an  existing
mortgage  loan with  Prudential  Mortgage  Capital  Company and to provide other
working  capital needs.  The Hartford Loan bears a fixed interest rate of 6.21%,
with a 20-year  amortization,  and  matures  October 1, 2018,  at which time any
outstanding  principal and interest will be due. Pursuant to the loan agreement,
monthly  principal  and interest  installment  payments of  approximately  $0.84
million are due on the first day of each month.  The Hartford Loan is secured by
20 properties  consisting of approximately  1.6 million rentable square feet. In
connection  with the loan, we paid  approximately  $1.0 million in loan fees and
financing costs,  which are amortized over the ten year loan period. We have the
option to prepay  the  Hartford  Loan,  subject  to  certain  yield  maintenance
provisions,  though  generally no  prepayment  is permitted  during the first 24
months of the loan term.

As of December 31, 2008, we were in compliance  with loan covenants  relating to
the Allianz,  Hartford,  Northwestern  mortgage loans and the HBC line of credit
loan.

Cash and cash equivalents  decreased by approximately ($23.7) million from $23.7
million as of December 31, 2007 to zero as of December 31, 2008.

Restricted cash totaled approximately $39.5 million as of December 31, 2008. The
entire amount  represents a balance we have  consolidated due to our adoption of
FIN 46R (see Item 8, "Financial  Statements and Supplementary Data - Note 7" for
further  discussion  of this  transaction).  We do not possess or control  these
funds or have any rights to receive  them except as  provided in the  applicable
agreements.  Therefore,  restricted  cash is not available for  distribution  to
stockholders.

Since 1999,  we have  elected to be taxed as a REIT under the  Internal  Revenue
Code of 1986.  We intend to continue  operating as a REIT in 2009. As a REIT, we
are subject to a number of organizational and operating requirements,  including
a requirement to distribute 90% of our taxable income to our stockholders.  Also
as a REIT,  we  generally  will not be subject to  federal  income  taxes on our
taxable income.

                                     - 36 -
<PAGE>

Generally,  our objective is to meet our  short-term  liquidity  requirement  of
funding  the payment of our  current  level of  quarterly  common  dividends  to
stockholders  and O.P.  Unit  holders  through  our net cash flows  provided  by
operating  activities,  less our recurring  and  nonrecurring  property  capital
expenditures.  These operating capital expenditures are the capital expenditures
necessary to maintain the earnings capacity of our operating assets over time.

For 2009,  we expect to maintain our quarterly  dividend  payment at the current
rate of $0.20 per share to common  stockholders and O.P. Unit holders.  However,
distributions  are declared at the  discretion of our Board of Directors and are
subject to actual cash  available for  distribution,  our  financial  condition,
capital  requirements  and such other factors,  as our Board of Directors  deems
relevant (see Item 1A, "Risk Factors - Stockholders are not assured of receiving
cash distributions from us").

On January 8, 2009, we paid  dividends of $0.20 per share of common stock to all
common  stockholders  of record as of December 31, 2008.  On the same date,  the
operating partnerships paid a distribution of $0.20 per O.P. Unit to all holders
of O.P. Units,  with the exception of the Berg Group. A short-term note payable,
which  bears  interest  at LIBOR plus 2%, in the amount of  approximately  $10.8
million was issued to the Berg Group and fully paid in February 2009.  Aggregate
dividends and  distributions for the quarter ended December 31, 2008 amounted to
approximately $21.1 million.

Funds  available  for  distributions  does not  represent  cash  generated  from
operating activities and is not necessarily indicative of cash available to fund
cash needs.  The actual return that we will realize and the amount available for
distributions to stockholders will be affected by a number of factors, including
the revenues received from our properties,  our operating expenses, debt service
on borrowings, and planned and unanticipated capital expenditures.

We anticipate  that cash  available for  distribution  will exceed  earnings and
profits for federal income tax purposes, as the latter figure takes into account
non-cash  expenses such as  depreciation  and  amortization  that we will incur.
Distributions  other than capital gain  distributions by us to the extent of our
current and  accumulated  earnings  and profits for federal  income tax purposes
most likely will be taxable to U.S.  stockholders  as ordinary  dividend  income
unless a stockholder is a tax-exempt entity. Distributions in excess of earnings
and profits  generally  will be treated as a  non-taxable  reduction of the U.S.
stockholder's  basis  in the  common  stock to the  extent  of such  basis,  and
thereafter as taxable gain.  The percentage of such  distributions  in excess of
earnings and profits, if any, may vary from period to period.

CONTRACTUAL OBLIGATIONS
The following table  identifies the contractual  obligations with respect to the
maturities and scheduled principal  repayments of our secured debt, Note, Credit
Facility and scheduled  interest  payments of our fixed-rate  and  variable-rate
debt at December 31, 2008 and provides  information  about our  operating  lease
obligations that will impact our liquidity and cash flow in future periods.

<TABLE>
<CAPTION>
                                   ------------- ------------- ------------- -------------- ------------- ------------- ------------
                                        2009          2010         2011           2012           2013      Thereafter        Total
                                   ------------- ------------- ------------- -------------- ------------- ------------- ------------
<S>                                  <C>          <C>           <C>            <C>            <C>          <C>            <C>
 Principal payments(1)                $25,669      $13,328       $14,109        $14,935        $81,269      $203,438       $352,748
 Interest payments-fixed rate debt(2)  19,170       18,433        17,651         16,825         12,820        62,288        147,187
 Interest payments-variable rate debt(3)  166            -             -              -              -             -            166
 Operating lease obligations(4)           120           30             -              -              -             -            150
                                   ------------- ------------- ------------- -------------- ------------- ------------- ------------
    Total                             $45,125      $31,791       $31,760        $31,760        $94,089      $265,726       $500,251
                                   ============= ============= ============= ============== ============= ============= ============
</TABLE>

(1)  As of December 31, 2008, 96.3% of our debt was contractually fixed and 3.7%
     of our debt bore interest at variable rates.  Our debt  obligations are set
     forth in detail in the table below.
(2)  The  information  in the table above  reflects our projected  interest rate
     obligations for the fixed-rate  payments based on the contractual  interest
     rates, interest payment dates and scheduled maturity dates.
(3)  The  information  in the table above  reflects our projected  interest rate
     obligations  for the  variable-rate  payments  based on LIBOR  plus a 1.75%
     spread at December 31,  2008,  the  scheduled  interest  payment  dates and
     maturity dates .
(4)  Our operating lease  obligations  relate to a lease of our corporate office
     facility from a related party.

At December 31, 2008, we had total indebtedness of approximately $352.7 million.
A table listing our indebtedness as of December 31, 2008 is set forth in Item 8,
"Financial Statements and Supplementary Data - Note 8."

At December 31, 2008, our debt to total market  capitalization  ratio,  which is
computed  as our  total  debt  outstanding  divided  by the  sum of  total  debt
outstanding  plus the market value of common stock (based upon the closing price
of $7.65 per share on December 31, 2008) on a fully diluted basis, including the
conversion of all O.P.  Units into common stock,  was  approximately  30.4%.  On
December   31,  2008,   the  last  trading  day  for  the  year,   total  market
capitalization was approximately $1.16 billion.  By comparison,  on December 31,
2007 total debt as a  percentage  of market  capitalization  was 25.7% and total
market capitalization was approximately $1.35 billion.

                                     - 37 -

<PAGE>


At December 31, 2008, the  outstanding  balance  remaining  under certain demand
notes that we owed to the operating partnerships was approximately $2.1 million.
The due date of the demand notes has been  extended to September  30, 2010.  The
principal  of the  demand  notes,  along  with the  interest  expense,  which is
interest income to the operating  partnerships,  is eliminated in  consolidation
and is not  included in the  corresponding  line items  within the  consolidated
financial  statements.  However,  the interest  income  earned by the  operating
partnerships,  which is interest expense to us, in connection with this debt, is
included in the calculation of minority interest as reported on the consolidated
statements of operations,  thereby  reducing our net income by this same amount.
At present,  our only means for repayment of this debt is through  distributions
that we receive from the operating partnerships that are in excess of the amount
of  dividends to be paid to our  stockholders  or by raising  additional  equity
capital.

HISTORICAL CASH FLOWS

The Company's cash flow activities are summarized as follows:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                     -----------------------------------------------------------
                                                            2008                 2007                 2006
                                                     -----------------     ----------------     ----------------
                                                                        (dollars in thousands)
<S>                                                     <C>                   <C>                  <C>
    Cash flow provided by operating activities           $39,775               $23,501              $27,012
    Cash flow used in investing activities              ($29,605)              ($8,548)             ($5,369)
    Cash flow (used in) provided by financing activities($33,861)             ($25,047)            ($19,299)
</TABLE>


COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2008 TO THE YEAR ENDED  DECEMBER 31,
2007
Cash and cash equivalents were  approximately zero at December 31, 2008 compared
with $23.7 million at December 31, 2007.

Net cash provided by operating  activities  for the year ended December 31, 2008
was approximately  $39.8 million,  compared with approximately $23.5 million for
the year ended  December  31, 2007.  The increase in cash  provided by operating
activities  resulted  primarily from a $16.9 million cash distribution  received
from  our  unconsolidated  joint  venture,  TBI-MWP,  from  the  sale of two R&D
buildings.

Cash used in investing primarily consists of property acquisitions, improvements
to our  properties  and  investment in marketable  securities.  Net cash used in
investing  activities  was  approximately  ($29.6)  million  for the year  ended
December 31, 2008 compared with approximately ($8.5) million for the prior year.
In 2008, we acquired two properties for  approximately  $35.8 million,  incurred
capital expenditures  relating to real estate improvements of approximately $6.5
million,  invested  approximately  $3.1  million in  marketable  securities  and
transferred  excess restricted cash of approximately $7.7 million to our general
cash account.  We used restricted cash totaling  approximately  $8.1 million for
the  acquisition  of one R&D  property in a  tax-deferred  exchange  transaction
involving our former R&D property at Morse Avenue in Sunnyvale,  California.  In
2007, we acquired six  properties  for  approximately  $47.5  million,  incurred
capital expenditures  relating to real estate improvements of approximately $4.9
million and transferred  excess restricted cash of approximately $0.6 million to
our general cash account.  We used restricted cash totaling  approximately $43.2
million for the  acquisition of three R&D properties and 55 acres of vacant land
in  tax-deferred  exchange  transactions  involving our former R&D properties at
Samaritan  Drive  in San  Jose,  California.  We  sold  two R&D  properties  for
approximately $15.4 million, net, as described above, the proceeds of which were
reflected on our  consolidated  balance sheet as restricted cash at December 31,
2007.

Net cash used in financing activities was approximately  ($33.9) million for the
year ended December 31, 2008,  compared with  approximately  ($25.0) million for
the year ended December 31, 2007.  During 2008,  financing  activities  included
borrowing  $115 million  under a new  collateralized  mortgage  loan,  borrowing
approximately $13.1 million under our line of credit,  payments of approximately
$122.1  million for  outstanding  debt,  borrowing and payment of  approximately
$19.4 million for the purchase of an R&D  building,  borrowing and payment of $3
million  for a  short-term  loan,  payment  of  approximately  $1.2  million  in
financing  costs related to a new mortgage  loan,  refund of $1.5 million from a
certificate of deposit related to a former loan escrow, receipt of approximately
$0.8  million  from stock  option  exercises,  payments of  approximately  $15.0
million to common stockholders as dividends and paid approximately $25.9 million
to O.P.  Unit  holders for  distributions  in excess of their share of earnings.
During 2007,  financing  activities  included  payments of  approximately  $11.0
million  for  outstanding  debt,  payment of  approximately  $1.5  million for a
certificate  of  deposit  related  to a current  loan  escrow  and  payments  of
approximately $12.5 million to common stockholders as dividends.

COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2007 TO THE YEAR ENDED  DECEMBER 31,
2006
Cash and cash equivalents were approximately $23.7 million at December 31, 2007,
a decrease of ($10.1) million from $33.8 million at December 31, 2006.

Net cash provided by operating  activities  for the year ended December 31, 2007
was approximately  $23.5 million,  compared with approximately $27.0 million for
the prior year. The decrease in cash provided by operating  activities  resulted
primarily from lower lease termination fee payment, lower deferred rental income
and higher leasing commission payments (included in other assets) in 2007.

                                     - 38 -
<PAGE>

Cash used in investing  primarily  consists of property  acquisitions,  property
sales and improvements to our properties.  Net cash used in investing activities
was  approximately  ($8.5) million for the year ended December 31, 2007 compared
with  approximately  ($5.4) million for the prior year. In 2007, we acquired six
properties  for  approximately  $47.5  million,  incurred  capital  expenditures
relating  to  real  estate   improvements  of  approximately  $4.9  million  and
transferred  excess restricted cash of approximately $0.6 million to our general
cash account.  We used restricted cash totaling  approximately $43.2 million for
the  acquisition  of  three  R&D  properties  and 55  acres  of  vacant  land in
tax-deferred  exchange  transactions  involving  our  former R&D  properties  at
Samaritan  Drive  in San  Jose,  California.  We  sold  two R&D  properties  for
approximately $15.4 million,  net, as described above, the proceeds of which are
reflected on our  consolidated  balance sheet as restricted cash at December 31,
2007.  In 2006,  we sold three vacant R&D  properties  for  approximately  $42.6
million,  net. We acquired three R&D properties for approximately $16.0 million,
incurred  capital   expenditures   relating  to  real  estate   improvements  of
approximately $4.3 million and transferred  approximately $1.8 million of excess
restricted  cash to our general cash account.  We used  restricted cash totaling
approximately $13.5 million to complete the acquisition of two R&D properties in
a  tax-deferred  exchange  transaction  involving  our  former R&D  property  at
Embedded Way in San Jose,  California.  Proceeds of approximately $43.0 million,
which included earned interest,  from the three vacant R&D property dispositions
were classified as restricted cash for use in  tax-deferred  property  exchanges
and were  reflected on our  consolidated  balance  sheet as  restricted  cash at
December 31, 2006.

Net cash used in financing activities was approximately  ($25.0) million for the
year ended December 31, 2007,  compared with  approximately  ($19.3) million for
the year ended December 31, 2006.  During 2007,  financing  activities  included
payments  of  approximately  $11.0  million  for  outstanding  debt,  payment of
approximately $1.5 million for a certificate of deposit related to a loan escrow
and payments of approximately $12.5 million to common stockholders as dividends.
During  2006,  financing  activities  included  payments of  approximately  $9.8
million for outstanding  debt,  receipt of  approximately  $1.6 million from the
refund of an appeal  bond,  receipt of  approximately  $1.0  million  from stock
option  exercises  and  payments  of  approximately   $12.1  million  to  common
stockholders as dividends.

CAPITAL EXPENDITURES

Our  properties  require  periodic  investments  of capital  for  tenant-related
capital expenditures and for general capital  improvements.  For the years ended
December 31, 2003  through  December 31,  2007,  the  recurring  tenant/building
improvement  costs and leasing  commissions  incurred with respect to new leases
and  lease  renewals  of the  properties  averaged  approximately  $6.2  million
annually. We will have approximately 370,000 rentable square feet under expiring
leases  in  2009.   We  expect  that  the  average   annual  cost  of  recurring
tenant/building improvements and leasing commissions related to these properties
will be  approximately  $5.0  million  during  2009.  We believe we will recover
substantially  all of these  costs  from the  tenants  under the new or  renewed
leases through contractual increases in rental rates. Until we actually sign the
leases, however, we cannot assure you that this will occur. Capital expenditures
may fluctuate in any given period subject to the nature,  extent,  and timing of
improvements required to be made to the properties. Tenant/building improvements
and leasing  costs also may  fluctuate in any given period year  depending  upon
factors such as the property,  the term of the lease,  the type of lease and the
overall  market   conditions.   We  expect  to  meet  our  long-term   liquidity
requirements  for the  funding  of  property  acquisitions  and  other  material
non-recurring  capital  improvements  through our currently available sources of
capital,   including  operating  cash  flows,  cash  on  hand,  and  our  credit
facility(see  "Policies with Respect to Certain Activities - Financing Policies"
below).

DISTRIBUTION POLICY

Distributions are determined by our Board of Directors and depend on actual cash
available for distributions,  our financial condition, capital requirements, the
annual distribution  requirements under the REIT provisions of the Code and such
other factors as the Board of Directors deems relevant.  For a discussion of the
risk  that we will not  meet our  distribution  objectives,  see Item 1A,  "Risk
Factors - Stockholders are not assured of receiving cash distributions from us."

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

We have adopted  policies with respect to  investment,  financing,  conflicts of
interest and other activities.  These policies have been formulated by our Board
of  Directors,  are set  forth in our  charter,  bylaws,  operating  partnership
agreements  or agreements  with the Berg Group,  and generally may be amended or
revised  from  time to time,  subject  to  applicable  agreement  terms,  at the
discretion of the Board of Directors without a vote of the  stockholders.  Among
other things, these policies provide that:

-    so long as the Berg Group members and their  affiliates,  other than us and
     the operating  partnerships,  beneficially own, in the aggregate,  at least
     15% of the outstanding shares of common stock on a Fully Diluted basis, the
     approval  of a majority  of our  directors,  including  Carl E. Berg or his
     designee as a director,  and of the holders of a majority of the O.P. Units
     is  required  for us to take title to assets,  other  than  temporarily  in
     connection  with an acquisition  prior to  contributing  such assets to the
     operating  partnerships,  or to conduct  business  other than  through  the
     operating  partnerships,  or for us or the operating partnerships to engage
     in any business other than the  ownership,  construction,  development  and
     operation of real estate properties,  or for certain fundamental  corporate
     actions,  including  amendments  to our  charter,  bylaws or any  operating

                                     - 39 -
<PAGE>


     partnership  agreement  and  any  merger,  consolidation  or sale of all or
     substantially   all  of  our  assets  or  the   assets  of  the   operating
     partnerships;
-    changes in certain  policies  with respect to conflicts of interest must be
     consistent with legal requirements;
-    certain policies with respect to competition by and  acquisitions  from the
     Berg Group are imposed pursuant to provisions of the acquisition  agreement
     that cannot be amended or waived  without the  approval of the  Independent
     Directors Committee of our Board of Directors;
-    we cannot take any action intended to terminate our qualification as a REIT
     without the approval of more than 75% of the entire Board of Directors; and
-    we cannot  undertake  certain other specified  transactions,  including the
     issuance of debt securities,  and borrowings in excess of specified limits,
     or the  amendment  of our charter and bylaws,  without the approval of more
     than 75% of the entire Board of Directors.

INVESTMENT POLICIES

We expect to pursue our business and investment  objectives  principally through
the direct ownership by the operating  partnerships of our properties and future
acquired properties. Development or investment activities are not limited to any
specified  percentage of our assets. We may also participate with other entities
in property  ownership,  through joint ventures or other types of  co-ownership.
Equity  investments  may be subject to  existing  mortgage  financing  and other
indebtedness that have priority over our equity interests.

While  we  will  emphasize  equity  real  estate  investments,  we  may,  in our
discretion and subject to the percentage ownership  limitations and gross income
tests necessary for REIT qualification, invest in mortgage and other real estate
interests,  including securities of other real estate investment trusts. We have
not previously  invested in mortgages of other real estate investment trusts. In
the fourth quarter of 2008, we invested approximately $3.6 million in securities
of another real estate investment trust.

FINANCING POLICIES

To the extent that our Board of Directors determines to seek additional capital,
we may raise such capital through additional equity offerings, debt financing or
retention  of cash  flow,  or  through a  combination  of these  sources,  after
consideration  of provisions of the Code requiring the distribution by a REIT of
a certain  percentage  of its taxable  income and taking into account taxes that
would be imposed on undistributed  taxable income.  It is our present  intention
that any additional borrowings will be made through the operating  partnerships,
although  we may incur  borrowings  that  would be  re-loaned  to the  operating
partnerships. Borrowings may be unsecured or may be secured by any or all of our
assets, the operating partnerships or any existing or new property, and may have
full or limited  recourse  to all or any portion of our  assets,  the  operating
partnerships or any existing or new property.

We have adopted a policy of  maintaining a  consolidated  ratio of debt to total
market  capitalization,  which includes for this purpose the market value of all
shares of common stock for which  outstanding  O.P. Units are  exchangeable,  of
less than 50%. This ratio may not be exceeded  without the approval of more than
75% of our  entire  Board  of  Directors.  We  also  may  determine  to  finance
acquisitions  through the exchange of  properties  or the issuance of additional
O.P.  Units in the  operating  partnerships,  shares  of  common  stock or other
securities.

In the event that the Board of Directors  determines to raise additional  equity
capital, it has the authority, without stockholder approval, to issue additional
shares  of common  stock,  preferred  stock or other  capital  stock,  including
securities  senior to the common stock,  in any manner and on such terms and for
such consideration it deems appropriate,  including in exchange for property. In
the event that we issue any  shares of common  stock or  securities  convertible
into or  exchangeable  or exercisable  for,  shares of common stock,  subject to
limited  exceptions,  such as the issuance of common stock pursuant to any stock
incentive  plan adopted by us or pursuant to limited  partners'  exercise of the
exchange rights or the put rights,  the limited  partners will have the right to
purchase common stock or such  securities in order to maintain their  respective
percentage  interests in us on a Fully Diluted basis.  If the Board of Directors
determines that we will raise  additional  equity capital to fund investments by
the  operating  partnerships,  we will  contribute  such funds to the  operating
partnerships  as a contribution  to capital and purchase of additional  units of
general partner interest;  however, holders of O.P. Units will have the right to
participate  in such  funding on a pro rata basis.  In the event that holders of
O.P. Units sell their O.P. Units to us upon exercise of their put rights, we are
authorized to raise the funds for such purchase by issuing  additional shares of
common stock.  Alternatively,  we may issue additional shares of common stock in
exchange for the tendered O.P. Units.

Our  Board  of  Directors   also  has  the  authority  to  cause  the  operating
partnerships to issue  additional O.P. Units in any manner and on such terms and
for such  consideration,  as it deems  appropriate,  including  in exchange  for
property. In the event that the operating  partnerships issue new O.P. Units for
cash, but not property,  the limited partners holding O.P. Units in an operating
partnership  will have the right to  purchase  O.P.  Units in order,  and to the
extent  necessary,  to maintain their  respective  percentage  interests in that
operating partnership.  The new O.P. Units will be exchangeable for common stock
pursuant  to the  exchange  rights or may be  tendered to us pursuant to the put
rights.

                                     - 40 -

<PAGE>


DISPOSITION POLICIES

From time to time we may dispose of properties in our portfolio,  subject to the
required  approvals as set forth  below.  During the past two years we have sold
vacant R&D  properties  that we did not believe  were likely to earn the type of
return on assets that we seek. We will  continue to dispose of  under-performing
properties when we consider it appropriate.

A significant factor influencing our disposition policy is that the tax basis of
the  limited  partners  in the  properties  in  the  operating  partnerships  is
substantially  less than current fair market  value.  Accordingly,  prior to the
disposition of their O.P. Units, upon a disposition of any of the properties,  a
disproportionately large share of the gain for federal income tax purposes would
be allocated to the limited partners.

In addition, the approval of a majority of our directors, including Carl E. Berg
or his  designee,  will be  required  to sell  all or  substantially  all of our
assets.  The  consent of the  holders of a  majority  of the O.P.  Units will be
required to effect a sale or sales of all, or  substantially  all, of the assets
of any of the operating partnerships.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

For  discussion  of recent  accounting  pronouncements,  see Item 8,  "Financial
Statements  and  Supplementary  Data - Note  2" to  our  consolidated  financial
statements included in this report.

                                     - 41 -
<PAGE>


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not generally hold market risk sensitive instruments for trading purposes.
We use fixed and variable rate debt to finance our  operations.  Our exposure to
market risk for  changes in  interest  rates  relates  primarily  to our current
variable  rate  debt and our  future  debt  obligations.  We are  vulnerable  to
significant fluctuations of interest rates on our floating rate debt.

We manage our market risk by monitoring interest rates where we try to recognize
the  unpredictability  of the financial  markets and seek to reduce  potentially
adverse effects on the results of our operations. This takes frequent evaluation
of available  lending rates and examination of  opportunities to reduce interest
expense  through new sources of debt financing.  Several  factors  affecting the
interest rate risk include governmental monetary and tax policies,  domestic and
international  economics  and other  factors  that are beyond our  control.  The
following table provides  information  about the principal cash flows,  weighted
average interest rates,  and expected  maturity dates for debt outstanding as of
December 31, 2008.  The current terms of our  outstanding  debt are described in
Item 8, "Financial  Statements and Supplementary  Data - Note 8." For fixed rate
debt, we estimate  fair value by using  discounted  cash flow analyses  based on
borrowing rates for similar kinds of borrowing  arrangements.  We estimated that
the fair value of fixed rate debt at December 31, 2008 was approximately  $496.3
million.

For fixed rate debt,  the table  presents the  assumption  that the  outstanding
principal  balance at December  31,  2008 will be paid  according  to  scheduled
principal payments and that we will not prepay any of the outstanding  principal
balance.

For variable rate debt, the table presents the assumption  that the  outstanding
principal balance at December 31, 2008 will be paid upon maturity.

<TABLE>
<CAPTION>
                                      2009        2010       2011         2012        2013    Thereafter    Total     Fair Value
                                  ----------------------------------------------------------------------------------------------
                                                                    (dollars in thousands)
    FIXED RATE DEBT:
<S>                                <C>         <C>         <C>         <C>         <C>        <C>         <C>         <C>
    Secured notes payable           $12,591     $13,327     $14,109     $14,935     $81,269    $203,438    $339,669    $496,320
    Weighted average interest rate   5.86%       5.86%       5.86%       5.86%       5.86%       5.86%

    VARIABLE RATE DEBT:
    Unsecured debt                  $13,079        -           -           -           -           -       $13,079     $13,079
    Weighted average interest rate   3.17%         -           -           -           -           -
</TABLE>


The  fixed  rate debt  represented  96.3%  and 100% and the  variable  rate debt
represented 3.7% and 0% of all debt outstanding for the years ended December 31,
2008 and 2007, respectively.

All of our debt is denominated in United States  dollars.  The weighted  average
interest rate for the fixed rate debt was approximately  5.86% and 5.85% for the
years ended December 31, 2008 and 2007,  respectively.  The increase in interest
expense  attributable to the average  interest rate difference  between 2007 and
2008 was approximately $0.3 million,  which was a result of new debt obtained in
2008.

The primary market risk we face is the risk of interest rate  fluctuations.  The
Heritage  Bank  of  Commerce  line of  credit,  which  is tied to a LIBOR  based
interest rate,  was  approximately  $13.1 million,  or 3.7%, of the total $352.7
million of debt as of December 31, 2008. With a floating  interest rate we could
pay lower rates of interest in periods of decreasing  interest  rates and higher
rates of interest in periods of increasing  interest  rates.  As of December 31,
2008 and 2007, we did not have any derivative instruments.

The  following  discussion  of  market  risk  is  based  solely  on  a  possible
hypothetical  change in future  market  conditions  related to our variable rate
debt. It includes "forward-looking statements" regarding market risk, but we are
not forecasting  the occurrence of these market changes.  Based on the amount of
variable debt  outstanding as of December 31, 2008, a 1% increase or decrease in
interest  rates on our $13.1  million of  floating  rate debt would  decrease or
increase,  respectively,  annual earnings and cash flows by  approximately  $0.1
million,  as a result of the increased or decreased  interest expense associated
with the  change in rate,  and would not have an impact on the fair value of the
floating  rate debt.  This amount is  determined  by  considering  the impact of
hypothetical  interest rates on our borrowing  cost.  Due to the  uncertainty of
fluctuations  in interest rates and the specific  actions that might be taken by
us to mitigate any such fluctuations and their possible  effects,  the foregoing
sensitivity analysis assumes no changes on our financial structure.

                                     - 42 -

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          MISSION WEST PROPERTIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                   PAGE
                                                                                                                 ---------
<S>                                                                                                                <C>
Report of Independent Registered Public Accounting Firm                                                             44
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting                45
Consolidated Balance Sheets as of December 31, 2008 and 2007                                                        46
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006                          47
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2008, 2007 and 2006                48
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006                          49
Notes to Consolidated Financial Statements                                                                          50
Supplemental Financial Information                                                                                  72
Report of Independent Registered Public Accounting Firm  on Financial Statement Schedule                            73
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2008                                      75
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2007                                      77
</TABLE>


                                     - 43 -



<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Stockholders
Mission West Properties, Inc.
Cupertino, California

We have audited the  accompanying  consolidated  balance  sheets of Mission West
Properties,  Inc.  (the  "Company")  as of December  31, 2008 and 2007,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 2008.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position of Mission West
Properties,  Inc. at December 31, 2008 and 2007, and the consolidated results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 2008, in conformity  with  accounting  principles  generally
accepted in the United States of America.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States), the Company's internal control over
financial  reporting as of December 31, 2008, based on the criteria  established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations  of the  Treadway  Commission  and our report dated March 13, 2009
expressed an unqualified opinion thereon.



\S\ Burr, Pilger & Mayer, LLP


San Francisco, California
March 13, 2009

                                     - 44 -

<PAGE>


           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
                   INTERNAL CONTROL OVER FINANCIAL REPORTING



Board of Directors and Stockholders
Mission West Properties, Inc.
Cupertino, California


We have audited Mission West Properties,  Inc.'s (the Company)  internal control
over financial reporting as of December 31, 2008, based on criteria  established
in Internal Control--Integrated  Framework issued by the Committee of Sponsoring
Organizations of the Treadway  Commission (the "COSO  criteria").  The Company's
management  is  responsible  for  maintaining  effective  internal  control over
financial  reporting  and for its  assessment of the  effectiveness  of internal
control  over  financial  reporting  included in the  accompanying  Management's
Report on Internal Control over Financial  Reporting.  Our  responsibility is to
express an opinion on the Company's  internal  control over financial  reporting
based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating  effectiveness of internal control based
on the assessed  risk,  and  performing  such other  procedures as we considered
necessary in the circumstances.  We believe that our audit provides a reasonable
basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect that  transactions  and  dispositions of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our  opinion,  Mission  West  Properties,  Inc.  maintained,  in all material
respects, effective internal control over financial reporting as of December 31,
2008, based on the COSO criteria.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets of
Mission West Properties,  Inc. as of December 31, 2008 and 2007, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the three years in the period ended  December 31, 2008,  and the related
financial statement schedules listed in the Index at Item 15(a), and our reports
dated March 13, 2009 expressed an unqualified opinion thereon.



\S\ Burr, Pilger & Mayer, LLP


San Francisco, California
March 13, 2009

                                     - 45 -



<PAGE>


                          MISSION WEST PROPERTIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                  (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                             December 31,
                                                                             ---------------------------------------------
                                                                                     2008                    2007
                                                                             ----------------------  ---------------------
Investments in real estate:
<S>                                                                               <C>                     <C>
  Land                                                                              $320,911                $312,152
  Buildings and improvements                                                         799,471                 764,665
  Real estate related intangible assets                                                3,240                   2,119
                                                                             ----------------------  ---------------------
      Total investments in properties                                              1,123,622               1,078,936
  Accumulated depreciation and amortization                                         (180,043)               (156,819)
                                                                             ----------------------  ---------------------
      Net investments in properties                                                  943,579                 922,117
  Investment in unconsolidated joint venture                                           3,768                   2,735
                                                                             ----------------------  ---------------------
      Net investments in real estate                                                 947,347                 924,852

Cash and cash equivalents                                                                  -                  23,691
Restricted cash                                                                       39,478                  65,509
Investment in marketable securities                                                    3,368                       -
Deferred rent receivables                                                             17,841                  14,833
Other assets, net                                                                     26,251                  25,000
                                                                             ----------------------  ---------------------
      Total assets                                                                $1,034,285              $1,053,885
                                                                             ======================  =====================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Mortgage notes payable                                                            $330,908                $337,520
  Mortgage note payable (related parties)                                              8,761                   9,224
  Revolving line of credit                                                            13,079                       -
  Interest payable                                                                     1,596                   1,331
  Security deposits                                                                    5,272                   4,754
  Deferred rental income                                                               3,964                   3,302
  Dividends and distributions payable                                                 21,055                  16,832
  Accounts payable and accrued expenses                                               17,747                  15,618
                                                                             ----------------------  ---------------------
      Total liabilities                                                              402,382                 388,581
                                                                             ----------------------  ---------------------

Commitments and contingencies (Note 16)

Minority interests in operating partnerships                                         497,485                 526,626
                                                                             ----------------------  ---------------------

Stockholders' equity:
  Preferred stock, $.001 par value, 20,000,000 shares authorized,
      none issued and outstanding                                                          -                       -
  Common stock, $.001 par value, 200,000,000 shares authorized, 19,748,211
      and 19,664,087 shares issued and outstanding at December 31, 2008 and 2007          20                      20
  Additional paid-in capital                                                         154,412                 153,024
  Distributions in excess of accumulated earnings                                    (20,014)                (14,366)
                                                                             ----------------------  ---------------------
      Total stockholders' equity                                                     134,418                 138,678
                                                                             ----------------------  ---------------------
      Total liabilities and stockholders' equity                                  $1,034,285              $1,053,885
                                                                             ======================  =====================
</TABLE>

                 See notes to consolidated financial statements.

                                     - 46 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (dollars in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                            ------------------------------------------------------------------------
                                                                    2008                     2007                     2006
                                                            ----------------------  -----------------------  -----------------------
Operating revenues:
<S>                                                               <C>                     <C>                      <C>
  Rental revenue from real estate                                   $79,075                 $80,337                  $91,457
  Above market lease intangible asset amortization                        -                  (4,091)                  (1,888)
  Tenant reimbursements                                              16,406                  13,355                   13,061
  Other income, including lease terminations and settlements          4,223                  61,982                   18,222
                                                            ----------------------  -----------------------  -----------------------
       Total operating revenues                                      99,704                 151,583                  120,852
                                                            ----------------------  -----------------------  -----------------------

Operating expenses:
  Property operating, maintenance and real estate taxes              23,460                  20,371                   18,505
  General and administrative                                          2,635                   3,035                    2,248
  Depreciation and amortization of real estate                       23,224                  22,588                   21,579
                                                            ----------------------  -----------------------  -----------------------
       Total operating expenses                                      49,319                  45,994                   42,332
                                                            ----------------------  -----------------------  -----------------------

       Operating income                                              50,385                 105,589                   78,520
Other income (expenses):
  Equity in earnings of unconsolidated joint venture                 19,617                   1,408                    1,985
  Interest and dividend income                                        1,735                   3,086                    2,344
  Unrealized loss from investment                                      (278)                      -                        -
  Interest expense                                                  (19,787)                (20,131)                 (20,708)
  Interest expense - related parties                                 (1,332)                   (724)                    (755)
                                                            ----------------------  -----------------------  -----------------------
Income from continuing operations before minority interests          50,340                  89,228                   61,386
Minority interests from continuing operations                       (40,206)                (71,471)                 (49,928)
                                                            ----------------------  -----------------------  -----------------------
       Income from continuing operations                             10,134                  17,757                   11,458

Discontinued operations, net of minority interests:
  Gain from disposal of properties classified as discontinued operations  -                   1,126                    2,935
  Income attributable to discontinued operations                          -                       5                      237
                                                            ----------------------  -----------------------  -----------------------
     Income from discontinued operations                                  -                   1,131                    3,172
                                                            ----------------------  -----------------------  -----------------------

Net income to common stockholders                                    $10,134                 $18,888                  $14,630
                                                            ======================  =======================  =======================
Net income to minority interests                                     $40,206                 $76,960                  $66,358
                                                            ======================  =======================  =======================
Income per share from continuing operations:
  Basic                                                               $0.51                   $0.90                    $0.60
                                                            ======================  =======================  =======================
  Diluted                                                             $0.51                   $0.89                    $0.59
                                                            ======================  =======================  =======================
Income per share from discontinued operations:
  Basic                                                                 -                     $0.06                    $0.17
                                                            ======================  =======================  =======================
  Diluted                                                               -                     $0.06                    $0.17
                                                            ======================  =======================  =======================
Net income per share to common stockholders:
  Basic                                                               $0.51                   $0.96                    $0.77
                                                            ======================  =======================  =======================
  Diluted                                                             $0.51                   $0.95                    $0.76
                                                            ======================  =======================  =======================
Weighted average shares of common stock (basic)                   19,714,414               19,627,234               19,066,581
                                                            ======================  =======================  =======================
Weighted average shares of common stock (diluted)                 19,996,349               19,854,411               19,298,664
                                                            ======================  =======================  =======================
Weighted average O.P. Units                                       85,528,329               85,162,240               85,510,491
                                                            ======================  =======================  =======================
Outstanding common stock                                          19,748,211               19,664,087               19,443,587
                                                            ======================  =======================  =======================
Outstanding O.P. Units                                            85,526,965               85,533,935               85,206,199
                                                            ======================  =======================  =======================
</TABLE>

                 See notes to consolidated financial statements.


                                     - 47 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  (dollars in thousands, except per share data)


<TABLE>
<CAPTION>

                                                                                                   Distributions in
                                                                                     Additional       Excess of           Total
                                                      Shares of Common     Common     Paid-in        Accumulated       Stockholders'
                                                     Stock Outstanding      Stock     Capital          Earnings           Equity
                                                     -------------------  --------  -------------  -----------------  --------------

<S>                                                    <C>                 <C>        <C>              <C>              <C>
Balance, December 31, 2005                              18,448,791          $18        $138,038        ($23,041)         $115,015

   Net income                                                                                            14,630            14,630
   Dividends declared at $0.64 per share                                                                (12,271)          (12,271)
   Issuance of common stock upon O.P. Unit conversion      881,896            1          10,279                            10,280
   Issuance of common stock upon option exercise           112,900                        1,014                             1,014
   Stock-based compensation                                                                 210                               210
                                                     -------------------  ----------  -------------  -----------------  ------------
Balance, December 31, 2006                              19,443,587           19         149,541         (20,682)          128,878

   Net income                                                                                            18,888            18,888
   Dividends declared at $0.64 per share                                                                (12,572)          (12,572)
   Issuance of common stock upon O.P. Unit conversion      220,500            1           2,854                             2,855
   Stock-based compensation                                                                 629                               629
                                                     -------------------  ----------  -------------  -----------------  ------------
Balance, December 31, 2007                              19,664,087           20         153,024         (14,366)          138,678

   Net income                                                                                            10,134            10,134
   Dividends declared at $0.80 per share                                                                (15,782)          (15,782)
   Issuance of common stock upon O.P. Unit conversion        6,970                           66                                66
   Issuance of common stock upon option exercise            77,154                          852                               852
   Stock-based compensation                                                                 470                               470
                                                     -------------------  ----------  -------------  -----------------  ------------
Balance, December 31, 2008                              19,748,211          $20        $154,412        ($20,014)         $134,418
                                                     ===================  ==========  =============  =================  ============
</TABLE>

                 See notes to consolidated financial statements.

                                     - 48 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                    ---------------------------------------------------------------
                                                                           2008                  2007                  2006
                                                                    --------------------  --------------------  -------------------
Cash flows from operating activities (including discontinued operations):
<S>                                                                     <C>                   <C>                   <C>
Net income                                                                $10,134               $18,888                $14,630
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Minority interests in operating  partnerships and discontinued        40,206                76,960                 66,358
        operations
     Minority interests distributions                                     (40,206)              (55,313)               (55,618)
     Depreciation and amortization of real estate and in-place leases      23,224                22,735                 22,274
     Amortization of above market lease                                         -                 4,091                  1,888
     Gain from disposal of properties classified as discontinued operations     -                (6,529)               (18,102)
     Equity in earnings of unconsolidated joint venture                   (19,617)               (1,408)                (1,985)
     Distributions from unconsolidated joint venture                       18,584                 2,141                  1,780
     Interest earned on restricted cash                                      (977)               (1,631)                  (821)
     Lease termination fee income related to restricted cash                9,741               (35,636)                (4,549)
     Stock-based compensation expense                                         553                   629                    236
     Other                                                                    142                   147                     37
Change in operating assets and liabilities, net of liabilities assumed:
     Deferred rent receivable                                              (3,008)                3,656                    729
     Other assets                                                          (2,575)                 (389)                   751
     Interest payable                                                         265                   (44)                 1,054
     Security deposits                                                        518                (2,230)                (1,070)
     Deferred rental income                                                   662                (3,572)                   771
     Accounts payable and accrued expenses                                  2,129                 1,006                 (1,351)
                                                                    --------------------  --------------------  -------------------
        Net cash provided by operating activities                          39,775                23,501                 27,012
                                                                    --------------------  --------------------  -------------------

Cash flows from investing activities:
Improvements to investments in real estate                                 (6,468)               (4,878)                (4,277)
Net proceeds from sale of properties                                            -                15,431                 42,628
Acquisition of properties                                                 (35,764)              (47,491)               (15,959)
Restricted cash held in escrow                                                  -               (15,431)               (43,043)
Restricted cash released for purchase of properties                         8,082                43,191                 13,447
Proceeds from release of restricted cash                                    7,654                   630                  1,835
Investment in marketable securities                                        (3,109)                    -                      -
                                                                    --------------------  --------------------  -------------------
        Net cash used in investing activities                             (29,605)               (8,548)                (5,369)
                                                                    --------------------  --------------------  -------------------

Cash flows from financing activities:
Proceeds from mortgage loan payable                                       115,000                     -                      -
Principal payments on mortgage notes payable                             (121,612)              (10,581)                (9,380)
Principal payments on mortgage notes payable (related parties)               (463)                 (430)                  (397)
Real estate purchase financing (related parties)                           19,429                     -                      -
Payment on real estate purchase financing (related parties)               (19,429)                    -                      -
Proceeds from note payable (related parties)                                3,000                     -                      -
Payment on note payable (related parties)                                  (3,000)                    -                      -
Net borrowings on revolving line of credit                                 13,079                     -                      -
Debt issuance costs                                                        (1,231)                    -                      -
Loan escrow refund (deposit)                                                1,500                (1,500)                     -
Refund of appeal bond                                                           -                     -                  1,599
Net proceeds from exercise of stock options                                   768                     -                    989
Minority interests distributions in excess of earnings                    (25,923)                    -                      -
Dividends paid                                                            (14,979)              (12,536)               (12,110)
                                                                    --------------------  --------------------  -------------------
        Net cash used in financing activities                             (33,861)              (25,047)               (19,299)
                                                                    --------------------  --------------------  -------------------

        Net (decrease)/increase in cash and cash equivalents              (23,691)              (10,094)                 2,344
Cash and cash equivalents, beginning of year                               23,691                33,785                 31,441
                                                                    --------------------  --------------------  -------------------

Cash and cash equivalents, end of year                                   $      -               $23,691                $33,785
                                                                    ====================  ====================  ===================
</TABLE>

                 See notes to consolidated financial statements.

                                     - 49 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (Dollars in thousands, except per share data)


1.   ORGANIZATIONS AND FORMATION OF THE COMPANY

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

As of December 31, 2008, the Company owns a controlling general partner interest
of 20.02%,  21.85%, 16.31% and 12.52% in Mission West Properties,  L.P., Mission
West  Properties,  L.P. I,  Mission  West  Properties,  L.P. II and Mission West
Properties,  L.P. III,  respectively,  for an 18.73% general partner interest in
the operating partnerships, taken as a whole, on a consolidated weighted average
basis.

The  Company,  through the  operating  partnerships,  owns  interests in 111 R&D
properties at December 31, 2008, all of which are located in the Silicon Valley.

BUSINESS SEGMENT INFORMATION
The Company's  primary  business is the  ownership and  management of R&D/office
real estate with a  geographic  concentration  in the Silicon  Valley of the San
Francisco Bay Area. Accordingly, the Company has concluded that it currently has
a single  reportable  segment for  Statement of Financial  Accounting  Standards
("SFAS") 131 purposes.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION
The accompanying  consolidated  financial statements include the accounts of the
Company  and  its  controlled  subsidiaries,  the  operating  partnerships  (the
"Company").  All significant  intercompany  transactions have been eliminated in
consolidation.

The Company consolidates all variable interest entities in which it is deemed to
be the primary  beneficiary  in accordance  with Financial  Accounting  Standard
Board ("FASB") Interpretation No. 46 (Revised December 2003),  "Consolidation of
Variable Interest Entities" ("FIN 46R").

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires  management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent  assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting  periods.  Accounting  and  disclosure  decisions  with respect to
material  transactions that are subject to significant  management  judgments or
estimates  include  impairment of long lived assets,  realizability  of deferred
rent  receivables,  and  allocation  of  purchase  price  relating  to  property
acquisitions and the related  depreciable  lives assigned.  Actual results could
differ materially from those estimates.

REAL ESTATE ASSETS AND RELATED INTANGIBLE ASSETS
Real  estate  assets  are  stated  at  cost.  Cost  includes   expenditures  for
improvements or replacements.  Maintenance and repairs are charged to expense as
incurred.

According  to SFAS  141,  "Business  Combinations,"  the fair  value of the real
estate  acquired is allocated to the acquired  tangible  assets,  consisting  of
land,  building and tenant  improvements,  and identified  intangible assets and
liabilities,  consisting of the value of above-market and  below-market  leases,
other value of in-place leases and value of tenant relationships,  based in each
case on their  relative fair values.  SFAS 141 was revised in December 2007. The
fair value of the tangible assets of an acquired property,  which includes land,
building and tenant improvements, is determined by valuing the property as if it
were vacant,  and the "as-if-vacant"  value is then allocated to land,  building
and tenant improvements based on management's determination of the relative fair
values of these assets.  Factors  considered  by management in performing  these
analyses include certain costs during the lease-up periods  considering  current
market  conditions  and costs to execute  similar  leases.  These costs  include
estimates of lost rental revenue, leasing commissions, and tenant improvements.

                                     - 50 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

In allocating the fair value of the identified intangible assets of the acquired
property,  above-market  in-place  lease value is recorded  based on the present
value, using an interest rate which reflects the risks associated with the lease
acquired,  of the  difference  between  (i) the  contractual  amounts to be paid
pursuant to the  in-place  lease and (ii)  management's  estimate of fair market
lease rate for the corresponding in-place lease, measured over a period equal to
the remaining  non-cancelable  lease term. The  capitalized  above-market  lease
value,  included in real estate related  intangible  assets,  is amortized as an
offset to rental  revenue  from real  estate over the  remaining  non-cancelable
lease term. The value of in-place leases, exclusive of the value of above-market
in-place  lease,  is  amortized  to expense  over the  remaining  non-cancelable
periods of the respective  leases. If a lease were to be terminated prior to its
stated  expiration,  all  unamortized  amounts  relating  to that lease would be
written off in the period that the lease is terminated.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed using the  straight-line  method over
estimated useful lives as follows:

<TABLE>
<CAPTION>
<S>                                                                             <C>
Building shell and base building improvements of newly acquired properties   -   Weighted average composite life of 40 years
Base building improvements made subsequent to initial property acquisition   -   25 years
Tenant improvements and furniture and fixtures                               -   Lesser of life of asset, generally 5-10 years,
                                                                                 or term of lease
Above-market and in-place lease value                                        -   Term of lease
</TABLE>

IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews real estate assets for impairment whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable  in accordance  with SFAS 144,  "Accounting  for the  Impairment and
Disposal of Long-Lived  Assets." If the carrying amount of the asset,  including
any  intangible  assets  associated  with  that  asset,  exceeds  its  estimated
undiscounted  net cash flow,  before  interest,  the Company  will  recognize an
impairment  loss equal to the  difference  between its  carrying  amount and its
estimated fair value. If impairment is recognized,  the reduced  carrying amount
of the asset will be accounted for as its new cost. For a depreciable asset, the
new cost will be depreciated over the asset's remaining useful life.  Generally,
fair values are estimated using discounted cash flow, replacement cost or market
comparison  analyses.  The analysis that the Company prepares in connection with
determining if there may be any asset  impairment  loss under SFAS 144 considers
several assumptions:  holding period of ten years, 36 months lease up period and
cap rate  ranging  from 8% to 9%.  The  process  of  evaluating  for  impairment
requires  estimates  as to future  events and  conditions,  which are subject to
varying market and economic factors, such as the vacancy rates, rental rates and
operating  costs for R&D  facilities  in the  Silicon  Valley  area and  related
submarkets.  Therefore,  it is  reasonably  possible  that a change in  estimate
resulting  from judgments as to future events could occur which would affect the
recorded  amounts of the property.  No  impairment  losses were recorded for the
years ended December 31, 2008 and 2007.

ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
In accordance  with SFAS 144, the results of  operations  and gains or losses on
the sale of  property  are  presented  as  discontinued  operations  if both the
following  criteria  are met: (a) the  operation  and cash flows of the property
have been (or will be) eliminated from the ongoing  operations of the Company as
a result of the  disposal  transaction;  and (b) the  Company  will not have any
significant  involvement  in the  operations of the property  after the disposal
transaction. SFAS 144 also requires prior period results of operations for these
properties  to  be  retrospectively   adjusted  and  presented  in  discontinued
operations in prior consolidated statements of operations.

An asset is generally  classified as held for sale once management has committed
to an action to sell the asset, the asset is available for immediate sale in its
present  condition  (subject to terms that are usual and  customary for sales of
such  assets),  an active  program to locate a buyer is  initiated,  the sale is
probable,  the  asset is being  actively  marketed  for sale at a price  that is
reasonable  in  relation  to its  current  fair value and  actions  required  to
complete the plan indicate that it is unlikely that  significant  changes to the
plan will be made or that the plan will be withdrawn.  Properties  for sale with
significant  contingencies  that  may  prevent  their  sale,  such as  obtaining
rezoning  approval  from the city,  are not  classified as assets held for sale.
Upon the  classification  of a real estate asset as held for sale,  the carrying
value of the asset is  reduced  to the  lower of its net book  value or its fair
value, less costs to sell the asset.  Subsequent to the classification of assets
as held for sale,  no further  depreciation  expense is  recorded.  Real  estate
assets  held for sale are stated  separately  on the  accompanying  consolidated
balance  sheets.  The operating  results of real estate assets held for sale and
sold are reported as discontinued  operations in the  accompanying  consolidated
statements  of  operations.   The  income/(loss)  from  discontinued  operations
includes the revenues and expenses, including depreciation,  associated with the
assets.  This  classification  of operating  results as discontinued  operations
applies  retroactively  for all periods  presented for assets designated as held
for sale.  Additionally,  gains and losses on assets designated as held for sale
are classified as part of discontinued operations.

CASH AND CASH EQUIVALENTS
The  Company  considers  highly  liquid  short-term   investments  with  initial
maturities  of  three  months  or less to be cash  equivalents.  Cash  and  cash
equivalents  are primarily  held in one or more financial  institutions,  and at
times,  such  balances  may  be in  excess  of  the  Federal  Deposit  Insurance
Corporation insurance limit.

                                     - 51 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

RESTRICTED CASH
Restricted  cash totaled  approximately  $39,478 as of December  31,  2008.  The
entire  amount  represents  a balance the Company  has  consolidated  due to its
adoption of FIN 46R, The Company does not possess or control these funds or have
any rights to receive  them  except as provided  in the  applicable  agreements.
Therefore, restricted cash is not available for distribution to stockholders.

FUNDS HELD AT QUALIFIED INTERMEDIARY FOR 1031 EXCHANGE
Periodically,  the  Company  enters  into  exchange  agreements  with  qualified
intermediaries  to facilitate the exchange of real property  pursuant to Section
1031 of the Code ("Section 1031  Exchange").  A Section 1031 Exchange  generally
allows for the deferral of income taxes related to the gain  attributable to the
sale of property if qualified  replacement  properties are identified  within 45
days and such qualified replacement properties are acquired within 180 days from
the initial  sale.  During the  replacement  period,  the Company may direct the
proceeds from a disposition to be held at a qualified  intermediary for the sole
purpose of  completing a Section  1031  Exchange.  The  proceeds  are  generally
classified as restricted cash.

INVESTMENT IN MARKETABLE SECURITIES
Marketable  securities  reported in the  Company's  consolidated  balance  sheet
represent  investments traded in the open market. The marketable  securities are
adjusted  to  fair  value  at the  end  of  each  accounting  period,  with  the
corresponding  losses  and gains  recorded  in  unrealized  losses or gains from
investment.  For the year ended  December  31,  2008,  the Company  recorded net
unrealized losses of approximately $278 related to the decrease in fair value of
the marketable securities, which was reported in unrealized loss from investment
in the Company's consolidated statement of operations.

OTHER ASSETS
Included in other assets are costs  associated with obtaining debt financing and
commissions  associated  with new leases.  Such debt  financing  costs are being
amortized  over the term of the associated  debt, by a method that  approximates
the  effective   interest  method  and  such  lease  commissions  are  amortized
straight-line  over the term of the related  lease.  If the lease is  terminated
prior  to the  end of the  lease  term,  the  Company  charges  any  unamortized
capitalized  lease  commission  cost to expense in the period  that the lease is
terminated. Also included in other assets are commitments from the Berg Group of
approximately  $7,494 to construct a building at 245 Caspian Drive in Sunnyvale,
California (see Note 13 below).

MINORITY INTERESTS
Minority  interests in the operating  partnerships  represent the  proportionate
share of the  equity in the  operating  partnerships  of the  limited  partners.
Minority  interests in net income is  calculated by taking the net income of the
operating  partnerships  (on a stand-alone  basis)  multiplied by the respective
minority interests' ownership percentage.

REVENUE RECOGNITION
Rental  income  is  derived  from   operating   leases  and  recognized  on  the
straight-line method of accounting required by GAAP under which contractual rent
payment  increases are  recognized  evenly over the lease term.  The  difference
between  recognized  rental  income and rental  cash  receipts  is  recorded  as
"Deferred rent  receivable" on the  consolidated  balance sheets.  Certain lease
agreements   contain   terms  that  provide  for   additional   rents  based  on
reimbursement   of  certain  costs  including   property   operating   expenses,
maintenance  and  real  estate  taxes.   These   additional  rents  from  tenant
reimbursements are reflected on the accrual basis.

Rental revenue is affected if existing tenants  terminate or amend their leases.
The Company tries to identify  tenants who may be likely to declare  bankruptcy,
cease  operations  or otherwise  terminate  leases prior to the end of the lease
term,  such as tenants who do not occupy all or a large  portion of the property
being leased.  By anticipating  these events in advance,  the Company expects to
take steps to  minimize  their  impact on its  reported  results  of  operations
through lease  renegotiations and other appropriate  measures.  Reserves against
"Deferred rent  receivable" are estimated by management based on known financial
conditions of tenants and  management's  estimate of net  realizability  of such
receivables  based on  existing  or  expected  negotiations  with  tenants.  The
Company's  judgments and estimations about tenants' capacity to continue to meet
their lease  obligations  will affect the rental  revenue  recognized.  To date,
actual reductions in revenue as a result of early  terminations and the tenants'
inability  to pay have been within  management's  estimates.  However,  material
differences may result in the amount and timing of the Company's  rental revenue
for any period if it made different judgments or estimations.

Lease  termination  fees are  recognized  in operating  revenues when there is a
signed termination letter agreement, all of the conditions of the agreement have
been met, the tenant is no longer  occupying  the  property and the  termination
consideration is probable of collection. These fees are paid by tenants who want
to terminate their lease  obligations  before the end of the contractual term of
the lease by agreement with us. There is no way of predicting or forecasting the
timing or amounts of future lease termination fees.

                                     - 52 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

The  Company  recognizes  income  from  rent,  tenant  reimbursements  and lease
termination fees and other income once all of the following  criteria are met in
accordance with SEC Staff Accounting Bulletin 104, "Revenue Recognition":

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

INCOME TAXES
The Company has been taxed as a real estate  investment trust ("REIT") under the
Internal  Revenue Code of 1986,  as amended,  (the "Code")  commencing  with the
taxable year ended  December 31, 1999.  In order for the Company to qualify as a
REIT, it must distribute  annually at least 90% of its REIT taxable  income,  as
defined  in  the  Code,  to its  stockholders  and  comply  with  certain  other
requirements. Accordingly, for the years ended December 31, 2008, 2007 and 2006,
no  provision  for federal  income taxes has been  included in the  accompanying
consolidated financial statements.

For the year ended  December 31, 2008,  the Company's  total  dividends  paid or
payable to the  stockholders  represented  approximately  73.3% ordinary income,
22.2%  capital  gain and 4.5%  unrecaptured  section  1250 gain for  income  tax
purposes (unaudited).  For the year ended December 31, 2007, the Company's total
dividends  paid or payable to the  stockholders  represented  approximately  97%
ordinary  income,  2% capital  gain and 1%  unrecaptured  section  1250 gain for
income tax purposes  (unaudited).  For the year ended  December  31,  2006,  the
Company's total dividends paid or payable to the  stockholders  represented 100%
ordinary income for income tax purposes (unaudited).

NET INCOME PER SHARE
The computation of net income per share is based on the weighted  average number
of common  shares  outstanding  during the period.  Diluted  earnings  per share
amounts  are based upon the  weighted  average  of common and common  equivalent
shares outstanding during the year.

ACCOUNTING FOR STOCK-BASED COMPENSATION
SFAS 123 (Revised  2004),  "Share-Based  Payment"  ("SFAS 123R"),  addresses the
accounting  for  employee,  director and  consultant  stock  options.  SFAS 123R
requires  that  the  cost  of  stock  options,  as well  as  other  equity-based
compensation arrangements, be reflected in the consolidated financial statements
based on the  estimated  fair value of the awards.  SFAS 123R is an amendment to
SFAS 123 and supersedes  Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25"). SFAS 123R is applicable to any award that
is settled or measured in stock,  including  stock  options,  restricted  stock,
stock appreciation rights, stock units, and employee stock purchase plans. As of
December 31, 2008, the Company had one stock-based compensation plan.

The Company  measures  compensation  cost for its stock options at fair value on
the date of grant and recognizes  compensation expense relating to the remaining
unvested  portion of outstanding  stock options at the time of adoption  ratably
over the vesting period,  generally four years.  The fair value of the Company's
stock  options is  determined  using the  Black-Scholes  option  pricing  model.
Compensation expense related to the Company's  share-based awards is included in
general and administrative  expenses in the Company's accompanying  consolidated
statements of operations. For the year ended December 31, 2008, under SFAS 123R,
the Company recorded approximately $553 of expense for share-based  compensation
relating to stock options.

As of December  31, 2008,  there was  approximately  $564 of total  unrecognized
compensation  cost  related to unvested  share-based  compensation  arrangements
granted under the compensation plan. That cost is expected to be recognized over
a weighted-average period of approximately four years.

In January 2008, stock options to purchase 1,025,000 shares of common stock were
granted to employees,  non-employee directors and consultants.  The options vest
monthly for 48 months from date of grant,  subject to  continued  employment  or
other service to the Company. Each option grant has a term of six years from the
date of grant  subject  to earlier  termination  in  certain  events  related to
termination  of employment  or service.  The options were granted at an exercise
price of $9.51 per share.  The estimated  fair value of the options  granted was
$0.57 per  share on the date of grant  using the  Black-Scholes  option  pricing
model with the following  assumptions:  dividend  yield of 8.41%,  volatility of
20.43%,  risk free rates of 3.45% and an expected life of six years. All options
were granted at fair market value on the date of grant.

In July 2008,  stock  options to  purchase  52,500  shares of common  stock were
granted to an employee and a non-employee director. The options vest monthly for
48 months from date of grant,  subject to continued  employment or other service
to the Company. Each option grant has a term of six years from the date of grant
subject to earlier  termination  in certain  events  related to  termination  of

                                     - 53 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

employment or service.  The options were granted at an exercise  price of $11.36
per share.  The estimated fair value of the options  granted was $0.99 per share
on the date of grant  using the  Black-Scholes  option  pricing  model  with the
following assumptions:  dividend yield of 7.04%, volatility of 22.07%, risk free
rates of 3.20% and an expected  life of six years.  All options  were granted at
fair market value on the date of grant.

In November 2008,  stock options to purchase 705,000 shares of common stock were
granted to employees,  non-employee directors and consultants.  The options vest
monthly  ranging  from 36-48  months  from date of grant,  subject to  continued
employment or other service to the Company.  Each option grant has a term of six
years from the date of grant subject to earlier  termination  in certain  events
related to termination of employment or service.  The options were granted at an
exercise  price of $6.14 per share.  The  estimated  fair  value of the  options
granted was $0.12 per share on the date of grant using the Black-Scholes  option
pricing  model  with  the  following  assumptions:  dividend  yield  of  13.03%,
volatility  of  22.39%,  risk free  rates of 2.08% and an  expected  life of six
years. All options were granted at fair market value on the date of grant.

In 2007,  stock options to purchase  710,000 shares of common stock were granted
to employees,  non-employee directors and consultants.  The options vest monthly
for 48 months  from date of grant,  subject  to  continued  employment  or other
service to the Company.  Each option grant has a term of six years from the date
of grant subject to earlier termination in certain events related to termination
of  employment  or service.  The options  were  granted at an exercise  price of
$12.09 per share.  The estimated  fair value of the options  granted in 2007 was
$1.45 per  share on the date of grant  using the  Black-Scholes  option  pricing
model with the following  assumptions:  dividend  yield of 5.29%,  volatility of
18.94%,  risk free rates of 4.53% and an expected life of six years. All options
were granted at fair market value on the date of grant.

There were no stock options granted in 2006.

In April 2005, the Company's  Compensation  Committee of the Board of Directors,
in accordance with the provisions of the 2004 Equity Incentive Plan, unanimously
approved the following awards of dividend equivalent rights ("DERs"),  each such
DER  representing the current right to receive the dividend paid on one share of
the Company's common stock, when paid by the Company:

-    The  three  non-employee   outside  directors  each  received  45,000  DERs
     effective as of the second quarter of 2005,  which will remain in effect as
     long as the individual continues to serve on the Board of Directors; and
-    Key employees of the Company  received a total of 155,000 DERs effective as
     of the  second  quarter of 2005,  which will  remain in effect for each key
     employee as long as they continue to be employed by the Company.

In April 2005, a total of 290,000 DERs were  awarded by the  Company's  Board of
Directors.  In 2008, one director and one employee  forfeited  45,000 and 15,000
DERs,  respectively,  when they  resigned from the Company.  A new  non-employee
outside  director was awarded 45,000 DERs when he joined the Company's  Board of
Directors.  As of December  31,  2008,  there was a total of 275,000  DERs.  The
Company recorded DER compensation  expense of approximately  $217, $186 and $186
in 2008, 2007 and 2006, respectively.

FAIR VALUE
On January 1, 2008, the Company  adopted the provisions of SFAS 157, "Fair Value
Measurements"  ("SFAS 157") for its financial assets and liabilities measured at
fair value on a recurring  basis.  SFAS 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market  participants.  SFAS 157 also specifies a three-level
hierarchy  of  valuation  techniques  based  upon  whether  the  inputs  reflect
assumptions other market  participants would use based upon market data obtained
from independent  sources  (observable inputs) or reflect its own assumptions of
market  participant  valuation  (unobservable  inputs) and  requires  the use of
observable  inputs if such data is available  without undue cost and effort.  At
December  31,  2008,  the Company had  approximately  $3.4  million of financial
assets classified as Level 1 and thus measured at fair value using quoted market
prices for identical  instruments in active  markets from an  independent  third
party source.

The only  financial  asset or liability  recorded at fair value in the Company's
consolidated  financial  statements is the  marketable  securities.  The Company
determined the fair value for the marketable  securities  using quoted prices in
active markets for identical securities.

In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial
Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides companies with
an option to report selected  financial assets and liabilities at fair value and
establishes  presentation  and  disclosure  requirements  designed to facilitate
comparisons between companies that choose different  measurement  attributes for
similar types of assets and liabilities. SFAS 159 was effective January 1, 2008.
On January 1, 2008,  the Company did not elect to apply the fair value option to
any specific financial assets or liabilities.

                                     - 54 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

The Company's financial instruments include cash and cash equivalents,  accounts
receivable,  accounts payable,  and debt.  Considerable  judgment is required in
interpreting  market data to develop estimates of fair value.  Accordingly,  the
estimates  presented  herein are not necessarily  indicative of the amounts that
the Company could  realize in a current  market  exchange.  The use of different
market assumptions and/or estimation methodologies may have a material effect on
the  estimated  fair  value  amounts.   Cash  and  cash  equivalents,   accounts
receivable,  and accounts payable are carried at amounts that approximate  their
fair values due to their short-term maturities. For fixed rate debt, the Company
estimates fair value by using  discounted  cash flow analyses based on borrowing
rates  for  similar  kinds of  borrowing  arrangements.  The  fair  value of the
Company's  fixed  rate debt at  December  31,  2008 was  approximately  $496,320
compared with its carrying value of approximately $339,669.

RECLASSIFICATIONS
Certain amounts from prior year's  consolidated  financial  statements have been
reclassified to conform to the  presentation of the current year's  consolidated
financial statements.

CONCENTRATION OF CREDIT RISK
The Company's properties are not geographically diverse, and its tenants operate
primarily in the  information  technology  industry.  Additionally,  because the
properties  are leased to 75 tenants at December 31, 2008,  default by any major
tenant could  significantly  impact the results of the  consolidated  total. One
tenant,  Microsoft  Corporation,  accounted for approximately  16.5%,  15.1% and
12.5% of the Company's total cash rental income for the years ended December 31,
2008, 2007 and 2006, respectively. Cash rental income from Microsoft Corporation
was approximately $12,576,  $12,288 and $11,728 for the years ended December 31,
2008,  2007 and 2006,  respectively.  Future  minimum rents from this tenant are
approximately  $76,467. One other tenant accounted for approximately 9.8%, 10.8%
and 10.0% of the Company's total cash rental income for the years ended December
31, 2008, 2007 and 2006, respectively.  During 2008, 11 of the Company's tenants
relocated or ceased operations.

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

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

In  December  2007,  the  FASB  issued  SFAS  141  (Revised   2007),   "Business
Combinations"  ("SFAS 141R").  SFAS 141R will change the accounting for business
combinations. Under SFAS 141R, an acquiring entity will be required to recognize
all  the  assets  acquired  and  liabilities  assumed  in a  transaction  at the
acquisition date fair value with limited  exceptions.  SFAS 141R will change the
accounting  treatment and  disclosure  for certain  specific items in a business
combination.  Under SFAS 141R, certain  transaction costs that have historically
been  capitalized  as  acquisition  costs will be  expensed.  SFAS 141R  applies
prospectively  to business  combinations for which the acquisition date is on or
after the beginning of the first annual  reporting  period beginning on or after
December 15, 2008. Early adoption is prohibited. Based on historical acquisition
costs and activity levels, the adoption of SFAS 141R will not have a significant
impact on the Company's results of operations and financial position.

                                     - 55 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

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

3.   DEFERRED RENT RECEIVABLE, NET

The following table represents  activity in the allowance  against deferred rent
receivable, net for the years ended December 31, 2008, 2007 and 2006.

<TABLE>
<CAPTION>
                                                          Provision
                                            Beginning      Against                    Ending
                                             Balance       Revenue     Charge-off     Balance
                                          ------------------------------------------------------
                                                          (dollars in thousands)
<S>                                         <C>            <C>          <C>          <C>
    Year ended December 31, 2006             $2,000         $1,216       $1,216       $2,000
    Year ended December 31, 2007             $2,000         $4,457       $2,707         $250
    Year ended December 31, 2008               $250           $259         $259         $250
</TABLE>

4.   STOCK TRANSACTIONS

As of  December  31,  2008 and 2007,  approximately  $2,117 and $1,970  remained
outstanding under notes issued in connection with the Company's  purchase of its
general partner interests in 1998 (the "demand notes"), respectively. The demand
notes which accrue interest at 7.25%,  along with the interest expense (interest
income to the operating  partnerships),  are eliminated in consolidation and are
not included in the corresponding  line items within the consolidated  financial
statements.  However, the interest income earned by the operating  partnerships,
which is interest  expense to the  Company,  in  connection  with this debt,  is
included in the calculation of minority interest as reported on the consolidated
statements of operations, thereby reducing the Company's net income by this same
amount. The Company and the operating partnerships have agreed to extend the due
date of the demand notes to September 30, 2010. At present,  the Company's  only
means for  repayment  of this debt is through  distributions  received  from the
operating  partnerships  in excess of the amount of  dividends to be paid to the
Company's stockholders or by raising additional equity capital.

The limited  partners  of the  operating  partnerships  have the right to tender
their O.P.  Units to the Company for shares of common stock or, at the Company's
election,  for cash. Each of the limited partners of the operating  partnerships
(other than Carl E. Berg and Clyde J. Berg) has the annual right to exercise put
rights and cause the operating partnerships to purchase a portion of the limited
partner's  O.P.  Units at a purchase  price based on the average market value of
the common stock for the 10-trading day period immediately preceding the date of
tender,  generally  limited to one-third of the aggregate  number of O.P.  Units
owned by each limited partner.  Upon the exercise of any such right by a limited
partner,  the Company will have the option to purchase the tendered  O.P.  Units
with  available  cash,  borrowed  funds or the  proceeds of an offering of newly
issued  shares of common stock.  These put rights are available  once a year. If
the total  purchase  price of the O.P.  Units  tendered  by all of the  eligible
limited  partners in one year exceeds $1 million,  the Company or the  operating
partnerships is entitled in its discretion to reduce  proportionately the number
of O.P.  Units to be acquired from each  tendering  limited  partner so that the
total purchase price does not exceed $1 million.

During the year ended December 31, 2008, stock options to purchase 70,487 shares
of the  Company's  common  stock  were  exercised  at $10.00 per share and stock
options to purchase 6,667 shares of the Company's common stock were exercised at
$9.51 per share. Total proceeds to the Company were approximately $768.

There were no stock option exercises in 2007.

During the year ended December 31, 2006, stock options to purchase 80,000 shares
of the  Company's  common  stock  were  exercised  at $8.25  per share and stock
options to purchase  32,900 shares of the Company's  common stock were exercised
at $10.00 per share. Total proceeds to the Company were approximately $989.

In 2008, 2007 and 2006, 6,970, 220,500 and 881,896 O.P. Units were exchanged for
6,970,  220,500 and 881,896 shares of the Company's common stock,  respectively,
under the terms of the  Exchange  Rights  Agreement  among the  Company  and all
limited  partners  of the  operating  partnerships.  Neither the Company nor the
operating  partnerships  received any  proceeds  from the issuance of the common
stock in exchange for O.P. Units.

                                     - 56 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

5.   MINORITY INTERESTS

Minority  interests  represent the separate  private  ownership of the operating
partnerships,  by the Berg Group and other  non-affiliate  interests.  In total,
these  interests  account  for  81.27%,  on a  weighted  average  basis,  of the
ownership  interests in the real estate operations of the Company as of December
31, 2008 and 2007. Minority interests in earnings have been calculated by taking
the net income of the operating partnerships (on a stand-alone basis) multiplied
by the respective minority interests' ownership percentage.

The operating  partnerships have ownership  interests of 83.33%, 75% and 50% and
act as the  managing  member  in  three  separate  joint  ventures,  which  were
established to hold  properties.  The operating  partnerships  control the joint
ventures,  and  accordingly,  these  joint  ventures  are  consolidated  in  the
Company's consolidated financial statements. The minority interests in the joint
ventures are  reflected as a component  of minority  interests of the  operating
partnerships.  For the years ended  December  31,  2008,  2007 and 2006,  income
associated  with the  minority  interests  held by third  parties  of the  three
consolidated joint ventures was approximately $368, $502 and $499, respectively.

6.   REAL ESTATE

PROPERTY ACQUISITIONS
On January 1, 2008,  the Company  acquired  an  approximately  110,500  rentable
square foot newly  constructed R&D building located at 5981 Optical Court in San
Jose,  California  from the Berg  Group  under  the Berg  Land  Holdings  Option
Agreement.  The total  acquisition  price for this  property  was  approximately
$19,068. The Company acquired this property by issuing a short-term note payable
to the Berg Group,  which was fully paid off in July 2008. The Company allocated
the purchase price to land and building  based upon the estimated  relative fair
values of such assets.  Because the acquired  property was vacant,  there was no
purchase price  allocation to lease intangible  assets.  The property was leased
within several days after the acquisition date.

On February 29, 2008, the Company  acquired a fully leased  office/R&D  building
comprised of  approximately  75,300 rentable square feet at 2904 Orchard Parkway
in San Jose,  California from an unrelated party for approximately  $16,696. The
acquisition was partially funded from the proceeds  received from the 1170 Morse
Avenue property sale (see below under "Property Dispositions"),  which were held
by a third party and classified as restricted  cash as of December 31, 2007. The
purchase  price of 2904 Orchard  Parkway was allocated to long-lived  assets and
the value of an in-place lease.  The in-place lease was valued at fair market so
there was no intangible  asset allocated to  above-or-below  market lease value.
The Company recorded  approximately  $1,121 of the purchase price as real estate
related intangible asset in the accompanying  consolidated balance sheet for the
value  of an  in-place  lease.  The  intangible  asset  is  amortized  over  the
applicable remaining lease term.  Amortization expense of approximately $187 was
recorded for the year ended December 31, 2008.

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

In April 2007, the Company  acquired  three  office/R&D  buildings  comprised of
approximately  149,000 rentable square feet at Montague  Expressway in Milpitas,
California for approximately  $15,351. The acquisition was funded from a portion
of the proceeds received from the Samaritan  property sale, which were held by a
third party. With the exception of one lease, the property was purchased without
any long-term  tenants.  The Company  allocated  the purchase  price to land and
building based upon the estimated relative fair values of such assets. There was
no purchase price allocation to lease intangible assets.

In April 2007, the Company acquired  approximately  five acres of vacant land in
Morgan Hill,  California,  which could  support  approximately  73,000  rentable
square  feet of space.  The land is  currently  zoned for  industrial  use.  The
acquisition price for this property was approximately $2,297 and was funded from
the remaining  proceeds  received from the Samaritan  property sale,  which were
held by a third party.

In September 2007, the Company acquired an approximately  98,500 rentable square
foot newly  constructed R&D building located at 5845 Hellyer Avenue in San Jose,
California  from the Berg Group under the Berg Land Holdings  Option  Agreement.
The total  acquisition price for this property was  approximately  $10,903.  The
Company  acquired this property by issuing  548,236 O.P. Units to the Berg Group
and $4,300 in cash,  which was paid in the fourth  quarter of 2007.  The Company
allocated  the  purchase  price to land

                                     - 57 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

and building based upon the estimated relative fair values of such assets. Since
the property was vacant when acquired, there was no purchase price allocation to
lease intangible assets.

The purchase price allocation for these property  acquisitions was determined in
accordance with the following principles under SFAS 141:

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

-    The  capitalized  in-place  lease  value,  included in real estate  related
     intangible  assets in the  accompanying  consolidated  balance  sheets,  is
     amortized  to expense as  amortization  of real estate  over the  remaining
     non-cancelable  lease term. If a lease were to be  terminated  prior to its
     stated expiration,  all unamortized amounts relating to that lease would be
     written off in the period that the lease is terminated.

PROPERTY DISPOSITIONS
In August  2007,  the  Company  disposed  of one R&D  property  located at 45700
Northport  Loop  in  Fremont,  California  consisting  of  approximately  39,000
rentable  square feet. A total net gain of  approximately  $1,699 was recognized
and classified as discontinued  operations,  net of minority  interests,  on the
total  sales  price  of  approximately  $7,742.  Proceeds  from  the  sale  were
classified as restricted cash to be used in tax-deferred  property  exchanges as
of  December  31,  2007.  In 2008,  the  entire  proceeds  from  the  sale  were
transferred  to the  Company's  general  cash  account  since it was  unable  to
complete a tax-deferred property exchange.

In September  2007,  the Company  disposed of one R&D  property  located at 1170
Morse  Avenue  in  Sunnyvale,  California  consisting  of  approximately  48,000
rentable  square feet. A total net gain of  approximately  $4,830 was recognized
and classified as discontinued  operations,  net of minority  interests,  on the
total  sales  price  of  approximately  $8,301.  Proceeds  from  the  sale  were
classified as restricted cash to be used in tax-deferred  property  exchanges as
of December 31, 2007.

BERG LAND HOLDINGS OPTION AGREEMENT
Under the terms of the Berg Land Holdings Option Agreement, the Company, through
the  operating  partnerships,  has the option to acquire any future R&D property
developed by the Berg Group on land currently owned or optioned, or acquired for
these purposes in the future,  directly or indirectly,  by Carl E. Berg or Clyde
J. Berg.  This  agreement  will expire on  December  31,  2010,  after which the
Company will no longer have the right to acquire  properties from the Berg Group
on the pre-determined  terms provided in that agreement.  At present,  there are
approximately 84 acres of Silicon Valley land, including land under development,
owned  directly or under 50% joint  venture  entities by certain  members of the
Berg  Group  that are  subject  to the  terms of the Berg Land  Holdings  Option
Agreement.  The owners of the future R&D property  developments  may obtain cash
or, at their  option,  O.P.  Units  valued at the average  closing  price of the
shares of common stock over the 30-trading-day  period preceding the acquisition
date.  To date,  the Company has completed 23  acquisitions  under the Berg Land
Holdings Option Agreement representing  approximately  2,243,000 rentable square
feet. The acquired properties cost approximately $237,775, for which the Company
issued 8,482,085 O.P Units and assumed debt of approximately  $141,410. Upon the
Company's  exercise  of an option to  purchase  any of the future  R&D  property
developments,  the  acquisition  price  will  equal  the  sum  of (a)  the  full
construction cost of the building; plus (b) 10% of the full construction cost of
the building;  plus (c) interest at LIBOR (London  Interbank  Offered Rate) plus
1.65% on the amount of the full construction cost of the building for the period
from the date funds were disbursed by the developer to the close of escrow; plus
(d) the original  acquisition cost of the parcel on which the improvements  will
be  constructed,  which  range from  $8.50 to $20.00  per  square  foot for land
currently  owned;  plus  (e)  10%  per  annum  of the  amount  of  the  original
acquisition cost of the parcel from the later of January 1, 1998 or the seller's
acquisition  date to the  close of  escrow;  minus (f) the  aggregate  principal
amount of all debt  encumbering  the acquired  property,  or a lesser  amount as
approved by the members of the Independent  Directors committee of the Company's
Board of Directors.  Generally,  the Company will not acquire any projects until
they are fully completed and leased.

No  estimate  can be given at this time as to the total  cost to the  Company to
acquire future  projects under the Berg Land Holdings Option  Agreement,  or the
timing as to when the Company  will acquire  such  projects.  In addition to any
projects  currently  under  development,  the  Company  has the right to acquire
future  developments  by the  Berg  Group on up to 84  additional  acres of land
currently  controlled by the Berg Group,  which could support  approximately 1.4
million  square feet of new  developments.  Under the Berg Land Holdings  Option
Agreement,  as long as the Berg Group ownership in the Company and the operating
partnerships  taken as a whole is at least  65%,  or until  December  31,  2010,
whichever  occurs  first,  the Company  also has an option to purchase  all land

                                     - 58 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

acquired, directly or indirectly, by Carl E. Berg or Clyde J. Berg in the future
which has not been  improved  with  completed  buildings and which is zoned for,
intended for or appropriate for R&D, office and/or industrial development or use
in the states of California, Oregon, and Washington.

Although the Company has the right to acquire the new properties available to it
under the  terms of the Berg Land  Holdings  Option  Agreement,  there can be no
assurance that the Company  actually will consummate any intended  transactions.
Furthermore,  the  Company  has not yet  determined  the means by which it would
acquire and pay for any such properties or the impact of any of the acquisitions
on its business,  results of operations,  financial  condition or available cash
for distribution.

7.   VARIABLE INTEREST ENTITY

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

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

1.   The equity  investment  at risk is not  sufficient  to permit the entity to
     finance its activities without additional subordinated financial support by
     any parties, including the equity holders.
2.   The  equity  investors  lack  one  or  more  of  the  following   essential
     characteristics  of a  controlling  financial  interest:  a. the  direct or
     indirect  ability to make decisions about the entity's  activities  through
     voting or similar rights;  b. the obligation to absorb the expected loss of
     the entity;  c. the right to receive the expected  residual  returns of the
     entity;  or
3.   The equity investors have voting rights that are not proportionate to their
     economic  interests,  and  the  activities  of the  entity  involve  or are
     conducted on behalf of an investor with a  disproportionately  small voting
     interest.

In August 2007, one of the Company's tenants, Ciena Corporation, entered into an
assignment of lease agreement with an unrelated party, M&M Real Estate Control &
Restructuring,  LLC ("M&M"), in connection with leases for approximately 445,000
rentable  square  feet  located  in San  Jose,  California.  As a result  of the
assignment,  M&M assumed all of Ciena's remaining obligations under these leases
and received a payment  from Ciena of $53,000,  of which $7,000 was reserved for
tenant  improvements.  At the same time, the Company  entered into a consent for
assignment of lease with both parties and a mutual release agreement with Ciena,
pursuant to which all of Ciena's obligations under these leases were effectively
transferred  to  M&M.  M&M  is  obligated  to  continue  to  perform  all of the
obligations  under the assumed Ciena leases and has the right to sublease any or
all of the 444,500  rentable  square feet vacated by Ciena for the  remainder of
the current lease term, which expires in 2011. Under the terms of the assignment
of lease agreement,  the Company received monthly rent payments of approximately
$789 from July 2007  through  June 2008,  and will  receive  $818 from July 2008
through June 2009,  $849 from July 2009  through June 2010,  $881 from July 2010
through June 2011 and $915 from July 2011 through  December 2011. Based upon FIN
46R, the Company  determined that M&M is a VIE. The Company  further  determined
that it is the primary  beneficiary  of this VIE and therefore has  consolidated
this entity for financial  reporting purposes.  Upon consolidation,  the Company
recognized a gross lease termination fee of $46,000 in August 2007.

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

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

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

                                     - 59 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

8. DEBT

The following table sets forth certain information regarding debt outstanding as
of December 31, 2008 and 2007.
<TABLE>
<CAPTION>

                                                                                         Balance at            Maturity   Interest
         Debt Description                         Collateral Properties                  December 31,            Date       Rate
------------------------------------------  ----------------------------------    --------------------------- ---------- ----------
                                                                                      2008          2007
                                                                                  ------------- -------------
                                                                                     (dollars in thousands)
Line of Credit:
<S>                                        <C>                                     <C>           <C>         <C>             <C>
Heritage Bank of Commerce(1)                Not Applicable                           $13,079             -     June 2009         (1)
                                                                                  ------------- -------------

Mortgage Notes Payable (related parties):   5300-5350 Hellyer Avenue, San  Jose, CA    8,761        $9,224     June 2013      7.650%

                                                                                  ------------- -------------

Mortgage Notes Payable:(2)
Hartford Life Insurance Company(3)          5981 Optical Court, San Jose, CA         114,513             -    October 2018    6.210%
Hartford Life and Accident Ins. Co.         5500 Hellyer Avenue, San Jose, CA
Hartford Life and Annuity Ins. Co.          5550 Hellyer Avenue, San Jose, CA
(collectively known as the "Hartford Loan") 4050 Starboard Drive, Fremont, CA
                                            45738 Northport Loop, Fremont, CA
                                            233 South Hillview Drive, Milpitas, CA
                                            10300 Bubb Road, Cupertino, CA
                                            1230 E. Arques, Sunnyvale, CA
                                            1250-1280 E. Arques, Sunnyvale, CA
                                            1212 Bordeaux Lane, Sunnyvale, CA
                                            2904 Orchard Parkway, San Jose, CA
                                            3236 Scott Blvd, Santa Clara, CA
                                            6311 San Ignacio Avenue, San Jose, CA
                                            6321-6325 San Ignacio Avenue, San Jose, CA
                                            6331 San Ignacio Avenue, San Jose, CA
                                            6341-6351 San Ignacio Avenue, San Jose, CA
                                            3540-3580 Bassett Street, Santa Clara, CA

Prudential Mortgage Capital Company(4)      Not Applicable                                 -       112,543    October 2008    6.560%

Northwestern Mutual Life Insurance Co.(5)   1750 Automation Parkway, San Jose, CA     81,308        84,959    January 2013    5.640%
                                            1756 Automation Parkway, San Jose, CA
                                            1762 Automation Parkway, San Jose, CA
                                            6320 San Ignacio Avenue, San Jose, CA
                                            6540-6541 Via Del Oro, San Jose, CA
                                            6385-6387 San Ignacio Avenue, San Jose, CA
                                            20605-20705 Valley Green Drive, Cupertino, CA
                                            2001 Walsh Avenue, Santa Clara, CA
                                            2220 Central Expressway, Santa Clara, CA
                                            2300 Central Expressway, Santa Clara, CA
                                            2330 Central Expressway, Santa Clara, CA

Allianz Life Insurance Company(I)(6)       5900 Optical Court, San Jose, CA           23,009        23,825     August 2025    5.560%

Allianz Life Insurance Company(II)(6)      5325-5345 Hellyer Avenue, San Jose, CA    112,078       116,193     August 2025    5.220%
                                           1768 Automation Parkway, San Jose, CA
                                           2880 Scott Boulevard, Santa Clara, CA
                                           2890 Scott Boulevard, Santa Clara, CA
                                           2800 Scott Boulevard, Santa Clara, CA
                                           10450-10460 Bubb Road, Cupertino, CA
                                           6800-6810 Santa Teresa Blvd., San Jose, CA
                                           6850 Santa Teresa Blvd., San Jose, CA
                                           4750 Patrick Henry Drive, Santa Clara, CA

                                                                                  ------------- -------------
                                                                                     330,908       337,520
                                                                                  ------------- -------------
   Total                                                                            $352,748      $346,744
                                                                                  ============= =============
</TABLE>

(1)  The Heritage Bank of Commerce  ("HBC") line of credit was obtained in March
     2008.  Interest  rate for the HBC line of credit is LIBOR plus  1.75%.  The
     interest rate for the HBC line of credit at December 31, 2008 was 3.17%. In
     April 2008, the Company entered into a "Change in Terms Agreement" with HBC
     that increased the facility from $10 million to $17.5 million. The HBC line
     of credit  contains  certain  financial  loan and  reporting  covenants  as
     defined in the loan agreement.  As of December 31, 2008, the Company was in
     compliance with these loan covenants.

(2)  Mortgage notes payable generally  require monthly  installments of interest
     and principal  ranging from  approximately  $177 to $840 over various terms
     extending  through the year 2025.  The weighted  average  interest  rate of
     mortgage  notes  payable was 5.86% and 5.85% at December 31, 2008 and 2007,
     respectively.

(3)  The Hartford loan is payable in monthly installments of approximately $838,
     which includes principal (based upon a 20-year  amortization) and interest.
     Costs and fees incurred with obtaining this loan  aggregated  approximately
     $1,058,  which  were  deferred  and  amortized  over the loan  period.  The
     Hartford loan contains certain  customary  covenants as defined in the loan
     agreement.  As of December 31,  2008,  the Company was in  compliance  with
     these loan covenants.

(4)  Proceeds from the Hartford loan were used to repay the remaining balance of
     the Prudential loan in October 2008.

(5)  The Northwestern  loan is payable in monthly  installments of approximately
     $696,  which includes  principal  (based upon a 20-year  amortization)  and
     interest.  Costs and fees  incurred  with  obtaining  this loan  aggregated
     approximately $664, which were deferred and amortized over the loan period.
     The Northwestern  loan contains certain  customary  covenants as defined in
     the loan agreement.  As of December 31, 2008, the Company was in compliance
     with these loan covenants.

                                     - 60 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

(6)  The Allianz  loans are  payable in monthly  installments  of  approximately
     $1,017,  which includes  principal (based upon a 20-year  amortization) and
     interest.  Costs and fees incurred with  obtaining  these loans  aggregated
     approximately  $1,125,  which were  deferred  and  amortized  over the loan
     periods.  The Allianz loans contain certain customary  covenants as defined
     in the loan  agreements.  As of  December  31,  2008,  the  Company  was in
     compliance with these loan covenants.


On March 4, 2008, the Company established a $10,000  uncollateralized  revolving
line of  credit  with  Heritage  Bank of  Commerce  ("HBC").  The  Company  paid
approximately $26 in loan and legal fees. On April 17, 2008, the Company entered
into a "Change in Terms  Agreement"  with HBC that  increased  the facility from
$10,000 to  $17,500.  The line of credit  bears an  interest  rate of LIBOR plus
1.75%  and  matures  June 15,  2009.  The HBC line of  credit  contains  certain
financial loan and reporting covenants as defined in the loan agreements.  As of
December 31, 2008, the Company was in compliance with these loan covenants.  The
proceeds  from  the HBC  line of  credit  may be used to  repay  debt,  complete
acquisitions and finance other working capital requirements.

On October 1, 2008,  the Company  entered into a fixed rate term  agreement  and
related  contracts and instruments for a secured mortgage loan totaling $115,000
from  Hartford Life  Insurance  Company,  Hartford  Life and Accident  Insurance
Company and Hartford Life and Annuity  Insurance  Company (the "Hartford Loan").
The proceeds were used  primarily to repay the remaining  balance of an existing
mortgage  loan with  Prudential  Mortgage  Capital  Company and to provide other
working  capital needs.  The Hartford Loan bears a fixed interest rate of 6.21%,
with a 20-year  amortization,  and  matures  October 1, 2018,  at which time any
outstanding  principal and interest will be due. Pursuant to the loan agreement,
monthly principal and interest  installment  payments of approximately  $838 are
due on the first day of each month. The Hartford Loan is secured by 20properties
consisting of  approximately  1.6 million rentable square feet. The Company paid
approximately  $1,058 in loan fees and financing costs, which are amortized over
the ten year loan  period.  The  Company  has the option to prepay the  Hartford
Loan,  subject to certain  yield  maintenance  provisions,  though  generally no
prepayment is permitted during the first 24 months of the loan term.

During 2008, the Company issued  multiple  short-term  notes payable to the Berg
Group  in   connection   with  a  property   acquisition,   quarterly   dividend
distributions and a cash loan. The interest rates on these notes were LIBOR plus
2%. The aggregate loan amount totaled approximately $50,588 and was fully repaid
as of December 31, 2008.

Scheduled principal payments on debt as of December 31, 2008 are as follows:

<TABLE>
<CAPTION>
                                     Total Debt
                                 (Including Related
                                      Parties)
                              -------------------------
<S>                                 <C>
    December 31, 2009                 $25,670
    December 31, 2010                  13,327
    December 31, 2011                  14,109
    December 31, 2012                  14,935
    December 31, 2013                  81,269
    Thereafter                        203,438
                              -------------------------
         Total                       $352,748
                              =========================
</TABLE>

9.   OPERATING PARTNERSHIP AND STOCKHOLDER DISTRIBUTIONS

Holders of the  Company's  common stock and O.P.  Units are entitled to dividend
distributions  as determined  and declared by the Company's  Board of Directors.
Under the Exchange Rights  Agreement  limited  partners have the right to tender
O.P.  Units to the Company,  and, at the Company's  election,  to receive common
stock on a one-for-one basis at then-current  market value, an equivalent amount
of cash,  or a  combination  of cash and common  stock in exchange  for the O.P.
Units  tendered,  subject to the 9% overall  ownership limit imposed on non-Berg
Group stockholders under the Company's charter document, or the overall 20% Berg
Group  ownership  limit,  as the case may be. O.P.  Unit holders are entitled to
vote when their  O.P.  Units are  converted  to shares of the  Company's  common
stock.  Once in each  12-month  period  beginning  each December 29, the limited
partners, other than Carl E. Berg and Clyde J. Berg, may exercise a put right to
sell their O.P.  Units to the  operating  partnerships  at a price  equal to the
average  market  price  of the  common  stock  for  the  10-trading  day  period
immediately  preceding the date of tender.  Upon any exercise of the put rights,
the Company will have the  opportunity  for a period of 15 days to elect to fund
the purchase of the O.P. Units and purchase additional general partner interests
in the operating  partnerships  for cash,  unless the purchase  price exceeds $1
million in the aggregate for all tendering limited partners,  in which case, the
operating  partnerships  or the Company will be entitled,  but not required,  to
reduce  proportionally  the  number  of O.P.  Units  to be  acquired  from  each
tendering  limited  partner so that the total purchase price is not more than $1
million.

                                     - 61 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

During 2008,  the Company,  as general  partner of the  operating  partnerships,
declared  quarterly  dividends/distributions  aggregating $0.80 per common share
and O.P.  Unit  for  total  dividends/distributions  of  approximately  $84,204,
including $21,055 payable in January 2009. Total  distributions  attributable to
O.P.  Units  owned by  various  members  of the Berg  Group  were  approximately
$63,040.

During 2007,  the Company,  as general  partner of the  operating  partnerships,
declared  quarterly  dividends/distributions  aggregating $0.64 per common share
and O.P.  Unit  for  total  dividends/distributions  of  approximately  $67,152,
including $16,832 payable in January 2008. Total  distributions  attributable to
O.P.  Units  owned by  various  members  of the Berg  Group  were  approximately
$50,271.

During 2006,  the Company,  as general  partner of the  operating  partnerships,
declared  quarterly  dividends/distributions  aggregating $0.64 per common share
and O.P.  Unit  for  total  dividends/distributions  of  approximately  $66,948,
including $16,745 payable in January 2007. Total  distributions  attributable to
O.P.  Units  owned by  various  members  of the Berg  Group  were  approximately
$50,151.

10.  EQUITY-BASED COMPENSATION AND RETIREMENT INVESTMENT PLANS

The Company's 1997 Stock Option Plan ("1997 Plan") was approved by the Company's
stockholders  on November  10,  1997.  On  November  24,  2004,  the 2004 Equity
Incentive  Plan ("2004  Plan") was approved by the  Company's  stockholders  and
replaced the 1997 Plan. The Company's board of directors  approved the 2004 Plan
in September 2004. No further options are available or will be granted under the
1997 Plan. In replacing the 1997 Plan, the 2004 Plan:

-    transferred up to 3,991,089  remaining  shares available for issuance under
     the Company's 1997 Plan and terminated the 1997 Plan for any new grants;
-    transferred  up to an  additional  767,000  shares  subject to  outstanding
     options  under the 1997 Plan if they expire  without  being  exercised,  of
     which 272,000 shares had been transferred as of December 31, 2008; and
-    includes the ability to grant  restricted  stock,  restricted  stock units,
     performance  units,  dividend  equivalent  rights,  and  other  stock-based
     compensation,  including O.P. Units of the Operating Partnerships,  as well
     as incentive and non-statutory stock options.

The 2004 Plan was  adopted so that the  Company  may attract and retain the high
quality  employees,  directors and consultants  necessary to build the Company's
infrastructure and to provide ongoing  incentives to the Company's  employees in
the form of options to purchase the  Company's  common stock by enabling them to
participate in the Company's success.

The 2004  Plan  provides  for the  granting  to  employees,  including  officers
(whether or not they are  directors) of  "incentive  stock  options"  within the
meaning  of  Section  422 of the Code,  and for the  granting  of  non-statutory
options to employees,  directors and  consultants of the Company.  1,180,535 and
2,843,089  shares of common  stock were  available  for  future  option or award
grants under the 2004 Plan as of December 31, 2008 and 2007, respectively.

In January 2008, stock options to purchase 1,025,000 shares of common stock were
granted to employees,  non-employee directors and consultants.  The options vest
monthly for 48 months from date of grant,  subject to  continued  employment  or
other service to the Company. Each option grant has a term of six years from the
date of grant  subject  to earlier  termination  in  certain  events  related to
termination  of employment  or service.  The options were granted at an exercise
price of $9.51 per share.  The estimated  fair value of the options  granted was
$0.57 per  share on the date of grant  using the  Black-Scholes  option  pricing
model with the following  assumptions:  dividend  yield of 8.41%,  volatility of
20.43%,  risk free rates of 3.45% and an expected life of six years. All options
were granted at fair market value on the date of grant.

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

In November 2008,  stock options to purchase 705,000 shares of common stock were
granted to employees,  non-employee directors and consultants.  The options vest
monthly  ranging  from 36-48  months  from date of grant,  subject to  continued
employment or other

                                     - 62 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

service to the Company.  Each option grant has a term of six years from the date
of grant subject to earlier termination in certain events related to termination
of employment or service. The options were granted at an exercise price of $6.14
per share.  The estimated fair value of the options  granted was $0.12 per share
on the date of grant  using the  Black-Scholes  option  pricing  model  with the
following assumptions: dividend yield of 13.03%, volatility of 22.39%, risk free
rates of 2.08% and an expected  life of six years.  All options  were granted at
fair market value on the date of grant.

In 2007,  stock options to purchase  710,000 shares of common stock were granted
to employees, non-employee directors and consultants, which options vest monthly
for 48 months  from date of grant,  subject  to  continued  employment  or other
service to the Company.  Each option grant has a term of six years from the date
of grant subject to earlier termination in certain events related to termination
of  employment  or service.  The options  were  granted at an exercise  price of
$12.09 per share. The estimated fair value of the options was $1.45 per share on
the  date of  grant  using  the  Black-Scholes  option  pricing  model  with the
following assumptions:  dividend yield of 5.29%, volatility of 18.94%, risk free
rates of 4.53% and an expected  life of six years.  All options  were granted at
fair market value on the date of grant.

No options were granted in year 2006.

The remaining  contractual  lives of unexercised  option grants range from April
2009 to November 2014.

The following  table shows the activity and detail for the 2004 Plan for each of
the three years in the period ended December 31, 2008.

<TABLE>
<CAPTION>
                                                                     Weighted Average
                                                  Options              Exercise Price
                                                Outstanding              Per Share
                                            --------------------   ---------------------
<S>                                            <C>                        <C>
     Balance, December 31, 2005                 1,422,000                  $10.83
           Options exercised                     (112,900)                  $8.76
           Options forfeited                     (272,000)                 $13.00
                                            --------------------
     Balance, December 31, 2006                 1,037,100                  $10.48
           Options granted                        710,000                  $12.09
                                            --------------------
     Balance, December 31, 2007                 1,747,100                  $11.13
           Options granted                      1,782,500                   $8.23
           Options exercised                      (77,154)                  $9.96
           Options forfeited                     (119,946)                 $10.81
                                            --------------------
     Balance, December 31, 2008                 3,332,500                   $9.62
                                            ====================
     Available for grant at December 31, 2008   1,180,535
                                            ====================
     Available for grant at December 31, 2007   2,843,089
                                            ====================
</TABLE>

The following table summarizes information regarding options outstanding for the
2004 Plan at December 31, 2008:

<TABLE>
<CAPTION>
                                        Options Outstanding             Options Exercisable    Options Not Exercisable
                               ----------------------------------------------------------------------------------------
                                                   Weighted
                                                    Average   Weighted                Weighted                 Weighted
                                                   Remaining   Average                 Average                  Average
                                                  Contractual Exercise                Exercise                 Exercise
     Range of Exercise Prices      Options       Life in Years  Price     Options       Price      Options       Price
     ------------------------------------------------------------------------------------------------------------------
<S>                             <C>                 <C>       <C>       <C>            <C>      <C>           <C>
     $6.14                         705,000           5.92       $6.14      148,438       $6.14     556,562       $6.14
     $9.51                         960,000           5.00       $9.51      265,833       $9.51     694,167       $9.51
     $10.00                        590,000           2.33      $10.00      590,000      $10.00           -           -
     $11.33                        375,000           0.33      $11.33      375,000      $11.33           -           -
     $11.36                         52,500           5.50      $11.36        5,469      $11.36      47,031      $11.36
     $12.09                        650,000           4.00      $12.09      311,458      $12.09     338,542      $12.09
                                ------------                           -------------            ------------
     $6.14 to $12.09             3,332,500           4.01       $9.62    1,696,198      $10.27   1,636,302       $8.95
                                ============                           =============            ============
</TABLE>

None of the options  granted are  contingent  upon the attainment of performance
goals or  subject  to other  restrictions.  As of  December  31,  2008 and 2007,
"in-the-money" outstanding options to purchase 148,438 and zero shares of common
stock, respectively, were exercisable.

The 2004 Plan allows the  Company to grant to  employees  and  directors a wider
range of awards  than is  permitted  under the 1997 Plan,  including  restricted
stock,   stock  grants,   restricted  stock  units,   performance  units,  other
stock-based compensation, including O.P. Units exchangeable for shares of common
stock, and dividend  equivalent rights,  which will help the Company achieve its
goal of attracting,

                                     - 63 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

retaining and motivating its personnel which is necessary to build the Company's
infrastructure,  achieve the Company's  business  goals and enhance  stockholder
value.  No options or awards may be granted  under the 2004 Plan after  November
24, 2014.

Awards and options  granted under the 2004 Plan may be granted to any employees,
non-employee  directors or  consultants  of the Company and any  corporation  or
other entity affiliated with the Company,  including the Operating Partnerships.
Only employees of the Company or a corporate  subsidiary  may receive  incentive
stock options.  Options can be granted to non-employee directors and consultants
of the Company and to  employees  of the Company or a corporate  subsidiary.  No
individual may receive in any one calendar year options for more than 500,000 of
the total number of shares of stock.

The options  generally  are granted at the fair  market  value of the  Company's
common  shares at the date of grant,  vest over a four-to-six  year period,  are
exercisable upon vesting and expire  six-to-eight  years from the date of grant.
The exercise price for all incentive stock options under the 2004 Plan shall not
be less than the fair market value of the  underlying  common shares at the time
the option was granted.

Under the 2004 Plan,  each  non-employee  member of the board of  directors  who
became or  becomes a member of the board of the  directors  after  November  24,
2004,  the date on which the Plan was  approved by the  Company's  stockholders,
will receive  automatically  a grant of an option to purchase  50,000  shares of
common stock at an exercise  price equal to 100% of the fair market value of the
common  stock  at the  date  of  grant  of  such  option.  Such  options  become
exercisable  cumulatively with respect to 1/48th of the underlying shares on the
first day of each month following the date of grant. Generally, the options must
be exercised while the optionee  remains a director.  In addition,  the board of
directors may authorize annual option grants or awards to non-employee directors
in the board's  discretion as long as the number of shares or equivalent  number
of  underlying  shares of common stock in the case of certain  awards,  does not
exceed 50,000 per year. A disinterested majority of the board also may authorize
additional  options  and awards to a director  serving as a  Committee  chair or
providing  other  extraordinary  service  to the  Board.  The 2004 Plan  further
provides that upon an  acquisition  of the Company in which more than 50% of the
total voting power of the Company's outstanding securities is transferred to the
acquirer or acquiring parties, options and awards held by non-employee directors
will vest in full and become exercisable prior to their expiration.

The board of directors  may  terminate the 2004 Plan at any earlier time or make
modifications of the 2004 Plan as it deems advisable. Awards and options granted
at any time during the term of the 2004 Plan will not expire  solely  because of
the  termination of the 2004 Plan, and no amendment or  modification of the 2004
Plan shall affect the terms of any outstanding  award unless the board expressly
provides otherwise.  Termination or amendment of the 2004 Plan may not adversely
affect the rights of the recipient of an award  without his or her consent.  The
Compensation  Committee  of the  Board of  Directors  may amend the terms of any
option or award previously granted, but such amendment may not impair the rights
of the recipient without his or her consent.

A total of 4,263,089  shares of common stock are reserved for issuance under the
2004 Plan, in addition to 375,000 shares  subject to  outstanding  options under
the 1997 Plan if they  expire  unexercised.  At no time may the number of shares
issued pursuant to or subject to outstanding  awards granted under the 2004 Plan
exceed this number,  subject to the  provisions  for increase and adjustment set
forth  in the 2004  Plan.  If any  option  or award  expires,  terminates  or is
cancelled without being exercised in full, or any other award is forfeited,  the
shares forfeited or not purchased will be available for future grant of awards.

The Company has adopted an employee investment plan (the "Plan"),  under Section
401(k) of the Internal Revenue Code. Employees who are at least 21 years old and
who have completed six months of eligibility  service may become participants in
the Plan.  Each  participant may make  contributions  to the Plan through salary
deferrals  in amounts  of at least 1% to a maximum  of 15% of the  participant's
compensation,  subject to certain  limitations  imposed by the Internal  Revenue
Code.  The  Company  contributes  an  amount  up to  15%  of  the  participant's
compensation,  based upon management's discretion. A participant's  contribution
to the Plan is 100% vested and non-forfeitable. A participant will become vested
in 100% of the Company's  contributions after two years of eligible service. For
the years  ended  December  31,  2008,  2007 and 2006,  the  Company  recognized
approximately $118, $123 and $103 of expense for employer  contributions made in
connection with this Plan, respectively.

11.  NET INCOME PER SHARE

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

The  following  table  provides  a  reconciliation   of  net  income  to  common
stockholders  and the number of shares used in the  computations  of "basic" net
income per share to common  stockholders  and  "diluted" net income per share to
common stockholders.

                                     - 64 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                Year Ended              Year Ended              Year Ended
                                                            December 31, 2008       December 31, 2007        December 31, 2006
                                                            --------------------    --------------------     -------------------
                                                                       (dollars in thousands, except per share data)
    Numerator:
<S>                                                            <C>                     <C>                     <C>
       Income from continuing operations                           $10,134                 $17,757                 $11,458
       Income from discontinued operations                               -                   1,131                   3,172
                                                            --------------------    --------------------     -------------------
          Net income to common stockholders                        $10,134                 $18,888                 $14,630
                                                            ====================    ====================     ===================

    Denominator:
       Weighted average shares of common stock (basic)          19,714,414              19,627,234              19,066,581
       Effect of dilutive securities:
          Incremental shares from assumed stock options exercise   281,935                 227,177                 232,083
                                                            --------------------    --------------------     -------------------
             Weighted average shares of common stock (diluted)  19,996,349              19,854,411              19,298,664
                                                            ====================    ====================     ===================

    Per share data:
       Basic net income per share:
          Net income to common stockholders before
             discontinued operations                                 $0.51                   $0.90                   $0.60
          Discontinued operations                                        -                    0.06                    0.17
                                                            --------------------    --------------------     -------------------
                Net income to common stockholders                    $0.51                   $0.96                   $0.77
                                                            ====================    ====================     ===================
       Diluted net income per share:
          Net income to common stockholders before
             discontinued operations                                 $0.51                   $0.89                   $0.59
          Discontinued operations                                        -                    0.06                    0.17
                                                            --------------------    --------------------     -------------------
                Net income to common stockholders                    $0.51                   $0.95                   $0.76
                                                            ====================    ====================     ===================
</TABLE>

Outstanding options to purchase 2,627,500 shares in 2008 were excluded from the
computation of diluted net income per share under the treasury stock method
because the option exercise price was greater than the weighted average exercise
price of the Company's common stock during the period. The outstanding O.P.
Units have been excluded from the diluted net income per share calculation as
there would be no effect on the diluted net income per share since the minority
interests' share of income would also be added back to net income. O.P. Units
outstanding at December 31, 2008, 2007 and 2006 were 85,526,965, 85,533,935 and
85,206,199, respectively.

12.  OTHER INCOME

Other income from continuing  operations was approximately  $4,223,  $61,982 and
$18,222 for the years ended December 31, 2008, 2007 and 2006, respectively.  For
the year ended December 31, 2008,  termination  fees,  management fee income and
miscellaneous  income  accounted  for  approximately   $3,007,  $967  and  $249,
respectively, of other income. For the year ended December 31, 2007, termination
fees,  prior tenant  bankruptcy  settlements,  management  fee income,  security
deposit  forfeitures  and  miscellaneous   income  accounted  for  approximately
$57,515, $300, $982, $1,799 and $1,386,  respectively,  of other income. For the
year  ended  December  31,  2006,  termination  fees,  prior  tenant  bankruptcy
settlements,   management  fee  income,   security   deposit   forfeitures   and
miscellaneous income accounted for approximately $16,068, $183, $1,070, $104 and
$797, respectively, of other income. Management fee is paid by the tenant to the
landlord for the administration and supervision of the property.

13.  RELATED PARTY TRANSACTIONS

As of December 31, 2008 and 2007, the Berg Group owned  77,902,384 O.P. Units of
the  total   85,526,965  and  85,533,935  O.P.  Units  issued  and  outstanding,
respectively.  The Berg  Group's  interest in the Company  represents  74.0% and
74.1% of the Company as of December  31, 2008 and 2007,  respectively,  assuming
conversion of the O.P. Units into common shares of the Company.

The Company periodically acquires non-leased properties, which include land, the
building  shell and base  building  improvements,  from the Berg Group under the
Berg Group Land Holdings Options  Agreement.  These  acquisitions  from the Berg
Group are made for  properties  where the Company has  previously  identified  a
tenant,  and in conjunction with the  acquisition,  the Company executes a lease
agreement  with the  tenant.  In many of the  acquisitions  from the Berg Group,
lease commissions  relating to these leasing activities conducted by the Company
are paid by the Berg Group and reimbursed by the Company in connection  with the
acquisition.  These lease commissions are recorded  separately in "Other assets"
on the Company's consolidated balance sheets.

PROPERTY ACQUISITION
In January 2008, the Company acquired an  approximately  111,500 rentable square
foot newly  constructed R&D building  located at 5981 Optical Court in San Jose,
California  from the Berg Group under the Berg Land Holdings  Option  Agreement.
The total  acquisition price for this property was  approximately  $19,068.  The
Company  acquired this property by issuing a short-term note

                                     - 65 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

payable to the Berg Group,  which was fully repaid in July 2008. The transaction
was approved by the  Independent  Directors  Committee of the Company's Board of
Directors.

In September 2007, the Company acquired an approximately  98,500 rentable square
foot newly  constructed R&D building located at 5845 Hellyer Avenue in San Jose,
California  from the Berg Group under the Berg Land Holdings  Option  Agreement.
The total  acquisition price for this property was  approximately  $10,903.  The
Company  acquired this property by issuing  548,236 O.P. Units and paying $4,300
in cash to the selling  members of the Berg Group.  The transaction was approved
by the Independent Directors Committee of the Company's Board of Directors.

DEBT WITH THE BERG GROUP
As of December 31, 2008 and 2007, debt in the amount of approximately $8,761 and
$9,224,  respectively,  was due the Berg Group under a mortgage note established
May 15, 2000 in  connection  with the  acquisition  of a 50% interest in Hellyer
Avenue  Limited  Partnership,  the obligor under the mortgage note. The mortgage
note bears interest at 7.65%,  and is due in ten years with  principal  payments
amortized over 20 years. In the fourth quarter of 2008, the Company and the Berg
Group agreed to extend the loan  maturity  date to June 2013.  Interest  expense
incurred in connection with the Berg Group mortgage note was approximately $690,
$724  and  $755  for  the  years  ended  December  31,  2008,   2007  and  2006,
respectively.

During 2008, the Company issued  multiple  short-term  notes payable to the Berg
Group  in   connection   with  a  property   acquisition,   quarterly   dividend
distributions and a cash loan. The interest rates on these notes were LIBOR plus
2%. The aggregate loan amount totaled approximately $50,588 and was fully repaid
as of December 31, 2008. For the year ended December 31, 2008,  interest expense
incurred in connection  with those  short-term  notes payable was  approximately
$643.

TRANSFER OF INTEREST TO BERG GROUP IN CONSOLIDATED JOINT VENTURE
In July 2000, the Hellyer Avenue Limited Partnership ("Hellyer LP") was formally
organized as a California limited  partnership  between Mission West Properties,
L.P. ("MWP"), of which the Company as the managing general partner, and Republic
Properties  Corporation ("RPC"), an unaffiliated third party, as general partner
and limited  partners.  MWP was  designated as the managing  general  partner of
Hellyer  LP. For a 50%  ownership  interest  in Hellyer  LP, RPC agreed to cause
Stellex  Microwave  Systems,  Inc.  ("Stellex")  to  provide a 15-year  lease on
approximately 160,000 square foot R&D buildings to be constructed by Berg & Berg
Enterprises, Inc. ("BBE") on land owned by another Berg Group member.

As part of the  transaction,  MWP acquired the  underlying  land pursuant to the
Berg Land  Holdings  Option  Agreement  for a price of $5.7  million  by issuing
659,223 O.P.  Units to the Berg Group entity that owned the  property.  Further,
under the terms of the Hellyer LP partnership agreement MWP then contributed the
land to the partnership at an agreed value of $9.6 million,  which amount was to
be  amortized  and paid to MWP in the form of income and cash flow  preferences.
The transaction was reviewed and approved by the Independent Directors Committee
of the Company's Board of Directors.

In connection with the  transaction,  BBE built and paid for all improvements on
the land.  The total cost of the R&D  buildings,  exclusive of specified  tenant
improvements  obligations,  was approximately $11.4 million. Hellyer LP issued a
note for the amount of those  construction  costs to BBE, which note was secured
by the buildings.

Because RPC's interest in Hellyer LP was  attributable  solely to its commitment
to obtain  Stellex  as a tenant  for the  property,  the  partnership  agreement
provided that if a payment  default  occurred within the first five years of the
Stellex lease, RPC would lose 100% of its interest in the partnership,  and if a
payment default occurred during the second five year period under the lease, RPC
would lose 50% of its interest in Hellyer LP.

Pursuant to RPC's  commitment to Hellyer LP, Stellex  executed a lease agreement
obligating  Stellex,  among other things,  to pay monthly rent starting at $1.60
per square foot on a triple net basis for 15 years and to reimburse  BBE for the
tenant improvement  obligations,  which ultimately totaled  approximately  $10.5
million.

Under the lease terms,  Stellex was  obligated to reimburse  BBE in full for the
tenant  improvement costs no later than August 25, 2000. Several days before the
due  date,  representatives  of  Stellex  met  with  representatives  of MWP and
informed them that Stellex could not pay the balance due BBE. Stellex  requested
MWP  immediately to draw down the letter of credit as a result of default on the
tenant improvement payment required under the lease.

On  September  1, 2000,  MWP, as the general  partner of Hellyer LP,  ceased all
allocations  of income and cash flow to RPC and  exercised  the right  under the
partnership  agreement  to cancel  RPC's  entire  interest  in the  partnership.
Following  discussions with and approval by the Independent Directors Committee,
the Company  authorized  the  transfer  of RPC's  interest in Hellyer LP to BBE.

                                     - 66 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

Under the Berg Land  Holdings  Option  Agreement and the  Acquisition  Agreement
dated as of May 14, 1998, the  Independent  Directors  Committee of the Board of
Directors had the right,  but not the obligation,  to reacquire on behalf of the
Company  the  property  interest  and the related  distributions  related to the
property  interest at any time.  The transfer  was  effective as of September 1,
2000.

In January 2002,  Stellex was acquired  through its  bankruptcy  proceeding by a
division of Tyco Corporation. In connection with the acquisition of Stellex, the
purchaser  assumed the lease with Hellyer LP, agreed to comply with all terms of
lease and  reimbursed  BBE for the tenant  improvements,  as required  under the
lease agreement and the Bankruptcy Court order.

Since the inception of Hellyer LP, the Company has accounted for the  properties
owned by the  partnership  on a  consolidated  basis,  with  reductions  for the
minority interest held by the minority partner (first RPC and then BBE). In each
period,  the Company has accrued  amounts  payable by Hellyer LP to the minority
interest  partner,  including  BBE prior to  payment.  BBE's  share of  earnings
allocated to its 50% minority  interest was  approximately  $0.8  million,  $0.7
million and $0.8 million in 2008,  2007 and 2006,  respectively.  As of December
31,  2008,   accumulated  cash  flow  distributions  from  Hellyer  LP  totaling
approximately $5.3 million were accrued and distributed to BBE. If the Company's
litigation with RPC (as described under Note 16 below) is ultimately  decided in
RPC's favor,  the Company  anticipates  that BBE may be required to return RPC's
former interest in Hellyer LP and all prior distributions to RPC. As a result of
this uncertainty, in October 2003, the Company recorded such distributions as an
account  receivable  from  BBE,  which is  included  in  "Other  assets"  on the
Company's  consolidated  balance sheets,  with an offsetting  account payable to
BBE.

The Independent  Directors Committee of the Board of Directors has exercised the
right to acquire on behalf of the  Company the former RPC  interest  and related
distributions  from  BBE  under  the  terms  of the Berg  Land  Holdings  Option
Agreement between the Company and the Berg Group if the litigation is ultimately
decided in favor of the Company.

ACQUISITION OF CARL E. BERG'S INTEREST IN UNCONSOLIDATED JOINT VENTURE
In July 1999,  TBI, an  unrelated  party,  advised  Carl E. Berg that TBI had an
option to purchase  approximately  78.89 acres of unimproved  land zoned for R&D
development  in  Morgan  Hill at $2.50 per  square  foot  that  would  expire in
approximately six months. TBI offered Mr. Berg a 50% interest in the development
of this land if Mr. Berg provided 100% financing for the land at 0% interest for
three years. Mr. Berg advised TBI of his obligation to offer all R&D development
opportunities  on the West Coast to the Company and further advised TBI that the
Company's  Independent  Directors  Committee must approve the acquisition of any
properties and that the Company's policy was only to acquire properties that are
leased  pursuant to the Berg Land Holdings  Option  Agreement.  The  development
joint venture between TBI and the Berg Group  proceeded on that basis.  Building
construction was financed through loans  facilitated by the Berg Group. In early
2003,  TBI formed  TBI-MWP,  a new  limited  partnership,  to own all the leased
buildings.  The Berg Group offered its 50%  non-controlling  limited partnership
interest in TBI-MWP to the Company at cost plus an annual interest rate of 7% on
the funds  advanced  by the Berg  Group  which  amounted  to $1.8  million.  The
Independent  Directors  Committee and the Berg Group agreed to use a 7% interest
rate  instead of the rate and fees  specified in the Berg Land  Holdings  Option
Agreement  because the  transaction  differed  from the  standard  build-to-suit
development  specified  under that  agreement.  TBI-MWP  owned four fully leased
buildings  totaling  approximately  593,000  rentable square feet. The buildings
were  subject to  mortgage  loans  totaling  approximately  $53.6  million.  The
Independent  Directors Committee approved the Company's  acquisition of the Berg
Group's  50%  interest  in the joint  venture  effective  January 1,  2003.  The
development  joint  venture  between the Berg Group and TBI  retained two vacant
shell R&D  buildings and five  unimproved  lots.  In April 2003,  Comcast,  Inc.
offered to purchase one of the vacant  buildings and two acres of adjoining land
from the development joint venture for net proceeds of $2.8 million,  after debt
repayment.  Prior to sale of the property,  TBI-MWP acquired this property at no
cost under the terms of the Berg Land Holdings Option Agreement, and the Company
received a net  distribution  of $1.4 million from the sale. The transaction was
approved by the Independent Directors Committee. The Berg Group continues to own
a 50% interest in the remaining  vacant  building and five  unimproved  lots. In
July 2006,  TBI-MWP sold one R&D property with  approximately  126,400  rentable
square  feet for  approximately  $8.5  million.  The total  gain on the sale was
approximately  $0.9 million of which $0.45 million was the Company's  share.  In
November  2008,  TBI-MWP  sold two R&D  properties  with  approximately  311,200
rentable square feet for approximately  $65 million.  The total gain on the sale
was  approximately  $40.9 million of which  approximately  $20.5 million was the
Company's share.  TBI-MWP  currently owns one fully leased R&D building totaling
approximately 155,500 rentable square feet.

BERG CONTROLLED  ENTITIES HAVE FINANCIAL INTERESTS IN CERTAIN TENANTS THAT LEASE
SPACE FROM THE COMPANY
During  the years  ended  December  31,  2008,  2007 and  2006,  Carl E. Berg or
entities  controlled by Mr. Berg held financial  interests in several  companies
that lease space from the operating partnerships,  which include companies where
Mr. Berg has a greater than 10% ownership interest.  These related party tenants
contributed  approximately  $1,218, $1,227 and $1,875 in rental revenue in 2008,
2007 and 2006, respectively.  Under the Company's Charter, bylaws and agreements
with the Berg Group,  the  individual  members of the Berg Group are  prohibited
from acquiring shares of the Company's  common stock if such  acquisition  would
result in their  beneficial

                                     - 67 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

ownership  percentage  of the  Company's  common  stock  causing  the Company to
violate any REIT qualification requirement,  and currently their share ownership
is below a level at which rent from related  party  tenants would be excluded in
determining  compliance with REIT qualification  tests.

BERG GROUP COMMITMENT TO COMPLETE FUTURE IMPROVEMENTS AND BUILDING IN CONNECTION
WITH CERTAIN ACQUISITIONS FROM THE BERG GROUP UNDER THE BERG LAND HOLDINGS
Option  Agreement In connection  with the  Company's  2002  acquisition  of 5345
Hellyer  Avenue in San Jose,  California  the Berg Group  made an  approximately
$2,529  commitment to the Company to complete certain tenant  improvements.  The
Company  recorded  this portion of its purchase  consideration  paid to the Berg
Group in "Other  assets"  on its  consolidated  balance  sheets.  The Berg Group
satisfied this commitment in late 2008. The Company  reclassified  approximately
$2,529 from "Other assets" to tenant improvements and will start depreciation of
the asset over the remaining lease term effective January 1, 2009.

The  Berg  Group  has  an  approximately   $7,494   commitment  to  complete  an
approximately  75,000 to 90,000  square  foot  building in  connection  with the
Company's 2001  acquisition of 245 Caspian Drive in Sunnyvale,  California which
is  comprised  of  approximately  three acres of  unimproved  land.  The Company
recorded  this portion of its purchase  consideration  paid to the Berg Group in
"Other  assets" on its  consolidated  balance  sheets.  The Berg Group  plans to
satisfy this  commitment to construct a building  when  requested by the Company
following the approval of the Independent Directors Committee.

LAND LEASE RENT REIMBURSEMENT TO CARL E. BERG
In 2007, one tenant was leasing four R&D buildings from the Company and was also
leasing raw land from Carl E. Berg. Total rent from the tenant was paid directly
to the Company,  which  included the land rent. The Company  reimbursed  Carl E.
Berg  $85 per  month  for the  land  rent.  That  tenant  terminated  its  lease
obligations  with the Company  effective July 1, 2007, and the Company  acquired
the land in  connection  with a  completed  98,500  rentable  square  feet shell
building (see "Property Acquisitions" above under Note 6) and after July 1, 2007
no further rent was paid to Carl E. Berg.

LEASING AND OVERHEAD REIMBURSEMENTS PROVIDED BY BERG CONTROLLED ENTITY
The Company  currently  leases office space owned by Berg & Berg Enterprises for
the Company's  headquarters.  Rental amount and overhead  reimbursements paid to
Berg & Berg Enterprises, Inc. were approximately $114, $95 and $90 for the years
ended December 31, 2008, 2007 and 2006.

14.  FUTURE MINIMUM RENTS

The  Company,  through the  operating  partnerships,  owns  interests in 111 R&D
properties  that are leased to tenants under net  operating  leases with initial
terms extending to the year 2020, and are typically  subject to fixed increases.
Generally,  the leases grant tenants  renewal  options.  Future minimum  rentals
under non-cancelable  operating leases as of December 31, 2008, excluding tenant
reimbursements of expenses, are as follows:

<TABLE>
<CAPTION>
     Year                   Minimum Rent
     --------------------------------------------
                       (dollars in thousands)
<S>                          <C>
     2009                     $ 81,905
     2010                       80,862
     2011                       71,499
     2012                       55,548
     2013                       45,028
     Thereafter                 71,800
                     ----------------------------
          Total               $406,642
                     ============================
</TABLE>

15.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was  approximately  $20,712,  $20,617 and $20,137 for the
years ended December 31, 2008, 2007 and 2006, respectively.

In  connection  with a property  acquisition  from the Berg  Group,  the Company
issued a short-term  note payable for  approximately  $19,068 for the year ended
December 31, 2008. The Company fully repaid the balance as of December 31, 2008.

In  connection  with a property  acquisition  from the Berg  Group,  the Company
issued 548,236 O.P. Units for a total acquisition value of approximately  $6,603
for the year ended December 31, 2007.

                                     - 68 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

Amounts of  approximately  $59,888,  $50,189 and  $50,166  were paid to the Berg
Group for  distributions  declared to O.P.  Unit holders  during the years ended
December 31, 2008, 2007 and 2006, respectively.

For the years ended December 31, 2008, 2007 and 2006, 6,970, 220,500 and 881,896
O.P. Units were exchanged for 6,970, 220,500 and 881,896 shares of the Company's
common stock,  respectively,  under the terms of the Exchange  Rights  Agreement
among the Company and all limited partners of the operating partnerships.  These
non-cash  transactions were valued at approximately  $66, $2,855 and $10,280 for
the years ended  December 31, 2008,  2007 and 2006,  respectively,  based on the
market closing price on the day of the transactions.

16.  COMMITMENTS AND CONTINGENCIES

The Company and the operating  partnerships,  from time to time,  are parties to
litigation  arising  out of the  normal  course  of  business.  The  Company  is
currently involved in the following legal proceedings,  and does not believe the
ultimate outcome of any of these proceedings will have a material adverse effect
on its financial condition or operating results.

Mission West Properties,  L.P. v. Republic Properties Corporation,  et al. Santa
Clara County  Superior  Court,  Case No. CV 796249.  In February  2001,  while a
related case in Maryland was pending,  the Company filed a suit against Republic
Properties  Corporation ("RPC") in the Superior Court of the State of California
for the County of Santa Clara,  Case No. CV 796249.  The case was stayed pending
resolution of the Maryland case, and the Company  dismissed its suit on March 4,
2005.  In April  2005,  RPC  submitted  a motion  asking the  Superior  Court to
reinstate the case,  which the Court granted on May 25, 2005. In April 2006, the
Maryland  case  was  dismissed  by the  highest  court in  Maryland  for lack of
personal jurisdiction.  On July 5, 2006, RPC filed a cross-complaint in the case
seeking  partnership  distributions  to which the  Company  demurred.  The Court
sustained the Company's demurrer with leave to amend. Subsequently, RPC filed an
amended  complaint and the Company  submitted another demurrer seeking dismissal
of the claims on statute of limitations grounds. On February 20, 2007, the Court
overruled the Company's demurrer.  The Company sought a writ from the California
State  Court of Appeal  for the Sixth  District  to  direct  the lower  court to
reverse its decision,  but the petition for the writ was denied.  In April 2008,
the Company filed a motion for summary judgment in the California Superior Court
which was denied. In October 2008, a motion filed by RPC for summary judgment in
the  California  Superior Court was denied.  A trial in the California  Superior
Court commenced in February 2009.

GUARANTEES
Under its  articles  of  incorporation  and  bylaws,  the  Company has agreed to
indemnify its officers and directors for certain events or  occurrences  arising
as a result of the officer or director's  serving in such capacity.  The maximum
potential  amount of future payments the Company could be required to make under
these  indemnification   agreements  is  unlimited.  The  Company  believes  the
estimated  fair value of these  indemnification  agreements  is minimal  and has
recorded no liabilities for these agreements as of December 31, 2008.

The Company also enters into  indemnification  provisions  under its  agreements
with other companies in its ordinary course of business, typically with lenders,
joint venture  partners,  contractors,  and tenants.  Under these provisions the
Company  typically  agrees to indemnify and hold harmless the indemnified  party
for losses suffered or incurred by the indemnified  party as a result of certain
kinds  of  activities  or  inactions  of  the  Company.   These  indemnification
provisions  generally  survive  termination  of the  underlying  agreement.  The
maximum  potential  amount of future  payments the Company  could be required to
make under these  indemnification  provisions is unlimited.  The Company has not
incurred  material  costs to defend  lawsuits or settle claims  related to these
indemnification agreements. As a result, the Company believes the estimated fair
value of these agreements is minimal.  Accordingly,  the Company has recorded no
liabilities for these agreements as of December 31, 2008.

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

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

                                     - 69 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

ASSET DISPOSITION SUBJECT TO CERTAIN CONDITIONS
The Company has entered into a sales agreement with unrelated parties subject to
numerous  material  conditions,  including  but not limited to  re-zoning of the
property  and  negotiating   certain  agreements  with  the  local  municipality
acceptable to the buyer. As a result of the conditions  agreed to by the Company
and the  respective  buyers,  these assets do not meet the criteria set forth in
SFAS 144 to be classified as assets held for sale. The following  summarizes the
assets for which the Company has  executed a sales  contract as of December  31,
2008 that are subject to material conditions as previously described:

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


17.  REAL ESTATE ASSET HELD FOR SALE AND DISCONTINUED OPERATIONS

The Company follows SFAS 144, which addresses financial accounting and reporting
for the impairment and disposal of long lived assets. In general, income or loss
attributable  to the operations and sale of property and the operations  related
to property  held for sale are  classified  as  discontinued  operations  in the
consolidated  statements of operations.  Prior period consolidated statements of
operations presented in this report have been reclassified to reflect the income
or loss related to  properties  that were held for sale or sold and presented as
discontinued  operations for the years ended  December 31, 2008,  2007 and 2006.
Additionally,  all periods  presented in this report will likely require further
reclassification in future periods if additional properties are held for sale or
property sales occur.

As of December 31, 2008,  there were no properties  under contract to be sold or
otherwise disposed of which would qualify as assets held for sale.

In  2007,  the  Company  sold  two R&D  properties  for a total  sales  price of
approximately  $16,043 resulting in a net gain of approximately $6,529. In 2006,
the Company sold three R&D properties  for a total sales price of  approximately
$43,271 resulting in a net gain of approximately $18,102.  Results of operations
for these  properties  for the years  ended  December  31,  2007 and 2006 are as
follows:

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                           ------------------------------------------
                                                                  2007                  2006
                                                           ------------------     -------------------
                                                                    (dollars in thousands)
Revenues:
<S>                                                            <C>                    <C>
   Rental revenue from real estate                                $389                 $2,271
   Tenant reimbursements                                            83                    317
   Other income                                                      1                    291
                                                           ------------------     -------------------
      Total revenues                                               473                  2,879
                                                           ------------------     -------------------

Expenses:
   Property operating, maintenance and real estate taxes           233                    683
   Depreciation of real estate                                     148                    694
                                                           ------------------     -------------------
     Total expenses                                                381                  1,377
                                                           ------------------     -------------------

     Operating income                                               92                  1,502

Other income (expenses):
   Interest                                                         (1)                    (1)
                                                           ------------------     -------------------
Income from discontinued operations                                 91                  1,501
Gain from disposal of discontinued operations                    6,529                 18,102
Minority interests in earnings from discontinued                (5,489)               (16,431)
operations
                                                           ------------------     -------------------
     Income from discontinued operations                        $1,131                 $3,172
                                                           ==================     ===================
</TABLE>

For the years  ended  December  31,  2007 and  2006,  income  from  discontinued
operations  included  results of operations from two R&D properties sold in 2007
and three R&D properties sold in 2006.

                                     - 70 -

<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

18.  ACQUISITION-RELATED INTANGIBLE ASSETS

In February 2008,  the Company  acquired a fully leased  office/R&D  building at
2904 Orchard Parkway in San Jose,  California for approximately  $16,696 from an
unrelated party.  The purchase price was allocated to long-lived  assets and the
value of an in-place lease as follows:

<TABLE>
<CAPTION>
<S>                                           <C>
    Land                                      $4,704
    Buildings and improvements                10,871
    In-place lease                             1,121
                                         -----------------
       Total cash purchase price             $16,696
                                         =================
</TABLE>

The result of operations for this property  acquisition has been included in the
Company's  consolidated  statements of operations since the date of acquisition.
The intangible  assets are being  amortized over the applicable  remaining lease
term.  Amortization  expense related to in-place leases of  approximately  $600,
$2,153 and $1,613 was recorded for the years ended  December 31, 2008,  2007 and
2006, respectively.

Details of real estate related  intangible  assets at December 31, 2008 and 2007
are as follows:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                     ------------------------------------------
                                                           2008                    2007
                                                     ------------------     -------------------
                                                             (dollars in thousands)
     Amortizable intangible assets:
<S>                                                    <C>                    <C>
        In-place leases                                 $3,240                 $2,119
        Accumulated amortization                        (1,341)                  (741)
                                                     ------------------     -------------------
        Net real estate related intangible assets       $1,899                 $1,378
                                                     ==================     ===================
</TABLE>

The  estimated  aggregate  amortization  expense  for the  real  estate  related
intangible assets for each of the five succeeding fiscal years is as follows:

<TABLE>
<CAPTION>
     Year                Estimated In-place
                                Lease
                       Amortization (expense)
     ------------------------------------------
                             (dollars in
                              thousands)
<S>                          <C>
     2009                       $637
     2010                        637
     2011                        363
     2012                        224
     2013                         38
                       ------------------------
        Total                 $1,899
                       ========================
</TABLE>

19.  FAIR VALUE

The only  financial  asset or liability  recorded at fair value in the Company's
consolidated  financial  statements is the  marketable  securities.  The Company
determined the fair value for the marketable  securities  using quoted prices in
active  markets  for  identical  securities  (Level  1 - see  Note 2  under  New
Accounting  Pronouncements).  As of  December  31,  2008,  the fair value of the
marketable  securities  totaled  approximately  $3,368 and the cost  thereof was
approximately  $3,646.  The marketable  securities are adjusted to fair value at
the end of each  accounting  period,  with the  corresponding  losses  and gains
recorded  in  unrealized  losses or gains  from  investment.  For the year ended
December 31, 2008, the Company  recorded net unrealized  losses of approximately
$278 related to the decrease in fair value of the marketable  securities,  which
was reported in unrealized  loss from  investment in the Company's  consolidated
statement of operations.


                                     - 71 -


<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                  (Dollars in thousands, except per share data)

20.  SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)

Quarterly financial information for the year ended December 31, 2008 (1) is as
follows:

<TABLE>
<CAPTION>
                                                                          For the Three Months Ended
                                                  March 31,             June 30,            September 30,         December 31,
                                                                                 (Unaudited)
                                            ----------------------------------------------------------------------------------------
<S>                                             <C>                   <C>                   <C>                   <C>
Rental revenue from continuing operations, net      $18,996               $19,359               $20,256               $20,464
Operating income from continuing operations         $13,545               $11,452               $12,952               $12,436
Income from continuing operations                    $1,882                $1,359                $1,635                $5,257
Net income to common stockholders                    $1,882                $1,359                $1,635                $5,257
Per share data:
   Basic net income per share                         $0.10                 $0.07                 $0.08                 $0.27
   Diluted net income per share                       $0.10                 $0.07                 $0.08                 $0.26
Weighted average shares of common stock(basic)   19,667,605             19,695,988           19,745,141             19,748,211
Weighted average shares of common stock(diluted) 19,667,605             19,902,304           19,783,507             19,889,016
</TABLE>


Quarterly  financial  information for the year ended December 31, 2007 (1) is as
follows:

<TABLE>
<CAPTION>
                                                                          For the Three Months Ended
                                                  March 31,             June 30,           September 30,          December 31,
                                                                                (Unaudited)
                                            ----------------------------------------------------------------------------------------
<S>                                             <C>                   <C>                   <C>                   <C>
Rental revenue from continuing operations, net      $17,111               $21,148               $19,000               $18,986
Operating income from continuing operations         $21,235               $14,402               $58,093               $11,858
Income from continuing operations (2)                $3,366                $2,001               $10,821                $1,568
Income from discontinued operations (2)                  $9                    $3                $1,120                     -
Net income to common stockholders                    $3,375                $2,004               $11,941                $1,568
Per share data:
   Basic net income per share                         $0.17                 $0.10                 $0.61                 $0.08
   Diluted net income per share                       $0.17                 $0.10                 $0.60                 $0.08
Weighted average shares of common stock(basic)   19,582,787             19,639,928           19,640,087             19,645,304
Weighted average shares of common stock(diluted) 19,889,453             20,020,596           19,818,806             19,710,909
</TABLE>


(1)  The  summation  of the  quarterly  financial  data may not equal the annual
     number  reported  on  the  consolidated  statements  of  operations  due to
     rounding differences.
(2)  The quarterly  financial data may not equal previously  reported results on
     the Company's  quarterly  reports on Form 10-Q due to  reclassification  of
     revenues and expenses to  discontinued  operations in accordance  with SFAS
     144.

21.  SUBSEQUENT EVENTS

On January 7, 2009,  one limited  partner  exchanged a total of  2,000,000  O.P.
Units for 2,000,000  shares of the Company's common stock under the terms of the
Exchange  Rights  Agreement  among the Company  and all limited  partners of the
operating  partnerships.  Neither  the Company  nor the  operating  partnerships
received any proceeds from the issuance of the common stock in exchange for O.P.
Units.

On January 8, 2009,  the  Company  paid  dividends  of $0.20 per share of common
stock to all common  stockholders of record as of December 31, 2008. On the same
date, the operating  partnerships  paid a distribution of $0.20 per O.P. Unit to
all holders of O.P.  Units,  with the  exception  of the Berg  Group.  Aggregate
dividends and distributions amounted to approximately $21,055.

On January 8, 2009,  a short-term  note  payable in the amount of  approximately
$10,760 was issued to the Berg Group in connection  with the fourth quarter 2008
dividend distributions. The note payable bears interest at LIBOR plus 2% and was
fully repaid in February 2009.

                                     - 72 -



<PAGE>


           Report of Independent Registered Public Accounting Firm on
                          Financial Statement Schedule



Board of Directors and Stockholders
Mission West Properties, Inc.
Cupertino, California

The audit  referred  to in our  report  dated  March 13,  2009  relating  to the
consolidated  financial  statements of Mission West  Properties,  Inc., which is
contained  in Item 8 of this Form  10-K,  included  the  audit of the  financial
statement  schedule listed in the accompanying index as of December 31, 2008 and
2007. This financial  statement  schedule is the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
statement schedule based upon our audit.

In our opinion  such  financial  statement  schedule as of December 31, 2008 and
2007  presents  fairly,  in all material  respects,  the  information  set forth
therein.



\S\ Burr, Pilger & Mayer, LLP


San Francisco, California
March 13, 2009


                                     - 73 -

<PAGE>






                               INTENTIONALLY BLANK




                                     - 74 -
<PAGE>




                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
            Real Estate and Accumulated Depreciation and Amortization
                                December 31, 2008
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                             Initial Cost
                                                                    ------------------------------      Cost
                                                                                     Buildings      Subsequent to
                                                  December 31, 2008                     and         Construction/
Property Name                      City             Encumbrances        Land        Improvements     Acquisition
-----------------------------------------------   ----------------- -------------  ---------------  -------------
<S>                               <C>                 <C>             <C>             <C>              <C>
5300-5350 Hellyer Avenue           San Jose    C       $8,761          $5,742          $11,442
10401-10411 Bubb Road              Cupertino   A                          633            3,078
45365 Northport Loop               Fremont                              2,447            5,711            $11
45738 Northport Loop               Fremont     F                          891            4,338              5
4050 Starboard Drive               Fremont     F                        1,329            6,467              8
3501 W. Warren Ave/Fremont Blvd    Fremont                              1,866            9,082          1,382
48800 Milmont Blvd                 Fremont                              1,013            4,932
4750 Patrick Henry Drive           Santa Clara H                        1,604            7,805            405
3520 Bassett Street                Santa Clara D                        1,104            5,371
3530 Bassett Street                Santa Clara B,D                        849            4,133
5850-5870 Hellyer Avenue           San Jose                             2,787            6,502            131
5750 Hellyer Avenue                San Jose                             3,266            3,354          2,798
800 Embedded Way                   San Jose    K                        1,794                -
5500 Hellyer Avenue                San Jose    F                        4,735           12,485          1,575
5550 Hellyer Avenue                San Jose    F                        3,261            3,478          3,755
5400 Hellyer Avenue                San Jose                             3,238            5,007            215
5325 Hellyer Avenue                San Jose    H                        4,684           10,230             40
5345 Hellyer Avenue                San Jose    H                        4,866            5,822          2,529
5905-5965 Silver Creek Valley Rd   San Jose                             8,437           17,316
5905-5965 Silver Creek Valley Rd   San Jose                             3,438            2,727
5845 Hellyer Avenue                San Jose                             6,090            5,029
855 Embedded Way                   San Jose                             3,289            6,521            150
1065-1105 La Avenida Street        Mountain View                       46,832          109,275             65
1875 Charleston Road               Mountain View   M                        -            2,615
1750 Automation Parkway            San Jose    G                        4,789           11,174            315
1756 Automation Parkway            San Jose    G                        4,378           10,216            704
1762 Automation Parkway            San Jose    G                        4,804           12,224          1,332
1768 Automation Parkway            San Jose    H                        8,195           19,121            218
255 Caspian Drive                  Sunnyvale                            3,491            7,160          1,658
245 Caspian Drive                  Sunnyvale                            5,894                -
5981 Optical Court                 San Jose    F                        4,054           14,938            298
5970 Optical Court                 San Jose                             2,758            8,395
5900 Optical Court                 San Jose                             3,634           12,677             83
2630 Orchard Parkway               San Jose                             2,932            5,863             22
2610 Orchard Parkway               San Jose    J                        2,615            5,231
55 West Trimble Road               San Jose    J                        4,435            8,869
2001 Walsh Avenue                  Santa Clara E,G,I                    4,610            3,887
2880 Scott Blvd                    Santa Clara E,H,I                   14,501           22,555            471
2890 Scott Blvd                    Santa Clara E,H,I                    3,081            9,696             25
2770-2800 Scott Blvd               Santa Clara E,H                      7,138            7,075            170
2300 Central Expressway            Santa Clara E,G,I                    2,390            2,459
2220 Central Expressway            Santa Clara E,G,I                    3,305            3,427            816
2330 Central Expressway            Santa Clara E,G                      3,673            3,932            677
233 South Hillview Drive           Milpitas    F,N                      3,335           10,076
2251 Lawson Lane                   Santa Clara                          1,952            9,498            501
1230 East Arques                   Sunnyvale   F                          540            2,628             39
1250 East Arques                   Sunnyvale   F                        1,335            6,499
20400 Mariani Avenue               Cupertino                            1,670            8,125            946
10500 De Anza Blvd                 Cupertino                            7,666           37,304
20605-20705 Valley Green Drive     Cupertino   G                        3,490           16,984
10300 Bubb Road                    Cupertino   F                          635            3,090
10440 Bubb Road                    Cupertino                              434            2,112            114
10460 Bubb Road                    Cupertino   H                          994            4,838          1,279
1135 Kern Avenue                   Sunnyvale                              407            1,982
450 National Avenue                Mountain View                          611            2,973             72
3301 Olcott Street                 Santa Clara                          1,846            8,984             37
2800 Bayview Avenue                Fremont                              1,070            5,205             60
5521 Hellyer Avenue                San Jose                             4,534            9,650
6850 Santa Teresa Blvd             San Jose    H                          377            1,836            819

</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                                          Total Cost
                                                  ---------------------------
                                                                 Buildings                   Accumulated
                                                                    and                     Depreciation     Date of   Depreciable
Property Name                      City              Land       Improvements     Total     & Amortization  Acquisition    Life
-----------------------------------------------   -----------  -------------- ------------ --------------  ----------- -----------
<S>                               <C>               <C>           <C>          <C>            <C>           <C>            <C>
5300-5350 Hellyer Avenue           San Jose    C     $5,742        $11,442      $17,184        $2,467         5/00          L
10401-10411 Bubb Road              Cupertino   A        633          3,078        3,711           810         7/98          L
45365 Northport Loop               Fremont            2,447          5,722        8,169         1,189        10/00          L
45738 Northport Loop               Fremont     F        891          4,343        5,234         1,143         7/98          L
4050 Starboard Drive               Fremont     F      1,329          6,475        7,804         1,702         7/98          L
3501 W. Warren Ave/Fremont Blvd    Fremont            1,866         10,464       12,330         3,656         7/98          L
48800 Milmont Blvd                 Fremont            1,013          4,932        5,945         1,296         7/98          L
4750 Patrick Henry Drive           Santa Clara H      1,604          8,210        9,814         2,390         7/98          L
3520 Bassett Street                Santa Clara D      1,104          5,371        6,475         1,411         7/98          L
3530 Bassett Street                Santa Clara B,D      849          4,133        4,982         1,086         7/98          L
5850-5870 Hellyer Avenue           San Jose           2,787          6,633        9,420         1,715        11/98          L
5750 Hellyer Avenue                San Jose           3,266          6,152        9,418         1,312         8/01          L
800 Embedded Way                   San Jose    K      1,794              -        1,794             -         3/00          -
5500 Hellyer Avenue                San Jose    F      4,735         14,060       18,795         2,515         2/01          L
5550 Hellyer Avenue                San Jose    F      3,261          7,233       10,494           966         6/01          L
5400 Hellyer Avenue                San Jose           3,238          5,222        8,460         1,281         7/00          L
5325 Hellyer Avenue                San Jose    H      4,684         10,270       14,954         2,093         1/01          L
5345 Hellyer Avenue                San Jose    H      4,866          8,351       13,217         1,145         1/02          L
5905-5965 Silver Creek Valley Rd   San Jose           8,437         17,316       25,753         3,247         7/01          L
5905-5965 Silver Creek Valley Rd   San Jose           3,438          2,727        6,165           494        10/01          L
5845 Hellyer Avenue                San Jose           6,090          5,029       11,119           161         9/07          L
855 Embedded Way                   San Jose           3,289          6,671        9,960         1,320         5/01          L
1065-1105 La Avenida Street        Mountain View     46,832        109,340      156,172        26,649         4/99          L
1875 Charleston Road               Mountain View   M      -          2,615        2,615           519         4/06          L
1750 Automation Parkway            San Jose    G      4,789         11,489       16,278         2,729         7/99          L
1756 Automation Parkway            San Jose    G      4,378         10,920       15,298         2,434         1/00          L
1762 Automation Parkway            San Jose    G      4,804         13,556       18,360         2,961         4/00          L
1768 Automation Parkway            San Jose    H      8,195         19,339       27,534         3,977        12/00          L
255 Caspian Drive                  Sunnyvale          3,491          8,818       12,309         2,243         4/00          L
245 Caspian Drive                  Sunnyvale          5,894              -        5,894             -         4/01          -
5981 Optical Court                 San Jose    F      4,054         15,236       19,290           874         1/08          L
5970 Optical Court                 San Jose           2,758          8,395       11,153         1,049        12/03          L
5900 Optical Court                 San Jose           3,634         12,760       16,394         2,133         7/02          L
2630 Orchard Parkway               San Jose           2,932          5,885        8,817         1,024         3/02          L
2610 Orchard Parkway               San Jose    J      2,615          5,231        7,846           894         3/02          L
55 West Trimble Road               San Jose    J      4,435          8,869       13,304         1,516         3/02          L
2001 Walsh Avenue                  Santa Clara E,G,I  4,610          3,887        8,497           564         4/03          L
2880 Scott Blvd                    Santa Clara E,H,I 14,501         23,026       37,527         3,300         4/03          L
2890 Scott Blvd                    Santa Clara E,H,I  3,081          9,721       12,802         1,402         4/03          L
2770-2800 Scott Blvd               Santa Clara E,H    7,138          7,245       14,383         1,089         4/03          L
2300 Central Expressway            Santa Clara E,G,I  2,390          2,459        4,849           356         4/03          L
2220 Central Expressway            Santa Clara E,G,I  3,305          4,243        7,548           838         4/03          L
2330 Central Expressway            Santa Clara E,G    3,673          4,609        8,282           799         4/03          L
233 South Hillview Drive           Milpitas    F,N    3,335         10,076       13,411         1,381         3/06          L
2251 Lawson Lane                   Santa Clara        1,952          9,999       11,951         2,503         7/98          L
1230 East Arques                   Sunnyvale   F        540          2,667        3,207           733         7/98          L
1250 East Arques                   Sunnyvale   F      1,335          6,499        7,834         1,707         7/98          L
20400 Mariani Avenue               Cupertino          1,670          9,071       10,741         2,403         7/98          L
10500 De Anza Blvd                 Cupertino          7,666         37,304       44,970         9,796         7/98          L
20605-20705 Valley Green Drive     Cupertino   G      3,490         16,984       20,474         4,462         7/98          L
10300 Bubb Road                    Cupertino   F        635          3,090        3,725           813         7/98          L
10440 Bubb Road                    Cupertino            434          2,226        2,660           650         7/98          L
10460 Bubb Road                    Cupertino   H        994          6,117        7,111         1,748         7/98          L
1135 Kern Avenue                   Sunnyvale            407          1,982        2,389           524         7/98          L
450 National Avenue                Mountain View        611          3,045        3,656           821         7/98          L
3301 Olcott Street                 Santa Clara        1,846          9,021       10,867         2,376         7/98          L
2800 Bayview Avenue                Fremont            1,070          5,265        6,335         1,428         7/98          L
5521 Hellyer Avenue                San Jose           4,534          9,650       14,184         1,162         2/05          L
6850 Santa Teresa Blvd             San Jose    H        377          2,655        3,032           934         7/98          L

</TABLE>

                                     - 75 -
<PAGE>

<TABLE>
<CAPTION>
                                                                             Initial Cost
                                                                    ------------------------------      Cost
                                                                                     Buildings      Subsequent to
                                                  December 31, 2008                     and         Construction/
Property Name                      City             Encumbrances        Land        Improvements     Acquisition
-----------------------------------------------   ----------------- -------------  ---------------  -------------
<S>                               <C>               <C>             <C>              <C>             <C>
6810 Santa Teresa Blvd             San Jose    H                        2,567            5,991            772
140-160 Great Oaks Blvd            San Jose                             1,402            6,822            754
6541 Via del Oro/6385 San Ignacio  San Jose    G                        1,039            5,057             81
6311-6351 San Ignacio Avenue       San Jose    F                        6,246           30,396            170
6320-6360 San Ignacio Avenue       San Jose    G                        2,616           12,732            439
75 E. Trimble Rd/2610 N. First St  San Jose                             3,477           16,919             85
2904 Orchard Parkway               San Jose    F,O                      4,704           11,992
3236 Scott Blvd                    Santa Clara F                        1,234            6,005
1212 Bordeaux Lane                 Sunnyvale   F                        2,250           10,948
1325-1810 McCandless Drive         Milpitas                            13,994           66,213          1,455
1600 Memorex Drive                 Santa Clara                          1,221            5,940             11
1688 Richard Avenue                Santa Clara                          1,248            2,913              6
1700 Richard Avenue                Santa Clara                          1,727            4,030
Morgan Hill Land                   Morgan Hill                         25,543                -
Morgan Hill Land                   Morgan Hill                          2,297                -
300 Montague Expressway            Milpitas                             2,609            2,499
337 Trade Zone Blvd                Milpitas                             2,264            2,168
324-368 Montague Expressway        Milpitas                             2,968            2,843
3506-3510 Bassett Street           Santa Clara D                          943            4,591            182
3540-3544 Bassett Street           Santa Clara F,D                      1,565            7,616            195
3550 Bassett Street                Santa Clara F,D                      1,079            5,251             33
3560 Bassett Street                Santa Clara F,D                      1,075            5,233              8
3570-3580 Bassett Street           Santa Clara F,D                      1,075            5,233
   Hartford Loan                               F      114,513
   Northwestern Mutual Life Ins. Co.           G       81,308
   Allianz Life Insurance Company              H      135,087
                                                  ----------------- -------------  ---------------  -------------
                                                     $339,669        $320,911         $774,795        $27,916
                                                  ================= =============  ===============  =============

</TABLE>


<TABLE>
<CAPTION>
                                                          Total Cost
                                                  ---------------------------
                                                                 Buildings                   Accumulated
                                                                    and                     Depreciation     Date of   Depreciable
Property Name                      City              Land       Improvements     Total     & Amortization  Acquisition    Life
-----------------------------------------------   -----------  -------------- ------------ --------------  ----------- -----------
<S>                               <C>             <C>           <C>          <C>             <C>              <C>         <C>
6810 Santa Teresa Blvd             San Jose    H      2,567         6,763          9,330         1,772         3/99        L
140-160 Great Oaks Blvd            San Jose           1,402         7,576          8,978         2,206         7/98        L
6541 Via del Oro/6385 San Ignacio  San Jose    G      1,039         5,138          6,177         1,380         7/98        L
6311-6351 San Ignacio Avenue       San Jose    F      6,246        30,566         36,812         8,143         7/98        L
6320-6360 San Ignacio Avenue       San Jose    G      2,616        13,171         15,787         3,548         7/98        L
75 E. Trimble Rd/2610 N. First St  San Jose           3,477        17,004         20,481         4,532         7/98        L
2904 Orchard Parkway               San Jose    F,O    4,704        11,992         16,696           413         2/08        L
3236 Scott Blvd                    Santa Clara F      1,234         6,005          7,239         1,578         7/98        L
1212 Bordeaux Lane                 Sunnyvale   F      2,250        10,948         13,198         2,877         7/98        L
1325-1810 McCandless Drive         Milpitas          13,994        67,668         81,662        18,258         7/98        L
1600 Memorex Drive                 Santa Clara        1,221         5,951          7,172         1,547         7/98        L
1688 Richard Avenue                Santa Clara        1,248         2,919          4,167           770         9/98        L
1700 Richard Avenue                Santa Clara        1,727         4,030          5,757           952         8/99        L
Morgan Hill Land                   Morgan Hill       25,543             -         25,543             -         3/07        -
Morgan Hill Land                   Morgan Hill        2,297             -          2,297             -         4/07        -
300 Montague Expressway            Milpitas           2,609         2,499          5,108           104         4/07        L
337 Trade Zone Blvd                Milpitas           2,264         2,168          4,432            90         4/07        L
324-368 Montague Expressway        Milpitas           2,968         2,843          5,811           118         4/07        L
3506-3510 Bassett Street           Santa Clara D        943         4,773          5,716         1,320         7/98        L
3540-3544 Bassett Street           Santa Clara F,D    1,565         7,811          9,376         2,070         7/98        L
3550 Bassett Street                Santa Clara F,D    1,079         5,284          6,363         1,415         7/98        L
3560 Bassett Street                Santa Clara F,D    1,075         5,241          6,316         1,384         7/98        L
3570-3580 Bassett Street           Santa Clara F,D    1,075         5,233          6,308         1,376         7/98        L
   Hartford Loan                               F
   Northwestern Mutual Life Ins. Co.           G
   Allianz Life Insurance Company              H
                                                  -----------  --------------  -----------  -------------
                                                   $320,911      $802,711     $1,123,622      $180,043
                                                  ===========  ==============  ===========  =============
</TABLE>


(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(C)  50% of this  property's  ownership  is held by an  affiliated  party  since
     September 2000.
(D)  Part of the property group referred to as the Triangle Technology Park.
(E)  Part of the property group referred to as the San Tomas Technology Park.
(F)  Encumbered by the $114,513 Hartford loan - full amount of loan shown at the
     bottom of the schedule.
(G)  Encumbered by the $81,308 Northwestern Mutual Life Insurance Company loan -
     full amount of loan shown at the bottom of the schedule.
(H)  Encumbered  by the  $135,087  Allianz  Life  Insurance  Company loan - full
     amount of loan shown at the bottom of the schedule.
(I)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $18,284.  Approximately  $17,410 and $874 was fully
     amortized  in 2007  and  2005,  respectively,  and the  asset  cost and its
     related accumulated amortization was removed from the accounts.
(J)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $1,367.  The amount was fully amortized in 2004 and
     the asset cost and its related  accumulated  amortization  was removed from
     the accounts.
(K)  This  property was sold in October 2005.  The Company  retained  32.5%,  or
     approximately 7.9 acres, of raw land.
(L)  Depreciation  is  computed  based  on the  following  estimated  lives:
     1.   Building shell and base building tenant improvements of newly acquired
          properties  are being  depreciated  on a  weighted  average  composite
          useful life of 40 years.
     2.   Real estate intangible assets allocated pursuant to SFAS 141 are being
          amortized over the remaining life of the underlying leases.
     3.   Tenant improvements, furniture and fixtures are being depreciated over
          their estimated useful lives ranging from 5 to 10 years.
(M)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $745.
(N)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $1,374.
(O)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $1,121.


                                     - 76 -


<PAGE>


<TABLE>
<CAPTION>
                                                                             MISSION WEST PROPERTIES, INC.
                                                                                      Schedule III
                                                               Real Estate and Accumulated Depreciation and Amortization
                                                                                   December 31, 2007
                                                                                 (dollars in thousands)


                                                                             Initial Cost
                                                                    ------------------------------      Cost
                                                                                     Buildings      Subsequent to
                                                  December 31, 2007                     and         Construction/
Property Name                      City             Encumbrances        Land        Improvements     Acquisition
-----------------------------------------------   ----------------- -------------  ---------------  -------------
<S>                               <C>                   <C>            <C>            <C>                <C>
5300-5350 Hellyer Avenue           San Jose    C         $9,224         $5,742         $11,442
10401-10411 Bubb Road              Cupertino   A                           633           3,078
45365 Northport Loop               Fremont                               2,447           5,711              $11
45738 Northport Loop               Fremont     F                           891           4,338                5
4050 Starboard Drive               Fremont     F                         1,329           6,467                8
3501 W. Warren Ave/Fremont Blvd    Fremont                               1,866           9,082            1,382
48800 Milmont Blvd                 Fremont                               1,013           4,932
4750 Patrick Henry Drive           Santa Clara                           1,604           7,805              405
3520 Bassett Street                Santa Clara D                         1,104           5,371
3530 Bassett Street                Santa Clara B,D                         849           4,133
5850-5870 Hellyer Avenue           San Jose                              2,787           6,502              131
5750 Hellyer Avenue                San Jose                              3,266           3,354            3,127
800 Embedded Way                   San Jose    K                         1,794               -
5500 Hellyer Avenue                San Jose                              4,735          12,485               39
5550 Hellyer Avenue                San Jose                              3,261           3,478
5400 Hellyer Avenue                San Jose                              3,238           5,007              215
5325 Hellyer Avenue                San Jose    H                         4,684          10,230               40
5345 Hellyer Avenue                San Jose    H                         4,866           5,822
5905-5965 Silver Creek Valley Rd   San Jose                              8,437          17,316
5905-5965 Silver Creek Valley Rd   San Jose                              3,438           2,727
5845 Hellyer Avenue                San Jose                              6,090           5,029
855 Embedded Way                   San Jose                              3,289           6,521               68
1065-1105 La Avenida Street        Mountain View                        46,832         109,275               65
1875 Charleston Road               Mountain View   M                         -           2,615
1750 Automation Parkway            San Jose    G                         4,789          11,174              315
1756 Automation Parkway            San Jose    G                         4,378          10,216              704
1762 Automation Parkway            San Jose    G                         4,804          12,224            1,332
1768 Automation Parkway            San Jose    H                         8,195          19,121              142
255 Caspian Drive                  Sunnyvale                             3,491           7,160            1,658
245 Caspian Drive                  Sunnyvale                             5,894               -
5970 Optical Court                 San Jose                              2,758           8,395
5900 Optical Court                 San Jose    H                         3,634          12,677               83
2630 Orchard Parkway               San Jose                              2,931           5,863               22
2610 Orchard Parkway               San Jose    J                         2,615           5,231
55 West Trimble Road               San Jose    J                         4,435           8,869
2001 Walsh Avenue                  Santa Clara E,I                       4,610           3,887
2880 Scott Blvd                    Santa Clara E,H,I                    14,501          22,555
2890 Scott Blvd                    Santa Clara E,H,I                     3,081           9,696               25
2770-2800 Scott Blvd               Santa Clara E,H                       7,138           7,075              170
2300 Central Expressway            Santa Clara E,I                       2,390           2,459
2220 Central Expressway            Santa Clara E,I                       3,304           3,427              816
2330 Central Expressway            Santa Clara E                         3,673           3,932              677
233 South Hillview Drive           Milpitas    N                         3,335          10,076
2251 Lawson Lane                   Santa Clara G                         1,952           9,498
1230 East Arques                   Sunnyvale   F                           540           2,628               39
1250 East Arques                   Sunnyvale   F                         1,335           6,499
20400 Mariani Avenue               Cupertino   H                         1,670           8,125              866
10500 De Anza Blvd                 Cupertino   F                         7,666          37,304
20605-20705 Valley Green Drive     Cupertino   G                         3,490          16,984
10300 Bubb Road                    Cupertino   F                           635           3,090
10440 Bubb Road                    Cupertino                               434           2,112              114
10460 Bubb Road                    Cupertino   H                           994           4,838            1,279
1135 Kern Avenue                   Sunnyvale   F                           407           1,982
450 National Avenue                Mountain View   F                       611           2,973               72
3301 Olcott Street                 Santa Clara                           1,846           8,984               37
2800 Bayview Avenue                Fremont                               1,070           5,205               60
5521 Hellyer Avenue                San Jose                              4,534           9,650
6850 Santa Teresa Blvd             San Jose                                377           1,836              819

</TABLE>
<PAGE>





<TABLE>
<CAPTION>
                                                          Total Cost
                                                  ---------------------------
                                                                 Buildings                   Accumulated
                                                                    and                     Depreciation     Date of   Depreciable
Property Name                      City              Land       Improvements     Total     & Amortization  Acquisition    Life
-----------------------------------------------   -----------  -------------- ------------ --------------  ----------- -----------
<S>                               <C>               <C>            <C>          <C>            <C>          <C>            <C>
5300-5350 Hellyer Avenue           San Jose    C     $5,742         $11,442      $17,184        $2,181        5/00          L
10401-10411 Bubb Road              Cupertino   A        633           3,078        3,711           733        7/98          L
45365 Northport Loop               Fremont            2,447           5,722        8,169         1,047       10/00          L
45738 Northport Loop               Fremont     F        891           4,343        5,234         1,034        7/98          L
4050 Starboard Drive               Fremont     F      1,329           6,475        7,804         1,540        7/98          L
3501 W. Warren Ave/Fremont Blvd    Fremont            1,866          10,464       12,330         2,916        7/98          L
48800 Milmont Blvd                 Fremont            1,013           4,932        5,945         1,173        7/98          L
4750 Patrick Henry Drive           Santa Clara        1,604           8,210        9,814         2,113        7/98          L
3520 Bassett Street                Santa Clara D      1,104           5,371        6,475         1,276        7/98          L
3530 Bassett Street                Santa Clara B,D      849           4,133        4,982           983        7/98          L
5850-5870 Hellyer Avenue           San Jose           2,787           6,633        9,420         1,530       11/98          L
5750 Hellyer Avenue                San Jose           3,266           6,481        9,747           882        8/01          L
800 Embedded Way                   San Jose    K      1,794               -        1,794             -        3/00          -
5500 Hellyer Avenue                San Jose           4,735          12,524       17,259         2,159        2/01          L
5550 Hellyer Avenue                San Jose           3,261           3,478        6,739           612        6/01          L
5400 Hellyer Avenue                San Jose           3,238           5,222        8,460         1,141        7/00          L
5325 Hellyer Avenue                San Jose    H      4,684          10,270       14,954         1,836        1/01          L
5345 Hellyer Avenue                San Jose    H      4,866           5,822       10,688         1,000        1/02          L
5905-5965 Silver Creek Valley Rd   San Jose           8,437          17,316       25,753         2,814        7/01          L
5905-5965 Silver Creek Valley Rd   San Jose           3,438           2,727        6,165           426       10/01          L
5845 Hellyer Avenue                San Jose           6,090           5,029       11,119            32        9/07          L
855 Embedded Way                   San Jose           3,289           6,589        9,878         1,150        5/01          L
1065-1105 La Avenida Street        Mountain View     46,832         109,340      156,172        23,916        4/99          L
1875 Charleston Road               Mountain View   M      -           2,615        2,615           330        4/06          L
1750 Automation Parkway            San Jose    G      4,789          11,489       16,278         2,441        7/99          L
1756 Automation Parkway            San Jose    G      4,378          10,920       15,298         2,110        1/00          L
1762 Automation Parkway            San Jose    G      4,804          13,556       18,360         2,468        4/00          L
1768 Automation Parkway            San Jose    H      8,195          19,263       27,458         3,423       12/00          L
255 Caspian Drive                  Sunnyvale          3,491           8,818       12,309         1,940        4/00          L
245 Caspian Drive                  Sunnyvale          5,894               -        5,894             -        4/01          -
5970 Optical Court                 San Jose           2,758           8,395       11,153           840       12/03          L
5900 Optical Court                 San Jose    H      3,634          12,760       16,394         1,804        7/02          L
2630 Orchard Parkway               San Jose           2,931           5,885        8,816           877        3/02          L
2610 Orchard Parkway               San Jose    J      2,615           5,231        7,846           763        3/02          L
55 West Trimble Road               San Jose    J      4,435           8,869       13,304         1,294        3/02          L
2001 Walsh Avenue                  Santa Clara E,I    4,610           3,887        8,497           466        4/03          L
2880 Scott Blvd                    Santa Clara E,H,I 14,501          22,555       37,056         2,689        4/03          L
2890 Scott Blvd                    Santa Clara E,H,I  3,081           9,721       12,802         1,156        4/03          L
2770-2800 Scott Blvd               Santa Clara E,H    7,138           7,245       14,383           860        4/03          L
2300 Central Expressway            Santa Clara E,I    2,390           2,459        4,849           295        4/03          L
2220 Central Expressway            Santa Clara E,I    3,304           4,243        7,547           636        4/03          L
2330 Central Expressway            Santa Clara E      3,673           4,609        8,282           604        4/03          L
233 South Hillview Drive           Milpitas    N      3,335          10,076       13,411           892        3/06          L
2251 Lawson Lane                   Santa Clara G      1,952           9,498       11,450         2,257        7/98          L
1230 East Arques                   Sunnyvale   F        540           2,667        3,207           666        7/98          L
1250 East Arques                   Sunnyvale   F      1,335           6,499        7,834         1,544        7/98          L
20400 Mariani Avenue               Cupertino   H      1,670           8,991       10,661         2,018        7/98          L
10500 De Anza Blvd                 Cupertino   F      7,666          37,304       44,970         8,863        7/98          L
20605-20705 Valley Green Drive     Cupertino   G      3,490          16,984       20,474         4,037        7/98          L
10300 Bubb Road                    Cupertino   F        635           3,090        3,725           735        7/98          L
10440 Bubb Road                    Cupertino            434           2,226        2,660           584        7/98          L
10460 Bubb Road                    Cupertino   H        994           6,117        7,111         1,582        7/98          L
1135 Kern Avenue                   Sunnyvale   F        407           1,982        2,389           474        7/98          L
450 National Avenue                Mountain View   F    611           3,045        3,656           733        7/98          L
3301 Olcott Street                 Santa Clara        1,846           9,021       10,867         2,144        7/98          L
2800 Bayview Avenue                Fremont            1,070           5,265        6,335         1,298        7/98          L
5521 Hellyer Avenue                San Jose           4,534           9,650       14,184           859        2/05          L
6850 Santa Teresa Blvd             San Jose             377           2,655        3,032           864        7/98          L
</TABLE>



                                     - 77 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
            Real Estate and Accumulated Depreciation and Amortization
                                December 31, 2007
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                             Initial Cost
                                                                    ------------------------------      Cost
                                                                                     Buildings      Subsequent to
                                                  December 31, 2007                     and         Construction/
Property Name                      City             Encumbrances        Land        Improvements     Acquisition
-----------------------------------------------   ----------------- -------------  ---------------  -------------
<S>                              <C>                 <C>             <C>             <C>             <C>
6810 Santa Teresa Blvd            San Jose                               2,567           5,991            774
140-160 Great Oaks Blvd           San Jose                               1,402           6,822            754
6541 Via del Oro/6385 San Ignacio San Jose    G                          1,039           5,057             81
6311-6351 San Ignacio Avenue      San Jose    F                          6,247          30,396            170
6320-6360 San Ignacio Avenue      San Jose    G                          2,616          12,732            439
75 E. Trimble Rd/2610 N.First St  San Jose                               3,477          16,919             85
3236 Scott Blvd                   Santa Clara F                          1,234           6,005
1212 Bordeaux Lane                Sunnyvale   F                          2,250          10,948
1325-1810 McCandless Drive        Milpitas    G                         13,994          66,213          1,455
1600 Memorex Drive                Santa Clara F                          1,221           5,940             11
1688 Richard Avenue               Santa Clara F                          1,248           2,913              6
1700 Richard Avenue               Santa Clara F                          1,727           4,030
Morgan Hill Land                  Morgan Hill                           25,543               -
Morgan Hill Land                  Morgan Hill                            2,297               -
300 Montague Expressway           Milpitas                               2,609           2,499
337 Trade Zone Blvd               Milpitas                               2,264           2,168
324-368 Montague Expressway       Milpitas                               2,968           2,843
3506-3510 Bassett Street          Santa Clara D                            943           4,591            182
3540-3544 Bassett Street          Santa Clara F,D                        1,565           7,616            195
3550 Bassett Street               Santa Clara F,D                        1,079           5,251             33
3560 Bassett Street               Santa Clara F,D                        1,075           5,233              8
3570-3580 Bassett Street          Santa Clara F,D                        1,075           5,233
   Prudential Mortgage Capital Co.            F        112,543
   Northwestern Mutual Life Ins. Co.          G         84,959
   Allianz Life Insurance Company             H        140,018
                                                  ----------------- -------------  ---------------  -------------
                                                      $346,744        $312,152        $747,865        $18,919
                                                  ================= =============  ===============  =============

</TABLE>



<TABLE>
<CAPTION>
                                                          Total Cost
                                                  ---------------------------
                                                                 Buildings                   Accumulated
                                                                    and                     Depreciation     Date of   Depreciable
Property Name                      City              Land       Improvements     Total     & Amortization  Acquisition    Life
-----------------------------------------------   -----------  -------------- ------------ --------------  ----------- -----------
<S>                              <C>             <C>             <C>          <C>            <C>             <C>           <C>
6810 Santa Teresa Blvd            San Jose           2,567           6,765         9,332         1,477        3/99          L
140-160 Great Oaks Blvd           San Jose           1,402           7,576         8,978         1,975        7/98          L
6541 Via del Oro/6385 San Ignacio San Jose    G      1,039           5,138         6,177         1,240        7/98          L
6311-6351 San Ignacio Avenue      San Jose    F      6,247          30,566        36,813         7,372        7/98          L
6320-6360 San Ignacio Avenue      San Jose    G      2,616          13,171        15,787         3,207        7/98          L
75 E. Trimble Rd/2610 N.First St  San Jose           3,477          17,004        20,481         4,109        7/98          L
3236 Scott Blvd                   Santa Clara F      1,234           6,005         7,239         1,428        7/98          L
1212 Bordeaux Lane                Sunnyvale   F      2,250          10,948        13,198         2,603        7/98          L
1325-1810 McCandless Drive        Milpitas    G     13,994          67,668        81,662        16,452        7/98          L
1600 Memorex Drive                Santa Clara F      1,221           5,951         7,172         1,398        7/98          L
1688 Richard Avenue               Santa Clara F      1,248           2,919         4,167           697        9/98          L
1700 Richard Avenue               Santa Clara F      1,727           4,030         5,757           852        8/99          L
Morgan Hill Land                  Morgan Hill       25,543               -        25,543             -        3/07          -
Morgan Hill Land                  Morgan Hill        2,297               -         2,297             -        4/07          -
300 Montague Expressway           Milpitas           2,609           2,499         5,108            42        4/07          L
337 Trade Zone Blvd               Milpitas           2,264           2,168         4,432            36        4/07          L
324-368 Montague Expressway       Milpitas           2,968           2,843         5,811            47        4/07          L
3506-3510 Bassett Street          Santa Clara D        943           4,773         5,716         1,191        7/98          L
3540-3544 Bassett Street          Santa Clara F,D    1,565           7,811         9,376         1,871        7/98          L
3550 Bassett Street               Santa Clara F,D    1,079           5,284         6,363         1,284        7/98          L
3560 Bassett Street               Santa Clara F,D    1,075           5,241         6,316         1,253        7/98          L
3570-3580 Bassett Street          Santa Clara F,D    1,075           5,233         6,308         1,245        7/98          L
   Prudential Mortgage Capital Co.            F
   Northwestern Mutual Life Ins. Co.          G
   Allianz Life Insurance Company             H
                                                  -----------  -------------- ------------ --------------
                                                  $312,152        $766,784    $1,078,936      $156,819
                                                  ===========  ============== ============ ==============
</TABLE>

(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(C)  50% of this  property's  ownership  is held by an  affiliated  party  since
     September 2000.
(D)  Part of the property group referred to as the Triangle Technology Park.
(E)  Part of the property group referred to as the San Tomas Technology Park.
(F)  Encumbered by the $112,543  Prudential Mortgage Capital Company loan - full
     amount of loan shown at the bottom of the schedule.
(G)  Encumbered by the $84,959 Northwestern Mutual Life Insurance Company loan -
     full amount of loan shown at the bottom of the schedule.
(H)  Encumbered  by the  $140,018  Allianz  Life  Insurance  Company loan - full
     amount of loan shown at the bottom of the schedule.
(I)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $18,284.  Approximately  $17,410 and $874 was fully
     amortized  in 2007  and  2005,  respectively,  and the  asset  cost and its
     related accumulated amortization was removed from the accounts.
(J)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $1,367.  The amount was fully amortized in 2004 and
     the asset cost and its related  accumulated  amortization  was removed from
     the accounts.
(K)  This  property was sold in October 2005.  The Company  retained  32.5%,  or
     approximately 7.9 acres, of raw land.
(L)  Depreciation is computed based on the following estimated lives:
     1.   Building shell and base building tenant improvements of newly acquired
          properties  are being  depreciated  on a  weighted  average  composite
          useful life of 40 years.
     2.   Real estate intangible assets allocated pursuant to SFAS 141 are being
          amortized over the remaining life of the underlying leases.
     3.   Tenant improvements, furniture and fixtures are being depreciated over
          their estimated useful lives ranging from 5 to 10 years.
(M)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS 141 amounted to $745. (N) Purchase  price  allocated to real estate
     related intangible assets pursuant to SFAS 141 amounted to $1,374.

                                     - 78 -


<PAGE>



                          MISSION WEST PROPERTIES, INC.
                              NOTE TO SCHEDULE III
                        December 31, 2008, 2007 and 2006
                             (dollars in thousands)

1.   Reconciliation   of  real   estate   and   accumulated   depreciation   and
     amortization:

<TABLE>
<CAPTION>
                                                        2008                       2007                       2006
                                               ------------------------   ------------------------   -----------------------
Real estate investments:
<S>                                                  <C>                        <C>                        <C>
   Balance at beginning of year                       $1,078,936                 $1,048,348                 $1,057,800
   Additions                                              42,157                     58,972                     20,304
   Dispositions                                                -                    (10,974)                   (29,756)
   Reclassification                                        2,529                    (17,410)                         -
                                               ------------------------   ------------------------   -----------------------
   Balance at end of year                             $1,123,622                 $1,078,936                 $1,048,348
                                               ------------------------   ------------------------   -----------------------

Accumulated depreciation and amortization:
   Balance at beginning of year                         $156,819                   $149,459                   $130,419
   Additions                                              23,224                     26,826                     24,163
   Dispositions                                                -                     (2,056)                    (5,123)
   Reclassification                                            -                    (17,410)                         -
                                               ------------------------   ------------------------   -----------------------
   Balance at end of year                               $180,043                   $156,819                   $149,459
                                               ------------------------   ------------------------   -----------------------

Net investments in real estate                          $943,579                   $922,117                   $898,889
                                               ========================   ========================   =======================

</TABLE>


                                     - 79 -




<PAGE>


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

As  required  by SEC Rule  13a-15(b)  we  conducted  an  evaluation,  under  the
supervision and with the  participation  of our management,  including our Chief
Executive Officer, President and Vice President of Finance, of the effectiveness
of the design and  operation  of our  disclosure  controls  and  procedures  (as
defined in Rule 13a-15(f) or Rule  15d-15(f) of the  Securities  Exchange Act of
1934). Based upon that evaluation,  the Chief Executive  Officer,  President and
Vice President of Finance  concluded that as of December 31, 2008 our disclosure
controls and procedures were effective such that the information  required to be
disclosed in our reports filed with the  Securities  and Exchange  Commission is
recorded,  processed,  summarized and reported within the time periods specified
in the SEC's rules and forms such information is accumulated and communicated to
our  management,  including  our Chief  Executive  Officer,  President  and Vice
President of Finance,  as appropriate,  to allow for timely decisions  regarding
required disclosure.

(b)  Management's Report on Internal Control over Financial Reporting

Management of Mission West Properties,  Inc. is responsible for establishing and
maintaining  adequate  internal  control over financial  reporting as defined in
Rules  13a-15(f)  and  15d-15(f)  under  the  Securities  Exchange  Act of 1934.
Management  assessed  the  effectiveness  of  Mission  West  Properties,  Inc.'s
internal  control over financial  reporting as of December 31, 2008.  Management
based this  assessment  on the  criteria  for  effective  internal  control over
financial  reporting  established  in Internal  Control -  Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
(COSO).  Management's assessment included an evaluation of the design of Mission
West Properties, Inc.'s internal control over financial reporting and testing of
the operational  effectiveness of its internal control over financial reporting.
Management  reviewed the results of its assessment  with the Audit  Committee of
the Board of Directors.  Based on this  assessment,  management  determined that
Mission  West  Properties,  Inc.  maintained  effective  internal  control  over
financial reporting as of December 31, 2008.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect the possibility of human error,  misstatements and the
circumvention or overriding of controls.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

Burr,  Pilger & Mayer,  LLP, our independent  registered public accounting firm,
has audited our consolidated financial statements included in this Annual Report
on Form  10-K and has  issued  a report  on the  effectiveness  of our  internal
control over financial reporting.

(c)  Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial  reporting during the
fourth fiscal  quarter of 2008 that has  materially  affected,  or is reasonably
likely to material affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

                                     - 80 -

<PAGE>


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The  information  required  by Item 10 is  incorporated  by  reference  from the
sections  titled  "Management - Directors and  Executive  Officers,"  "Corporate
Governance"  and  "Code of  Ethics"  and  "Section  16(a)  Beneficial  Ownership
Reporting  Compliance" in the Company's  definitive  proxy statement to be filed
with respect to the 2009 annual stockholders' meeting.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required  by Item 11 is  incorporated  by  reference  from the
section  titled  "Executive  Compensation"  in the  Company's  definitive  proxy
statement  to be filed with  respect to the 2009 annual  stockholders'  meeting,
excluding,  however,  the sections titled "Executive  Compensation - Performance
Graph" and  "Executive  Compensation - Report on Executive  Compensation  by the
Compensation   Committee  of  the  Board  of  Directors,"   none  of  which  are
incorporated by reference in response to this item.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The  information  required  by Item 12 is  incorporated  by  reference  from the
sections titled "Share Ownership" and "Securities  Authorized for Issuance Under
Equity  Compensation  Plans" in the Company's  definitive  proxy statement to be
filed with respect to the 2009 annual stockholders' meeting.

ITEM 13.  CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
          INDEPENDENCE

The  information  required  by Item 13 is  incorporated  by  reference  from the
sections titled "Certain  Relationships and Related Transactions" and "Corporate
Governance" in the Company's definitive proxy statement to be filed with respect
to the 2009 annual stockholders' meeting.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  information  required  by Item 14 is  incorporated  by  reference  from the
sections  titled  "Principal  Accountant  Fees and  Services"  in the  Company's
definitive  proxy  statement  to be  filed  with  respect  to  the  2009  annual
stockholders' meeting.

                                     - 81 -

<PAGE>


PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(a)  The following documents are filed as part of this report:

     1.   The consolidated  financial statements are set forth in Item 8 of this
          Annual Report on Form 10-K.

          The  following   financial  statement  schedules  should  be  read  in
          conjunction with the  consolidated  financial  statements  included in
          Item 8 of this Annual Report on Form 10-K.

     2.   Schedule  III  -  Real  Estate  and   Accumulated   Depreciation   and
          Amortization  as of December 31, 2008 and 2007,  which can be found on
          pages 75 and 77, respectively.

     3.   The  exhibits  listed on the Exhibit  Index either are filed with this
          Annual Report on Form 10-K or have been filed  previously with the SEC
          and are incorporated by reference to those prior filings.

(b)  The  exhibits  required  by Item  601 of  Regulation  S-K,  including  each
     management  contract or  compensatory  plan or  arrangement  required to be
     filed as an exhibit to this form are listed under Item 15(a)(3).







                                     - 82 -

<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  of the  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                              MISSION WEST PROPERTIES, INC.

Date: March 13, 2009                          By: /s/ Carl E. Berg
                                                 -------------------------------
                                                 Carl E. Berg
                                                 Chief Executive Officer
                                                 (Principal Executive Officer)


Date: March 13, 2009                          By: /s/ Wayne N. Pham
                                                 -------------------------------
                                                 Wayne N. Pham
                                                 Vice President of Finance and
                                                 Controller (Principal Financial
                                                 and Accounting Officer)

--------------------------------------------------------------------------------

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below constitutes and appoints Carl E. Berg his true and lawful attorney-in-fact
with the power of  substitution,  to sign any  amendments to this Report on Form
10-K  and to file the  same,  with  exhibits  thereto  and  other  documents  in
connection  therewith,  with the  Securities  and  Exchange  Commission,  hereby
ratifying and confirming all that each of said  attorney-in-fact,  or his or her
substitute, may do or choose to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


<TABLE>
<CAPTION>

              Signature                            Title                                  Date


<S>                                               <C>                                    <C>
              /s/  Carl E. Berg
              -------------------------------      Chairman of the Board, Chief
              Carl E. Berg                         Executive Officer and Director         March 13, 2009


              /s/  William A. Hasler
              -------------------------------
              William A. Hasler                    Director                               March 13, 2009


              /s/  Lawrence B. Helzel
              -------------------------------
              Lawrence B. Helzel                   Director                               March 13, 2009


              /s/  Raymond V. Marino
              -------------------------------      President, Chief Operating Officer
              Raymond V. Marino                    and Director                           March 13, 2009


              /s/  Martin S. Roher
              -------------------------------
              Martin S. Roher                      Director                               March 13, 2009

</TABLE>





                                     - 83 -

<PAGE>


Exhibits required by Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
                                  EXHIBIT INDEX

<S>                   <C>
    3.2.1              Articles of Amendment and Restatement of Mission West Properties, Inc. (1)
    3.2.2              Amended and Restated Bylaws of Mission West Properties, Inc. as of December 18, 2007 (1a)
    4.1                Description of Capital Stock (2)
    4.1.1              Specimen Common Stock certificate (2)
    10.1.1             Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. (2b)
    10.1.2             Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. I (2b)
    10.1.3             Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. II (2b)
    10.1.4             Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. III (2b)
    10.2               Exchange Rights Agreement between Mission West Properties and the Limited Partners(2b)
    10.3.1*            1997 Stock Option Plan (3)
    10.3.2*            Form of Incentive Stock Option Agreement (1)
    10.3.3*            Form of Non-statutory Stock Option Agreement (1)
    10.3.4*            Form of Directors Stock Option Agreement (1)
    10.4.1             Acquisition Agreement, dated as of May 14, 1998, among Mission West Properties, certain partnerships
                       and the Berg Group (as defined therein) (1)
    10.4.2             Amendment of Acquisition Agreement, dated as of July 1, 1998 (1)
    10.4.3             Form of Partnership Interest Purchase Demand Note (1)
    10.5.1             Stock Purchase Agreement dated as of May 4, 1998, between Mission West Properties and the purchasers of
                       Common Stock in a private placement of 5,800,000 shares and Subscription Agreement relating to same (1)
    10.5.2             Stock Purchase Agreement dated as of May 4, 1998 between Mission West Properties and the purchasers of Common
                       Stock in a private placement of 695,058 shares and Subscription Agreement relating to same (1)
    10.5.3             Form of Registration Rights Agreement for purchasers, who acquired shares of Common Stock under the May 4,
                       1998 Stock Purchase Agreements (2c)
    10.6               Pending Projects Acquisition Agreement among Mission West Properties, the Operating Partnership and the
                       Berg Group (2b)
    10.7               Berg Land Holdings Option Agreement between Mission West Properties and certain members of the Berg Group(2b)
    10.8               Berg & Berg Enterprises, Inc. Sublease Agreement (1)
    10.9               Not in use
    10.10              Not in use
    10.11              Not in use
    10.12              Lease Agreement with Apple Computer, Inc. (4a)
    10.13              Not in use
    10.14              Lease Agreement with Amdahl Corporation (4b)
    10.15              Hartford Fixed Rate Term Loan Agreement ((5))
    10.15.1            Hartford Life Insurance Company Promissory Note ((5))
    10.15.2            Hartford Life and Annuity Insurance Company Promissory Note ((5))
    10.15.3            Hartford Life and Accident Insurance Company Promissory Note ((5))
    10.15.4            Hartford-Mission  West  Properties,  L.P.  (Santa Clara) Deed of Trust,  Security  Agreement and Fixture
                       Filing (5)
    10.15.5            Hartford-Mission  West Properties,  L.P. (Alameda) Deed of Trust,  Security Agreement and Fixture Filing (5)
    10.15.6            Hartford-Mission West Properties, L.P. I Deed of Trust, Security Agreement and Fixture Filing ((5))
    10.15.7            Hartford-Mission West Properties, L.P. II Deed of Trust, Security Agreement and Fixture Filing ((5))
    10.15.8            Hartford-Mission West Properties, L.P. III Deed of Trust, Security Agreement and Fixture Filing ((5))
    10.15.9            Hartford Carveout Indemnity Agreement (5)
    10.15.10           Hartford Environmental Indemnity Agreement (5)
    10.19              Waiver Agreement (6)
    10.20              Ownership Limit Exemption Agreement dated December 29, 1998 between Mission West Properties and Dan and
                       Paul McCarthy (7)
    10.21              Lease Agreement with Microsoft Corporation, dated July 25, 1998 (8)
    10.21.1            Lease Agreement with Microsoft Corporation, dated December 23, 2004 (8a)
    10.22              Contribution Agreement (8)
    10.23              Not in use
</TABLE>

                                     - 84 -
<PAGE>
<TABLE>
<CAPTION>

<S>                   <C>
    10.24              Not in use
    10.25              Not in use
    10.26              Supplemental Agreement among Mission West Properties, Inc., Carl E. Berg and Clyde J. Berg (9)
    10.27              Berg Group Revolving Credit - $100,000,000 Secured Promissory Note (10) (Terminated)
    10.27.1            Third Amendment to Berg Group $100,000,000 Revolving Line of Credit (11) (Terminated)
    10.28              Berg Group Deed of Trust Securing Revolving Promissory Note (12)
    10.29              Not in use
    10.30              Mission West Properties, LP Continuing Guaranty (13)
    10.31              Mission West Properties, LP II Continuing Guaranty (13)
    10.32              Mission West Properties, L.P. Promissory Note to Northwestern Mutual Life Insurance Company (13)
    10.32.1            Mission West Properties, L.P. First Amendment to Promissory Note to Northwestern Mutual Life Insurance
                       Company
    10.33              Mission West Properties, L.P. I Promissory Note to Northwestern Mutual Life Insurance Company (13)
    10.33.1            Mission West Properties, L.P. I First Amendment to Promissory Note to Northwestern Mutual Life Insurance
                       Company
    10.34              Mission West Properties, L.P. II Promissory Note to Northwestern Mutual Life Insurance Company (13)
    10.34.1            Mission West Properties, L.P. II First Amendment to Promissory Note to Northwestern Mutual Life Insurance
                       Company
    10.35              Mission West Properties, L.P. Deed of Trust and Security Agreement (First Priority) (13)
    10.36              Mission West Properties, L.P. Deed of Trust and Security Agreement (Second Priority) (13)
    10.36.1            Mission West Properties, L.P. First Amendment to Deed of Trust and Security Agreement
    10.37              Mission West Properties, L.P. I Deed of Trust and Security Agreement (First Priority) (13)
    10.38              Mission West Properties, L.P. I Deed of Trust and Security Agreement (Second Priority) (13)
    10.38.1            Mission West Properties, L.P. I First Amendment to Deed of Trust and Security Agreement
    10.39              Mission West Properties, L.P. II Deed of Trust and Security Agreement (First Priority) (13)
    10.40              Mission West Properties, L.P. II Deed of Trust and Security Agreement (Second Priority) (13)
    10.40.1            Mission West Properties, L.P. II First Amendment to Deed of Trust and Security Agreement
    10.41              Mission West Properties, L.P. Absolute Assignment of Leases and Rents (First Priority) (13)
    10.42              Mission West Properties, L.P. I Absolute Assignment of Leases and Rents (First Priority) (13)
    10.43              Mission West Properties, L.P. II Absolute Assignment of Leases and Rents (First Priority) (13)
    10.44              Mission West Properties L.P., L.P. I and L.P. II First Amendment to Contribution and Reimbursement Agreement
    10.45              Not in use
    10.46*             2004 Equity Incentive Plan (14)
    10.47              Allianz Loan Secured Installment Note (15)
    10.48              Allianz Loan Deed of Trust, Security Agreement, Fixture Filing with Absolute Assignment of Rents(15)
    10.49              Allianz Loan Limited Guaranty (15)
    10.50*             Form of Non-statutory Stock Option Agreement with Dividend Rights under 2004 Equity Incentive Plan (15)
    10.51              Allianz Loan II Secured Installment Note (16)
    10.52              Allianz Loan II Deed of Trust, Security  Agreement, Fixture Filing with Absolute Assignment of Rents (16)
    10.53              Allianz Loan II Limited Guaranty (16)
    10.54              Allianz Loan II Loan Modification Agreement(16)
    10.55              Allianz Loan II Loan Modification Agreement and Amendment of Deed of Trust
    21.1               Subsidiaries of the Registrant (17)
    23.1               Consent of Independent Registered Public Accounting Firm
    24.1               Powers of Attorney (included on the signature page hereto)
    31.1               Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
    31.2               Certification of Chief Operating Officer pursuant to Rule 13a-14(a)
    31.3               Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
    32.1               Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

*Management contract or compensatory plan or arrangement

(1)  Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Company's  Registration  Statement on Form S-4/A filed on July 20, 1998 and
     declared effective on November 23, 1998 (Commission File No. 333-52835-99).
(1a) Incorporated  herein by reference  to Exhibit 3.2 to the current  report on
     Form 8-K filed December 20, 2007

                                     - 85 -
<PAGE>

     (Commission File No. 000-25235).
(2)  Incorporated  herein by  reference  to the  registration  statement on Form
     8-A/A filed March 21, 2008 (Commission File No. 001-34000).
(2a) Incorporated  herein  by  reference  to the same  numbered  exhibit  to the
     registration  statement on Form 8-A/A filed March 21, 2008 (Commission File
     No. 001-34000).
(2b) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Company's  Post-effective Amendment No. 1 to Registration Statement on Form
     S-4  filed  on  Form  S-3  on  February  11,  1999   (Commission  File  No.
     333-52835-99).
(2c) Incorporated   herein  by  reference  to  Exhibit  10.8  to  the  Company's
     Post-effective  Amendment No. 1 to Registration Statement on Form S-4 filed
     on Form S-3 on February 11, 1999 (Commission File No. 333-52835-99).
(3)  Incorporated herein by reference to Exhibit E to the Company's Schedule 14A
     Proxy  Statement  filed with the  Securities  and  Exchange  Commission  on
     October 21, 1997 (Commission File No. 001-08383).
(4a) Incorporated  herein  by  reference  to  Exhibit  10.15  to  the  Company's
     Registration  Statement  on Form S-4/A filed on June 17, 1998 and  declared
     effective on November 23, 1998 (Commission File No. 333-52835).
(4b) Incorporated  herein  by  reference  to  Exhibit  10.17  to  the  Company's
     Registration  Statement  on Form S-4/A filed on June 17, 1998 and  declared
     effective on November 23, 1998 (Commission File No. 333-52835).
(5)  Incorporated  herein by reference to the  same-numbered  exhibit to current
     report  on  Form  8-K  filed  on  October  7,  2008  (Commission  File  No.
     001-34000).
(6)  Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Registration  Statement  on Form  S-4/A  filed  on  November  16,  1998 and
     declared effective on November 23, 1998 (Commission File No. 333-52835-99).
(7)  Incorporated herein by reference to the same numbered exhibit to the annual
     report on Form 10-K for 1998 filed on March 31, 1999  (Commission  File No.
     000-25235).
(8)  Incorporated  herein by reference to the  same-numbered  exhibit to current
     report on Form 8-K filed on May 14, 1999 (Commission File No. 000-25235).
(8a) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly  report on Form 10-Q filed on May 10, 2005  (Commission  File No.
     000-25235).
(9)  Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Registration  Statement on Form S-11/A  filed on June 15, 1999  (Commission
     File No. 333-80203).
(10) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly  report on Form 10-Q filed on November 13, 2001  (Commission File
     No. 000-25235).
(11) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly report on Form 10-Q filed on August 12, 2003 (Commission File No.
     000-25235).
(12) Incorporated herein by reference to the same numbered exhibit to the annual
     report on Form 10-K for 1999 filed on March 30, 2000  (Commission  File No.
     000-25235).
(13) Incorporated herein by reference to the same-numbered exhibit to the annual
     report on Form 10-K for 2002 filed on March 27, 2003  (Commission  File No.
     000-25235).
(14) Incorporated  herein by reference to Appendix II to the Company's  Schedule
     14A Proxy  Statement  filed with the Securities and Exchange  Commission on
     October 22, 2004 (Commission File No. 000-25235).
(15) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly  report on Form 10-Q filed on May 10, 2005  (Commission  File No.
     000-25235).
(16) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly  report on Form 10-Q filed on August 9, 2005 (Commission File No.
     000-25235).
(17) Incorporated herein by reference to the same-numbered exhibit to the annual
     report on Form 10-K for 1998 filed on March 31, 1999  (Commission  File No.
     000-25235).

                                     - 86 -