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, 2004

                                       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
 Incorporation or organization)                           Identification Number)

   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, par value $.001 per share           American Stock Exchange
                                                  Pacific Exchange, Inc.


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

     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 [ ] NO [X]

     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 an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  Registrant,  based upon the closing  sale price of the Common Stock on June
30,  2004,  as  reported  on the  American  Stock  Exchange,  was  approximately
$218,751,298.  As of February  28,  2005,  there were  18,097,191  shares of the
Registrant's Common Stock outstanding.

                       Documents Incorporated By Reference

Portions of Mission West Properties,  Inc.'s Proxy Statement for the 2005 annual
meeting of  stockholders,  a definitive copy of which will be filed with the SEC
within  120 days after the year end of the year  covered by this Form 10-K,  are
incorporated by reference herein as portions of Part III of this Form 10-K.



<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 of the Company
include,  but are not limited to, changes in: 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 under the Berg Land  Holdings
Option Agreement 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 Part I, Item 1, "Risk Factors."

                                      - i -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                          2004 FORM 10-K ANNUAL REPORT

                                Table of Contents


<TABLE>
<CAPTION>
                                     PART I
                                                                                                  Page No.
<S>            <C>                                                                                  <C>
Item 1.         Business                                                                              1
Item 2.         Properties                                                                           16
Item 3.         Legal Proceedings                                                                    22
Item 4.         Submission of Matters to a Vote of Security Holders                                  23

                                     PART II
Item 5.         Market for the Registrant's Common Equity and Related
                Stockholder Matters                                                                  24
Item 6.         Selected Financial Data                                                              25
Item 7.         Management's Discussion and Analysis of Financial
                Condition and Results of Operations                                                  27
Item 7A.        Quantitative and Qualitative Disclosures about Market Risk                           48
Item 8.         Consolidated Financial Statements and Supplementary Data                             49
Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                                                  85
Item 9A.        Controls and Procedures                                                              85
Item 9B         Other Information                                                                    85

                                    PART III
Item 10.        Directors and Executive Officers of the Registrant                                   87
Item 11.        Executive Compensation                                                               87
Item 12.        Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters                                                      87
Item 13.        Certain Relationships and Related Transactions                                       87
Item 14.        Principal Accountant Fees and Services                                               87

                                     PART IV
Item 15.        Exhibits, Financial Statements, Schedules and Reports on Form 8-K                    88
                Signatures                                                                           91
                Rule 13a-14 Certifications                                                           92
</TABLE>

                                     - ii -

<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, 2004, we owned and managed 109 properties  totaling  approximately  7.9
     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  six  tenants  who
     individually  lease in  excess of  300,000  rentable  square  feet from us:
     Microsoft  Corporation,  Fujitsu America (a subsidiary of Fujitsu Limited),
     JDS Uniphase  Corporation,  NEC Electronics America,  Inc. (a subsidiary of
     NEC Electronics  Corporation),  Ciena Corporation and Apple Computer,  Inc.
     For  federal  income  tax  purposes  we have  operated  as a  self-managed,
     self-administered   and  fully  integrated  Real  Estate  Investment  Trust
     ("REIT") since fiscal 1999.

     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
     (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  3,135,000  additional rentable square feet of R&D properties
     from the Berg Group under these agreements.

     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
     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;

     -    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.

     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;

                                     - 1 -

<PAGE>

     -    vote on major  transactions,  subject  to its  maintenance  of certain
          ownership interests; 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 less than 1% 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 in excess of 35 years, most recently through Berg & Berg Enterprises
     ("Berg & Berg"). 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 information technology companies. These activities have helped Mr.
     Berg develop a detailed  understanding  of the real estate  requirements of
     information  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 the information  technology
     industry 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, 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 information  technology  companies in order to maintain
          low  operating  costs,  reduce tenant  turnover and  capitalize on our
          relationships  with these  companies  and our  extensive  knowledge of
          their real estate needs; and

     -    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 anticipate  that most of our growth,  if any, in rentable square footage
     in the  foreseeable  future  will  come  from  the  acquisition  of new R&D
     properties that are either  currently under  development or to be developed
     in the future by the Berg Group.  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
     developments. Nevertheless, 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.

     In light of this  overcapacity  in the market,  the Berg Group currently is
     seeking local  government  approval of a proposed  rezoning of the 160-acre
     Evergreen site to permit residential  development on a substantial  portion
     of the site. The Independent Directors Committee,  which is responsible for
     reviewing,   evaluating  and   authorizing   action  with  respect  to  any
     transaction  between 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 risks and other potentially adverse consequences that
     could be associated with large scale  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 Berg  Land
     Holdings Option  Agreement and would remain  eligible for potential  future
     acquisition under the Berg Land Holdings Option Agreement.

                                     - 2 -
<PAGE>

     BERG LAND  HOLDINGS  OPTION  AGREEMENT.  We  believe  that  control of high
     quality,  developable  land is an important  strategic factor for continued
     success in the Silicon Valley market. In December 1998, we entered into the
     Berg  Land  Holdings  Option  Agreement  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.  In
     addition,  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.  Our  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 of December 31, 2004, we had acquired 20 leased R&D properties  totaling
     approximately 1,992,000 rentable square feet under this agreement at a cost
     of approximately  $205.2 million,  for which we issued 7,933,849 O.P. Units
     and assumed debt of approximately $118 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,  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 of our Board of Directors.

     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.

                                     - 3 -
<PAGE>


     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
         Property                              Net Acres          Area (Square Feet)
         -------------------------------- -------------------- --------------------------
         Available Land:
<S>                                               <C>               <C>
         Piercy & Hellyer                          30                  490,000
         Morgan Hill (1)                           18                  288,025
         King Ranch                                12                  207,000
         Fremont & Cushing                         24                  387,000
                                          -------------------- --------------------------
                       Total                       84                1,372,025
                                          ==================== ==========================
</TABLE>

(1)  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.

     Although we expect to acquire new properties or joint ventures available to
     us under the terms of the Berg Land Holdings Option  Agreement,  subsequent
     to the  approval by the  Independent  Directors  Committee  of our Board of
     Directors,  there can be no assurance that we actually will  consummate any
     of the intended 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  1,  "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."

     Given the downturn in the Silicon  Valley real estate market for R&D/office
     properties, we may not be able to maintain historical levels of growth from
     acquisitions of new developments in the future.

     OPPORTUNISTIC ACQUISITIONS

     In addition to our  principal  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  like this 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 high occupancy  rates on our properties.
     We believe that the  relatively  small number of tenants (79) occupying our
     109 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.

                                     - 4 -

<PAGE>


     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.  The Silicon  Valley  economy and business
     activity slowed markedly during 2001 through 2004 after  fast-paced  growth
     in 1999 and  2000.  In the past  several  years,  the  Silicon  Valley  R&D
     property  market has  fluctuated  with the local  economy.  According  to a
     recent  report by BT  Commercial  Real  Estate,  vacancy  rates for Silicon
     Valley R&D property  increased  from  approximately  22.05% in late 2003 to
     22.38% at the end of 2004.  Total  vacant  R&D  square  footage  in Silicon
     Valley at the end of the fourth  quarter of 2004  amounted to 34.65 million
     square feet,  of which  26.6%,  or 9.2 million  square  feet,  was sublease
     space.  Total  negative net absorption  (which is the  computation of gross
     square footage leased less gross new square footage  vacated for the period
     presented) in 2003 amounted to approximately (4.0) million square feet. For
     the year 2004,  total  negative net  absorption  declined to  approximately
     (0.3) million square feet as local economic  conditions  improved,  but the
     overall R&D property  market did not recover.  The impact of vacancies  has
     not been  uniform  throughout  the area,  however.  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, 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 12 to 24 months as a result of the  increased  vacancy in the
     market.

     For the years ended  December 31, 2004 and 2003,  average  occupancy in our
     portfolio was 71.7% and 80.5%, respectively.  Prior to the first quarter of
     2002,  we had achieved  historical  average  occupancy  levels of above 98%
     since 1999. We believe that maintaining  average occupancy levels above 98%
     will  not  be  sustainable  given  the  current  economic  environment,  as
     evidenced by our occupancy level of 70.7% at December 31, 2004.

     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  tenants'
     financial  conditions  and  could  result in  defaults  under  their  lease
     obligations.  We believe that the average 2005 renewal rental rates for our
     properties will be approximately equal to, or perhaps, below current market
     rents. In addition,  leasing activity for new build-to-suit and vacated R&D
     properties has slowed  considerably  during the past several years.  Leases
     representing  approximately  501,000  square feet, or 4.7% of our 2005 cash
     rent,  are  scheduled to expire  during  2005.  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;  or if we are not able to lease space at or above current  market
     rates, our results of operations and cash flows will be adversely affected.

     OPERATIONS

     We operate as a self-administered,  self-advised and self-managed REIT with
     our own employees.  Generally, 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 will bid all major work  competitively  to  subcontractors.
     Members of the Berg Group may  participate in the  competitive  bidding for
     the work.

     We generally will market the  properties and negotiate  leases with tenants
     ourselves.  We  make  the  availability  of  our  properties  known  to the
     brokerage  community to garner  their  assistance  in locating  prospective
     tenants.  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.  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

                                     - 5 -

<PAGE>

          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.

     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  partnership  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.

                                     - 6 -
<PAGE>

     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  partnership
     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  partnership  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.

     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 this Item 1, "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 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.

     The shares of our common  stock  issuable  in exchange  for the 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 this Item 1, "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.  We are
     obligated  to effect no more than two such  registrations  in any  12-month
     period.  We are  obligated  to assist the O.P.  Unit holders in obtaining a
     firm  commitment  underwriting  agreement  for such resale from a qualified
     investment-banking  firm.  If  registration  on Form S-3, or an  equivalent
     form,  is not  available  for any reason,  we will be obligated to effect a
     registration  of the shares to be  acquired  on  exercise  of the  exchange
     rights on Form S-11,  or an  equivalent  form,  in an  underwritten  public
     offering,  upon demand by the

                                     - 7 -
<PAGE>

     holders of no fewer than 500,000 O.P. Units. All holders of O.P. Units will
     be entitled to participate in such registration.  We will bear all costs of
     such registrations other than selling expenses,  including  commissions and
     separate  counsels' fees of the O.P. Unit holders.  We will not be required
     to affect any  registration  for resale on Form S-3, or equivalent  form of
     common stock shares  issuable to the holder of O.P. Units if the request is
     for less than 250,000 shares.

     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 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 shall 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.

     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, 2005, we employed  five 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 $7,520.

     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.

     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.

                                     - 8 -

<PAGE>


     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.

     SUBSTANTIAL  OWNERSHIP  INTEREST.  The Berg Group currently owns O.P. Units
     representing  approximately  74.2% of the equity interests in the operating
     partnerships  and  approximately  74.2% of our equity  interests on a Fully
     Diluted basis. 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  partnership  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:

                                     - 9 -

     -    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 $7,520 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.

     EXCLUDED PROPERTIES.  With our prior knowledge, the Berg Group retained two
     R&D properties in Scotts Valley,  Santa Cruz County,  California,  in which
     the operating  partnerships and we have no ownership  interest.  Efforts of
     the Berg Group to lease these other properties could interfere with similar
     efforts on our behalf.

     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.  The
     Independent  Directors  Committee  recently  authorized  the  removal  of a
     160-acre  site from the Berg Land  Holdings  Option  Agreement  if the Berg
     Group is able to obtain  residential  development zoning for any portion of
     this land. The Independent Directors Committee determined that this site is
     not  likely to be of future  development  interest  to us,  and so the Berg
     Group is now able to pursue its own residential  development  opportunities
     for this site.  Any  portions of such site that are rezoned as  residential
     will no longer be subject to the Berg Land  Holdings  Option  Agreement and
     will not provide any future benefit to us.

                                     - 10 -

<PAGE>


     TAX CONSEQUENCES OF SALE OF PROPERTIES. Because many of our properties have
     unrealized  taxable gain, a sale of those  properties  could create adverse
     income  tax   consequences  for  the  limited  partners  of  the  operating
     partnerships.  We have  agreed  with Carl E.  Berg,  Clyde J. Berg and John
     Kontrabecki,  a limited partner in two of the operating partnerships,  that
     prior to December 29, 2008,  each of them may prevent us and the  operating
     partnerships  from selling or transferring  any of the properties that were
     acquired from them in our July 1998 UPREIT acquisition if the proposed sale
     or  other  transfer  will  be  a  taxable  transaction.  As a  result,  our
     opportunities to sell these  properties may be limited.  If we need to sell
     any of these  properties  to raise cash to service  our debt,  acquire  new
     properties,  pay cash  distributions  to  stockholders or for other working
     capital purposes,  we may be unable to do so. These restrictions could harm
     our business and cause our stock price to fall.

     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. As of December 31, 2004, we had borrowed  approximately
     $9.6  million  under our $20  million  line of credit  with the Berg Group,
     which is  collateralized  by five of our  properties  and  expires in March
     2006.  The line of credit  bears  interest  at an annual rate of LIBOR plus
     1.30%.  The Berg Group has no  obligation to renew this line of credit when
     it  expires,  and we may be unable to obtain a similar  credit  facility on
     comparable terms. We are also liable under a mortgage loan of $10.4 million
     due June 2010 that we assumed 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
     debts 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 1,  "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.

     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 when 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.  Termination  of the  Berg  Land
     Holdings Option  Agreement could 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 are also 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 been  weakening  for the past few
     years, and future  increases in values and rents for our properties  depend
     to a significant extent on the recovery of this region's economy.

     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 giving 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.  When the Berg Group line of credit  expires in March  2006,  we
     cannot  assure  you that we will be able to  obtain a  replacement  line of
     credit with terms similar to the Berg Group line of credit,  or at all. Our
     cost of borrowing funds could increase  substantially  after the Berg Group
     line  of  credit   expires.   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.

     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.

                                     - 12 -
<PAGE>

     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.

     In 2004, we recorded an  impairment  charge to reflect the decline in value
     of one of our R&D properties  held for sale as of the year end. For further
     discussion  of this charge  please refer to Part II, Item 8,  "Consolidated
     Financial Statements and Supplementary  Data--Note 16, Real Estate Held for
     Sale/Discontinued  Operations."  There can be no assurance that we will not
     take  additional  charges in the future  related to the  impairment  of our
     assets.  As of the years  ended  December  31,  2004 and  2003,  management
     believes it has 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  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 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 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

                                     - 13 -
<PAGE>

     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;

     -    the operating partnerships' financial condition;

     -    whether to reinvest funds rather than to distribute such funds;

     -    the operating partnerships' capital expenditures;

     -    the effects of new property acquisitions, including acquisitions under
          our existing agreements with the Berg Group;

     -    the annual distribution  requirements under the REIT provisions of the
          federal income tax laws;

     -    our projected rental rates and revenues; and

     -    such other factors as our Board of Directors deems 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  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.  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 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.

                                     - 14 -
<PAGE>

     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, 2004, 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. Additional common stock reserved under
     our 2004 Incentive Plan,  including stock options,  may also 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.

                                     - 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 the properties have terms ranging from one to eleven
     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 operating  expenses of
     the property,  property taxes and insurance,  including all maintenance and
     repairs,  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 239,000 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, 2004:

<TABLE>
<CAPTION>

                                                                                                            Major
                                                                                                           Tenants'
                                            Total    Percentage                                            Rentable
                                 No. of   Rentable  Leased as of    Average 2004                          Sq. Ft. at   2004 Annual
Location                       Properties  Sq. Ft.  Dec. 31, 2004    Occupancy   Major Tenants             12/31/04    Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
<C>                              <C>     <C>           <C>             <C>      <C>                        <C>         <C>
5300-5350 Hellyer Avenue (2)       2       160,000      100%            100%     Tyco Electronics Corp.     160,000     $ 3,415,600


10401-10411 Bubb Road (2)          1        20,330      100%            100%     Celerity Systems, Inc.      15,830         290,474

45365 Northport Loop West          1        64,218       31%             31%     Applied Micro Circuits Corp.19,727         367,858

45700 Northport Loop East          1        47,570      100%            100%     Philips Electronics         47,570         823,248

45738 Northport Loop West          1        44,256      100%            100%     EIC Corporation             44,256         584,872

4050 Starboard Drive               1        52,232      100%            100%     Flash Electronics, Inc.     52,232         621,561

3501 W. Warren Avenue &            1        67,864       52%             18%     ASM Nutool, Inc.            35,340          96,236
46600 Fremont Blvd.

                                     - 16 -
<PAGE>

                                                                                                            Major
                                                                                                           Tenants'
                                            Total    Percentage                                            Rentable
                                 No. of   Rentable  Leased as of    Average 2004                          Sq. Ft. at   2004 Annual
Location                       Properties  Sq. Ft.  Dec. 31, 2004    Occupancy   Major Tenants             12/31/04    Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
48800 Milmont Drive                1        53,000        0%              0%     Vacant                           -               -

4750 Patrick Henry Drive           1        65,780       53%             31%     CHIPS ag, Inc.              35,124         178,850

Triangle Technology Park (2)       7       416,927       62%             63%     Intevac Corporation        119,583       5,517,940
                                                                                 JDS Uniphase Corporation    50,212
                                                                                 Xicom Technology, Inc.      47,480
                                                                                 IXYS Technologies, Inc.     19,600

5850-5870 Hellyer Avenue           1       109,715        7%              7%     Silver Creek Valley Church   7,675         127,715

5750 Hellyer Avenue                1        73,312        0%              0%     Vacant                           -               -

800 Embedded Way                   1       239,000        0%              0%     Vacant                           -               -

5500-5550 Hellyer Avenue           2       196,534       23%             23%     ACT Electronics, Inc.       46,120         675,658

5400 Hellyer Avenue                1        77,184       71%             30%     Tasman Networks, Inc.       32,902         238,139
                                                                                 StorCard, Inc.              21,750

5325-5345 Hellyer Ave.             2       256,500      100%            100%     Celestica Asia, Inc.       256,500       4,895,376

5905-5965 Silver Creek             4       346,000      100%            100%     CIENA Corporation          346,000       8,993,502

855 Embedded Way                   1        67,912      100%            100%     Lynuxworks, Inc.            67,912       1,515,690

1065 La Avenida Street             5       515,700      100%            100%     Microsoft Corporation      515,700      21,997,381

1750 Automation Parkway            1        80,641      100%            100%     JDS Uniphase Corporation    80,641       1,240,738

1756 Automation Parkway            1        80,640      100%            100%     JDS Uniphase Corporation    80,640       1,987,164

1762 Automation Parkway            1        61,100      100%            100%     JDS Uniphase Corporation    61,100       2,291,464

1768 Automation Parkway            1       110,592      100%            100%     JDS Uniphase Corporation   110,592       3,416,737

255 Caspian Drive                  1        98,500        0%              0%     Vacant                           -               -

245 Caspian Drive (3)              1             -        0%              0%     Vacant                           -               -

5970 Optical Court                 1       128,520      100%            100%     Photon Dynamics, Inc.      128,520       1,710,012

5900 Optical Court                 1       165,000      100%            100%     Stryker Endoscopy          165,000       4,320,858

2630 Orchard Parkway               1        60,633       64%              5%     Maranti, Inc.               38,506               -

2610 Orchard Parkway               1        54,093        0%             25%     Vacant                           -         297,514

55 West Trimble Road               1        91,722        0%             25%     Vacant                           -         504,410

2001 Walsh Avenue                  1        80,000      100%            100%     NEC Electronics America,    80,000         766,666
                                                                                    Inc.

2880 Scott Boulevard               1       200,000      100%            100%     NEC Electronics America,   200,000       3,275,193
                                                                                    Inc.

2890 Scott Boulevard               1        75,000      100%            100%     NEC Electronics America,    75,000       2,121,341
                                                                                    Inc.

2800 Scott Boulevard               1        98,430       75%             75%     Nvidia Corporation          73,604         477,378

2300 Central Expressway            1        46,338      100%            100%     JDS Uniphase Corporation    46,338       3,234,973

2220 Central Expressway            1        62,522      100%            100%     BRE/San Tomas LLC           62,522       1,000,000

2330 Central Expressway            1        62,522        0%              0%     Vacant                           -               -

2251 Lawson Lane                   1       125,000      100%            100%     Fujitsu IT Holdings, Inc.  125,000       1,335,703

1230 East Arques                   1        60,000      100%            100%     Fujitsu IT Holdings, Inc.   60,000         327,069

1250 East Arques                   4       200,000      100%            100%     Fujitsu IT Holdings, Inc.  200,000         812,617

                                     - 17 -
<PAGE>
                                                                                                            Major
                                                                                                           Tenants'
                                            Total    Percentage                                            Rentable
                                 No. of   Rentable  Leased as of    Average 2004                          Sq. Ft. at   2004 Annual
Location                       Properties  Sq. Ft.  Dec. 31, 2004    Occupancy   Major Tenants             12/31/04    Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
3120 Scott Blvd. (4)               1        75,000       16%             40%     DSP Group, Inc.             12,000         430,227

20400 Mariani Avenue               1       105,000      100%            100%     Dade Behring, Inc.         105,000       1,514,319

10500 De Anza Blvd.                1       211,000      100%            100%     Apple Computer, Inc.       211,000       5,206,608

20605-705 Valley Green Dr.         2       142,000      100%            100%     Apple Computer, Inc.       142,000       3,158,233

10300 Bubb Road                    1        23,400      100%            100%     Apple Computer, Inc.        23,400         432,900

10440 Bubb Road                    1        19,500      100%             83%     Lightmaster Systems, Inc.   10,573         201,513

10460 Bubb Road                    1        45,460       67%             67%     Luminous Networks, Inc.     30,460         563,510

1135 Kern Avenue                   1        18,300       50%             50%     Broadmedia, Inc.             9,150          90,024

1190 Morse Avenue &                1        28,350        0%             55%     Vacant                           -         189,376
405 Tasman Avenue

450 National Avenue                1        36,100      100%            100%     ePeople, Inc.               36,100       1,265,202

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

2800 Bayview Avenue                1        59,736        0%             35%     Vacant                           -               -

6850 Santa Teresa Blvd.            1        30,000       59%             59%     Indala Corporation          17,650         327,408

6810 Santa Teresa Blvd.            1        54,996      100%            100%     Polaris Networks, Inc.      54,996         971,574

140-160 Great Oaks Blvd. &         2       105,300       75%             75%     Amtech Microelectronics, Inc31,500       1,294,137
6781 Via Del Oro                                                                 Saint Gobain                21,800
                                                                                 Santa Clara Water District  25,429

6540-6541 Via Del Oro &            2        66,600       74%             74%     Exsil, Inc.                 20,076         749,418
6385-6387 San Ignacio Ave.                                                       Modutek Corporation         17,400

6311-6351 San Ignacio Ave.         5       362,767       44%             63%     Saint Gobain                95,953       3,464,662
                                                                                 Avnet, Inc.                 32,154
                                                                                 Teledex, LLC                30,000

6320-6360 San Ignacio Ave.         1       157,292       71%             71%     Nortel Networks Corp.       92,692       3,701,556
                                                                                 Quantum 3D, Inc.            19,600

75 East Trimble Road &             2       170,810      100%            100%     Comerica Bank               93,984       2,754,646
2610 North First Street                                                          County of Santa Clara       70,795

2033-2243 Samaritan Drive          3       235,122       36%             36%     Texas Instruments, Inc.     48,677       3,594,871
                                                                                 State Farm Insurance        23,801
                                                                                 Good Samaritan Hospital     12,286

1170 Morse Avenue                  1        39,231      100%            100%     The Parkinson's Institute   39,231         541,392

3236 Scott Blvd.                   1        54,672      100%            100%     Celeritek, Inc.             54,672       1,176,197

1212 Bordeaux Lane                 1        71,800      100%            100%     Northrop Grumman Corp.      71,800       1,402,077

McCandless Technology Park        14       705,956       48%             54%     Arrow Electronics, Inc.     92,862       7,122,965
                                                                                 Chartered Semiconductor Mfg.45,312
                                                                                 ST Assembly Test
                                                                                 Services, Inc.              33,984
                                                                                 Hermes Microvision, Inc.    25,285
                                                                                 ASM International           22,624
                                                                                 A&D Engineering, Inc        19,332

1600 Memorex Drive                 1       107,500      100%            100%     Sasco Electric              84,700         824,934
                                                                                 International Network
                                                                                 Services                    22,800

1688 Richard Avenue                1        52,800      100%            100%     NWE Technology, Inc.        52,800         472,896

                                     - 18 -
<PAGE>
                                                                                                            Major
                                                                                                           Tenants'
                                            Total    Percentage                                            Rentable
                                 No. of   Rentable  Leased as of    Average 2004                          Sq. Ft. at   2004 Annual
Location                       Properties  Sq. Ft.  Dec. 31, 2004    Occupancy   Major Tenants             12/31/04    Base Rents(1)
------------------------------------------------------------------------------------------------------------------------------------
1700 Richard Avenue                1        58,783      100%            100%     Broadwing Comm Services,    58,783         720,091
                                                                                    Inc.

                                ------------------                                                                     -------------
         TOTAL                   109     7,917,262                                                                     $121,630,673
                                ==================                                                                     =============
</TABLE>

(1)  Annual  cash rents do not  include  any effect  for  recognition  of rental
     income on the  straight-line  method of  accounting  required by  generally
     accepted accounting  principles in the United States of America 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)  The property at 3120 Scott  Boulevard was designated as asset held for sale
     at December 31, 2004 and was sold in January 2005.


We own 100% of all of the  properties,  except for 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.

                                     - 19 -

<PAGE>


LEASE EXPIRATIONS

The  following  table  sets forth a schedule  of the lease  expirations  for the
properties  beginning  with 2005,  assuming  that none of the  tenants  exercise
existing  renewal options or termination  rights.  The table excludes  2,358,928
rentable square feet that was vacant as of January 1, 2005.

<TABLE>
<CAPTION>
                            Number of                                                           Percentage of Total Annual
           Year of Lease     Leases      Rentable Square Footage      2005 Annual Base Rent      Base Rent Represented By
            Expiration      Expiring   Subject to Expiring Leases   Under Expiring Leases (1)       Expiring Leases (2)
         --------------------------------------------------------------------------------------------------------------------
<S>           <C>             <C>             <C>                      <C>                                 <C>
               2005            21                501,460                $  4,760,370                         4.7%

               2006            15                551,608                  15,437,030                        15.1%

               2007            19              1,126,081                  21,327,717                        20.9%

               2008             7                300,023                   3,584,473                         3.5%

               2009            14                711,305                  11,807,241                        11.6%

               2010             6                452,186                   8,123,520                         8.0%

               2011             3                696,484                  14,533,982                        14.2%

               2012             3                335,187                   7,310,028                         7.2%

               2014             3                649,000                  11,692,924                        11.4%

            Thereafter          1                160,000                   3,518,068                         3.4%
                           --------------------------------------------------------------------------------------------------

                               92              5,483,334                $102,095,353                         100%
                           ==================================================================================================
</TABLE>


(1)  The base rent for leases  expiring is based on  scheduled  2005 cash rents,
     which are different than annual rents determined in accordance with GAAP.
(2)  Based upon 2005 cash rents as discussed in Note (1).


If we are unable to lease a significant  portion of the available space or space
scheduled to expire in 2005 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 adversely affected.

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  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.

                                     - 20 -
<PAGE>

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.

                                     - 21 -

<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

     Neither the operating  partnerships,  the  properties nor we are subject to
     any material  litigation nor, to our knowledge,  is any material litigation
     threatened against the operating  partnerships,  the 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 or have recently concluded the
     following legal  proceedings  which we believe the ultimate  outcome,  will
     have no material adverse effect on our financial statements.

     REPUBLIC PROPERTIES  CORPORATION  ("RPC") V. MISSION WEST PROPERTIES,  L.P.
     ("MWP"),  IN THE CIRCUIT  COURT OF  MARYLAND  FOR  BALTIMORE  CITY CASE NO.
     24-C-00-005675.  RPC is a former 50% partner with Mission West  Properties,
     L.P. in the Hellyer Avenue  Limited  Partnership  ("Hellyer  LP"). In April
     2004 the Circuit Court for  Baltimore  City,  Maryland  issued a Memorandum
     Opinion in the case and awarded  damages of $933,548 to the RPC plaintiffs,
     which  must be paid by us or MWP.  The court  denied all  requests  by MWP,
     including a  declaration  that all of RPC's  interests in Heller L.P.  were
     validly converted to limited  partnership  interests and transferred to MWP
     or  its  designee  in  accordance  with  the  terms  of  the  Hellyer  L.P.
     partnership  agreement.   The  court  also  denied  RPC's  request  for  an
     injunction  ordering the  reinstatement of RPC's  partnership  interests in
     Hellyer L.P. We have appealed the decision to the Maryland  Appeals  Court.
     We do not believe that any further  court  decisions  in this case,  for or
     against us and MWP, will have a material adverse effect on our business. We
     have  a  receivable   from  a  Berg  Group  affiliate  for  the  amount  of
     distributions it received as the successor to RPC's interest in the Hellyer
     LP which  exceeds the amount of the damages  awarded to the RPC parties and
     would be used to pay for those  damages  in the event the  decision  of the
     Circuit Court is upheld  ultimately.  Furthermore,  we have never accounted
     for the 50%  interest  of RPC as our  asset  and if RPC is  deemed  to have
     retained that  interest or  reacquires  that interest our balance sheet and
     financial  condition  would  not be  impacted.  Although  to date,  we have
     consolidated the assets,  liabilities and operating  results of the Hellyer
     LP and  allocated  50% of the  operating  income to the  minority  interest
     holder.  In February 2001, we filed a suit against RPC in Superior Court of
     the State of  California  for the County of Santa  Clara Case No. CV 796249
     which has been stayed  pending  resolution  of the Maryland  case.  In July
     2004,  RPC  attached  our bank  account  for  approximately  $1.1  million.
     Following a July 2004 hearing in Superior  Court of the State of California
     for the County of Santa Clara,  the parties agreed that we will post a $1.5
     million bond and RPC will remove the  attachment  of our bank account until
     final  resolution  of the appeal in  Maryland.  On  February  4, 2005,  the
     Maryland  Appeals  Court heard our appeal.  On March 1, 2005,  the Maryland
     Appeals  Court ruled in favor of MWP,  finding  that the  Circuit  Court of
     Maryland  could not  assert  personal  jurisdiction  in the RPC  suit.  The
     Maryland  Appeals Court will issue its mandate within 30 days,  after which
     RPC will have 15 days to seek a writ of certiorari to the Maryland  Appeals
     Court.

     In January  2004,  we filed the case of MISSION  WEST  PROPERTIES,  L.P. V.
     PREMISYS COMMUNICATIONS,  INC. AND ZHONE TECHNOLOGIES, INC. IN THE SUPERIOR
     COURT  OF THE  STATE OF  CALIFORNIA  FOR THE  COUNTY  OF  ALAMEDA  CASE NO.
     HG03118906 for breach of lease agreement and claimed damages of $1,399,042.
     In April 2004, we settled the matter and received a payment of  $1,100,000.
     This amount was recorded in other income during the second quarter of 2004.

     In December 2003, CRAIG R. JALBERT  LIQUIDATING CEO, AS  REPRESENTATIVE  OF
     THE  ESTATE  OF THE  CONSOLIDATED  DEBTORS  FOR ACT  MANUFACTURING,  INC V.
     MISSION WEST PROPERTIES,  L.P. filed an action in United States  Bankruptcy
     Court District of  Massachusetts  Case No.  01-47641  (JBR)  asserting that
     payments of $481,749 made in the ordinary course of business within 90 days
     of the ACT bankruptcy filing were preference payments. In December 2004, we
     settled  this matter and  received a final  payment of  $276,166,  which we
     recorded as other income in our consolidated statements of operations.

     In January 2004, the GLOBAL CROSSING ESTATE REPRESENTATIVE,  FOR ITSELF AND
     THE LIQUIDATING TRUSTEE OF THE GLOBAL CROSSING LIQUIDATING TRUST V. MISSION
     WEST  PROPERTIES  L.P.  filed an action in United States  Bankruptcy  Court
     Southern  District  of New York  Case No.  02-40188  (REG)  asserting  that
     payments of $815,052 made in the ordinary course of business within 90 days
     of the Global  Crossing  bankruptcy  filing were  preference  payments.  In
     addition,  the  Global  debtors  and  the  Creditors'  Committee  filed  an
     objection to the  unsecured  claim filed by Mission West  Properties in the
     Global cases for  $16,710,605.  A hearing on the claim objection is set for
     March 23,  2005.  A trial date has not been set for  either  the  unsecured
     claim objection or preference litigation.

                                     - 22 -

<PAGE>


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


     a)   The annual meeting of stockholders of the Company was held on November
          24, 2004 in which  proxies  representing  16,066,957  shares of common
          stocks, or 88.9% of the total outstanding shares, voted.

     b)   At the annual meeting of  stockholders,  Carl E. Berg, John C. Bolger,
          William A.  Hasler,  Lawrence  B.  Helzel,  and Raymond V. Marino were
          elected as directors for the ensuing year, all of whom were serving on
          the board of directors at the time of the meeting.

     c)   The following proposals were voted upon at the meeting:

          Proposal No. 1: Election of Directors

<TABLE>
<CAPTION>

                                           Total Vote for Each       Total Vote Withheld
             Directors                          Director              from Each Director         Total Abstentions
             ---------------------------- ----------------------     ----------------------    ----------------------
<S>                                           <C>                         <C>                        <C>
             Carl E. Berg                      15,784,039                   82,226                    200,692
             John C. Bolger                    15,766,691                   99,574                    200,692
             William A. Hasler                 15,764,941                  101,324                    200,692
             Lawrence B. Helzel                15,767,411                   98,854                    200,692
             Raymond V. Marino                 15,614,292                  251,973                    200,692
</TABLE>


     Proposal No. 2: Approval of (i) the adoption of the  Company's  2004 Equity
     Incentive Plan,  (ii) the transfer to the 2004 Equity  Incentive Plan of up
     to  3,991,089  remaining  shares  available  for grant under the 1997 Stock
     Option  Plan;  (iii)  the  transfer  of up to  767,000  shares  subject  to
     outstanding  options  under  the  1997  Stock  Option  Plan if they  expire
     unexercised;  and (iv) the material terms of the 2004 Equity Incentive Plan
     and the performance  goals thereunder for purposes of Internal Revenue Code
     Section  162(m).  There  were  6,590,691  votes in  favor of the  proposal,
     3,358,560 votes against the proposal and 212,925 abstentions.

     Proposal No. 3: Ratification of the selection of the accounting firm of BDO
     Seidman, LLP as the Company's independent registered public accounting firm
     for the year ended December 31, 2004.  There were 15,979,270 votes in favor
     of the proposal, 29,244 votes against the proposal and 58,442 abstentions.

                                     - 23 -

<PAGE>


PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock is listed on the American Stock Exchange  ("AMEX") and the
     Pacific Exchange,  Inc. and trades under the symbol "MSW." The high and low
     closing  sale  prices per share of common  stock as reported on AMEX during
     each quarter of 2004 and 2003 were as follows:

<TABLE>
<CAPTION>
                                                     2004                              2003
                                         -----------------------------     -----------------------------
                                             High            Low               High            Low
                                         -------------   -------------     -------------   -------------
<S>                                        <C>             <C>               <C>             <C>
                1st Quarter                 $14.00          $12.81            $10.25          $ 9.02
                2nd Quarter                 $13.44          $11.40            $11.95          $ 9.50
                3rd Quarter                 $12.14          $ 9.95            $12.74          $11.07
                4th Quarter                 $10.95          $ 9.51            $13.45          $12.32
</TABLE>


     On February 28, 2005,  there were 196  registered  holders of the Company's
     common  stock.  We declared and paid  dividends in each quarter of 2004 and
     2003.  We expect to pay  quarterly  dividends  during 2005.  The  following
     tables show information for quarterly dividends for 2004 and 2003.

<TABLE>
<CAPTION>
                                                              2004
                                         -----------------------------------------------
                                            Record          Payment           Dividend
                                             Date            Date            Per Share
                                         -------------   -------------     -------------
<S>                                       <C>             <C>                <C>
                1st Quarter                03/31/04        04/08/04           $0.24
                2nd Quarter                06/30/04        07/08/04            0.24
                3rd Quarter                09/30/04        10/07/04            0.24
                4th Quarter                12/31/04        01/07/05            0.16
                                                                           -------------
                   Total                                                      $0.88
                                                                           =============
</TABLE>


<TABLE>
<CAPTION>
                                                              2003
                                         -----------------------------------------------
                                            Record          Payment           Dividend
                                             Date            Date            Per Share
                                         -------------   -------------     -------------
<S>                                       <C>             <C>                <C>
                1st Quarter                03/31/03        04/10/03           $0.24
                2nd Quarter                06/30/03        07/10/03            0.24
                3rd Quarter                09/30/03        10/09/03            0.24
                4th Quarter                12/31/03        01/08/04            0.24
                                                                           -------------
                   Total                                                      $0.96
                                                                           =============
</TABLE>

     For federal income tax purposes, we have characterized 98% of the dividends
     declared  in 2004 and 2003 as taxable  ordinary  income and 2% as return of
     capital.

     The  closing  price of our common  stock on  December  31,  2004,  the last
     trading day, was $10.64 per share.

                                     - 24 -

<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA

     The following table sets forth selected  historical  financial  information
     for  Mission  West  Properties,  Inc.  See Part II - Item 7,  "Management's
     Discussion and Analysis of Financial  Conditions and Results of Operations"
     - Overview and Company History 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 Part II - Item 8, "Consolidated Financial
     Statements and Supplementary Data," below) and is as follows:
<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                          --------------------------------------------------------------------------
                                                              2004           2003            2002           2001           2000
                                                          -------------  --------------  -------------  -------------  -------------
                                                                        (dollars in thousands, except per share data)
<S>                                                       <C>            <C>             <C>            <C>             <C>
         OPERATING DATA:
         Revenue:
             Rental revenue from real estate               $119,523       $129,511        $128,553       $125,002        $96,341
             Tenant reimbursements                           14,946         18,726          19,957         17,337         14,407
             Other income                                     6,914          4,527           4,248          2,465          1,216
                                                          -------------  --------------  -------------  -------------  -------------
         Total revenues                                     141,383        152,764         152,758        144,804        111,964
                                                          -------------  --------------  -------------  -------------  -------------

         Expenses:
            Property operating, maint. and real estate taxes 20,540         21,220          23,809         18,364         14,798
            Interest                                         17,581         16,446           9,588          8,704          8,290
            Interest (related parties)                        1,077          1,064           3,422          4,709          4,475
            General and administrative                        2,011          1,324           1,488          1,284          1,065
            Depreciation and amortization of real estate     21,669         20,525          18,064         16,497         14,929
                                                          -------------  --------------  -------------  -------------  -------------
         Total expenses                                      62,878         60,579          56,371         49,558         43,557
                                                          -------------  --------------  -------------  -------------  -------------
         Income before gain on sales of assets, equity in
          earnings of unconsolidated joint venture and
          minority interests                                 78,505         92,185          96,387         95,246         68,407
            Gain on sales of assets                               -              -               -         11,453            501
            Equity in earnings of unconsolidated joint
             venture                                          2,947          3,885               -              -              -
            Minority interests                               67,699         80,069          80,548         89,107         56,856
                                                           -------------  --------------  -------------  -------------  ------------
            Income from continuing operations                13,753         16,001          15,839         17,592         12,052
         Discontinued operations, net of minority interests:
            Gain from disposal of discontinued
             operations                                           -              -           1,018              -              -
            (Loss)/income attributable to discontinued
             operations (4)                                    (441)           211             258            494            527
                                                          -------------  --------------  -------------  -------------  -------------
         (Loss)/income from discontinued operations            (441)           211           1,276            494            527
                                                          -------------  --------------  -------------  -------------  -------------

         Net income to common stockholders                  $13,312        $16,212         $17,115        $18,086        $12,579
                                                          =============  ==============  =============  =============  =============
         Net income to minority interests                   $66,100        $80,836         $86,641        $91,312        $59,054
                                                          =============  ==============  =============  =============  =============

         Basic net income from continuing operations per
          share                                               $0.76          $0.90           $0.91          $1.03          $0.71
         Diluted net income from continuing operations
          per share                                           $0.76          $0.90           $0.89          $1.00          $0.69

         Basic net (loss)/income from discontinued
          operations per share                               ($0.02)         $0.01           $0.07          $0.03          $0.03
         Diluted net (loss)/income from discontinued
          operations per share                               ($0.02)         $0.01           $0.07          $0.03          $0.03

         Basic net income per share                           $0.74          $0.91           $0.98          $1.06          $0.74
         Diluted net income per share                         $0.74          $0.91           $0.96          $1.03          $0.72
         Dividends per share                                  $0.88          $0.96           $0.96          $0.89          $0.68

            PROPERTY AND OTHER DATA:
            Total properties, end of period (3)                 109            109             101             97             89
            Total square feet, end of period (000's)          7,917          7,917           7,164          6,799          6,196
            Average monthly rental revenue per square foot (1)$1.80          $1.77           $1.71          $1.59          $1.36
            Occupancy at end of period                           71%            77%             84%            97%            99%

            FUNDS FROM OPERATIONS (2):                     $103,320       $117,918        $118,444       $115,013        $86,650

            Cash flows from operating activities           $105,070       $116,493        $117,368       $111,157        $84,580
            Cash flows used in investing activities          (1,519)      (109,983)        (20,744)        (3,040)        (2,736)
            Cash flows used in financing activities        (106,161)        (6,860)        (97,455)      (107,498)       (83,706)
</TABLE>

                                     - 25 -
<PAGE>


<TABLE>
<CAPTION>
                                                                                        December 31,
                                                          --------------------------------------------------------------------------
                                                              2004            2003            2002           2001          2000
                                                          -------------  --------------  -------------  -------------  -------------
                                                                                    (dollars in thousands)
<S>                                                      <C>            <C>              <C>            <C>            <C>
            BALANCE SHEET DATA:
            Real estate assets,
              net of accumulated depr. & amort.           $  960,863     $  985,751        $886,122       $857,653       $807,456
            Total assets                                   1,005,656      1,032,632         926,783        909,953        826,910
            Line of credit - related parties                   9,560          6,320          58,792         79,887         50,886
            Revolving line of credit                          24,208         23,965          23,839              -              -
            Loan payable                                           -              -          20,000              -              -
            Debt                                             292,822        299,858         125,062        127,416        132,055
            Debt - related parties                            10,420         10,762          11,078         11,371         11,643
            Total liabilities                                380,355        394,324         289,817        286,768        255,505
            Minority interests                               512,089        524,918         526,580        514,810        469,332
            Stockholders' equity                             113,212        113,390         110,386        108,375        102,073
            Common stock outstanding                      18,097,191     17,894,691      17,487,329     17,329,779     17,025,365
            O.P. Units issued and outstanding             86,384,695     86,398,064      86,474,032     85,762,541     83,576,027
</TABLE>

(1)  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.
(2)  Funds From Operations  ("FFO") is a non-GAAP  financial  instrument 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  gains and  losses  from debt
     restructuring  and  sales of  discontinued  operations,  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.  We have
     revised our FFO  computations  for 2002 and 2001 for the  inclusion  of the
     amortization  of leasing  commissions in depreciation  and  amortization of
     real estate in order to be comparable to our 2004 and 2003 FFO presentation
     and to more closely conform to the NAREIT's FFO  definition.  Additionally,
     our 2004 and 2003 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 an appropriate measure of
     performance of an equity REIT because, along with cash flows from operating
     activities,  financing  activities  and investing  activities,  it provides
     investors  with an  understanding  of our ability to incur and service debt
     and  make  capital  expenditures.  FFO  should  not  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.
     SEE PART II - ITEM 7,  "MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL
     CONDITION  AND  RESULTS  OF  OPERATIONS  -  FUNDS  FROM   OPERATIONS"   FOR
     RECONCILIATION  OF  OUR  FFO  FIGURES  TO  OUR  NET  INCOME  DETERMINED  IN
     ACCORDANCE WITH GAAP.
(3)  As of December 31, 2004, 2003, 2002 and 2001,  total  properties  include a
     property at 245 Caspian in  Sunnyvale  with no building.  During 2001,  the
     Company 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)  Upon the implementation of SFAS No. 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.  As the operating results and
     gains or losses  from the sale of real  estate  assets  prior to January 1,
     2002 are included in continuing operations,  the presentation of results is
     not comparable between years.

                                     - 26 -
<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 1, "BUSINESS - 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 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  September 2, 1997.  At that time the Berg Group and
     the 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   partnership   interests  in  the  operating
     partnerships through the purchase of the general partnership 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 partnership
     interests  represented  the  balance  of the  ownership  of  the  operating
     partnerships.  At December 31, 2004, we owned a 17.26% general  partnership
     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  4 million  rentable  square feet of R&D
     buildings 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  $619 million.  We issued a total of
     27,962,025 O.P. Units and assumed debt totaling  approximately $308 million
     to acquire them.  Major  property  acquisitions  made by us from  unrelated
     sellers include the following:

     On March 8, 2002, we acquired the  Orchard-Trimble  property  consisting of
     three R&D Properties with a total of approximately  206,500 rentable square
     feet for $31.3 million in cash.  The  acquisition  of those  properties was
     part of a tax-deferred  exchange under section 1031 of the Internal Revenue
     Code.

     On April 9,  2003,  we  acquired  the  36-acre  San Tomas  Technology  Park
     consisting of seven R&D properties  with a total of  approximately  625,000
     rentable square feet for $110 million. We financed that acquisition through
     new debt and an existing line of credit.

                                     - 27 -

<PAGE>


     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") No. 66, "Accounting for Sales of Real Estate."

     BUSINESS COMBINATIONS.  Statement of financial Accounting Standards No. 141
     ("SFAS No. 141"), "Business  Combinations," was effective July 1, 2001. The
     acquisition  costs of each  property  acquired  prior to July 1,  2001 were
     allocated  only to building,  land and leasing  commissions  with  building
     depreciation   being  computed  based  on  an  estimated  weighted  average
     composite  useful  life of 40 years and  leasing  commissions  amortization
     being computed over the term of the lease.  Acquisitions of properties made
     subsequent to the effective date of SFAS No. 141 are based on an allocation
     of the  acquisition  cost  to  land,  building,  tenant  improvements,  and
     intangibles  for at  market  and  above  market  in place  leases,  and the
     determination  of their useful lives are guided by a  combination  SFAS No.
     141 and management's  estimates.  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  No. 144 ("SFAS No.  144"),
     "Accounting  for the Impairment and Disposal of Long-Lived  Assets." 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.  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.  As  discussed  in Note 16 to the
     consolidated financial statements, we recognized an impairment loss in 2004
     on one asset held for sale under the application of this standard.

     ALLOWANCE FOR DOUBTFUL  ACCOUNTS AND DEFERRED RENT. 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
     histories,  publicly  available  financial  information and such additional
     information  about their financial  condition as tenants provide to us. The
     information  available to us might lead us to overstate or understate these
     reserve  amounts.  The use of  different  estimates  or  assumptions  could
     produce different results.  Moreover, actual future collections of accounts
     receivable  or reductions  in future  reported  rental income due to tenant
     bankruptcies  or other business  failures could differ  materially from our
     estimates.

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

                                     - 28 -
<PAGE>

     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
     the we do  not  exercise  significant  control  over  major  operating  and
     financial  decisions.  We account  for the joint  venture  using the equity
     method of accounting.

     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
     or cease operations.  By anticipating these events in advance, we expect to
     take steps to minimize  their impact on our reported  results of operations
     through lease  renegotiations,  reserves  against  deferred rent, and other
     appropriate measures. Our judgments and estimations about tenants' capacity
     to continue to meet their lease  obligations will affect the rental revenue
     recognized. Material differences may result in the amount and timing of our
     rental  revenue  for  any  period  if  we  made   different   judgments  or
     estimations.

     LEASE  TERMINATION.  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 the tenant is no longer  occupying 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.  There is
     no way of predicting or  forecasting  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 regards to critical  accounting  policies,  where applicable,  we have
     explained  and  discussed the criteria for  identification  and  selection,
     methodology in application and impact on the financial  statements with the
     Audit  Committee  of our  Board of  Directors,  which  has  reviewed  these
     policies.

                                     - 29 -

<PAGE>


     RESULTS OF OPERATIONS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2004 TO THE YEAR ENDED  DECEMBER
     31, 2003.

     RENTAL REVENUE FROM CONTINUING PROPERTY OPERATIONS

     As of December 31, 2004 and 2003, through our controlling  interests in the
     operating partnerships,  we owned 109 R&D properties totaling approximately
     7.9 million rentable square feet. We did not purchase any new properties in
     2004.

     The following  table depicts the amounts of rental revenue from  continuing
     operations  for the years ended  December 31, 2004 and 2003  represented by
     our historical properties and the properties acquired in each such year and
     the percentage of the total increase in rental revenue over the period that
     is represented by each group of properties.

<TABLE>
<CAPTION>
                                                  December 31,
                                        ----------------------------------
                                                                                                    % Change by       % of Total Net
                                             2004                2003            $ Change          Property Group         Change
                                        --------------      --------------     --------------      --------------     --------------
                                                         (dollars in thousands)
<S>                                        <C>                 <C>               <C>                   <C>                <C>
         Same Property (1)                  $107,851            $121,411          ($13,560)             (11.2%)            (10.5%)
         2003 Acquisitions (2)                11,672               8,100             3,572               44.1%               2.8%
                                        --------------      --------------     --------------                         --------------
              Total/Overall                 $119,523            $129,511          ($ 9,988)              (7.7%)             (7.7%)
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2003 that we
     still owned as of December 31, 2004.

(2)  Operating  rental  revenue for 2003  Acquisitions  do not reflect a full 12
     months of  operations  in 2003 because  these  properties  were acquired at
     various times during 2003. 2004 and 2003 amounts include approximately $1.9
     million and $1.4 million,  respectively,  of above market rent amortization
     against   rental   revenue  from  real  estate  in   connection   with  the
     implementation of SFAS No. 141.

     For the year ended  December 31, 2004,  our rental revenue from real estate
     decreased by ($10.0)  million,  or (7.7%) from $129.5  million for the year
     ended  December  31,  2003 to $119.5  million  for the same period in 2004.
     Pursuant to SFAS 141, $1.9 million and $1.4 million of amortization expense
     with respect to above-market  leases  included in the San Tomas  Technology
     Park  acquisition  was offset  against  rental  revenue and not  separately
     stated as  amortization  expense for the years ended  December 31, 2004 and
     2003, respectively. The ($10.0) million decrease in rental revenue resulted
     from  adverse  market  conditions  as "Same  Property"  rents  decreased by
     ($13.6) since our portfolio physical occupancy rate decreased by (6.6%) and
     average  market  rental rates  decreased.  However,  rents from  properties
     acquired in 2003 added  approximately $3.6 million of rental revenue due to
     a full 12 months of operations in 2004.  The decline in rental revenue from
     the "Same Property" portfolio was a result from the loss of several tenants
     due to cessation  of  operations,  tenant  relocation  or tenant  requiring
     lesser space.

     Our  overall  physical  occupancy  rate at  December  31, 2004 and 2003 was
     approximately  70.7% and 77.3%,  respectively.  According to BT  Commercial
     Real Estate,  the occupancy  rate for R&D property in the Silicon Valley at
     December  31, 2004 was  approximately  77.6%.  Due to an over supply of R&D
     properties  and  competition  from other  landlords  in the Silicon  Valley
     bidding for  tenants,  our  occupancy  rate may drop further in 2005 if the
     501,000  rentable  square  feet  scheduled  to  expire  is not  renewed  or
     re-leased.  Factors that contributed to our low physical occupancy rate are
     primarily the general  downturn in the Silicon  Valley's  economy in recent
     years,  the softening of our market  specifically  and the expected  weaker
     performance of our properties.

     EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE

     As of December 31, 2004, we had investments in four R&D buildings, totaling
     593,000  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, 2004 and
     2003,  equity  in  earnings  from  the  unconsolidated  joint  venture  was
     approximately   $2.9  million  (including  $1  million  relating  to  lease
     termination  income) and $3.9 million (including $1.4 million relating to a
     gain from the sale of real estate which was acquired  from a related  party
     which did not occur in 2004), respectively.

                                     - 30 -

<PAGE>


     OTHER INCOME FROM CONTINUING PROPERTY OPERATIONS

     The  following  table  depicts the amounts of other income from  continuing
     operations for the years ended December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                               2004                2003            $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                          (dollars in thousands)

<S>                                          <C>                 <C>                <C>                  <C>
         Other income                         $6,914              $4,527             $2,387               52.7%
</TABLE>

     Other income of approximately  $6.9 million for the year ended December 31,
     2004 included  approximately  $4.3 million from  termination  fees and $1.2
     million from tenant bankruptcy  settlements.  Other income of approximately
     $4.5  million for 2003  included  approximately  $2.2  million  from tenant
     bankruptcy settlements.

     EXPENSES FROM CONTINUING PROPERTY OPERATIONS

     The  following  table  reflects  the  increase  in property  operating  and
     maintenance  expenses and real estate taxes from continuing  operations for
     the year ended  December 31, 2004 over property  operating and  maintenance
     expenses  and real estate  taxes from  continuing  operations  for the year
     ended  December 31, 2003 and the  percentage of total  increase in expenses
     over the period that is represented by each group of properties.

<TABLE>
<CAPTION>
                                                  December 31,
                                        ----------------------------------
                                                                                                    % Change by       % of Total Net
                                             2004                2003            $ Change          Property Group         Change
                                        --------------      --------------     --------------      --------------     --------------
                                                           (dollars in thousands)
<S>                                         <C>                 <C>                <C>                   <C>                <C>
         Same Property (1)                   $18,192             $19,638            ($1,446)              (7.4%)             (6.8%)
         2003 Acquisitions (2)                 2,348               1,582                766               48.4%               3.6%
                                        --------------      --------------     --------------                         --------------
              Total/Overall                  $20,540             $21,220              ($680)              (3.2%)             (3.2%)
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2003 that we
     still owned as of December 31, 2004.
(2)  Operating  expenses  and real  estate  taxes for 2003  Acquisitions  do not
     reflect a full 12 months of  operations  in 2003 because  these  properties
     were acquired at various times during 2003.

     Operating expenses and real estate taxes from continuing  operations,  on a
     combined basis,  decreased by ($0.7) million, or (3.2%), from $21.2 million
     for the year ended  December  31, 2003 to $20.5  million for the year ended
     December  31,  2004.  Tenant   reimbursements  from  continuing  operations
     decreased by ($3.8)  million,  or (20.2%),  from $18.7 million for the year
     ended  December 31, 2003 to $14.9  million for the year ended  December 31,
     2004. The overall decrease in tenant reimbursements, operating expenses and
     real estate taxes resulted  primarily from reductions in assessed  property
     values on existing  properties  as a result of property tax appeals that we
     filed  under  California's  Proposition  8 and lower  occupancy  during the
     periods presented.  Total operating expenses and real estate taxes exceeded
     tenant reimbursements because of vacancies, which reached approximately 2.3
     million  rentable  square feet by year-end 2004.  Certain  expenses such as
     property  insurance,  real estate taxes,  and other fixed  expenses are not
     recoverable  from vacant  properties.  We expect tenant  reimbursements  to
     decrease  further in the coming  year as our  vacancy  rate  increases.  At
     December 31, 2004 our vacancy rate was 29%.

     General  and  administrative   expenses  increased  by  approximately  $0.7
     million,  51.9%,  from $1.3 million for the year ended December 31, 2003 to
     $2.0  million  for the year  ended  December  31,  2004,  primarily  due to
     incurring  additional legal and accounting  expenses in connection with the
     resignation   of   PricewaterhouseCoopers   LLP,  our  former   independent
     accountants, the need to re-audit the consolidated financial statements for
     years 2001 and 2002 and audit 2003  results,  and  expenses  related to the
     compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

     The following  table depicts the amounts of depreciation  and  amortization
     expense of real  estate  from  continuing  operations  for the years  ended
     December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                              2004                2003             $ Change            % Change
                                          --------------      --------------     --------------      --------------
                                                          (dollars in thousands)

<S>                                         <C>                 <C>                 <C>                   <C>
         Depreciation & amortization         $21,669             $20,525             $1,144                5.6%
</TABLE>

                                     - 31 -

<PAGE>


     Depreciation  and  amortization  expense  of real  estate  from  continuing
     operations  increased by $1.1 million,  or 5.6%, from $20.5 million for the
     year ended  December 31, 2003 to $21.6 million for the year ended  December
     31, 2004. The increase was  attributable  to the recognition of a full year
     of  depreciation  from the  acquisition of eight R&D properties in 2003. Of
     the $1.1 million increase in depreciation and amortization  expense of real
     estate,  approximately $0.7 million represented amortization expense for in
     place leases  comprising  a portion of the value of the assets  acquired in
     the  acquisitions  of  the  Orchard-Trimble  property  and  the  San  Tomas
     Technology Park.

     The following table depicts the amounts of interest expense from continuing
     operations for the years ended December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                                2004                2003           $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                           (dollars in thousands)
<S>                                         <C>                 <C>                 <C>                   <C>
         Interest                            $17,581             $16,446             $1,135                6.9%
         Interest (related parties)            1,077               1,064                 13                1.2%
                                          --------------      --------------     --------------
              Total                          $18,658             $17,510             $1,148                6.6%
                                          ==============      ==============     ==============
</TABLE>

     Interest expense increased by $1.1 million, or 6.9%, from $16.5 million for
     the year  ended  December  31,  2003 to $17.6  million  for the year  ended
     December 31, 2004. The increased expense resulted from additional debt that
     the Company incurred under a new $80 million  collateralized  loan obtained
     from  Citicorp  USA,  Inc.  in  2003  and  a $40  million  line  of  credit
     established  with Cupertino  National Bank, the proceeds of which were used
     primarily for the  acquisition  of the San Tomas  Technology  Park in 2003.
     Interest expense (related parties) increased by $13,000, or 1.2%, primarily
     due to higher  interest  rates of 4.08% at December  31,  2004  compared to
     2.52% at December 31, 2003.

     The new debt  carries a higher  interest  rate than the Berg  Group line of
     credit, which it mainly replaced,  contributing to the increase in interest
     expense  for the year.  We  anticipate  additional  increases  in  interest
     expense as new debt is incurred in connection  with  property  acquisitions
     and we draw on the Cupertino National Bank revolving line of credit.

     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, 2004
     and 2003.

<TABLE>
<CAPTION>
                                                         December 31,
                                             -------------------------------------
                                                                                                                % Change by
                                                  2004                  2003               $ Change                Group
                                             ----------------      ---------------      ----------------      ----------------
                                                               (dollars in thousands)
<S>                                              <C>                  <C>                <C>                      <C>
         Net income to shareholders               $13,312              $16,212             ($ 2,900)               (17.9%)
         Net income to minority interests          66,100               80,836              (14,736)               (18.2%)
                                             ----------------      ---------------      ----------------
              Total                               $79,412              $97,048             ($17,636)               (18.2%)
                                             ================      ===============      ================
</TABLE>

     As of December 31, 2004 and 2003, we owned a general  partnership  interest
     of 17.16%,  21.63%, 16.14% and 12.38% and 16.95%, 21.61%, 15.98% and 12.37%
     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 a 17.26% and 17.02% general
     partnership interest in the operating partnerships,  taken as a whole, on a
     weighted average basis as of December 31, 2004 and 2003, respectively.  Net
     income to common stockholders decreased by ($2.9) million, or (17.9%), from
     $16.2 million for the year ended December 31, 2003 to $13.3 million for the
     year ended  December  31,  2004.  Our net income  attributable  to minority
     interests decreased by ($14.7) million, or (18.2%),  from $80.8 million for
     the year  ended  December  31,  2003 to $66.1  million  for the year  ended
     December  31,  2004.  The  decrease  in net income  attributable  to common
     stockholders  and minority  interests is primarily due to lower income from
     continuing  operations as a result of the decrease in revenues and increase
     in expenses as previously discussed above. Minority interest represents the
     limited partners'  ownership interest of 82.74% and 82.98% in the operating
     partnerships,  on a weighted  average  basis,  as of December  31, 2004 and
     2003,  respectively.  The  decrease  in the  minority  interest  percentage
     resulted  from the issuance of  additional  shares of common stock from the
     exchange of O.P. Units for common stocks by minority  interest  holders and
     the exercise of stock options.

                                     - 32 -

<PAGE>


     INCOME/(LOSS) FROM DISCONTINUED OPERATIONS

     The following table depicts the amounts of income/(loss)  from discontinued
     operations for the years ended December 31, 2004 and 2003.


<TABLE>
<CAPTION>
                                                         December 31, 2004        December 31, 2003
                                                       ---------------------    --------------------
                                                                (dollars in thousands)
<S>                                                       <C>                       <C>
         Income/(loss) attributable to
         discontinued operations                           ($2,041)                  $  979
         Minority interest in earnings
         attributable to discontinued operations             1,600                     (768)
                                                       ---------------------    --------------------
         Total income/(loss) from discontinued
         operations                                        ($  441)                  $  211
                                                       =====================    ====================
</TABLE>

     In  accordance  with our adoption of SFAS No. 144, in 2004 we  classified a
     property  consisting of 75,000  rentable square feet separately as an asset
     held for sale on the accompanying  consolidated balance sheets and reported
     the operating results of the asset held for sale as discontinued operations
     on the accompanying  consolidated statements of operations.  As of December
     31, 2004,  management believed that the asset held for sale was impaired as
     the  asset's net book value  exceeded  the  expected  net sale price of the
     asset. We decided to sell that property after an unsolicited offer was made
     from an unrelated third party. An impairment charge of approximately ($2.2)
     million was recorded to reduce the carrying  value of the asset to its fair
     value,  less selling  costs.  We sold this  property on January 5, 2005 for
     $8.5 million.  Also see Note 19,  "Subsequent  Events," to the consolidated
     financial statements

     SFAS No. 144 requires  prior period results of operations for this property
     to  be  restated  and  presented  in   discontinued   operations  in  prior
     consolidated statements of operations.

     We recognized total loss of ($2.0) million from discontinued operations, of
     which  ($0.4)  million  and  ($1.6)  million  were  attributable  to common
     stockholders  and  minority  interests,  respectively,  for the year  ended
     December 31, 2004.  For the year ended  December  31, 2003,  we  recognized
     total income from  discontinued  operations of $1.0 million.  The year over
     year change resulted  primarily from the ($2.2) million  impairment  charge
     discussed above as well as a tenant vacancy that occurred during the second
     quarter of 2004. The income to common  stockholders and minority  interests
     attributable  to  discontinued  operation  from this  property  in 2003 was
     approximately $0.2 million and $0.8 million, respectively.

                                     - 33 -

<PAGE>


     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2003 TO THE YEAR ENDED  DECEMBER
     31, 2002.

     RENTAL REVENUE FROM CONTINUING PROPERTY OPERATIONS

     As of December 31, 2003, through our controlling interests in the operating
     partnerships,  we  owned  109 R&D  properties  totaling  approximately  7.9
     million  rentable  square  feet  compared to 101 such  properties  totaling
     approximately  7.2 million  rentable  square feet as of December  31, 2002.
     This  represented  a net increase of  approximately  10% in total  rentable
     square  footage  from the prior year.  During 2003,  we made the  following
     acquisitions by purchase of new properties from unrelated  parties or under
     the Berg Land Holdings Option Agreement.

<TABLE>
<CAPTION>
              Date of                                                             Rentable Square
            Acquisition                            Address                            Footage
         --------------------    -------------------------------------------    -------------------
<S>           <C>               <C>                                                  <C>
                4/03             2001 Walsh Avenue                                     80,000
                4/03             2880 Scott Boulevard                                 200,000
                4/03             2890 Scott Boulevard                                  75,000
                4/03             2770-2800 Scott Boulevard                             98,430
                4/03             2300 Central Expressway                               46,338
                4/03             2220 Central Expressway                               62,522
                4/03             2330 Central Expressway                               62,522
               12/03             5970 Optical Court                                   128,520
                                                                                -------------------
                                      Total                                           753,332
                                                                                ===================
</TABLE>

     The following  table depicts the amounts of rental revenue from  continuing
     operations  for the years ended  December 31, 2003 and 2002  represented by
     our historical properties and the properties acquired in each such year and
     the percentage of the total increase in rental revenue over the period that
     is represented by each group of properties.

<TABLE>
<CAPTION>
                                                  December 31,
                                        ----------------------------------
                                                                                                    % Change by       % of Total Net
                                            2003                 2002            $ Change          Property Group         Change
                                        --------------      --------------     --------------      --------------     --------------
                                                        (dollars in thousands)
<S>                                        <C>                 <C>                 <C>                   <C>                <C>
         Same Property (1)                  $111,201            $120,176            ($8,975)              (7.5%)             (7.0%)
         2002 Acquisitions (2)                10,212               8,377              1,835               21.9%               1.4%
         2003 Acquisitions (3)                 8,098                   -              8,098                100%               6.3%
                                        --------------      --------------     --------------                         --------------
              Total/Overall                 $129,511            $128,553              $ 958                0.7%               0.7%
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2002 that we
     still owned as of December 31, 2003.
(2)  Operating  rental  revenue for 2002  Acquisitions  do not reflect a full 12
     months of  operations  in 2002 because  these  properties  were acquired at
     various times during 2002.
(3)  Operating  rental  revenue for 2003  Acquisitions  do not reflect a full 12
     months of  operations  in 2003 because  these  properties  were acquired at
     various times during 2003. 2003 amount includes  approximately $1.4 million
     of above market rent  amortization  against rental revenue from real estate
     in connection with the implementation of SFAS No. 141.

     For the year ended  December 31, 2003,  our rental revenue from real estate
     increased by $0.9 million,  or 0.7% from $128.6  million for the year ended
     December 31, 2002 to $129.5  million for the same period in 2003.  Pursuant
     to  SFAS  141,  $1.4  million  of  amortization  expense  with  respect  to
     above-market  leases included in the San Tomas  Technology Park acquisition
     was offset against rental revenue and not separately stated as amortization
     expense in 2003. The $0.9 million  increase in rental revenue resulted from
     new property  acquisitions,  as "Same  Property" rents decreased by ($9.0),
     rents from newly  developed  properties  acquired  in 2002  represented  an
     increase of $1.8 million and rents from newly developed properties acquired
     in 2003 added approximately $8.1 million of new rental revenue. The decline
     in rental  revenue  from the "Same  Property"  portfolio  was a result from
     adverse market  conditions  and loss of several  tenants due to bankruptcy,
     cessation  of  operations,  or  tenant  relocation.  Our  overall  physical
     occupancy  rate at December 31, 2003 and 2002 was  approximately  77.3% and
     83.8%, respectively.

     EQUITY IN EARNINGS FROM UNCONSOLIDATED JOINT VENTURE

     As of December 31, 2003, we had investments in four R&D buildings, totaling
     593,000  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 year ended December 31, 2003,  equity
     in earnings from the  unconsolidated  joint venture was approximately  $3.9
     million,  including  $1.4 million  relating to a gain from the sale of real
     estate, which was acquired from a related party.

                                     - 34 -

<PAGE>


     OTHER INCOME

     The  following  table  depicts the amounts of other income from  continuing
     operations for the years ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                                2003                2002           $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                          (dollars in thousands)
<S>                                          <C>                 <C>                  <C>                 <C>
         Other income                         $4,527              $4,248               $279                6.6%
</TABLE>

     Other income,  including interest,  was approximately $4.5 million and $4.2
     million  for the years  ended  December  31,  2003 and 2002,  respectively.
     Included in the $4.5  million is  approximately  $2.2  million  from tenant
     bankruptcy settlements.  Included in the $4.2 million is approximately $2.4
     million in termination fees. The $0.3 million increase  represented utility
     rebate and security deposit forfeitures.

     EXPENSES FROM CONTINUING PROPERTY OPERATIONS

     The  following  table  reflects  the  increase  in property  operating  and
     maintenance  expenses and real estate taxes from continuing  operations for
     the year ended  December 31, 2003 over property  operating and  maintenance
     expenses  and real estate  taxes from  continuing  operations  for the year
     ended  December 31, 2002 and the  percentage of total  increase in expenses
     over the period that is represented by each group of properties.

<TABLE>
<CAPTION>
                                                  December 31,
                                        ----------------------------------
                                                                                                    % Change by       % of Total Net
                                            2003                 2002            $ Change          Property Group         Change
                                        --------------      --------------     --------------      --------------     --------------
                                                         (dollars in thousands)
<S>                                         <C>                 <C>                <C>                  <C>                <C>
         Same Property (1)                   $17,844             $22,482            ($4,638)             (20.6%)            (19.5%)
         2002 Acquisitions (2)                 1,794               1,327                467               35.2%               2.0%
         2003 Acquisitions (3)                 1,582                   -              1,582              100.0%               6.6%
                                        --------------      --------------     --------------                         --------------
              Total/Overall                  $21,220             $23,809            ($2,589)             (10.9%)            (10.9%)
                                        ==============      ==============     ==============                         ==============
</TABLE>

(1)  "Same Property" is defined as properties  owned by us prior to 2002 that we
     still owned as of December 31, 2003.
(2)  Operating  expenses  and real  estate  taxes for 2002  Acquisitions  do not
     reflect a full 12 months of  operations  in 2002 because  these  properties
     were acquired at various times during 2002.
(3)  Operating  expenses  and real  estate  taxes for 2003  Acquisitions  do not
     reflect a full 12 months of  operations  in 2003 because  these  properties
     were acquired at various times during 2003.

     Operating expenses and real estate taxes from continuing  operations,  on a
     combined basis, decreased by ($2.6) million, or (10.9%), from $23.8 million
     for the year ended  December  31, 2002 to $21.2  million for the year ended
     December  31,  2003.  Tenant   reimbursements  from  continuing  operations
     decreased by ($1.2)  million,  or (6.2%),  from $19.9  million for the year
     ended  December 31, 2002 to $18.7  million for the year ended  December 31,
     2003. The overall decrease in tenant reimbursements, operating expenses and
     real  estate  taxes is  primarily  a result of the  reductions  in assessed
     property values on existing  properties as a result of property tax appeals
     that we filed under  California's  Proposition 8 and lower occupancy during
     the periods  presented.  Reductions in property tax assessments as a result
     of appeals  filed  under  Proposition  8 can be  immediately  increased  to
     pre-Proposition  8  assessed  values  when the County  Assessor  determines
     market conditions have improved.  Total operating  expenses and real estate
     taxes exceeded tenant  reimbursements  because of vacancies,  which reached
     approximately  1.8 million  rentable square feet by year-end 2003.  Certain
     expenses such as property  insurance,  real estate  taxes,  and other fixed
     expenses  are not  recoverable  from vacant  properties.  We expect  tenant
     reimbursements  to decrease  further in the coming year as our vacancy rate
     increases.  At  December  31, 2003 our  vacancy  rate was 23%.  General and
     administrative  expenses  decreased by  approximately  ($0.2)  million,  or
     (11%),  from $1.5  million  for the year ended  December  31,  2002 to $1.3
     million for the year ended December 31, 2003,  primarily due to the loss of
     one employee and the decrease of legal fees in 2003.

     The following  table depicts the amounts of depreciation  and  amortization
     expense of real  estate  from  continuing  operations  for the years  ended
     December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                              2003                2002             $ Change            % Change
                                          --------------      --------------     --------------      --------------
                                                            (dollars in thousands)
<S>                                         <C>                 <C>                 <C>                  <C>
         Depreciation & amortization         $20,525             $18,064             $2,461               13.6%
</TABLE>

                                     - 35 -
<PAGE>

     Depreciation  and  amortization  expense  of real  estate  from  continuing
     operations  increased by $2.5 million,  or 13.6%,  from $18 million for the
     year ended  December 31, 2002 to $20.5 million for the year ended  December
     31, 2003.  The increase was  attributable  to the  acquisition of eight R&D
     properties  in 2003.  Of the $2.5  million  increase  in  depreciation  and
     amortization  expense of real estate,  approximately $1 million represented
     amortization  expense for in place leases comprising a portion of the value
     of the assets acquired in the acquisitions of the Orchard-Trimble  property
     and the San Tomas Technology Park.

     The following table depicts the amounts of interest expense from continuing
     operations for the years ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    December 31,
                                          ----------------------------------
                                                                                                      % Change by
                                                2003                2002           $ Change              Group
                                          --------------      --------------     --------------      --------------
                                                           (dollars in thousands)
<S>                                         <C>                  <C>                <C>                  <C>
         Interest                            $16,446             $ 9,588             $6,858               71.5%
         Interest (related parties)            1,064               3,422             (2,358)             (68.9%)
                                          --------------      --------------     --------------
              Total                          $17,510             $13,010             $4,500               34.6%
                                          ==============      ==============     ==============
</TABLE>

     Interest expense increased by $6.8 million, or 71.5%, from $9.6 million for
     the year  ended  December  31,  2002 to $16.4  million  for the year  ended
     December 31, 2003. The increased expense resulted from additional debt that
     the Company incurred under a new $100 million  collateralized loan obtained
     from   Northwestern   Mutual  Life  Insurance   Company,   an  $80  million
     collateralized loan obtained from Citicorp USA, Inc. and a $40 million line
     of credit  established with Cupertino  National Bank, the proceeds of which
     were used primarily for the acquisition of the San Tomas  Technology  Park.
     Interest expense (related parties) decreased by ($2.3) million, or (68.9%),
     from $3.4 million for the year ended  December 31, 2002 to $1.1 million for
     the year ended  December 31, 2003  primarily  due to the  refinancing  of a
     portion  of the  related  party  debt  with the new third  party  financing
     discussed above.

     The new debt  carries a higher  interest  rate than the Berg  Group line of
     credit, which it mainly replaced,  contributing to the increase in interest
     expense  for the year.  We  anticipate  additional  increases  in  interest
     expense as new debt is incurred in connection  with  property  acquisitions
     and we draw on the Cupertino National Bank revolving line of credit.

     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, 2003
     and 2002.

<TABLE>
<CAPTION>
                                                         December 31,
                                             -------------------------------------
                                                                                                                % Change by
                                                  2003                  2002               $ Change                Group
                                             ----------------      ---------------      ----------------      ----------------
                                                               (dollars in thousands)
<S>                                              <C>                 <C>                  <C>                      <C>
         Net income to shareholders               $16,212             $ 17,115             ($   903)                (5.3%)
         Net income to minority interests          80,836               86,641               (5,805)                (6.7%)
                                             ----------------      ---------------      ----------------
              Total                               $97,048             $103,756             ($ 6,708)                (6.5%)
                                             ================      ===============      ================
</TABLE>

     As of December 31, 2003 and 2002, we owned a general  partnership  interest
     of 16.95%,  21.61%, 15.98% and 12.37% and 16.68%, 21.46%, 15.46% and 12.27%
     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 a 17.02% and 16.82% general
     partnership interest in the operating partnerships,  taken as a whole, on a
     weighted average basis as of December 31, 2003 and 2002, respectively.  Net
     income to common stockholders  decreased by ($0.9) million, or (5.3%), from
     $17.1 million for the year ended December 31, 2002 to $16.2 million for the
     year ended  December  31,  2003.  Our net income  attributable  to minority
     interests  decreased by ($5.8) million,  or (6.7%),  from $86.6 million for
     the year  ended  December  31,  2002 to $80.8  million  for the year  ended
     December 31,  2003.  Minority  interest  represents  the limited  partners'
     ownership interest of 82.98% and 83.18% in the operating partnerships, on a
     weighted average basis, as of December 31, 2003 and 2002, respectively. The
     decrease in the minority interest  percentage resulted from the issuance of
     additional  shares of common  stock  from the  exchange  of O.P.  Units for
     common  stock  by  minority  interest  holders  and the  exercise  of stock
     options.

                                     - 36 -

<PAGE>


     INCOME FROM DISCONTINUED OPERATIONS

     The  following  table  depicts  the  amounts  of income  from  discontinued
     operations for the years ended December 31, 2003 and 2002.


<TABLE>
<CAPTION>
                                                         December 31, 2003        December 31, 2002
                                                       ---------------------    --------------------
                                                                  (dollars in thousands)
<S>                                                         <C>                       <C>
         Gain from disposal of discontinued operations            -                 $ 6,103
         Income attributable to discontinued operations       $ 979                   1,266
         Minority interest in earnings
         attributable to discontinued operations               (768)                 (6,093)
                                                       ---------------------    --------------------
         Total income from discontinued operations            $ 211                 $ 1,276
                                                       =====================    ====================
</TABLE>

     In  accordance  with our adoption of SFAS No. 144, in 2004 we  classified a
     75,000 rentable  square feet property  separately as an asset held for sale
     on the accompanying  consolidated balance sheets and reported the operating
     results  of the  asset  held for sale as a  discontinued  operation  on the
     accompanying consolidated statements of operations. Also in accordance with
     our  adoption of SFAS No. 144, in 2002 we sold one property  consisting  of
     72,426  rentable  square feet and classified the gain on sale and operating
     results of the disposed property as discontinued operations.

     SFAS No.  144  requires  prior  period  results  of  operations  for  these
     properties to be restated and presented in discontinued operations in prior
     consolidated statements of operations.

     We recognized total income of $1 million from discontinued  operations,  of
     which  $0.2  million  and  $0.8  million   were   attributable   to  common
     stockholders  and  minority  interests,  respectively,  for the year  ended
     December 31, 2003.  For the year ended  December  31, 2002,  we  recognized
     total income from discontinued  operations of $7.4 million,  including $6.1
     million gain on sale of real estate. The income to common  stockholders and
     minority  interests  attributable  to  discontinued  operations  from these
     properties  in 2002  was  approximately  $1.3  million  and  $6.1  million,
     respectively.

                                     - 37 -
<PAGE>


     CHANGES IN FINANCIAL CONDITION

     YEAR ENDED DECEMBER 31, 2004.

     The most  significant  changes in our financial  condition in 2004 resulted
     from the  exercise  of stock  options and the  exchange  of O.P.  Units for
     shares of common stock.

     Debt  outstanding,  including  amounts due related  parties,  decreased  by
     ($3.9) million,  or (1.1%),  from $340.9 million as of December 31, 2003 to
     $337.0  million as of  December  31,  2004 due to  recurring  debt  service
     obligations. Interest rates continued to remain low in 2004.

     During the year ended  December 31, 2004,  stock options were  exercised to
     purchase a total of 20,000  shares of common  stock,  consisting  of 20,000
     shares  exercised  at $8.25 per share.  Total  proceeds to the Company were
     approximately $165,000.

     In 2004,  three limited partners  exchanged  124,500 O.P. Units for 124,500
     shares of the  Company's  common stock under the terms of the December 1998
     Exchange Rights Agreement among the Company and the limited partners of the
     operating  partnerships.  In 2004,  Carl E. Berg gave 58,000 O.P.  Units to
     charitable  institutions  that  exchanged  them for  58,000  shares  of the
     Company's  common  stock  pursuant to the  December  1998  Exchange  Rights
     Agreement.

     The proceeds from the exercise of stock options and the  conversion of O.P.
     Units to shares of the Company's  common stock were applied to increase our
     percentage interest as general partner in the operating partnerships.

     YEAR ENDED DECEMBER 31, 2003.

     The most  significant  changes in our financial  condition in 2003 resulted
     from property  acquisitions.  In addition,  stockholders'  equity increased
     from the  exercise  of stock  options and the  exchange  of O.P.  Units for
     common stock.

     During 2003,  we acquired one R&D property and a 50% interest in the Morgan
     Hill joint venture with TBI from the Berg Group.  Those  acquisitions added
     approximately 129,000 square feet of rentable space and were acquired under
     the Berg Land Holdings Option Agreement.  The total gross acquisition price
     was  approximately   $13.0  million.  We  financed  those  acquisitions  by
     borrowing  $9  million  under  our line of credit  from the Berg  Group and
     issuing  350,163  O.P.  Units to  various  members  of the Berg  Group.  In
     addition to those two purchases,  we also acquired the San Tomas Technology
     Park, which was financed with a combination of an $80 million mortgage note
     at LIBOR plus 200 basis points,  cash reserves,  and cash proceeds from our
     line of  credit  with  Cupertino  National  Bank.  This  acquisition  added
     approximately 625,000 rentable square feet to our portfolio.

     As a result of those property  acquisitions,  debt  outstanding,  including
     amounts due related parties,  increased by $102.1 million,  or 42.8%,  from
     $238.8 million as of December 31, 2002 to $340.9 million as of December 31,
     2003.  Interest rates  continued to remain low in 2003,  which lessened the
     effect of the additional debt on total interest expense. We expect interest
     expense to increase if we acquire  additional  properties or interest rates
     increase in 2004.

     During the year ended  December 31, 2003,  stock options were  exercised to
     purchase a total of 150,362  shares of common  stock,  consisting of 60,362
     shares  exercised at $4.50 per share and 90,000  shares  exercised at $8.25
     per share. Total proceeds to the Company were approximately $1 million.

     In 2003,  three limited partners  exchanged  257,000 O.P. Units for 257,000
     shares of the  Company's  common stock under the terms of the December 1998
     Exchange Rights Agreement among the Company and the limited partners of the
     operating partnerships.

     The proceeds from the exercise of stock options and the  conversion of O.P.
     Units to shares of the Company's  common stock were applied to increase our
     percentage interest as general partner in the operating partnerships.

                                     - 38 -

<PAGE>


     LIQUIDITY AND CAPITAL RESOURCES

     In 2005 we anticipate a decline in operating  cash flows from our operating
     property portfolio compared to 2004 because of reduced demand for R&D space
     in the Silicon Valley, lower rental rates for new and renewed leases signed
     in 2004 and an increase in vacant  properties in 2004.  In addition,  if we
     are  unable to lease a  significant  portion of the  approximately  501,000
     rentable  square feet  scheduled  to expire in 2005 and  current  available
     space, our operating cash flows would be further affected  adversely.  With
     the  expectation of lower revenues for the full year of 2005, we expect our
     net operating  income to continue to decline from 2004. 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. It is reasonably likely that vacancy rates may
     continue to increase and effective  rental rates on new and renewed  leases
     may continue to decrease in 2005.

     We  expect  our  principal   source  of  liquidity  for   distributions  to
     stockholders and O.P. Unit holders,  debt service,  leasing commissions and
     recurring  capital  expenditures  to come from cash  provided by operations
     and/or  the  borrowings  under the lines of credit  with the Berg Group and
     Cupertino  National  Bank.  We expect  these  sources  of  liquidity  to be
     adequate  to  meet  projected   distributions  to  stockholders  and  other
     presently anticipated liquidity requirements in 2005. We expect to meet our
     long-term liquidity  requirements for the funding of property  development,
     property acquisitions and other material non-recurring capital improvements
     through  long-term  secured and unsecured  indebtedness and the issuance of
     additional  equity  securities by us. As of December 31, 2004 and 2003, the
     Company's  total debt as a percentage  of total market  capitalization  was
     23.3% and  20.1%,  respectively.  We have the  ability  to meet  short-term
     obligations or other liquidity needs based on lines of credit with the Berg
     Group and  Cupertino  National  Bank.  Despite the current  weakness in the
     economy, we expect our total interest expense to increase as interest rates
     rise and through new financing activities. In 2005, we will be obligated to
     make payments totaling  approximately  $8.3 million of debt principal under
     mortgage  notes  without  regard  to  any  debt  refinancing  or  new  debt
     obligations that we might incur, or optional payments of debt principal.

     Effective  January 1, 2003, the Company and the Berg Group mutually  agreed
     to reduce the Berg Group $100  million line of credit to $20 million and to
     reduce the number of  properties  securing the line of credit to five.  The
     Berg Group line of credit  bears  interest at LIBOR plus  1.30%,  which was
     4.08% as of December  31,  2004,  and  matures in March 2006.  Debt of $9.6
     million under this line of credit was  outstanding at December 31, 2004. We
     believe that the terms of the Berg Group line of credit were more favorable
     than  those  available  from  institutional  lenders.  We  are  continually
     evaluating  alternative sources of credit to replace the Berg Group line of
     credit.  There can be no assurance that we will be able to obtain a line of
     credit with terms similar to the Berg Group line of credit, and its cost of
     borrowing  could  increase  substantially.  See  Item 1,  "Business  - Risk
     Factors  - Our  contractual  business  relationships  with the  Berg  Group
     presents  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."

     On April 9, 2003, we obtained an $80 million short-term  mortgage loan from
     Citicorp USA, Inc.  ("Citicorp  Loan") that bears interest at LIBOR plus 2%
     and originally  matured on March 29, 2004. We and Citicorp agreed to extend
     the loan to May 27,  2004 and again to  September  6, 2004.  On October 14,
     2004, we concluded the extension of the Citicorp Loan for an additional two
     years until September 6, 2006. The Citicorp Loan requires monthly principal
     payments of $215,000 and carries a variable interest rate of LIBOR plus 2%.
     The loan fee and  costs  incurred  in  connection  with the  mortgage  loan
     extension amounted to approximately $142,000 and will be amortized over the
     term  of the  loan.  Under  the  previous  loan  terms,  Carl E.  Berg  had
     personally  guaranteed  our repayment  obligations  and provided a personal
     guaranty of our  obligation to indemnify  the lender for certain  potential
     environmental  liabilities  with respect to the pledged  properties.  Those
     guaranties were provided in conjunction with Citicorp's  short-term loan of
     $80 million for our  acquisition of the San Tomas  Technology Park and were
     released  by  Citicorp  as part of the  most  recent  loan  extension.  The
     Citicorp  Loan is secured by eight of our  properties.  The  Citicorp  Loan
     terms require us to maintain a minimum excess of assets over liabilities of
     $400 million,  in addition to complying with other customary loan covenants
     and  conditions.  In connection with the extension of the Citicorp Loan, we
     retired an 8.75% mortgage loan from Prudential  Capital Group with $548,000
     of outstanding  principal in October 2004, which had been collateralized by
     one property located at 20400 Mariani Avenue in Cupertino, California. This
     property has been added as additional collateral under the Citicorp Loan.

     We have a $40 million line of credit with  Cupertino  National Bank ("CNB")
     that expires on November 2, 2006. We are the borrower under the CNB line of
     credit which is  guaranteed  by Mission West  Properties,  L.P. and Mission
     West Properties, L.P. II.

     The CNB line of credit and Citicorp Loan contain certain financial loan and
     reporting  covenants as defined in the loan agreements.  As of December 31,
     2004, we were in compliance with these loan covenants.

     Since  1999,  we have  elected  to be taxed as a REIT  under  the  Internal
     Revenue Code of 1986. We currently  intend to continue  operating as a REIT
     in 2005.  As a REIT,  we are  subject  to a number  of  organizational  and
     operating  requirements,  including a

                                     - 39 -
<PAGE>

     requirement to distribute 90% of our taxable income to our shareholders. As
     a REIT,  we  generally  will not be subject to federal  income taxes on our
     taxable income.

     Generally, our objective is to meet our short-term liquidity requirement of
     funding the payment of our current level of quarterly  common  dividends to
     shareholders  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.

     In order to better  align  with this  objective  in 2005,  we  reduced  our
     quarterly  dividend  payment  rate to  common  shareholders  and O.P.  Unit
     holders  from a rate of $0.24 per share to $0.16 per share  effective  with
     the  quarterly  dividend paid for the fourth  quarter of 2004.  The factors
     that led to the fourth quarter 2004 dividend  reduction were the decline in
     economic and market  conditions  in the Silicon  Valley,  the  reduction in
     Microsoft's  rent  under its new lease and the  slower  lease-up  of vacant
     properties  resulting  in  lower  cash  flow  from our  operating  property
     portfolio.  For 2005, we expect to maintain our current quarterly  dividend
     payment  rate to common  shareholders  and O.P.  Unit  holders of $0.16 per
     share.  However,  distributions are declared at the discretion of our Board
     of Directors and are subject to actual cash available for distribution, our
     financial  condition,  capital  requirements and such other factors, as our
     Board of Directors deems relevant.

     On January 7, 2005, we paid dividends of $0.16 per share of common stock to
     all common  stockholders  of record as of December  31,  2004.  On the same
     date, the operating partnerships paid a distribution of $0.16 per O.P. Unit
     to all holders of O.P. Units.

     CONTRACTUAL OBLIGATIONS

     The following table  identifies our contractual  obligations as of December
     31, 2004 that will impact our liquidity and cash flow in future periods:

<TABLE>
<CAPTION>
                                        ------------ ------------ ------------- ------------ ------------ ------------- ------------
                                            2005         2006         2007          2008         2009      Thereafter       Total
                                        ------------ ------------ ------------- ------------ ------------ ------------- ------------
                                                                           (dollars in thousands)
<S>                                       <C>         <C>            <C>         <C>           <C>          <C>         <C>
         Long-Term Debt Obligations (1)    $8,284      $115,940       $6,350      $116,674      $4,382       $85,380     $337,010

         Operating Lease Obligations (2)       90            90           23             -           -             -          203
                                        ------------ ------------ ------------- ------------ ------------ ------------- ------------
         Total                             $8,374      $116,030       $6,373      $116,674      $4,382       $85,380     $337,213
                                        ============ ============ ============= ============ ============ ============= ============
</TABLE>

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

     At December 31,  2004,  we had total  indebtedness  of  approximately  $337
     million, including approximately $224.5 million of fixed rate mortgage debt
     and approximately $112.5 million under the loan from Citicorp USA, Inc. and
     the lines of credit from the Berg Group and Cupertino  National Bank, as to
     which the  interest  rate  varies with  LIBOR.  Of total  fixed  debt,  the
     Prudential and Northwestern loans represented  approximately $119.4 million
     and $94.5  million,  respectively.

                                     - 40 -
<PAGE>

The following table sets forth certain information regarding debt outstanding as
of December 31, 2004.

<TABLE>
<CAPTION>
                                                                                           At December 31,   Maturity    Interest
               Debt Description                           Collateral Properties                 2004           Date        Rate
   ----------------------------------------- ------------------------------------------- ------------------ ---------- -------------
                                                                                      (dollars in thousands)
   Line of Credit:
<S>                                         <C>                                              <C>              <C>          <C>
   Berg Group (related parties)              2033-2043 Samaritan Drive, San Jose, CA          $ 9,560           3/06          (1)
                                             2133 Samaritan Drive, San Jose, CA          ------------------
                                             2233-2243 Samaritan Drive, San Jose, CA
                                             1310-1450 McCandless Drive, Milpitas, CA
                                             1795-1845 McCandless Drive, Milpitas, CA

   Cupertino National Bank                   Not Applicable                                    24,208          11/06          (4)
                                                                                         ------------------

   Mortgage Notes Payable (related parties): 5300-5350 Hellyer Avenue, San Jose, CA            10,420           6/10        7.650%
                                                                                         ------------------

   Mortgage Notes Payable (2):
   Washington Mutual                         10460 Bubb Road, Cupertino, CA                       154          12/06        9.500%
   Prudential Insurance Company of America   10300 Bubb Road, Cupertino, CA                   119,441          10/08        6.560%
   (3)                                       10500 North De Anza Blvd, Cupertino, CA
                                             4050 Starboard Drive, Fremont, CA
                                             45700 Northport Loop, Fremont, CA
                                             45738 Northport Loop, Fremont, CA
                                             450 National Ave, Mountain View, CA
                                             6311 San Ignacio Avenue, San Jose, CA
                                             6321 San Ignacio Avenue, San Jose, CA
                                             6325 San Ignacio Avenue, San Jose, CA
                                             6331 San Ignacio Avenue, San Jose, CA
                                             6341 San Ignacio Avenue, San Jose, CA
                                             6351 San Ignacio Avenue, San Jose, CA
                                             3236 Scott Blvd, Santa Clara, CA
                                             3560 Bassett Street, Santa Clara, CA
                                             3570 Bassett Street, Santa Clara, CA
                                             3580 Bassett Street, Santa Clara, CA
                                             1135 Kern Avenue, Sunnyvale, CA
                                             1212 Bordeaux Lane, Sunnyvale, CA
                                             1230 East Arques, Sunnyvale, CA
                                             1250 East Arques, Sunnyvale, CA
                                             1170 Morse Avenue, Sunnyvale, CA
                                             1600 Memorex Drive, Santa Clara, CA
                                             1688 Richard Avenue, Santa Clara, CA
                                             1700 Richard Avenue, Santa Clara, CA
                                             3540 Bassett Street, Santa Clara, CA
                                             3542 Bassett Street, Santa Clara, CA
                                             3544 Bassett Street, Santa Clara, CA
                                             3550 Bassett Street, Santa Clara, CA

   Northwestern Mutual Life Ins. Co.(5)      1750 Automation Parkway, San Jose, CA             94,517           1/13        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 Ave., San Jose, CA
                                             2251 Lawson Lane, Santa Clara, CA
                                             1325 McCandless Drive, Milpitas, CA
                                             1650-1690 McCandless Drive, Milpitas, CA
                                             20605-20705 Valley Green Dr., Cupertino, CA

   Citicorp USA, Inc.                        2001 Walsh Avenue, Santa Clara, CA                78,710           9/06          (4)
                                             2880 Scott Boulevard, Santa Clara, CA
                                             2890 Scott Boulevard, Santa Clara, CA
                                             2770-2800 Scott Boulevard, Santa Clara, CA
                                             2220 Central Expressway, Santa Clara, CA
                                             2300 Central Expressway, Santa Clara, CA
                                             2330 Central Expressway, Santa Clara, CA
                                             20400 Mariani Avenue, Cupertino, CA
                                                                                         ------------------
   Mortgage Notes Payable                                                                     292,822


                                                                                         ------------------
   Total                                                                                     $337,010
                                                                                         ==================
</TABLE>

                                     - 41 -
<PAGE>


(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2006. The interest rate was 4.08% at December 31, 2004.

(2)  Mortgage notes payable generally  require monthly  installments of interest
     and principal  ranging from $8 to $827 over various terms extending through
     the year 2013. The weighted average interest rate of mortgage notes payable
     was 6.23% at December 31, 2004.

(3)  The Prudential  Insurance loan is payable in monthly  installments of $827,
     which includes principal (based upon a 30-year  amortization) and interest.
     A limited  partner,  who is not a member of the Berg Group,  has guaranteed
     approximately  $12  million  of this  debt.  Costs and fees  incurred  with
     obtaining this loan aggregated  approximately $900, which were deferred and
     amortized over the loan period.

(4)  Interest  rate equal to LIBOR plus 2%. The interest  rate for the Cupertino
     National Bank line of credit and the Citicorp  USA,  Inc.  mortgage loan at
     December  31, 2004 was 4.29% and 4.18%,  respectively.  As of December  31,
     2004, we were in compliance  with the financial  covenants  under each loan
     agreement.

(5)  The  Northwestern  loan is payable in monthly  installments of $696,  which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and fees incurred with obtaining this loan aggregated  approximately  $675,
     which were deferred and amortized over the loan period.


     At December 31, 2004, our debt to total market  capitalization ratio, which
     is computed as our total debt outstanding  divided by the sum of total debt
     outstanding  plus the market  value of common stock (based upon the closing
     price of $10.64 per share on December 31, 2004) on a fully  diluted  basis,
     including  the  conversion  of  all  O.P.  Units  into  common  stock,  was
     approximately  23.3%.  On December 31,  2004,  the last trading day for the
     year, total market capitalization was approximately $1.45 billion.

     At December 31, 2004,  the  outstanding  balance  remaining  under  certain
     demand notes that we owed to the operating  partnerships was $1.59 million.
     The due date of the demand notes has been  extended to September  30, 2006.
     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  statement of operations,  thereby
     reducing our net income by this same amount. At present, our only means for
     repayment  of this debt is through  distributions  that we receive from the
     operating  partnerships that are in excess of the amount of dividends to be
     paid to our stockholders.

                                     - 42 -

<PAGE>


     HISTORICAL CASH FLOWS

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2004 TO THE YEAR ENDED  DECEMBER
     31, 2003.

     Net cash provided by operating  activities  for the year ended December 31,
     2004 was  approximately  $105.1 million,  compared to approximately  $116.5
     million for the prior year.  The  decrease  in cash  provided by  operating
     activities  resulted from lower market  rental rates,  reductions in tenant
     expense  reimbursements  and the loss of several tenants due to their lease
     default,  cessation of operations,  or  relocations  resulting in increased
     vacancy rates that offset cash savings.

     Net cash used in investing  activities for  improvements to real estate was
     approximately ($1.5) million for the year ended December 31, 2004, compared
     to approximately  ($110) million for the prior year. Cash used in investing
     activities  during 2003 related to  financing  the  acquisition  of the San
     Tomas  Technology  Park  of $110  million  as  well  as new  equipment  and
     improvements of $1.4 million.

     Net cash used in financing  activities was  approximately  ($106.2) million
     for the year ended  December 31, 2004,  compared to ($6.9)  million for the
     year ended December 31, 2003.  During 2004, we paid debt principal and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating  activities and other borrowed funds. During 2003,
     financing   activities  included  borrowing  $180  million  under  two  new
     collateralized  mortgage  loans,  of which $100  million  was used to repay
     short-term  debt and the Berg Group line of credit and $80 million was used
     for the  acquisition of the San Tomas  Technology  Park. For the year ended
     December  31,  2004,  we  paid  dividends  to  our  stockholders  and  made
     distributions  to O.P. Unit holders  totaling  approximately  $101 million,
     compared to  approximately  $100.1  million for the year ended December 31,
     2003. Additionally, in 2004 we repaid $3.3 million under our line of credit
     with the Berg Group.

     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2003 TO THE YEAR ENDED  DECEMBER
     31, 2002.

     Net cash provided by operating  activities  for the year ended December 31,
     2003 was  approximately  $116.5 million,  compared to approximately  $117.4
     million for the prior year.  The  decrease  in cash  provided by  operating
     activities  resulted  from adverse  market  conditions  and loss of several
     tenants due to bankruptcy,  cessation of operations,  or tenant  relocation
     resulting in increased vacancy rates that offset cash savings.

     Net cash used in investing  activities was approximately ($110) million for
     the year ended December 31, 2003, compared to approximately ($20.7) million
     for the prior year. Cash used in investing  activities  during 2003 related
     to  financing  the  acquisition  of the San Tomas  Technology  Park of $110
     million as well as new equipment and improvements of $1.4 million.

     Net cash used in financing  activities was approximately ($6.9) million for
     the year ended December 31, 2003,  compared to ($97.5) million for the year
     ended  December 31,  2002.  During 2003,  we paid debt  principal  and made
     distributions  to holders of our common stock and O.P. Units utilizing cash
     generated from operating  activities  and other borrowed  funds.  Financing
     activities in 2003 also consisted of a $100 million collateralized mortgage
     loan from  Northwestern  Mutual  Life  Insurance  Company,  an $80  million
     collateralized mortgage loan from Citicorp USA, Inc. and a $40 million line
     of credit  established  with Cupertino  National Bank in July 2002 of which
     $24.0  million  had  been  drawn  as of the year  end.  For the year  ended
     December  31,  2003,  we  paid  dividends  to  our  stockholders  and  made
     distributions  to the  O.P.  Unit  holders  totaling  approximately  $100.1
     million,  compared  to  approximately  $99.7  million  for the  year  ended
     December 31, 2002. Additionally, during 2003, we repaid $61.5 million under
     our  line of  credit  with  the  Berg  Group  and  $20  million  under  our
     uncollateralized loan with Citicorp USA, Inc.

     CAPITAL EXPENDITURES

     The properties  require periodic  investments of capital for tenant-related
     capital  expenditures and for general capital  improvements.  For the years
     ended   December  31,  2000  through   December  31,  2004,  the  recurring
     tenant/building  improvement  costs and leasing  commissions  incurred with
     respect  to new  leases  and  lease  renewals  of the  properties  averaged
     approximately  $2.3 million annually.  We will have  approximately  501,000
     rentable  square  feet under  expiring  leases in 2005.  We expect that the
     average annual cost of recurring  tenant/building  improvements and leasing
     commissions,  related  to  these  properties,  will be  approximately  $2.0
     million during 2005. 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 long-term
     secured and unsecured  indebtedness  and the issuance of additional  equity
     securities  by the  Company,  but cannot be assured that we will be able to
     meet our  requirements  on  favorable  terms.  See "Policy  with Respect to
     Certain Activities - Financing Policies."

                                     - 43 -
<PAGE>

     FUNDS FROM OPERATIONS

     FFO is a non-GAAP  financial  measurement  used by real  estate  investment
     trusts to measure and compare operating performance.  As defined by NAREIT,
     FFO  represents  net income  (loss) before  minority  interest of O.P. Unit
     holders,  computed in accordance with GAAP, including  non-recurring events
     other than "extraordinary items" under GAAP and gains and losses from sales
     of depreciable operating properties,  plus real estate related depreciation
     and amortization,  excluding  amortization of deferred  financing costs and
     depreciation  of  non-real  estate  assets,   and  after   adjustments  for
     unconsolidated partnerships and joint ventures. Management considers FFO an
     appropriate  measure of performance  of an equity REIT because,  along with
     cash flows from operating  activities,  financing  activities and investing
     activities,  it provides  investors with an understanding of our ability to
     incur and service debt and make capital expenditures.  With the emphasis on
     the disclosure of operating  earnings per share,  we will still continue to
     use FFO as a  measure  of the  Company's  performance.  FFO  should  not be
     considered as an alternative  for net income as a measure of  profitability
     nor is it  comparable  to  cash  flows  provided  by  operating  activities
     determined in accordance  with GAAP, nor is FFO  necessarily  indicative of
     funds  available  to meet our cash needs,  including  our need to make cash
     distributions  to  satisfy  REIT  requirements.  For  example,  FFO  is not
     adjusted for  payments of debt  principal  required  under our debt service
     obligations.

     Our  definition  of FFO also  assumes  conversion  at the  beginning of the
     period of all convertible  securities,  including  minority  interests that
     might be exchanged for common stock.  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.

     The FFO for the years ended December 31, 2004,  2003,  2002,  2001 and 2000
     are as follows:

<TABLE>
<CAPTION>
                                                                                For the Year Ended December 31,
                                                            ------------------------------------------------------------------------
                                                                2004           2003          2002           2001          2000
                                                            -------------- ------------- -------------- ------------- --------------
                                                                                     (dollars in thousands)
<S>                                                          <C>           <C>            <C>           <C>            <C>
        Net income to common stockholders                    $ 13,312      $ 16,212       $ 17,115      $ 18,086        $12,579
        Add:
            Minority interests (1)                             65,614        80,256         86,053        90,662         58,769
            Depreciation and amortization of real estate (2)   24,394        22,850         21,379        17,718         15,803
        Less:
            Gain on sales of joint venture assets or assets         -        (1,400)        (6,103)      (11,453)          (501)
                                                            -------------- ------------- -------------- ------------- --------------
        FFO                                                  $103,320      $117,918       $118,444      $115,013        $86,650
                                                            ============== ============= ============== ============= ==============
</TABLE>

(1)  The minority interest for third parties totaling $486, $581, $587, $650 and
     $284 in 2004,  2003, 2002, 2001 and 2000,  respectively,  was deducted from
     total minority interest in calculating FFO.
(2)  Also includes our portion of depreciation  and  amortization of real estate
     from our unconsolidated  joint venture totaling $874 in both 2004 and 2003,
     and amortization of leasing commissions  totaling $1,644,  $1,203,  $3,020,
     $694  and  $346  in  2004,  2003,   2002,  2001  and  2000,   respectively.
     Amortization of leasing  commissions is included in the property operating,
     maintenance  and real estate taxes line item in the Company's  consolidated
     statements of operations.

     OVERVIEW OF DISTRIBUTION POLICY

     We intend to make regular quarterly  distributions to stockholders and O.P.
     Unit holders based on our funds available for distributions. Our ability to
     make such  distributions  will be affected by numerous  factors  including,
     most  importantly,   the  receipt  of  distributions   from  the  operating
     partnerships.

     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.

                                     - 44 -
<PAGE>

     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.

     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 Part I, Item 1,  "Business - 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  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 or securities of other
     real estate investment  trusts, and we do not have any present intention to
     make such investments.

     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

                                     - 45 -
<PAGE>

     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 general  partnership  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.

     DISPOSITION POLICIES

     From time to time we may dispose of properties in our portfolio, subject to
     the required  approvals  as set forth  below.  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.  Consequently, it may be in the
     interests of the limited  partners that we continue to hold the  properties
     in order to defer  such  taxable  gain.  In light of this tax  effect,  the
     operating partnership  agreements provide that, until December 29, 2008, or
     until the Berg Group  members and their  affiliates,  other than us and the
     operating partnerships,  beneficially own, in the aggregate,  less than 15%
     of the  outstanding  shares of common stock on a Fully  Diluted  basis,  if
     earlier,  Carl E.  Berg  and  Clyde  J.  Berg may  prohibit  the  operating
     partnerships from disposing of properties which they designate in a taxable
     transaction.  Mr.  Kontrabecki has a similar right with respect to seven of
     the  properties,  which  right  will lapse  before the end of the  ten-year
     period if his beneficial ownership interest falls below 750,000 O.P. Units.
     The limited  partners  may seek to cause us to retain the  properties  even
     when such action may not be in the interests of some, or a majority, of our
     stockholders.   The   operating   partnerships   will  be  able  to  effect
     "tax-deferred,"  like-kind  exchanges under Section 1031 of the Code, or in
     connection with other non-taxable  transactions,  such as a contribution of
     property to a new partnership,  without obtaining the prior written consent
     of  these  individuals.  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.

                                     - 46 -

<PAGE>


     IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

     In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Non-monetary
     Assets"  ("SFAS No. 153").  SFAS No. 153 amends the guidance in APB Opinion
     No. 29,  "Accounting for Non-monetary  Transactions"  to eliminate  certain
     exceptions  to the  principle  that  exchanges  of  non-monetary  assets be
     measured  based on the fair  value of the  assets  exchanged.  SFAS No. 153
     eliminates the exception for non-monetary  exchanges of similar  productive
     assets  and  replaces  it  with  a  general   exception  for  exchanges  of
     non-monetary assets that do not have commercial  substance.  This statement
     is effective for  non-monetary  asset  exchanges in fiscal years  beginning
     after June 15,  2005.  The adoption of SFAS No. 153 is not expected to have
     an impact on our consolidated results of operations,  financial position or
     cash flows.

                                     - 47 -

<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  and  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  effect on the results of our  operations.  This takes
     frequent   evaluation  of  available   lending  rates  and  examination  of
     opportunities  to reduce  interest  expense  through  new  sources  of debt
     financing.  Several  factors  affecting  the  interest  rate  risk  include
     governmental   monetary  and  tax  policies,   domestic  and  international
     economics  and other  factors  that are beyond our control.  The  following
     table provides information about the principal cash flows, weighted average
     interest  rates,  and expected  maturity  dates for debt  outstanding as of
     December 31, 2004.  The current terms of this debt are described in Item 7,
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations - Liquidity and Capital  Resources."  Average interest rates are
     based  on  implied  LIBOR  for  the  respective  time  period.  Fair  value
     approximates book value for fixed rate debt. Of the projected fair value of
     collateralized  notes  payable,  approximately  $119.4  million  and  $94.5
     million   represent  the   Prudential  and   Northwestern   secured  loans,
     respectively.

     For  variable  rate  debt,  the  table  presents  the  assumption  that the
     outstanding  principal  balance  at  December  31,  2004  will be paid upon
     maturity.

     For fixed rate debt, the table presents the assumption that the outstanding
     principal  balance at December 31, 2004 will be paid according to scheduled
     principal  payments  and that we will  not  prepay  any of the  outstanding
     principal balance.

<TABLE>
<CAPTION>
                                                2005       2006       2007      2008      2009   Thereafter    Total   Fair Value
                                                ----       ----       ----      ----      ----   ----------    -----   ----------
                                                                          (dollars in thousands)
<S>                                          <C>      <C>          <C>     <C>         <C>        <C>        <C>        <C>
             VARIABLE RATE DEBT:
             Secured and unsecured debt       $2,580   $109,898                                               $112,478   $112,478
             Weighted average interest rate    4.19%      4.19%

             FIXED RATE DEBT:
             Secured notes payable            $5,704     $6,042     $6,350  $116,674    $4,382     $85,380    $224,532   $244,309
             Weighted average interest rate    6.23%      6.23%      6.23%     6.23%     6.23%       6.23%
</TABLE>

     The variable rate debt represented  33.4% and 32.4% and the fixed rate debt
     represented  66.6% and 67.6% of all debt  outstanding  for the years  ended
     December 31, 2004 and 2003, respectively. All of the debt is denominated in
     United States dollars. The weighted average interest rate for variable rate
     debt was  approximately  4.19% and 3.13% for the years ended  December  31,
     2004 and 2003,  respectively.  The difference in spread was due to numerous
     increases in interest  rates by the Federal  Reserve Board during 2004. The
     weighted average interest rate for fixed rate debt was approximately  6.23%
     for the years ended  December 31, 2004 and 2003. The difference in interest
     expense  attributable to the average interest rate difference  between 2003
     and 2004 was $1.1 million,  which was a result of new debt obtained  during
     2003 and  higher  balances  of our lines of credit in 2004.  We  anticipate
     interest rate increases from 2004 to 2005 for our variable rate debt.

     The primary market risk we face is the risk of interest rate  fluctuations.
     The Berg Group line of credit,  the Cupertino  National Bank line of credit
     and the Citicorp USA, Inc.  loan,  which are tied to a LIBOR based interest
     rate,  were  approximately  $112.5  million,  or 33.4%,  of the total  $337
     million of debt as of December 31, 2004. As a result, we pay lower rates of
     interest  in  periods of  decreasing  interest  rates and  higher  rates of
     interest in periods of increasing  interest rates. At December 31, 2004, we
     had no interest rate caps or interest rate swap contracts.

     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,  2004,  a 1%
     increase or decrease  in interest  rates on our $112.5  million of floating
     rate debt would  decrease or increase,  respectively,  annual  earnings and
     cash flows by approximately  $1.1 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.

                                     - 48 -
<PAGE>



ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          MISSION WEST PROPERTIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                   PAGE
                                                                                                                 ---------
<S>                                                                                                                <C>
Management Report on Internal Control over Financial Reporting                                                      50
Report of Independent Registered Public Accounting Firm                                                             51
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting                52
Consolidated Balance Sheets at December 31, 2004 and 2003                                                           53
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002                          54
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002                55
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                          56
Notes to the Consolidated Financial Statements                                                                      57
Supplemental Financial Information                                                                                  76
Report of Independent Registered Public Accounting Firm                                                             78
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2004                                      80
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2003                                      82
</TABLE>

                                     - 49 -
<PAGE>


         MANAGEMENT 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. Mission
West Properties,  Inc.'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 accounting principles generally accepted in the United States of
America.  Internal  control over  financial  reporting  includes  those  written
policies and procedures that:

-    pertain  to  the  maintenance  of  records  that,  in  reasonable   detail,
     accurately  and fairly reflect the  transactions  and  dispositions  of the
     assets of Mission West Properties, Inc.;
-    provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation of financial  statements in accordance  with accounting
     principles generally accepted in the United States of America;
-    provide reasonable assurance that receipts and expenditures of Mission West
     Properties,  Inc. are being made only in accordance with  authorization  of
     management and directors of Mission West Properties, Inc.; and
-    provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized  acquisition,  use or  disposition of assets that could have a
     material effect on the consolidated financial statements.

Internal  control over  financial  reporting  includes the controls  themselves,
monitoring  and  internal  auditing  practices  and  actions  taken  to  correct
deficiencies as identified.

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.

Management  assessed  the  effectiveness  of  Mission  West  Properties,  Inc.'s
internal  control over financial  reporting as of December 31, 2004.  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 as of December 31, 2004,
Mission  West  Properties,  Inc.  maintained  effective  internal  control  over
financial reporting.

BDO Seidman, LLP, independent registered public accounting firm, who audited and
reported on the  consolidated  financial  statements of Mission West Properties,
Inc.  included in this  Annual  Report on Form 10-K,  has issued an  attestation
report on management's assessment of internal control over financial reporting.

                                     - 50 -
<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. as of December 31, 2004 and 2003 and the related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
three years in the period ended December 31, 2004.  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 consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of Mission  West
Properties,  Inc.  at  December  31,  2004  and  2003,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2004, 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  effectiveness of Mission West
Properties,  Inc.'s internal control over financial reporting as of December 31,
2004, based on criteria  established in Internal Control - Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
(COSO) and our report dated January 28, 2005  expressed an  unqualified  opinion
thereon.

\S\ BDO Seidman, LLP


San Francisco, California
January 28, 2005, except for Note 19
which is as of March 1, 2005

                                     - 51 -
<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 management's assessment, included in the accompanying Management
Report  on  Internal  Control  over  Financial  Reporting,   that  Mission  West
Properties,  Inc. maintained effective internal control over financial reporting
as  of  December  31,   2004,   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. Our responsibility is to express an opinion on
management's  assessment  and an opinion on the  effectiveness  of 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,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, 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 the  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,  management's  assessment  that Mission  West  Properties,  Inc.
maintained  effective  internal control over financial  reporting as of December
31,  2004,  is  fairly  stated,  in all  material  respects,  based  on the COSO
criteria. Also, in our opinion, Mission West Properties, Inc. maintained, in all
material  respects,  effective  internal control over financial  reporting as of
December 31, 2004, 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 as
of  December  31,  2004 and 2003,  and the related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the period ended December 31, 2004, and the financial  statement schedule listed
in the  accompanying  index,  of Mission West  Properties,  Inc. and our reports
dated January 28, 2005, expressed an unqualified opinion thereon.

\S\BDO Seidman, LLP


San Francisco, California
January 28, 2005


                                     - 52 -

<PAGE>


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

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                             December 31,
                                                                             ---------------------------------------------
                                                                                     2004                    2003
                                                                             ----------------------  ---------------------
Real estate assets:
<S>                                                                              <C>                    <C>
  Land                                                                            $  273,663             $  275,707
  Buildings and improvements                                                         770,757                779,636
  Real estate related intangible assets                                               18,284                 19,651
                                                                             ----------------------  ---------------------
      Total investments in properties                                              1,062,704              1,074,994
  Less accumulated depreciation and amortization                                    (110,062)               (89,243)
  Assets held for sale, net of accumulated depreciation of $1,578 at 12/31/04          8,221                      -
                                                                             ----------------------  ---------------------
      Net investments in properties                                                  960,863                985,751

Cash and cash equivalents                                                              1,519                  4,129
Restricted cash                                                                        1,551                      -
Deferred rent receivable, net of $2,000 allowance at
  December 31, 2004 and 2003                                                          18,511                 18,970
Investment in unconsolidated joint venture                                             3,559                  2,285
Other assets, net of accumulated amortization of
  $5,667 and $4,211 at December 31, 2004 and 2003, respectively                       19,653                 21,497
                                                                             ----------------------  ---------------------
    Total assets                                                                  $1,005,656             $1,032,632
                                                                             ======================  =====================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Line of credit (related parties)                                                  $    9,560            $     6,320
Revolving line of credit                                                              24,208                 23,965
Mortgage notes payable                                                               292,822                299,858
Mortgage note payable (related parties)                                               10,420                 10,762
Interest payable                                                                         327                    332
Security deposits                                                                      8,544                 10,248
Deferred rental income                                                                11,038                 12,723
Liabilities related to assets held for sale                                               14                      -
Dividend/distribution payable                                                         16,718                 25,031
Accounts payable and accrued expenses                                                  6,704                  5,085
                                                                             ----------------------  ---------------------
    Total liabilities                                                                380,355                394,324
                                                                             ----------------------  ---------------------

Commitments and contingencies

Minority interests                                                                   512,089                524,918

Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000 shares authorized,
    none issued and outstanding                                                            -                      -
Common stock, $.001 par value at December 31, 2004 and 2003,
    200,000,000 shares authorized, 18,097,191 and 17,894,691 shares
    issued and outstanding at December 31, 2004 and 2003, respectively                    18                     18
Paid-in capital                                                                      134,539                132,136
Accumulated deficit                                                                  (21,345)               (18,764)
                                                                             ----------------------  ---------------------
    Total stockholders' equity                                                       113,212                113,390
                                                                             ----------------------  ---------------------
    Total liabilities and stockholders' equity                                    $1,005,656             $1,032,632
                                                                             ======================  =====================
</TABLE>

                 See notes to consolidated financial statements

                                     - 53 -
<PAGE>


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


<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                               --------------------------------------------------------------------
                                                                       2004                    2003                   2002
                                                               ---------------------   ---------------------  ---------------------
<S>                                                               <C>                     <C>                   <C>
Revenues:
Rental revenue from real estate                                      $119,523                $129,511              $128,553
Tenant reimbursements                                                  14,946                  18,726                19,957
Other income, including lease terminations,
  settlements and interest                                              6,914                   4,527                 4,248
                                                               ---------------------   ---------------------  ---------------------
                                                                      141,383                 152,764               152,758

Expenses:
Property operating, maintenance and real estate taxes                  20,540                  21,220                23,809
Interest                                                               17,581                  16,446                 9,588
Interest (related parties)                                              1,077                   1,064                 3,422
General and administrative                                              2,011                   1,324                 1,488
Depreciation and amortization of real estate                           21,669                  20,525                18,064
                                                               ---------------------   ---------------------  ---------------------
                                                                       62,878                  60,579                56,371
                                                               ---------------------   ---------------------  ---------------------
Income before equity in earnings of unconsolidated
  joint venture and minority interests                                 78,505                  92,185                96,387
Equity in earnings of unconsolidated joint venture,
  including $1,400 gain on sale of property acquired from
  related party in 2003                                                 2,947                   3,885                     -
Minority interests                                                     67,699                  80,069                80,548
                                                               ---------------------   ---------------------  ---------------------
Income from continuing operations                                      13,753                  16,001                15,839
                                                               ---------------------   ---------------------  ---------------------

Discontinued operations, net of minority interests:
Gain from disposal of discontinued operations                               -                       -                 1,018
(Loss)/income attributable to discontinued operations                   (441)                     211                   258
                                                               ---------------------   ---------------------  ---------------------
(Loss)/income from discontinued operations                              (441)                     211                 1,276
                                                               ---------------------   ---------------------  ---------------------
Net income to common stockholders                                     $13,312                 $16,212               $17,115
                                                               =====================   =====================  =====================
Net income to minority interests                                      $66,100                 $80,836               $86,641
                                                               =====================   =====================  =====================

Income per share from continuing operations:
Basic                                                                   $0.76                   $0.90                 $0.91
                                                               =====================   =====================  =====================
Diluted                                                                 $0.76                   $0.90                 $0.89
                                                               =====================   =====================  =====================
(Loss)/income per share from discontinued operations:
Basic                                                                  ($0.02)                  $0.01                 $0.07
                                                               =====================   =====================  =====================
Diluted                                                                ($0.02)                  $0.01                 $0.07
                                                               =====================   =====================  =====================
Net income per share to common stockholders:
Basic                                                                   $0.74                   $0.91                 $0.98
                                                               =====================   =====================  =====================
Diluted                                                                 $0.74                   $0.91                 $0.96
                                                               =====================   =====================  =====================
Weighted average shares of common stock (basic)                    18,034,873              17,739,609            17,455,799
                                                               =====================   =====================  =====================
Weighted average shares of common stock (diluted)                  18,076,498              17,802,947            17,854,892
                                                               =====================   =====================  =====================
Weighted average O.P. Units                                        86,444,773              86,476,217            86,334,548
                                                               =====================   =====================  =====================
Outstanding common stock                                           18,097,191              17,894,691            17,487,329
                                                               =====================   =====================  =====================
Outstanding O.P. Units                                             86,384,695              86,398,064            86,474,032
                                                               =====================   =====================  =====================
</TABLE>

                 See notes to consolidated financial statements

                                     - 54 -
<PAGE>


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


<TABLE>
<CAPTION>
                                               Shares of Common     Common     Paid-in-      Accumulated     Total Stockholders'
                                               Stock Outstanding    Stock      Capital         Deficit             Equity
                                               ------------------  --------  ------------  ---------------   -------------------

<S>                                              <C>                 <C>      <C>           <C>                 <C>
Balance, December 31, 2001                        17,329,779          $17      $126,626      ($18,268)           $108,375
Issuance of common stock upon option exercise         33,550                        151                               151
Issuance of common stock upon O.P. Unit
  conversion                                         124,000                      1,518                             1,518
Dividends declared                                                                            (16,773)            (16,773)
Net income                                                                                     17,115              17,115
                                               ------------------  --------  ------------  ---------------   -------------------
Balance, December 31, 2002                        17,487,329           17       128,295       (17,926)            110,386
Issuance of common stock upon option exercise        150,362                      1,014                             1,014
Issuance of common stock upon O.P. Unit
  conversion                                         257,000            1         2,827                             2,828
Dividends declared                                                                            (17,050)            (17,050)
Net income                                                                                     16,212              16,212
                                               ------------------  --------  ------------  ---------------   -------------------
Balance, December 31, 2003                        17,894,691           18       132,136       (18,764)            113,390
Issuance of common stock upon option exercise         20,000                        165                               165
Issuance of common stock upon O.P. Unit
  conversion                                         182,500                      2,238                             2,238
Dividends declared                                                                            (15,893)            (15,893)
Net income                                                                                     13,312              13,312
                                               ------------------  --------  ------------  ---------------   -------------------
Balance, December 31, 2004                        18,097,191          $18      $134,539      ($21,345)           $113,212
                                               ==================  ========  ============  ===============   ===================
</TABLE>


                 See notes to consolidated financial statements

                                     - 55 -
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                               -----------------------------------------------------------
                                                                      2004                2003                2002
                                                               -------------------  ------------------  ------------------
<S>                                                               <C>                 <C>                   <C>
Cash flows from operating activities:
Net income from continuing operations                               $13,753             $16,001              $15,839
Adjustments to reconcile net income to net
  cash provided by operating activities:
     (Loss)/income from discontinued operations                        (441)                211                1,276
     Minority interest                                               66,100              80,836               86,641
     Depreciation and amortization of real estate and
       in-place leases                                               21,876              20,774               18,360
     Amortization of above market lease                               1,888               1,416                    -
     Gain on sale of assets                                               -                   -               (6,103)
     Equity in earnings of unconsolidated joint venture              (2,947)             (3,885)                   -
     Distributions from unconsolidated joint venture                  1,673               2,000                    -
     Asset impairment charge                                          2,193                   -                    -
     Other                                                                -                   -                  (14)
Change in operating assets and liabilities,
  net of liabilities assumed:
     Deferred rent receivable                                           459              (1,969)                 (78)
     Other assets                                                     2,195              (1,453)                 389
     Interest payable                                                    (5)                 (5)                  (5)
     Security deposits                                               (1,690)               (936)               3,847
     Deferred rental income                                          (1,685)              2,847               (2,594)
     Accounts payable and accrued expenses                            1,701                 656                 (190)
                                                               -------------------  ------------------  ------------------

     Net cash provided by operating activities                      105,070             116,493              117,368
                                                               -------------------  ------------------  ------------------

Cash flows from investing activities:
Improvements to real estate                                          (1,519)             (1,370)              (1,902)
Refundable option payment utilized for rent payments                      -                   -                 (333)
Proceeds from sales of real estate                                        -                   -               12,803
Purchase of real estate                                                   -            (110,013)             (31,312)
Net proceeds from sale of TBI unconsolidated joint venture
   real estate                                                            -               1,400                    -
                                                               -------------------  ------------------  ------------------

     Net cash used in investing activities                           (1,519)           (109,983)             (20,744)
                                                               -------------------  ------------------  ------------------

Cash flows from financing activities:
Principal payments on mortgage notes payable                         (7,036)             (5,204)              (2,354)
Proceeds from mortgage loan payable                                       -             180,000                    -
Principal payments on mortgage notes payable (related parties)         (342)               (316)                (293)
Net proceeds/(payments) under line of credit (related parties)        3,338             (61,471)             (39,095)
Proceeds from loan payable                                                -                   -               20,000
Payment on loan payable                                                   -             (20,000)                   -
Proceeds from revolving line of credit                                  243                 126               28,839
Restricted cash                                                      (1,551)                  -                    -
Payment on line of credit                                                 -                   -               (5,000)
Financing costs                                                           -                (863)                 (52)
Net proceeds from exercise of stock options                             165               1,014                  151
Minority interest distributions                                     (83,686)            (83,194)             (82,916)
Dividends                                                           (17,292)            (16,952)             (16,735)
                                                               -------------------  ------------------  ------------------
     Net cash used in financing activities                         (106,161)             (6,860)             (97,455)
                                                               -------------------  ------------------  ------------------

     Net (decrease) in cash and cash equivalents                     (2,610)               (350)                (831)
Cash and cash equivalents, beginning of year                          4,129               4,479                5,310
                                                               -------------------  ------------------  ------------------
Cash and cash equivalents, end of year                               $1,519              $4,129               $4,479
                                                               ===================  ==================  ==================
</TABLE>


            Refer to Note 14 for supplemental cash flow information.
                 See notes to consolidated financial statements

                                     - 56 -
<PAGE>


                          MISSION WEST PROPERTIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Dollars in thousands, except share and 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
R&D/office  properties  in the portion of the San  Francisco  Bay Area  commonly
referred  to  as  Silicon  Valley.  In  July  1998,  the  Company  purchased  an
approximate   12.11%  of  four  existing  limited   partnerships   (referred  to
collectively  as the  "operating  partnerships")  and obtained  control of these
partnerships  by becoming the sole general partner in each one effective July 1,
1998 for financial  accounting and reporting purposes.  The Company purchased an
approximate 12.11% interest in each of the operating  partnerships.  All limited
partnership  interests  in  the  operating   partnerships  were  converted  into
59,479,633  operating  partnership  ("O.P.") Units,  which represented a limited
partnership   ownership  interest  of  approximately  87.89%  of  the  operating
partnerships.  The  operating  partnerships  are the vehicles  through which the
Company holds its real estate investments,  makes real estate acquisitions,  and
generally conducts its business.

As of December 31,  2004,  the Company owns a  controlling  general  partnership
interest of 17.16%, 21.63%, 16.14% and 12.38% 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 a 17.26%  general  partnership
interest in the  operating  partnerships,  taken as a whole,  on a  consolidated
weighted average basis.

The  Company,  through the  operating  partnerships,  owns  interests in 109 R&D
properties at December 31, 2004, all of which are located in 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 it currently has a
single  reportable  segment for  Statement  of  Financial  Accounting  Standards
("SFAS") No. 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 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,  deferred rent receivables,
and  allocation  of purchase  price  relating to property  acquisitions  and the
related  depreciable  lives  assigned.  Actual  results  could differ 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.

                                     - 57 -

<PAGE>


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

The  purchase  price  allocation  for property  acquisitions  is  determined  in
accordance  with  the  following   principles  under  SFAS  No.  141,  "Business
Combinations":

The fair value of the tangible  assets of an acquired  property,  which includes
land,  building and building/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.

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 in the  accompanying
December  31, 2003  consolidated  balance  sheets,  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:

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 lease term
Above-market and in-place lease
  value-                          Term of lease

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 No. 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 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.  In  connection  with the January  2005 sale of an asset as more fully
described in Note 19, an impairment loss of approximately  ($2,193) was recorded
for  the  year  ended  December  31,  2004  and is  classified  in  discontinued
operations,  net of minority  interests.  No impairment losses were recorded for
the years ended December 31, 2003 and 2002.

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE:

The Company has adopted SFAS No. 144, which  addresses the financial  accounting
for the disposal of long lived assets. SFAS No. 144 requires that the results of
operations  and gains or  losses  on the sale of  property  sold  subsequent  to
December 31, 2001 that were not classified as held for sale at December 31, 2001
as well as the results of operations  from  properties  that were  classified as
held for sale  subsequent  to December  31, 2001 be  presented  in  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

                                     - 58 -
<PAGE>

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

operations  of the property  after the disposal  transaction.  SFAS No. 144 also
requires prior period results of operations for these  properties to be restated
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. 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. Effective January 1,
2002 (through the implementation of SFAS No. 144), 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 subsequent to January 1, 2002.
Additionally,  gains and losses on assets designated as held for sale subsequent
to January 1, 2002 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 a single financial  institution,
and at times,  such balances may be in excess of the Federal  Deposit  Insurance
Corporation insurance limit.

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 obligation  receivables  from the
Berg Group of approximately  $7,494 to construct a building at 245 Caspian Drive
in  Sunnyvale,  California  and $2,529 in tenant  improvements  at 5345  Hellyer
Avenue in San Jose, California (see Note 12).

MINORITY INTERESTS:

Minority interests represent the limited partnership  interests in the operating
partnerships.

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,  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. 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  realizeability  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

                                     - 59 -
<PAGE>

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

estimates.  However, 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  in other income when there is a signed
termination  letter agreement,  all of the conditions of the agreement have been
met, and the tenant is no longer occupying 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.  There is no way of predicting or forecasting the
timing or amounts of future lease termination fees.

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, 2004, 2003 and 2002,
no  provision  for federal  income taxes has been  included in the  accompanying
consolidated financial statements.

For the years ended  December 31, 2004 and 2003, the Company's  total  dividends
paid or payable to the  stockholders  represent  98% of  ordinary  income and 2%
return of capital for income tax purposes. For the year ended December 31, 2002,
the Company's  total dividends paid or payable to the  stockholders  represented
100% ordinary income for income tax purposes.

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

                                     - 60 -

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

The following  table  illustrates the unaudited pro forma effect on consolidated
net income available to common shareholders and consolidated  earnings per share
if the fair value method had been applied to all  outstanding and unvested stock
options for the last three years.

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                            -----------------------------------------------------------
                                                                  2004                 2003                2002
                                                            ------------------  -------------------  ------------------
                                                                  (dollars in thousands, except per share data)
<S>                                                            <C>                  <C>                 <C>
         Historical net income to common stockholders           $13,312              $16,212             $17,115
         Add back compensation expense for stock options
            included in historical net income to common
            stockholders                                              -                    -                   -
         Deduct compensation expense for stock options
            determined under fair value based method               (176)                (235)               (264)
         Allocation of expense to minority interest                 145                  195                 220
                                                            ------------------  -------------------  ------------------
         Pro forma net income to common stockholders            $13,281              $16,172             $17,071
                                                            ------------------  -------------------  ------------------

         Earnings per share - basic:
         Historical net income to common stockholders             $0.74                $0.91               $0.98
         Pro forma net income to common stockholders              $0.74                $0.91               $0.98
         Earnings per share - diluted:
         Historical net income to common stockholders             $0.74                $0.91               $0.96
         Pro forma net income to common stockholders              $0.73                $0.91               $0.96
                                                            ------------------  -------------------  ------------------
</TABLE>

There were no stock options granted in 2004, 2003 and 2002.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

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.  The  carrying  amounts of the
Company's  variable rate debt approximate fair value since the interest rates on
these instruments are equivalent to rates currently offered to the Company.  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,  2004 was
approximately $244,309 as compared to its carrying value of $224,532.

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 79 tenants at December 31, 2004,  default by any major
tenant could  significantly  impact the results of the  consolidated  total. One
tenant,  Microsoft  Corporation,  accounted for approximately  18.1%,  16.3% and
15.7% of the Company's cash rental income for the years ended December 31, 2004,
2003 and 2002, respectively,  with the next largest tenant accounting for 10.8%,
10.0% and 8.6%,  respectively,  of total cash rental income.  Cash rental income
from Microsoft Corporation was $21,997,  $21,151 and $20,338 for the years ended
December 31, 2004, 2003 and 2002,  respectively.  Future minimum rents from this
tenant are $107,171.  During 2004,  eleven of the Company's tenants relocated or
ceased operations.

                                     - 61 -

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

NEW ACCOUNTING PRONOUNCEMENTS:

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

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-monetary
Assets"  ("SFAS No.  153").  SFAS No. 153 amends the guidance in APB Opinion No.
29,  "Accounting for Non-monetary  Transactions" to eliminate certain exceptions
to the principle that exchanges of non-monetary  assets be measured based on the
fair value of the assets  exchanged.  SFAS No. 153  eliminates the exception for
non-monetary  exchanges  of similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  non-monetary  assets  that  do not  have
commercial  substance.  This  statement  is  effective  for  non-monetary  asset
exchanges in fiscal years  beginning  after June 15, 2005.  The adoption of SFAS
No. 153 is not expected to have an impact on the Company's  consolidated results
of operations, financial position or cash flows.

3.   DEFERRED RENT ALLOWANCE

The following table  represents  activity in the deferred rent allowance for the
years ended December 31, 2004, 2003 and 2002.

<TABLE>
<CAPTION>
                                                               Provision
                                                 Beginning      Against                    Ending
                                                  Balance       Revenues    Charge-off     Balance
                                               -------------- ------------ ------------ -------------
                                                               (dollars in thousands)
<S>                                               <C>           <C>          <C>           <C>
         Year ended December 31, 2002                $600        $4,736       $3,336        $2,000
         Year ended December 31, 2003              $2,000        $2,552       $2,552        $2,000
         Year ended December 31, 2004              $2,000        $1,313       $1,313        $2,000
</TABLE>

4.   STOCK TRANSACTIONS

As of December 31, 2004 and 2003,  $1,588 and $1,471 remained  outstanding under
notes  issued  in  connection  with  the  Company's   purchase  of  its  general
partnership  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
statement 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, 2006. 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.

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

                                     - 62 -
<PAGE>


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

all of the eligible limited partners in one year exceeds $1 million, the Company
or the operating  partnerships  will be entitled 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, 2004,  stock options at $8.25 per share were
exercised to purchase a total of 20,000  shares of the  Company's  common stock.
Total proceeds to the Company were approximately $165.

During the year ended  December  31,  2003,  stock  options  were  exercised  to
purchase a total of 150,362 shares of the Company's common stock,  consisting of
60,362 shares  exercised at $4.50 per share and 90,000 shares exercised at $8.25
per share. Total proceeds to the Company were approximately $1,014.

During the year ended  December 31, 2002,  stock options at $4.50 per share were
exercised to purchase a total of 33,550  shares of the  Company's  common stock.
Total proceeds to the Company were approximately $151.

In 2004 and 2003,  182,500 and 257,000 O.P. Units were exchanged for 182,500 and
257,000 shares of the Company's common stock,  respectively,  under the terms of
the December 1998 Exchange  Rights  Agreement  among the Company and all limited
partners of the operating partnerships.

5.   MINORITY INTEREST

Minority  interest  represents the separate  private  ownership of the operating
partnerships,  by the Berg Group and other  non-affiliate  interests.  In total,
these interests  account for 82.74% and 82.98%,  on a weighted average basis, of
the  ownership  interests  in the real  estate  operations  of the Company as of
December 31, 2004 and 2003, respectively. Minority interest in earnings has been
calculated  by  taking  the  net  income  of the  operating  partnerships  (on a
stand-alone  basis)  multiplied by the respective  minority  interest  ownership
percentage.

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 interest in the joint
ventures is  reflected  as a component  of  minority  interest of the  operating
partnerships.  For the years ended  December  31,  2004,  2003 and 2002,  income
associated  with the minority  interests  held by the third parties of the three
consolidated joint ventures was $486, $581 and $587, respectively.

6.   REAL ESTATE

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. At present,  there are  approximately  90 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 20
acquisitions  under  the  Berg  Land  Holdings  Option  Agreement   representing
approximately  1,992,000 rentable square feet. 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  Offer  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.



                                     - 63 -
<PAGE>

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

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%, the Company also has an option to
purchase all land 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.

Given the economic  downturn in the Silicon Valley,  the Company may not be able
to maintain historical levels of growth from acquisitions of new developments in
the future.

                                     - 64 -

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

7.   DEBT

The following table sets forth certain information regarding debt outstanding as
of December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                                                        Balance                Maturity    Interest
           Debt Description                Collateral Properties                     At December 31,             Date       Rate
   ---------------------------------  ---------------------------------        -----------------------------  ----------  ----------
                                                                                   2004            2003
   ---------------------------------  ---------------------------------        -----------------------------  ----------  ----------
                                                                                  (dollars in thousands)
   Line of Credit:
<S>                                  <C>                                       <C>             <C>              <C>         <C>
   Berg Group (related parties)       2033-2043 Samaritan Drive, San  Jose, CA $   9,560      $    6,320          3/06         (1)
                                      2133 Samaritan Drive, San Jose, CA       -------------  --------------
                                      2233-2243 Samaritan Drive, San Jose, CA
                                      1310-1450 McCandless Drive, Milpitas, CA
                                      1795-1845 McCandless Drive, Milpitas, CA

   Cupertino National Bank(4)         Not Applicable                              24,208          23,965         11/06         (4)
                                                                               -------------  --------------

   Mortgage Notes Payable  (related   5300-5350 Hellyer Avenue, San Jose, CA      10,420          10,762          6/10       7.650%
   parties):                                                                   -------------  --------------

   Mortgage Notes Payable: (2)
   Prudential Capital Group (3)                                                        -             733         10/06       8.750%
   Washington   Mutual                10460 Bubb Road, Cupertino, CA                 154             225         12/06       9.500%
   Prudential  Insurance Company of
   America (5)                        10300 Bubb Road, Cupertino, CA             119,441         121,455         10/08       6.560%
                                      10500 North De Anza Blvd, Cupertino, CA
                                      4050 Starboard Drive, Fremont, CA
                                      45700 Northport Loop, Fremont, CA
                                      45738 Northport Loop, Fremont, CA
                                      450 National Ave, Mountain View, CA
                                      6311 San Ignacio Avenue, San Jose, CA
                                      6321 San Ignacio Avenue, San Jose, CA
                                      6325 San Ignacio Avenue, San Jose, CA
                                      6331 San Ignacio Avenue, San Jose, CA
                                      6341 San Ignacio Avenue, San Jose, CA
                                      6351 San Ignacio Avenue, San Jose, CA
                                      3236 Scott Blvd, Santa Clara, CA
                                      3560 Bassett Street, Santa Clara, CA
                                      3570 Bassett Street, Santa Clara, CA
                                      3580 Bassett Street, Santa Clara, CA
                                      1135 Kern Avenue, Sunnyvale, CA
                                      1212 Bordeaux Lane, Sunnyvale, CA
                                      1230 E. Arques, Sunnyvale, CA
                                      1250 E. Arques, Sunnyvale, CA
                                      1170 Morse Avenue, Sunnyvale, CA
                                      1600 Memorex Drive, Santa Clara, CA
                                      1688 Richard Avenue, Santa Clara, CA
                                      1700 Richard Avenue, Santa Clara, CA
                                      3540 Bassett Street, Santa Clara, CA
                                      3542 Bassett Street, Santa Clara, CA
                                      3544 Bassett Street, Santa Clara, CA
                                      3550 Bassett Street, Santa Clara, CA

   Northwestern Mutual Life
   Insurance Company(6)               1750 Automation Parkway, San Jose, CA       94,517          97,445          1/13       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
                                      2251 Lawson Lane, Santa Clara, CA
                                      1325 McCandless Drive, Milpitas, CA
                                      1650-1690 McCandless Drive, Milpitas, CA
                                      20605-20705 Valley Green Dr., Cupertino, CA

   Citicorp USA, Inc. (4)             2001 Walsh Avenue, Santa Clara,  CA         78,710          80,000          9/06         (4)
                                      2880 Scott Boulevard, Santa Clara, CA
                                      2890 Scott Boulevard, Santa Clara, CA
                                      2770-2800 Scott Boulevard, Santa Clara, CA
                                      2220 Central Expressway, Santa Clara, CA
                                      2300 Central Expressway, Santa Clara, CA
                                      2330 Central Expressway, Santa Clara, CA
                                      20400 Mariani Avenue, Cupertino, CA

                                                                               -------------  --------------
   Mortgage Notes Payable                                                        292,822         299,858


                                                                               -------------  --------------
   Total                                                                        $337,010        $340,905
                                                                               =============  ==============
</TABLE>

(1)  The debt owed to the Berg Group under the line of credit carries a variable
     interest  rate  equal to LIBOR  plus  1.30% and is payable in full in March
     2006.  The interest rate was 4.08% and 2.52% at December 31, 2004 and 2003,
     respectively.

(2)  Mortgage notes payable generally  require monthly  installments of interest
     and principal  ranging from $8 to $827 over various terms extending through
     the year 2013. The weighted average interest rate of mortgage notes payable
     was 6.23% at December 31, 2004 and 2003.

(3)  The Prudential  Capital Group mortgage loan was paid off in its entirety in
     October  2004.  It was  collateralized  by one  property  located  at 20400
     Mariani  Avenue  in  Cupertino,  California.  This  property  was  added as
     additional collateral to the Citicorp USA, Inc. loan.

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

(4)  Interest  rate equal to LIBOR plus 2%. The interest  rate for the Cupertino
     National  Bank line of credit at  December  31, 2004 and 2003 was 4.29% and
     3.17%, respectively.  The interest rate for the Citicorp USA, Inc. mortgage
     loan at December 31, 2004 and 2003 was 4.18% and 3.17%,  respectively.  The
     Cupertino  National Bank line of credit and Citicorp USA, Inc. loan contain
     certain  financial  loan and  reporting  covenants  as  defined in the loan
     agreements.  As of December 31, 2004,  the Company was in  compliance  with
     these loan covenants.

(5)  The Prudential  Insurance loan is payable in monthly  installments of $827,
     which includes principal (based upon a 30-year  amortization) and interest.
     A limited  partner,  who is not a member of the Berg Group,  has guaranteed
     approximately  $12,000 of this debt. Costs and fees incurred with obtaining
     this loan aggregated  approximately $900, which were deferred and amortized
     over the loan period.

(6)  The  Northwestern  loan is payable in monthly  installments of $696,  which
     includes principal (based upon a 20-year amortization) and interest.  Costs
     and fees incurred with obtaining this loan aggregated  approximately  $675,
     which were deferred and amortized over the loan period.


Scheduled principal payments on debt as of December 31, 2004 are as follows:

<TABLE>
<CAPTION>
                                                          Fixed Rate Debt          Variable Rate Debt
                                                     (Including Related Parties)(Including Related Parties)      Total
                                                       -----------------------    ----------------------    ----------------
<S>               <C> <C>                                   <C>                        <C>                    <C>
         December 31, 2005                                   $  5,704                   $  2,580               $  8,284
         December 31, 2006                                      6,042                    109,898                115,940
         December 31, 2007                                      6,350                          -                  6,350
         December 31, 2008                                    116,674                          -                116,674
         December 31, 2009                                      4,382                          -                  4,382
         Thereafter                                            85,380                          -                 85,380
                                                       -----------------------    ----------------------    ----------------
                                                             $224,532                   $112,478               $337,010
                                                       =======================    ======================    ================
</TABLE>

8.   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.

During  2004 the  Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.88 per common share and O.P.
Unit for total  distributions of $91,944,  including  $16,717 payable in January
2005.  During  the fourth  quarter of 2004,  the  Company's  Board of  Directors
reduced the quarterly dividend distribution from $0.24 per common share and O.P.
Unit to $0.16 per common share and O.P. Unit. Total  distributions  attributable
to O.P. Units owned by various members of the Berg Group were $69,075, which was
treated as a draw on the Berg Group line of credit.

During  2003 the  Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.96 per common share and O.P.
Unit for total  distributions of $100,064,  including $25,031 payable in January
2004. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $75,230,  which was treated as a draw on the Berg Group line
of credit.

During  2002 the  Company,  as general  partner of the  operating  partnerships,
declared  quarterly  distributions  aggregating  $0.96 per common share and O.P.
Unit for total  distributions of $99,643,  including  $24,951 payable in January
2003. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $75,076,  which was treated as a draw on the Berg Group line
of credit.

9.   EQUITY-BASED COMPENSATION AND RETIREMENT INVESTMENT PLANS

The Company's 1997 Stock Option Plan was approved by the Company's  shareholders
on November 10, 1997. The 1997 Stock Option Plan was adopted so that the Company
may attract and retain the high quality  employees,  consultants  and  directors
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.

                                     - 66 -
<PAGE>

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

The 1997 Stock Option 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,  consultants  and  directors of the  Company.  Options to
purchase a maximum of 5,500,000  shares of common stock may be granted under the
1997 Stock Option  Plan,  subject to equitable  adjustments  to reflect  certain
corporate events.

No options were granted in 2004, 2003 and 2002.

The remaining  contractual lives of unexercised  options granted range from July
2005 to April 2009.

The  following  table shows the  activity  and detail for the 1997 Stock  Option
Plan.

<TABLE>
<CAPTION>
                                                                  Weighted Average
                                                  1997 Stock       Exercise Price
                                                 Option Plan          Per Share
                                               ---------------    ------------------
<S>                                               <C>                 <C>
         Balance, December 31, 2001                983,912             $10.44
              Options exercised                    (33,550)             $4.50
                                               ---------------
         Balance, December 31, 2002                950,362             $10.65
              Options exercised                   (150,362)             $6.74
              Options cancelled                    (13,000)            $13.00
                                               ---------------
         Balance, December 31, 2003                787,000             $11.36
              Options exercised                    (20,000)             $8.25
                                               ---------------
         Balance, December 31, 2004                767,000             $11.44
                                               ===============
</TABLE>

The following table summarizes information regarding options outstanding for the
1997 Stock Option Plan at December 31, 2004:

<TABLE>
<CAPTION>
                                             Options Outstanding            Options Exercisable    Options Not Exercisable
                                     --------------------------------------------------------------------------------------
                                                    Weighted
                                                    Average
                                                   Remaining      Weighted                 Weighted                Weighted
         Range of Exercise Prices                 Contractual      Average                  Average                 Average
                                        Options     Life in       Exercise                  Exercise               Exercise
                                                    Years (1)       Price     Options        Price     Options       Price
                                     --------------------------------------------------------------------------------------
<S>                                     <C>              <C>      <C>        <C>           <C>        <C>          <C>
         $8.25                           120,000          1.0       $8.25     120,000        $8.25           -           -
         $11.33                          375,000          4.3      $11.33     229,167       $11.33     145,833      $11.33
         $13.00                          272,000          1.8      $13.00     269,000       $13.00       3,000      $13.00
                                     ------------                          ------------             ------------
         $8.25 to $13.00                 767,000          2.9      $11.44     618,167       $11.46     148,833      $11.36
                                     ============                          ============             ============
</TABLE>

(1)  Expiration dates range from July 2005 to April 2009.


None of the options  granted are  contingent  upon the attainment of performance
goals or subject to other  restrictions.  As of December 31,  2004,  outstanding
options to purchase 618,167 shares of common stock were exercisable.

As of December 31, 2004, no additional shares were available for grant under the
1997 Stock Option Plan.

On November 24, 2004, the shareholders of Mission West Properties, Inc. approved
the Company's  2004 Equity  Incentive  Plan ("2004  Plan"),  which  replaced the
Company's 1997 Stock Option Plan ("1997 Plan"). The Company's board of directors
approved the 2004 Plan in  September  2004.  No further  options will be granted
under the 1997 Plan.

                                     - 67 -

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

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;
-    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.

Currently,  the Company's  1997 Plan  authorizes its board of directors to grant
stock  options to  eligible  employees  and  consultants  and  provides  for the
one-time  automatic grant of options to non-employee  directors upon joining the
board of  directors.  The 2004 Plan will allow the Company to grant to employees
and directors a wider range of awards than is permitted  under the current stock
option 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,  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  awards  covering  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 3,991,089  shares of common stock are reserved for issuance under the
2004 Plan. 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.  As of December  31,  2004,  no
options or awards were granted under the 2004 Plan.

                                     - 68 -
<PAGE>

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

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, 2004,  2003 and 2002, the Company  recognized  $92,
$92 and $95 of expense for employer  contributions  made in connection with this
plan, respectively.

10.  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 computation for weighted average shares is detailed below:


<TABLE>
<CAPTION>
                                                                 Year Ended              Year Ended              Year Ended
                                                             December 31, 2004        December 31, 2003       December 31, 2002
                                                             --------------------     -------------------     -------------------
<S>                                                              <C>                     <C>                     <C>
     Weighted average shares outstanding (basic)                  18,034,873              17,739,609              17,455,799
     Incremental shares from assumed option exercise                  41,625                  63,338                 399,093
                                                             --------------------     -------------------     -------------------
     Weighted average shares outstanding (diluted)                18,076,498              17,802,947              17,854,892
                                                             ====================     ===================     ===================
</TABLE>

Outstanding  options to purchase  272,000,  647,000 and 285,000  shares in 2004,
2003 and 2002,  respectively,  were excluded from the computation of diluted net
income per share under the  treasury  stock method  because the option  exercise
price was greater  than the weighted  average  exercise  price of the  Company's
common stock during the respective periods. The outstanding O.P. Units 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, 2004 and 2003 were 86,384,695 and 86,398,064, respectively.

11.  OTHER INCOME

Other income,  including interest,  was approximately  $6,914, $4,527 and $4,248
for the years ended December 31, 2004, 2003 and 2002, respectively. For the year
ended  December  31,  2004,   termination  fees  and  prior  tenant   bankruptcy
settlements  accounted for  approximately  $4,250 and $1,199,  respectively,  of
other  income.  For the year ended  December 31, 2003,  prior tenant  bankruptcy
settlements  accounted for  approximately  $2,231 of other income.  For the year
ended December 31, 2002,  termination fees accounted for approximately $2,529 of
other income.

12.  RELATED PARTY TRANSACTIONS

As of December 31, 2004 and 2003, the Berg Group owned 77,577,528 and 78,364,716
O.P.  Units,  respectively,  of the total  86,384,695 and 86,398,064  O.P. Units
issued and outstanding,  respectively.  The Berg Group's interest in the Company
represents  74.2% and 75.1% of the  Company as of  December  31,  2004 and 2003,
respectively,  assuming  conversion of the O.P.  Units into common shares of the
Company.

The Company periodically  acquires unleased 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.

The Company did not acquire any properties from the Berg Group in 2004.

During 2003 the Company acquired one R&D property in San Jose and a 50% interest
in a joint venture from the Berg Group. These  acquisitions added  approximately
129,000 square feet of rentable space and were acquired under the Berg Land

                                     - 69 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

Holdings Option  Agreement.  The total gross acquisition price was approximately
$12,953.  The Company financed these  acquisitions by borrowing $9,000 under its
line of credit from the Berg Group and  issuing  350,163  O.P.  Units to various
members of the Berg Group.

As of  December  31,  2004 and 2003,  debt in the amount of $9,560  and  $6,320,
respectively,  was due the Berg  Group  under the line of  credit.  This  amount
includes  $9,000 of debt assumed in connection with an acquisition of a property
from the Berg  Group in 2003.  Additionally,  in 2004 and  2003,  the  operating
partnerships   declared   distributions  of  $0.88  and  $0.96  per  O.P.  Unit,
respectively.  Distributions  paid to  various  members  of the Berg  Group were
$69,075 and $75,224 in 2004 and 2003, respectively. Interest expense incurred in
connection  with the Berg Group line of credit was $266, $227 and $2,562 for the
years ended December 31, 2004, 2003 and 2002, respectively.

As of  December  31, 2004 and 2003,  debt in the amount of $10,420 and  $10,762,
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.  Interest  expense incurred in connection with the Berg
Group  mortgage  note was $811,  $837 and $860 for the years ended  December 31,
2004, 2003 and 2002, respectively.

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  Group ("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 OP 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  building,  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.
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.

                                     - 70 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

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 $682, $400 and $303 in 2004, 2003 and
2002, respectively. As of December 31, 2004, accumulated cash flow distributions
from Hellyer LP totaling approximately $2.2 million were accrued and distributed
to BBE. If the  Company's  litigation  with RPC 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,  with an
offsetting account payable to BBE.

If the litigation is ultimately decided in favor of the Company, the Independent
Directors  Committee  of the  Board  of  Directors  has the  right,  but not the
obligation,  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 and the Acquisition Agreement between the Company and the Berg Group.

ACQUISITION OF CARL E. BERG'S INTEREST IN UNCONSOLIDATED JOINT VENTURE:

In July 1999,  an  unrelated  party,  TBI,  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-MSW,  a new  limited  partnership,  to own all the leased
buildings.  The Berg Group offered its 50%  non-controlling  limited partnership
interest in TBI-MSW 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-MSW  owned four fully leased
buildings  totaling  approximately  593,000  rentable square feet. The buildings
were subject to mortgage loans totaling $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-MSW  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.

BERG CONTROLLED  ENTITIES HAVE FINANCIAL INTERESTS IN CERTAIN TENANTS THAT LEASE
SPACE FROM THE COMPANY:

During December 31, 2004, 2003 and 2002, Carl E. Berg or entities  controlled by
Mr. Berg have financial interests in several companies that lease space from the
operating  partnerships,  which  include  three  companies  where Mr. Berg has a
greater than 10% ownership interest.  These related tenants occupy approximately
48,000  square feet and  contributed  $866,  $904 and $748 in rental  revenue in
2004,  2003 and 2002,  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  ownership  percentage  of the
Company's  common  stock  causing the Company to violate any REIT  qualification
requirement.

                                     - 71 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

BERG COMMITMENT TO COMPLETE FUTURE  IMPROVEMENTS AND BUILDING IN CONNECTION WITH
CERTAIN  ACQUISITIONS  FROM THE BERG GROUP UNDER THE BERG LAND  HOLDINGS  OPTION
AGREEMENT:

The Berg Group has an approximately  $2.5 million commitment to complete certain
tenant  improvements in connection  with the Company's 2002  acquisition of 5345
Hellyer Avenue in San Jose, California. The Company recorded this portion of its
purchase  consideration  paid  to  the  Berg  Group  as an  Other  Asset  on its
Consolidated  Balance Sheets. The Berg Group plans to satisfy this commitment to
complete certain tenant improvements when requested by the Company following the
approval of the Independent Directors Committee.

The Berg Group has an  approximately  $7.5  million  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 as an
Other Asset on its Consolidated  Balance Sheets. The Berg Group plans to satisfy
this commitment to construct a building when requested by the Company  following
the approval of the Independent Directors Committee.

LEASING AND OVERHEAD REIMBURSEMENTS PROVIDED BY BERG CONTROLLED ENTITY:

The Company  currently  leases  office  space owned by Berg & Berg  Enterprises,
Inc., an affiliate of Carl E. Berg and Clyde J. Berg. Rental amount and overhead
reimbursements  paid to Berg & Berg  Enterprises,  Inc.  were $90 for each  year
ended December 31, 2004, 2003 and 2002.

13.  FUTURE MINIMUM RENTS

The  Company,  through the  operating  partnerships,  owns  interests in 109 R&D
properties  that are leased to tenants under net  operating  leases with initial
terms extending to the year 2015, and are typically  subject to fixed increases.
Generally,  the leases grant tenants  renewal  options.  Future minimum  rentals
under  non-cancelable  operating  leases,  excluding  tenant  reimbursements  of
expenses are as follows:

<TABLE>
<CAPTION>
         Year                    Minimum Rent
         --------------------------------------------
                            (dollars in thousands)
<S>                              <C>
         2005                     $102,084
         2006                       95,389
         2007                       77,429
         2008                       62,838
         2009                       54,297
         Thereafter                134,218
                          ---------------------------
         Total                    $526,255
                          ===========================
</TABLE>

14.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for  interest  was  $18,363,  $17,146  and $12,752 for the years ended
December 31, 2004, 2003 and 2002, respectively.

In connection with property acquisitions, the Company assumed $9,000 and $18,000
of related party debt due the Berg Group,  assumed other liabilities of $783 and
$387 and issued 350,163 and 835,491 O.P. Units for a total  acquisition value of
$12,953  and  $30,953  for  the  years  ended   December   31,  2003  and  2002,
respectively. The Company did not make any property acquisitions in 2004.

Amounts  of  $75,326,   $75,224  and  $75,281   were  due  the  Berg  Group  for
distributions  declared to O.P. Unit holders during the years ended December 31,
2004,  2003 and 2002,  respectively,  and were  treated as draws  under the Berg
Group line of credit.

15.  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. Management is not aware
of any  litigation  against the Company and believes the ultimate  outcome would
not have a material  adverse  effect on the cash flows,  consolidated  financial
position or results of operations of the Company.

                                     - 72 -
<PAGE>

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

REPUBLIC PROPERTIES  CORPORATION (RPC) V. MISSION WEST PROPERTIES,  L.P., IN THE
CIRCUIT COURT OF MARYLAND FOR BALTIMORE CITY CASE NO.  24-C-00-005675.  RPC is a
former partner with Mission West Properties,  L.P. in the Hellyer Avenue Limited
Partnership.  In April 2004,  the Circuit  Court for  Baltimore  City,  Maryland
issued a  Memorandum  Opinion in the case.  Following  a review of the  Maryland
Court's  decision,  our  legal  counsel  advised  us to  request a review of the
decision by the Maryland  Appeals Court. A Maryland Appeals Court or any further
court  decision  that may not rule in favor of Mission West  Properties  L.P. in
this matter will not have a material adverse affect on our financial statements.
In July 2004 RPC attached the  Company's  bank  account for  approximately  $1.1
million.  Following  a July  2004  hearing  in  Superior  Court of the  State of
California  for the County of Santa  Clara the  parties  agreed that the Company
will  post a $1.5  million  bond and RPC will  remove  the  attachment  from the
Company's  bank account  until final  resolution  of the appeal in Maryland.  In
February  2001 the Company  filed a suit  against  RPC in Superior  Court of the
State of  California  for the County of Santa Clara Case No. CV 796249 which has
been stayed  pending  resolution of the Maryland  case. See Note 19.

MISSION  WEST  PROPERTIES,  L.P.  V.  PREMISYS  COMMUNICATIONS,  INC.  AND ZHONE
TECHNOLOGIES,  INC. IN THE  SUPERIOR  COURT OF THE STATE OF  CALIFORNIA  FOR THE
COUNTY OF ALAMEDA CASE NO. HG03118906. This was a breach of lease case which the
Company received a $1.1 million settlement for in April 2004.

CRAIG R.  JALBERT  LIQUIDATING  CEO,  AS  REPRESENTATIVE  OF THE  ESTATE  OF THE
CONSOLIDATED  DEBTORS FOR ACT  MANUFACTURING,  INC. V. MISSION WEST  PROPERTIES,
L.P.  IN UNITED  STATES  BANKRUPTCY  COURT  DISTRICT OF  MASSACHUSETTS  CASE NO.
01-47641 (JBR). The Company is vigorously opposing this claim which asserts that
certain  payments made in the ordinary  course of business within 90 days of the
ACT bankruptcy filing were alleged preference payments.  The amount of the claim
is $482. In December 2004, the Company  settled this matter and received a final
payment  of  $276  which  was  recorded  as  other  income  in the  consolidated
statements of operations.

THE GLOBAL  CROSSING  ESTATE  REPRESENTATIVE,  FOR  ITSELF  AND THE  LIQUIDATING
TRUSTEE OF THE GLOBAL  CROSSING  LIQUIDATING  TRUST V. MISSION WEST  PROPERTIES,
L.P. IN UNITED STATES  BANKRUPTCY  COURT SOUTHERN  DISTRICT OF NEW YORK CASE NO.
02-40188 (REG). The Company is vigorously opposing this claim which asserts that
certain  payments made in the ordinary  course of business within 90 days of the
Global Crossing bankruptcy filing were alleged preference  payments.  The amount
of the  claim is $815.  In  addition,  the  Global  debtors  and the  Creditor's
Committee  filed an  objection  to the  unsecured  claim  filed by Mission  West
Properties in the Global cases for $16,711. See Note 19.

GUARANTEES

Under its  certificate 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 no
liabilities recorded for these agreements as of December 31, 2004.

The Company also enters into indemnification provisions under (i) 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  generally  indemnifies  and holds  harmless the  indemnified  party for
losses  suffered  or  incurred  by the  indemnified  party  as a  result  of the
Company's  activities.   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  no  liabilities  recorded  for  these
agreements as of December 31, 2004.

                                     - 73 -

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

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 we are not  aware of any such  liability.  Nonetheless,  it is
possible that there are material environmental  liabilities of which the Company
are 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.

16.  REAL ESTATE ASSET HELD FOR SALE/DISCONTINUED OPERATIONS

Effective  January 1, 2002, the Company  adopted SFAS No. 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, 2004, 2003 and 2002.  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, 2004,  there was one  property  under  contract to be sold or
otherwise disposed of which would qualify as assets held for sale. There were no
properties  under  contract  to be sold or  otherwise  disposed  of which  would
qualify as assets held for sale as of December 31, 2003.

In November  2004,  the Company  identified one property as asset held for sale.
That  property  was sold for $8,500 in January  2005.  Based on the expected net
proceeds  of the  sale,  the  Company  recorded  an asset  impairment  charge of
($2,193) in 2004.  Also see Note 19. The Company  decided to sell that  property
after an  unsolicited  offer was made from an unrelated  third  party.  In March
2002,  the Company sold one property for $18,503  resulting in a gain of $6,103.
Condensed  results  of  operations  for these  properties  for the  years  ended
December 31, 2004, 2003 and 2002 are as follows:


<TABLE>
<CAPTION>
                                                                           For the Year Ended December 31,
                                                                 2004                   2003                    2002
                                                         --------------------    -------------------    --------------------
         Revenues                                                              (dollars in thousands)
<S>                                                         <C>                      <C>                     <C>
            Rental revenue from real estate                  $   381                  $1,227                  $1,561
            Tenant reimbursements                                 92                     145                     435
            Other income                                           2                       -                       -
                                                         --------------------    -------------------    --------------------
               Total revenues                                    475                   1,372                   1,996

         Expenses
            Property operating, maintenance and
               real estate taxes                                 116                     144                     435
            Depreciation                                         207                     249                     295
            Asset impairment charge                            2,193                       -                       -
                                                         --------------------    -------------------    --------------------
              Total expenses                                   2,516                     393                     730

         Net (loss)/income from discontinued
             operations                                       (2,041)                    979                   1,266
         Net gain on disposition of discontinued
             operations                                            -                       -                   6,103
         Minority interest in earnings attributable to
             discontinued operations                           1,600                    (768)                 (6,093)
                                                         --------------------    -------------------    --------------------
         Total (loss)/income from discontinued operations   ($   441)                 $  211                  $1,276
                                                         ====================    ===================    ====================
</TABLE>


                                     - 74 -
<PAGE>
                          MISSION WEST PROPERTIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
             (Dollars in thousands, except share and per share data)

For the years  ended  December  31,  2004 and  2003,  income  from  discontinued
operations  included results of operations from one property  classified as held
for sale at December 31, 2004. For the year ended December 31, 2002, income from
discontinued   operations   included  results  of  operations  of  one  property
classified  as held for sale at December 31, 2004 and one property  sold in 2002
through its sale date.

17.  PROPERTY ACQUISITIONS

For real estate acquired subsequent to June 30, 2001, the effective date of SFAS
No. 141, "Business  Combinations," the fair value of the real estate acquired is
allocated to the acquired  tangible  assets,  consisting  of land,  building and
building/tenant improvements,  and identified intangible assets and liabilities,
including the value of the above or below market leases and in-place leases.

See Note 12 for discussion of property acquisitions from the Berg Group.

On April 9, 2003, the Company  acquired San Tomas  Technology Park for $110,013,
which was financed  through new third party debt and an existing line of credit.
The purchase price was allocated to long-lived assets, one above-market in-place
lease and the value of in-place leases as follows:

         Land                                $ 41,698
         Buildings and improvements            50,031
         Above-market in-place lease           11,172
         In-place leases                        7,112
                                            ---------
         Total cash purchase price           $110,013
                                            =========

The results of operations of the San Tomas Technology Park have been included in
the Company's consolidated operating results since the date of acquisition.  The
intangible assets are being amortized over the applicable remaining lease terms.
Amortization  related to  above-market  leases for the years ended  December 31,
2004 and  2003 was  $1,888  and  $1,416,  respectively,  and was  recorded  as a
reduction of rental revenue from real estate.  Amortization  expense  related to
in-place leases of $1,762 and $881 was recorded for the years ended December 31,
2004 and 2003, respectively.

On March 8, 2002, the Company acquired the Orchard-Trimble  property for $31,312
in cash. The purchase price was allocated to long-lived  assets and the value of
in-place leases as follows:

         Land                                $10,437
         Buildings and improvements           19,507
         In-place leases                       1,368
                                           ---------
         Total cash purchase price           $31,312
                                           =========

In-place  leases were  considered  at market.  The results of  operations of the
Orchard-Trimble  property  have  been  included  in the  Company's  consolidated
operating results since the date of acquisition. The intangible assets are being
amortized  over the  applicable  remaining  lease  terms.  Amortization  expense
related to in-place  leases of $410,  $547 and $411 was  recorded  for the years
ended December 31, 2004, 2003 and 2002, respectively.  During 2004, the in-place
lease  intangible  asset relating to the  Orchard-Trimble  property became fully
amortized,  and the asset cost and related accumulated  amortization was removed
from the accounts.

Details of real estate related  intangible  assets at December 31, 2004 and 2003
are as follows:

<TABLE>
<CAPTION>
         Amortizable Intangible Assets                        2004          2003
         -----------------------------------------------------------------------------
                                                            (dollars in thousands)
<S>                                                         <C>           <C>
         Above-market lease                                  $11,172       $11,172
         In-place leases                                       7,112         8,479
                                                          ----------------------------
         Gross real estate related intangible assets          18,284        19,651
         Less accumulated amortization                        (5,947)       (3,254)
                                                          ----------------------------
         Net real estate related intangible assets           $12,337       $16,397
                                                          ============================
</TABLE>

                                     - 75 -
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                          Estimated
                               Estimated              Above Market Lease
                             In-place Lease              Amortization             Estimated
         Year              Amortization (expense)     (revenue off-set)      Total Amortization
         -----------------------------------------------------------------------------------------
                                                   (dollars in thousands)
<S>                              <C>                     <C>                    <C>
         2005                     $1,444                  $1,888                 $ 3,332
         2006                      1,285                   1,888                   3,173
         2007                      1,205                   1,888                   3,093
         2008                        311                   1,889                   2,200
         2009                        195                     315                     510
         2010                         29                       -                      29
                           -----------------------------------------------------------------------
         Total                    $4,469                  $7,868                 $12,337
                           =======================================================================
</TABLE>


18.  SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)


Quarterly  financial  information for the year ended December 31, 2004 (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         $31,270               $29,880               $29,553              $28,820
     Income before gain on sales of assets,
         equity in earnings of unconsolidated
         joint venture and minority interests          $19,951               $22,087               $18,315              $18,153
     Income from continuing operations                 $ 3,469               $ 3,812                $3,173              $ 3,299
     Income from discontinued operations               $    54              ($    17)                     -            ($   478)
     Net income                                        $ 3,523               $ 3,795                $3,173              $ 2,821
     Per share data:
        Basic net income per share                       $0.20                 $0.21                 $0.18                $0.16
        Diluted net income per share                     $0.19                 $0.21                 $0.18                $0.16
     Weighted average shares of common stock        17,969,416            18,016,356            18,071,484           18,081,321
     (basic)
     Weighted average shares of common stock        18,075,262            18,079,139            18,098,174           18,104,454
     (diluted)
</TABLE>

Quarterly  financial  information for the year ended December 31, 2003 (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         $31,124               $32,415               $33,003              $32,968
     Income before gain on sales of assets,
         equity in earnings of unconsolidated
         joint venture and minority interests          $23,007               $22,577               $22,398              $24,203
     Income from continuing operations                 $ 3,936               $ 4,059               $ 3,841              $ 4,166
     Income from discontinued operations               $    52               $    52               $    52              $    53
     Net income                                        $ 3,988               $ 4,111               $ 3,893              $ 4,219
     Per share data:
        Basic net income per share                       $0.23                 $0.23                 $0.22                $0.24
        Diluted net income per share                     $0.23                 $0.23                 $0.22                $0.23
     Weighted average shares of common stock        17,637,260            17,701,999            17,747,293           17,869,252
     (basic)
     Weighted average shares of common stock        17,695,001            17,762,773            17,817,917           17,972,706
     (diluted)
</TABLE>

(1)  The  summation  of the  quarterly  financial  data may not equal the annual
     number reported on the consolidated  financial statements of operations due
     to rounding differences.

                                     - 76 -
<PAGE>


19.  SUBSEQUENT EVENTS

On January 5, 2005,  the  Company  completed  the sale of a three  story  75,000
rentable  square  foot R&D  property  at 3120 Scott  Boulevard  in Santa  Clara,
California  for $8,500,  following  the  expiration  of a long term lease by the
tenant that  originally  completed  construction  of the building in March 1984.
During the months  leading up to and following the turnover of the building from
the original tenant,  management began formulating a marketing strategy to lease
the building to a new tenant. During this evaluation period, management leased a
12,000  square  foot  portion of the ground  floor of the  building  to a former
subtenant  of the original  tenant of the  building and received an  unsolicited
offer to  purchase  the  building  from an  unrelated  party.  During the fourth
quarter of 2004,  prior to  recommending  to the Company's Board of Directors to
accept  the  offer,  management  took into  consideration  several  factors  and
concluded that the property would require  additional  capital  improvements and
likely remain vacant for more than a year under current market conditions.  As a
result of the sale, an impairment loss of ($2,193) was recorded in 2004 based on
the fair value of the property being less than its carrying value. That property
was classified as held for sale at December 31, 2004.

On January 7, 2005,  the  Company  paid  dividends  of $0.16 per share of common
stock to all common  stockholders of record as of December 31, 2004. On the same
date, the operating  partnerships  paid a distribution of $0.16 per O.P. Unit to
all holders of O.P. Units.

On February 9, 2005, after having spent more than one year attempting to resolve
the objection to the Global Crossings claim (as well as the preference lawsuit),
the Court held a hearing to  consider  objection  filed with  respect to Mission
West  Properties'  claim. A continued  hearing on the claim objection is set for
March 23,  2005.  A trial date has not been set for either the  unsecured  claim
objection or preference litigation. See Note 15.

On February 22, 2005, the Company  acquired an  approximately  200,500  rentable
square foot R&D property  located at 5521 (formerly  4949) Hellyer Avenue in San
Jose,  California from Cisco Systems,  Inc. The total acquisition price for this
property was approximately $14,026. The building was purchased vacant.

On February 4, 2005,  the Maryland  Appeals Court heard the Company's  appeal in
the Republic  Properties  Corporation v. Mission West  Properties,  L.P suit. On
March 1,  2005,  the  Maryland  Appeals  Court  ruled in favor of  Mission  West
Properties,  L.P.,  finding that the Circuit Court of Maryland  could not assert
personal jurisdiction.  The Maryland Appeals Court will issue its mandate within
30 days, after which Republic Properties Corporation will have 15 days to seek a
writ of certiorari to the Maryland Appeals Court.

                                     - 77 -
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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

The audits  referred to in our report  dated  January  28, 2005  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. 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
audits.


In our  opinion  such  financial  statement  schedule  presents  fairly,  in all
material respects, the information set forth therein.


\S\ BDO Seidman, LLP


San Francisco, California
January 28, 2005

                                     - 78 -
<PAGE>






                               INTENTIONALLY BLANK



                                     - 79 -

<PAGE>


                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
             Real Estate and Accumulated Depreciation & Amortization
                                December 31, 2004
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                   Initial Cost                               Total Cost
                                                           ----------------------------     Cost      ------------------------
                                                                            Buildings   Subsequent to             Buildings
                                          December 31, 2004                    and      Construction/                and
Property Name               City            Encumbrances       Land        Improvements  Acquisition     Land    Improvements
----------------------------------------   --------------- -------------- ------------- ------------- ---------- -------------
<C>                        <C>                 <C>          <C>            <C>            <C>         <C>         <C>
5300-5350 Hellyer Avenue    San Jose    E       $10,420      $ 5,742        $ 11,442                   $ 5,742     $ 11,442
10401-10411 Bubb Road       Cupertino   A                        633           3,078                       633        3,078
45365 Northport Loop        Fremont                            2,447           5,711       $   11        2,447        5,722
45700 Northport Loop        Fremont     B                      1,184           5,760            7        1,184        5,767
45738 Northport Loop        Fremont     B                        891           4,338            5          891        4,343
4050 Starboard Drive        Fremont     B                      1,329           6,467            8        1,329        6,475
3501 W. Warren Ave/Fremont  Fremont                            1,866           9,082        1,053        1,866       10,135
Blvd
48800 Milmont Blvd          Fremont                            1,013           4,932                     1,013        4,932
4750 Patrick Henry Drive    Santa Clara                        1,604           7,805          153        1,604        7,958
3520 Bassett Street         Santa Clara C                      1,104           5,371                     1,104        5,371
3530 Bassett Street         Santa Clara C,D                      849           4,133                       849        4,133
5850-5870 Hellyer Avenue    San Jose                           2,787           6,502                     2,787        6,502
5750 Hellyer Avenue         San Jose                           3,266           3,354                     3,266        3,354
800 Embedded Way            San Jose                           5,508          12,134           16        5,508       12,150
5500 Hellyer Avenue         San Jose                           4,735          12,484           39        4,735       12,523
5550 Hellyer Avenue         San Jose                           3,261           3,478                     3,261        3,478
5400 Hellyer Avenue         San Jose                           3,238           5,007          215        3,238        5,222
5325 Hellyer Avenue         San Jose                           4,684          10,231           40        4,684       10,271
5345 Hellyer Avenue         San Jose                           4,866           5,822                     4,866        5,822
5905-5965 Silver Creek      San Jose                           8,437          17,317                     8,437       17,317
Valley Road
5905-5965 Silver Creek      San Jose                           3,438           2,727                     3,438        2,727
Valley Road
855 Embedded Way            San Jose                           3,289           6,521           68        3,289        6,589
1065-1105 La Avenida Street Mountain View                     46,832         109,275           65       46,832      109,340
1750 Automation Parkway     San Jose    H                      4,789          11,174          315        4,789       11,489
1756 Automation Parkway     San Jose    H                      4,378          10,216           15        4,378       10,231
1762 Automation Parkway     San Jose    H                      4,804          12,224           20        4,804       12,244
1768 Automation Parkway     San Jose                           8,195          19,121           14        8,195       19,135
255 Caspian Drive           Sunnyvale                          3,491           7,160        1,559        3,491        8,719
245 Caspian Drive           Sunnyvale                          5,894               -                     5,894            -
5970 Optical Court          San Jose                           2,758           8,395                     2,758        8,395
5900 Optical Court          San Jose                           3,634          12,677           83        3,634       12,760
2630 Orchard Parkway        San Jose                           2,931           5,863           22        2,931        5,885
2610 Orchard Parkway        San Jose    K                      2,615           5,231                     2,615        5,231
55 West Trimble Road        San Jose    K                      4,435           8,869                     4,435        8,869
2001 Walsh Avenue           Santa Clara G,I,J                  4,610           5,245                     4,610        5,245
2880 Scott Boulevard        Santa Clara G,I,J                 14,501          25,501                    14,501       25,501
2890 Scott Boulevard        Santa Clara G,I,J                  3,081          10,844                     3,081       10,844
2770-2800 Scott Boulevard   Santa Clara G,I                    7,138           7,075            2        7,138        7,077
2300 Central Expressway     Santa Clara G,I,J                  2,390          14,418                     2,390       14,418
2220 Central Expressway     Santa Clara G,I,J                  3,304           4,301          162        3,304        4,463
2330 Central Expressway     Santa Clara G,I                    3,673           3,932                     3,673        3,932
2251 Lawson Lane            Santa Clara H                      1,952           9,498                     1,952        9,498
1230 East Arques            Sunnyvale   B                        540           2,628           39          540        2,667
1250 East Arques            Sunnyvale   B                      1,335           6,499                     1,335        6,499
3120 Scott Blvd             Santa Clara M                      2,044           7,755                     2,044        7,755
20400 Mariani Avenue        Cupertino   I                      1,670           8,125                     1,670        8,125
10500 De Anza Blvd          Cupertino   B                      7,666          37,304                     7,666       37,304
20605-20705 Valley Green Dr.Cupertino   H                      3,490          16,984                     3,490       16,984
10300 Bubb Road             Cupertino   B                        635           3,090                       635        3,090
10440 Bubb Road             Cupertino                            434           2,112           61          434        2,173
10460 Bubb Road             Cupertino               154          994           4,838        1,161          994        5,999
1135 Kern Avenue            Sunnyvale   B                        407           1,982                       407        1,982
405 Tasman Drive            Sunnyvale                            550           2,676           90          550        2,766
450 National Avenue         Mountain View B                      611           2,973                       611        2,973
3301 Olcott Street          Santa Clara                        1,846           8,984                     1,846        8,984
2800 Bayview Avenue         Fremont                            1,070           5,205           60        1,070        5,265
6850 Santa Teresa Blvd      San Jose                             377           1,836          820          377        2,656
6810 Santa Teresa Blvd      San Jose                           2,567           5,991           12        2,567        6,003
140-160 Great Oaks Blvd     San Jose                           1,402           6,822          755        1,402        7,577
</TABLE>
<PAGE>


<TABLE>
<CAPTION>
                                                            Accumulated
                                                            Depreciation      Date of     Depreciable
Property Name               City               Total       & Amortization   Acquisition      Life
----------------------------------------    ------------   --------------   -----------   -----------
<C>                        <C>                <C>             <C>             <C>             <C>
5300-5350 Hellyer Avenue    San Jose    E      $ 17,184        $ 1,323          5/00           L
10401-10411 Bubb Road       Cupertino   A         3,711            502          7/98           L
45365 Northport Loop        Fremont               8,169            613         10/00           L
45700 Northport Loop        Fremont     B         6,951            938          7/98           L
45738 Northport Loop        Fremont     B         5,234            708          7/98           L
4050 Starboard Drive        Fremont     B         7,804          1,054          7/98           L
3501 W. Warren Ave/Fremont  Fremont              12,001          1,490          7/98           L
Blvd
48800 Milmont Blvd          Fremont               5,945            803          7/98           L
4750 Patrick Henry Drive    Santa Clara           9,562          1,375          7/98           L
3520 Bassett Street         Santa Clara C         6,475            873          7/98           L
3530 Bassett Street         Santa Clara C,D       4,982            673          7/98           L
5850-5870 Hellyer Avenue    San Jose              9,289          1,005         11/98           L
5750 Hellyer Avenue         San Jose              6,620            286          8/01           L
800 Embedded Way            San Jose             17,658          1,488          3/00           L
5500 Hellyer Avenue         San Jose             17,258          1,223          2/01           L
5550 Hellyer Avenue         San Jose              6,739            321          6/01           L
5400 Hellyer Avenue         San Jose              8,460            652          7/00           L
5325 Hellyer Avenue         San Jose             14,955          1,053          1/01           L
5345 Hellyer Avenue         San Jose             10,688            562          1/02           L
5905-5965 Silver Creek      San Jose             25,754          1,515          7/01           L
Valley Road
5905-5965 Silver Creek      San Jose              6,165            222         10/01           L
Valley Road
855 Embedded Way            San Jose              9,878            632          5/01           L
1065-1105 La Avenida Street Mountain View       156,172         15,715          4/99           L
1750 Automation Parkway     San Jose    H        16,278          1,580          7/99           L
1756 Automation Parkway     San Jose    H        14,609          1,286          1/00           L
1762 Automation Parkway     San Jose    H        17,048          1,462          4/00           L
1768 Automation Parkway     San Jose             27,330          1,960         12/00           L
255 Caspian Drive           Sunnyvale            12,210          1,035          4/00           L
245 Caspian Drive           Sunnyvale             5,894              -          4/01           L
5970 Optical Court          San Jose             11,153            210         12/03           L
5900 Optical Court          San Jose             16,394            818          7/02           L
2630 Orchard Parkway        San Jose              8,816            416          3/02           L
2610 Orchard Parkway        San Jose    K         7,846            371          3/02           L
55 West Trimble Road        San Jose    K        13,304            629          3/02           L
2001 Walsh Avenue           Santa Clara G,I,J     9,855            654          4/03           L
2880 Scott Boulevard        Santa Clara G,I,J    40,002          1,979          4/03           L
2890 Scott Boulevard        Santa Clara G,I,J    13,925            687          4/03           L
2770-2800 Scott Boulevard   Santa Clara G,I      14,215            310          4/03           L
2300 Central Expressway     Santa Clara G,I,J    16,808          3,623          4/03           L
2220 Central Expressway     Santa Clara G,I,J     7,767            892          4/03           L
2330 Central Expressway     Santa Clara G,I       7,605            172          4/03           L
2251 Lawson Lane            Santa Clara H        11,450          1,545          7/98           L
1230 East Arques            Sunnyvale   B         3,207            453          7/98           L
1250 East Arques            Sunnyvale   B         7,834          1,057          7/98           L
3120 Scott Blvd             Santa Clara M         9,799          1,578          7/98           L
20400 Mariani Avenue        Cupertino   I         9,795          1,323          7/98           L
10500 De Anza Blvd          Cupertino   B        44,970          6,066          7/98           L
20605-20705 Valley Green Dr.Cupertino   H        20,474          2,764          7/98           L
10300 Bubb Road             Cupertino   B         3,725            503          7/98           L
10440 Bubb Road             Cupertino             2,607            353          7/98           L
10460 Bubb Road             Cupertino             6,993            944          7/98           L
1135 Kern Avenue            Sunnyvale   B         2,389            325          7/98           L
405 Tasman Drive            Sunnyvale             3,316            452          7/98           L
450 National Avenue         Mountain View B       3,584            484          7/98           L
3301 Olcott Street          Santa Clara          10,830          1,463          7/98           L
2800 Bayview Avenue         Fremont               6,335            858          7/98           L
6850 Santa Teresa Blvd      San Jose              3,033            544          7/98           L
6810 Santa Teresa Blvd      San Jose              8,570            876          3/99           L
140-160 Great Oaks Blvd     San Jose              8,979          1,255          7/98           L
</TABLE>

                                     - 80 -
<PAGE>
<TABLE>
<CAPTION>
                                                                   Initial Cost                               Total Cost
                                                           ----------------------------     Cost      ------------------------
                                                                            Buildings   Subsequent to             Buildings
                                          December 31, 2004                    and      Construction/                and
Property Name               City            Encumbrances       Land        Improvements  Acquisition     Land    Improvements
----------------------------------------   --------------- -------------- ------------- ------------- ---------- -------------
<C>                        <C>                <C>          <C>             <C>            <C>        <C>          <C>      <C>
6541 Via del Oro/6385 San   San Jose    H                      1,039           5,057                     1,039        5,057
Ignacio
6311-6351 San Ignacio Ave.  San Jose    B                      6,246          30,396          170        6,246       30,566
6320-6360 San Ignacio Ave.  San Jose    H                      2,616          12,732          439        2,616       13,171
75 E. Trimble Road/2610 N.  San Jose                           3,477          16,919           85        3,477       17,004
First St
2033-2243 Samaritan Drive   San Jose    F         9,560        5,046          24,556          154        5,046       24,710
1170 Morse Avenue           Sunnyvale   B                        658           3,201                       658        3,201
3236 Scott Blvd             Santa Clara B                      1,234           6,005                     1,234        6,005
1212 Bordeaux Lane          Sunnyvale   B                      2,250          10,948                     2,250       10,948
1325-1810 McCandless Drive  Milpitas    F,H                   13,994          66,213        1,363       13,994       67,576
1600 Memorex Drive          Santa Clara B                      1,221           5,940           11        1,221        5,951
1688 Richard Avenue         Santa Clara B                      1,248           2,913            6        1,248        2,919
1700 Richard Avenue         Santa Clara B                      1,727           4,030                     1,727        4,030
3506-3510 Bassett Street    Santa Clara C                        943           4,591          116          943        4,707
3540-3544 Bassett Street    Santa Clara B,C                    1,565           7,615          189        1,565        7,804
3550 Bassett Street         Santa Clara B,C                    1,079           5,251           33        1,079        5,284
3560 Bassett Street         Santa Clara B,C                    1,075           5,233            8        1,075        5,241
3570-3580 Bassett Street    Santa Clara B,C                    1,075           5,233                     1,075        5,233
   Prudential Ins. Co. of America Loan  B       119,441
   Northwestern Mutual Life Ins. Co.    H        94,517
   Citicorp USA, Inc.                   I        78,710
                                           --------------- -------------- ------------- ------------- ---------- -------------
                                               $312,802     $275,707        $787,352       $9,444     $275,707     $796,796
                                           =============== ============== ============= ============= ========== =============
</TABLE>


<TABLE>
<CAPTION>
                                                            Accumulated
                                                            Depreciation      Date of     Depreciable
Property Name               City               Total       & Amortization   Acquisition      Life
----------------------------------------    ------------   --------------   -----------   -----------
<C>                        <C>              <C>             <C>                <C>            <C>
6541 Via del Oro/6385 San   San Jose    H         6,096           823           7/98           L
Ignacio
6311-6351 San Ignacio Ave.  San Jose    B        36,812         5,025           7/98           L
6320-6360 San Ignacio Ave.  San Jose    H        15,787         2,149           7/98           L
75 E. Trimble Road/2610 N.  San Jose             20,481         2,804           7/98           L
First St
2033-2243 Samaritan Drive   San Jose    F        29,756         3,923           7/98           L
1170 Morse Avenue           Sunnyvale   B         3,859           522           7/98           L
3236 Scott Blvd             Santa Clara B         7,239           978           7/98           L
1212 Bordeaux Lane          Sunnyvale   B        13,198         1,782           7/98           L
1325-1810 McCandless Drive  Milpitas    F,H      81,570        11,059           7/98           L
1600 Memorex Drive          Santa Clara B         7,172           946           7/98           L
1688 Richard Avenue         Santa Clara B         4,167           476           9/98           L
1700 Richard Avenue         Santa Clara B         5,757           549           8/99           L
3506-3510 Bassett Street    Santa Clara C         5,650           790           7/98           L
3540-3544 Bassett Street    Santa Clara B,C       9,369         1,275           7/98           L
3550 Bassett Street         Santa Clara B,C       6,363           876           7/98           L
3560 Bassett Street         Santa Clara B,C       6,316           857           7/98           L
3570-3580 Bassett Street    Santa Clara B,C       6,308           853           7/98           L
   Prudential Ins. Co. of America Loan  B
   Northwestern Mutual Life Ins. Co.    H
   Citicorp USA, Inc.                   I
                                           ------------   -----------
                                             $1,072,503      $111,640
                                           ============   ===========
</TABLE>


(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  Encumbered by the $119,441  Prudential  Insurance Company of America loan -
     full amount of loan shown at the bottom of the schedule.
(C)  Part of the property group referred to as the Triangle Technology Park.
(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(E)  50% of this  property's  ownership  is held by an  affiliated  party  since
     September 2000.
(F)  Three  properties at Samaritan Drive and two properties at McCandless Drive
     are  encumbered  by the $9,560  debt due the Berg  Group  under the line of
     credit.
(G)  Part of the property group referred to as the San Tomas Technology Park.
(H)  Encumbered by the $94,517 Northwestern Mutual Life Insurance Company loan -
     full amount of loan shown at the bottom of the schedule.
(I)  Encumbered  by the $78,710  Citicorp  USA,  Inc. loan - full amount of loan
     shown at the bottom of the schedule.
(J)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS No. 141 amounted to $18,284.
(K)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS No. 141 amounted to $1,367.
(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 No. 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)  This  property was  designated as asset held for sale at December 31, 2004.
     Upon the classification of 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 selling  costs.  Accordingly,  the carrying value of 3120
     Scott Blvd. reflects a write-down of $2,193. In January 2005, this property
     was sold for a total sale price of $8,500.

                                     - 81 -


<PAGE>
                          MISSION WEST PROPERTIES, INC.
                                  Schedule III
             Real Estate and Accumulated Depreciation & Amortization
                                December 31, 2003
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                     Initial Cost                               Total Cost
                                                           -----------------------------      Cost       -------------------------
                                             December 31,                    Buildings    Subsequent to                Buildings
                                                2003                            And       Construction/                   And
Property Name               City            Encumbrances        Land        Improvements   Acquisition      Land      Improvements
----------------------------------------  ---------------  --------------  -------------  -------------  ----------  -------------
<S>                        <C>                 <C>             <C>            <C>               <C>      <C>           <C>
5300-5350 Hellyer Avenue    San Jose    E       $10,761         $ 5,742        $11,442                    $ 5,742        $11,442
10401-10411 Bubb Road       Cupertino   A                           633          3,078                        633          3,078
45365 Northport Loop        Fremont                               2,447          5,711           $ 11       2,447          5,722
45700 Northport Loop        Fremont     B                         1,184          5,760              7       1,184          5,767
45738 Northport Loop        Fremont     B                           891          4,338              5         891          4,343
4050 Starboard Drive        Fremont     B                         1,329          6,467              8       1,329          6,475
3501 W. Warren Ave/Fremont  Fremont                               1,866          9,082                      1,866          9,082
48800 Milmont Blvd          Fremont                               1,013          4,932                      1,013          4,932
4750 Patrick Henry Drive    Santa Clara                           1,604          7,805            153       1,604          7,958
3520 Bassett Street         Santa Clara C                         1,104          5,371                      1,104          5,371
3530 Bassett Street         Santa Clara C,D                         849          4,133                        849          4,133
5850-5870 Hellyer Avenue    San Jose                              2,787          6,502                      2,787          6,502
5750 Hellyer Avenue         San Jose                              3,266          3,354                      3,266          3,354
800 Embedded Way            San Jose                              5,508         12,134             16       5,508         12,150
5500 Hellyer Avenue         San Jose                              4,735         12,484             39       4,735         12,523
5550 Hellyer Avenue         San Jose                              3,261          3,478                      3,261          3,478
5400 Hellyer Avenue         San Jose                              3,238          5,358            215       3,238          5,573
5325 Hellyer Avenue         San Jose                              4,684         10,329             40       4,684         10,369
5345 Hellyer Avenue         San Jose                              4,866          5,822                      4,866          5,822
5905-5965 Silver Creek      San Jose                              8,437         17,317                      8,437         17,317
Valley Road
5905-5965 Silver Creek      San Jose                              3,438          2,727                      3,438          2,727
Valley Road
855 Embedded Way            San Jose                              3,289          6,521             68       3,289          6,589
1065-1105 La Avenida Street Mountain View                        46,832        109,275             65      46,832        109,340
1750 Automation Parkway     San Jose    H                         4,789         11,174            315       4,789         11,489
1756 Automation Parkway     San Jose    H                         4,378         10,216             15       4,378         10,231
1762 Automation Parkway     San Jose    H                         4,804         12,224             20       4,804         12,244
1768 Automation Parkway     San Jose                              8,195         19,121             14       8,195         19,135
255 Caspian Drive           Sunnyvale                             3,491          7,160          1,559       3,491          8,719
245 Caspian Drive           Sunnyvale                             5,894              -                      5,894              -
5970 Optical Court          San Jose                              2,758          8,395                      2,758          8,395
5900 Optical Court          San Jose                              3,634         12,677             83       3,634         12,760
2630 Orchard Parkway        San Jose                              2,931          5,863                      2,931          5,863
2610 Orchard Parkway        San Jose    K                         2,615          5,738                      2,615          5,738
55 West Trimble Road        San Jose    K                         4,435          9,730                      4,435          9,730
2001 Walsh Avenue           Santa Clara G,I,J                     4,610          5,245                      4,610          5,245
2880 Scott Boulevard        Santa Clara G,I,J                    14,501         25,500                     14,501         25,500
2890 Scott Boulevard        Santa Clara G,I,J                     3,081         10,843                      3,081         10,843
2770-2800 Scott Boulevard   Santa Clara G,I                       7,138          7,075              2       7,138          7,077
2300 Central Expressway     Santa Clara G,I,J                     2,390         14,419                      2,390         14,419
2220 Central Expressway     Santa Clara G,I,J                     3,304          4,301             88       3,304          4,389
2330 Central Expressway     Santa Clara G,I                       3,673          3,932                      3,673          3,932
2251 Lawson Lane            Santa Clara H                         1,952          9,498                      1,952          9,498
1230 East Arques            Sunnyvale   B                           540          2,628             39         540          2,667
1250 East Arques            Sunnyvale   B                         1,335          6,499                      1,335          6,499
3120 Scott Blvd             Santa Clara                           2,044          9,948                      2,044          9,948
20400 Mariani Avenue        Cupertino               733           1,670          8,125                      1,670          8,125
10500 De Anza Blvd          Cupertino   B                         7,666         37,304                      7,666         37,304
20605-20705 Valley Green Dr.Cupertino   H                         3,490         16,984                      3,490         16,984
10300 Bubb Road             Cupertino   B                           635          3,090                        635          3,090
10440 Bubb Road             Cupertino                               434          2,112             15         434          2,127
10460 Bubb Road             Cupertino               226             994          4,838          1,161         994          5,999
1135 Kern Avenue            Sunnyvale   B                           407          1,982                        407          1,982
405 Tasman Drive            Sunnyvale                               550          2,676             90         550          2,766
450 National Avenue         Mountain View B                         611          2,973                        611          2,973
3301 Olcott Street          Santa Clara                           1,846          8,984                      1,846          8,984
2800 Bayview Avenue         Fremont                               1,070          5,205             60       1,070          5,265
6850 Santa Teresa Blvd      San Jose                                377          1,836            820         377          2,656
6810 Santa Teresa Blvd      San Jose                              2,567          5,991             12       2,567          6,003
140-160 Great Oaks Blvd     San Jose                              1,402          6,822            755       1,402          7,577
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                            Accumulated
                                                            Depreciation     Date of     Depreciable
Property Name               City               Total      & Amortization   Acquisition      Life
----------------------------------------   ------------   --------------   -----------   -----------
<S>                        <C>               <C>              <C>           <C>               <C>
5300-5350 Hellyer Avenue    San Jose    E     $ 17,184         $ 1,037        5/00             L
10401-10411 Bubb Road       Cupertino   A        3,711             425        7/98             L
45365 Northport Loop        Fremont              8,169             469       10/00             L
45700 Northport Loop        Fremont     B        6,951             794        7/98             L
45738 Northport Loop        Fremont     B        5,234             600        7/98             L
4050 Starboard Drive        Fremont     B        7,804             892        7/98             L
3501 W. Warren Ave/Fremont  Fremont             10,948           1,251        7/98             L
Blvd
48800 Milmont Blvd          Fremont              5,945             680        7/98             L
4750 Patrick Henry Drive    Santa Clara          9,562           1,155        7/98             L
3520 Bassett Street         Santa Clara C        6,475             739        7/98             L
3530 Bassett Street         Santa Clara C,D      4,982             570        7/98             L
5850-5870 Hellyer Avenue    San Jose             9,289             843       11/98             L
5750 Hellyer Avenue         San Jose             6,620             203        8/01             L
800 Embedded Way            San Jose            17,658           1,234        3/00             L
5500 Hellyer Avenue         San Jose            17,258             915        2/01             L
5550 Hellyer Avenue         San Jose             6,739             224        6/01             L
5400 Hellyer Avenue         San Jose             8,811             527        7/00             L
5325 Hellyer Avenue         San Jose            15,053             788        1/01             L
5345 Hellyer Avenue         San Jose            10,688             417        1/02             L
5905-5965 Silver Creek      San Jose            25,754           1,083        7/01             L
Valley Road
5905-5965 Silver Creek      San Jose             6,165             154       10/01             L
Valley Road
855 Embedded Way            San Jose             9,878             459        5/01             L
1065-1105 La Avenida Street Mountain View      156,172          12,982        4/99             L
1750 Automation Parkway     San Jose    H       16,278           1,292        7/99             L
1756 Automation Parkway     San Jose    H       14,609           1,029        1/00             L
1762 Automation Parkway     San Jose    H       17,048           1,153        4/00             L
1768 Automation Parkway     San Jose            27,330           1,481       12/00             L
255 Caspian Drive           Sunnyvale           12,210             738        4/00             L
245 Caspian Drive           Sunnyvale            5,894               -        4/01             L
5970 Optical Court          San Jose            11,153               -       12/03             L
5900 Optical Court          San Jose            16,394             489        7/02             L
2630 Orchard Parkway        San Jose             8,794             269        3/02             L
2610 Orchard Parkway        San Jose    K        8,353             596        3/02             L
55 West Trimble Road        San Jose    K       14,165           1,009        3/02             L
2001 Walsh Avenue           Santa Clara G,I,J    9,855             237        4/03             L
2880 Scott Boulevard        Santa Clara G,I,J   40,001             761        4/03             L
2890 Scott Boulevard        Santa Clara G,I,J   13,924             272        4/03             L
2770-2800 Scott Boulevard   Santa Clara G,I     14,215             133        4/03             L
2300 Central Expressway     Santa Clara G,I,J   16,809           1,534        4/03             L
2220 Central Expressway     Santa Clara G,I,J    7,693             310        4/03             L
2330 Central Expressway     Santa Clara G,I      7,605              74        4/03             L
2251 Lawson Lane            Santa Clara H       11,450           1,307        7/98             L
1230 East Arques            Sunnyvale   B        3,207             381        7/98             L
1250 East Arques            Sunnyvale   B        7,834             894        7/98             L
3120 Scott Blvd             Santa Clara         11,992           1,371        7/98             L
20400 Mariani Avenue        Cupertino            9,795           1,120        7/98             L
10500 De Anza Blvd          Cupertino   B       44,970           5,133        7/98             L
20605-20705 Valley Green Dr.Cupertino   H       20,474           2,339        7/98             L
10300 Bubb Road             Cupertino   B        3,725             426        7/98             L
10440 Bubb Road             Cupertino            2,561             293        7/98             L
10460 Bubb Road             Cupertino            6,993             791        7/98             L
1135 Kern Avenue            Sunnyvale   B        2,389             276        7/98             L
405 Tasman Drive            Sunnyvale            3,316             386        7/98             L
450 National Avenue         Mountain View    B   3,584             410        7/98             L
3301 Olcott Street          Santa Clara         10,830           1,238        7/98             L
2800 Bayview Avenue         Fremont              6,335             720        7/98             L
6850 Santa Teresa Blvd      San Jose             3,033             440        7/98             L
6810 Santa Teresa Blvd      San Jose             8,570             726        3/99             L
140-160 Great Oaks Blvd     San Jose             8,979           1,013        7/98             L
</TABLE>

                                     - 82 -
<PAGE>
<TABLE>
<CAPTION>

                                                                        Initial Cost                               Total Cost
                                                                 ------------------------      Cost       -------------------------
                                                  December 31,                Buildings    Subsequent to                Buildings
                                                     2003                        And       Construction/                   And
Property Name                 City               Encumbrances      Land     Improvements   Acquisition       Land      Improvements
----------------------------------------------  --------------  ----------  -------------  -------------  ----------  -------------
<S>                          <C>                  <C>           <C>            <C>            <C>         <C>          <C>
6541 Via del Oro/6385 San Ig. San Jose    H                         1,039         5,057                       1,039        5,057
6311-6351 San Ignacio         San Jose    B                         6,246        30,396           145         6,246       30,541
6320-6360 San Ignacio         San Jose    H                         2,616        12,732           439         2,616       13,171
75 E. Trimble Road/2610 N.    San Jose                              3,477        16,919            85         3,477       17,004
First Street
2033-2243 Samaritan Drive     San Jose    F           6,320         5,046        24,556           154         5,046       24,710
1170 Morse Avenue             Sunnyvale   B                           658         3,201                         658        3,201
3236 Scott Blvd               Santa Clara B                         1,234         6,005                       1,234        6,005
1212 Bordeaux Lane            Sunnyvale   B                         2,250        10,948                       2,250       10,948
1325-1810 McCandless Drive    Milpitas    F,H                      13,994        66,213         1,065        13,994       67,278
1600 Memorex Drive            Santa Clara B                         1,221         5,940            11         1,221        5,951
1688 Richard Avenue           Santa Clara B                         1,248         2,913             6         1,248        2,919
1700 Richard Avenue           Santa Clara B                         1,727         4,030                       1,727        4,030
3506-3510 Bassett Street      Santa Clara C                           943         4,591           116           943        4,707
3540-3544 Bassett Street      Santa Clara B,C                       1,565         7,615           189         1,565        7,804
3550 Bassett Street           Santa Clara B,C                       1,079         5,251            33         1,079        5,284
3560 Bassett Street           Santa Clara B,C                       1,075         5,233             8         1,075        5,241
3570-3580 Bassett Street      Santa Clara B,C                       1,075         5,233                       1,075        5,233
   Prudential Ins. Co. of America Loan    B         121,455
   Northwestern Mutual Life Ins. Co.      H          97,445
   Citicorp USA, Inc.                     I          80,000
                                                --------------  ----------  -------------  -------------  ----------  -------------
                                                   $316,940      $275,707      $791,361        $7,926      $275,707     $799,287
                                                ==============  ==========  =============  =============  ==========  =============

</TABLE>

<TABLE>
<CAPTION>

                                                                 Accumulated
                                                                 Depreciation     Date of      Depreciable
Property Name                 City                  Total       & Amortization   Acquisition      Life
----------------------------------------------   ------------   --------------   -----------   -----------
<S>                          <C>                <C>                 <C>             <C>            <C>
6541 Via del Oro/6385 San Ig. San Jose    H           6,096              696         7/98           L
6311-6351 San Ignacio         San Jose    B          36,787            4,241         7/98           L
6320-6360 San Ignacio         San Jose    H          15,787            1,800         7/98           L
75 E. Trimble Road/2610 N.    San Jose               20,481            2,368         7/98           L
First St
2033-2243 Samaritan Drive     San Jose    F          29,756            3,402         7/98           L
1170 Morse Avenue             Sunnyvale   B           3,859              442         7/98           L
3236 Scott Blvd               Santa Clara B           7,239              828         7/98           L
1212 Bordeaux Lane            Sunnyvale   B          13,198            1,508         7/98           L
1325-1810 McCandless Drive    Milpitas    F,H        81,272            9,300         7/98           L
1600 Memorex Drive            Santa Clara B           7,172              797         7/98           L
1688 Richard Avenue           Santa Clara B           4,167              403         9/98           L
1700 Richard Avenue           Santa Clara B           5,757              447         8/99           L
3506-3510 Bassett Street      Santa Clara C           5,650              664         7/98           L
3540-3544 Bassett Street      Santa Clara B,C         9,369            1,078         7/98           L
3550 Bassett Street           Santa Clara B,C         6,363              740         7/98           L
3560 Bassett Street           Santa Clara B,C         6,316              725         7/98           L
3570-3580 Bassett Street      Santa Clara B,C         6,308              722         7/98           L
   Prudential Ins. Co. of America Loan    B
   Northwestern Mutual Life Ins. Co.      H
   Citicorp USA, Inc.                     I
                                                 ------------   --------------
                                                 $1,074,994          $89,243
                                                 ============   ==============
</TABLE>


(A)  16.67% of this property's ownership is held by unaffiliated parties outside
     the operating partnerships of the Company.
(B)  Encumbered by the $121,455  Prudential  Insurance Company of America loan -
     full amount of loan shown at the bottom of the schedule.
(C)  Part of the property group referred to as the Triangle Technology Park.
(D)  25% of this property's  ownership is held by  unaffiliated  parties outside
     the operating partnerships of the Company.
(E)  50% of this  property's  ownership  is held by an  affiliated  party  since
     September 2000.
(F)  Three  properties at Samaritan Drive and two properties at McCandless Drive
     are  encumbered  by the $6,320  debt due the Berg  Group  under the line of
     credit.
(G)  Part of the property group referred to as the San Tomas Technology Park.
(H)  Encumbered by the $97,445 Northwestern Mutual Life Insurance Company loan -
     full amount of loan shown at the bottom of the schedule.
(I)  Encumbered  by the $80,000  Citicorp  USA,  Inc. loan - full amount of loan
     shown at the bottom of the schedule.
(J)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS No. 141 amounted to $18,284.
(K)  Purchase price allocated to real estate related  intangible assets pursuant
     to SFAS No. 141 amounted to $1,367.
(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 No. 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.


                                     - 83 -
<PAGE>




                          MISSION WEST PROPERTIES, INC.
                              NOTE TO SCHEDULE III
                           December 31, 2004 and 2003
                             (dollars in thousands)

1.   Reconciliation   of  real   estate   and   accumulated   depreciation   and
     amortization:
<TABLE>
<CAPTION>

                                                                                            2004                       2003
                                                                                   ------------------------   ----------------------
Real estate investments:
<S>                                                                                    <C>                         <C>
   Balance at beginning of year                                                         $1,074,994                 $  953,175
   Additions                                                                                 1,421                    121,819
   Reclassification                                                                         (1,719)                         -
   Impairment charge                                                                        (2,193)                         -
                                                                                   ------------------------   ----------------------
   Balance at end of year                                                               $1,072,503                 $1,074,994
                                                                                   ========================   ======================



Accumulated depreciation and amortization:
   Balance at beginning of year                                                           $ 89,243                    $67,053
   Additions                                                                                23,765                     22,190
   Reclassification                                                                         (1,368)                         -
                                                                                   ------------------------   ----------------------
   Balance at end of year                                                                 $111,640                    $89,243
                                                                                   ========================   ======================
</TABLE>

                                     - 84 -

<PAGE>


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

     The Company previously disclosed the change in its independent  accountants
     on Form 8-K, filed February 2, 2004,  Form 8-K/A,  filed February 18, 2004,
     and Form 8-K, filed May 12, 2004.


ITEM 9A. REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     (a)  Disclosure Controls and Procedures

     We strive to maintain  disclosure controls and procedures that are designed
     to ensure that  information  required to be  disclosed  in our Exchange Act
     reports is recorded,  processed,  summarized  and reported  within the time
     periods  specified in the SEC's rules and forms,  and that such information
     is accumulated  and  communicated  to our  management,  including our chief
     executive officer and chief financial officer, as appropriate, to allow for
     timely decisions regarding required disclosure. In designing and evaluating
     the disclosure  controls and  procedures,  management  recognizes  that any
     controls and procedures,  no matter how well  designated and operated,  can
     provide  only  reasonable   assurance  of  achieving  the  desired  control
     objectives and management  necessarily is required to apply its judgment in
     evaluating the cost-benefit relationship of possible controls.

     As required by SEC Rule  13a-15(b) we conducted  an  evaluation,  under the
     supervision and with the  participation  of our  management,  including our
     Chief Executive  Officer,  President and Vice President of Finance,  of the
     effectiveness  of the design and operation of our  disclosure  controls and
     procedures.  Based  upon  that  evaluation,  the Chief  Executive  Officer,
     President  and Vice  President  of Finance  concluded  that our  disclosure
     controls and procedures  are effective in timely  alerting them to material
     information  relating to us  (including  our  subsidiaries)  required to be
     included in our periodic SEC filings.

     (b)  Changes in Internal Control over Financial Reporting

     In October  2004,  the Audit  Committee of our Board of  Directors  hired a
     third party contractor to assist management in evaluating  internal control
     over financial  reporting  using the criteria set forth by the Committee of
     Sponsoring  Organizations  of the  Treadway  Commission  (COSO) on Internal
     Control - Integrated Framework.  Under COSO an internal control significant
     deficiency is a control deficiency, or combination of control deficiencies,
     that  adversely  affects  the  company's  ability to  initiate,  authorize,
     record,   process,   or  report  external  financial  data  reliability  in
     accordance with generally accepted accounting principles such that there is
     more than a remote  likelihood that a misstatement of the company's  annual
     or interim financial  statements that is more than inconsequential will not
     be  prevented  or  detected.  An internal  control  material  weakness is a
     significant deficiency,  or combination of significant  deficiencies,  that
     results in more than a remote  likelihood  that a material  misstatement of
     the annual or interim financial states will not be prevented or detected.

     The third party contractor identified certain deficiencies that constituted
     significant  deficiencies but not material weaknesses.  We remediated these
     deficiencies  by  updating  and  revising   certain  written  policies  and
     procedures;  implementing  additional  policies and procedures to segregate
     duties among our employees for our various accounting cycles;  implementing
     additional  policies  and  procedures  concerning  access to and use of our
     information technology network;  creating checklists to provide a record of
     the preparation and review by different members of management for accuracy,
     consistency  and  completeness  in our  leasing  activities  and  financial
     closing  procedures;  and establishing new dual signature  requirements for
     disbursements.

     Other than the foregoing initiatives,  there were no significant changes in
     our  internal  control or, to our  knowledge,  in other  factors that could
     significantly affect such internal controls subsequent to the date of their
     evaluation.  We have  determined  that our internal  control over financial
     reporting  was  effective  as  of  December  31,  2004.  Please  refer  to,
     "Management  Report on Internal Control over Financial  Reporting,"  above.
     Our  registered  independent  public  accounting  firm has attested to this
     report, as set forth in Item 8, above.


ITEM 9B. OTHER INFORMATION

     In December 2004, we terminated our lease  agreement as amended dated as of
     July 25, 1998 with Microsoft  Corporation  and entered into a new lease for
     our R&D properties  located at 1045,  1055,  1065, 1075 and 1085 La Avenida
     Street in Mountain  View,  California.  Under the new lease  Microsoft will
     continue to occupy four buildings,  which consist of approximately  422,012
     rentable square feet, and will vacate the 1075 La Avenida  building,  which
     consists of  approximately  93,688 square feet, on or before  January 2006.
     The new lease term is 116 months commencing  January 1, 2005. The new lease
     provides  for "triple  net" rent,  which we will accrue on a  straight-line
     basis of $2.19 per square  foot per month.  At any time  during the term of
     the new lease  Microsoft  has a right of first offer to lease any available
     building in the project. The new lease further provides that on December 1,
     2008,  Microsoft has the right to give notice to vacate either 1055 or 1085
     La  Avenida  effective

                                     - 85 -
<PAGE>

     September 1, 2009, and if it exercises this  contraction  right it must pay
     us a fee of  approximately  $400,000.  In  addition,  on  December 1, 2010,
     Microsoft  will have the right to give notice of  termination  of the lease
     effective September 1, 2011, and if it exercises this right, it must pay us
     a termination fee of approximately $7.5 million.  The termination fee would
     be adjusted, however, to take into account the greater or lower rental cost
     at the effective date of termination if Microsoft had exercised its earlier
     right to add or vacate one additional building. We did not incur any tenant
     improvement  costs in  connection  with  this new  lease,  but did  incur a
     leasing  commission of approximately  $2.9 million,  which we will amortize
     over the term of the new lease.

                                     - 86 -

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required by Item 10 is incorporated by reference from the
     sections  titled  "Directors  and Executive  Officers"  and "Section  16(a)
     Beneficial  Ownership  Reporting  Compliance"  in the Company's  definitive
     proxy statement for its 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 for its 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 for its annual stockholders' meeting.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by Item 13 is incorporated by reference from the
     sections titled "Certain  Relationships  and Related  Transactions"  in the
     Company's definitive proxy statement for its annual stockholders' meeting.

ITEM 14. 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 for its annual stockholders' meeting.

                                     - 87 -

<PAGE>


PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



          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     Restated Bylaws of Mission West Properties, Inc.(1)
10.1.1    Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P.(2a)
10.1.2    Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. I(2a)
10.1.3    Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. II(2a)
10.1.4    Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. III(2a)
10.2      Exchange Rights Agreement between Mission West Properties and the Limited Partners(2a)
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 (2b)
10.6      Pending Projects Acquisition Agreement among Mission West Properties, the Operating Partnership and the Berg Group(2a)
10.7      Berg Land Holdings Option Agreement between Mission West Properties and certain members of the Berg Group(2a)
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     Lease Agreement with Cisco Systems, Inc,(4b)
10.14     Lease Agreement with Amdahl Corporation(4c)
10.15     Prudential Promissory Note(5)
10.16     Prudential Deed of Trust(5)
10.17     Prudential Certificate Regarding Distribution(5)
10.18     Prudential Guaranty(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
10.22     Contribution Agreement(8)
10.23     Assumption Agreement for Wells Fargo Line of Credit(9)
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)
10.27.1   Third Amendment to Berg Group $100,000,000 Revolving Line of Credit(11)
10.28     Berg Group Deed of Trust Securing Revolving Promissory Note(12)

                                     - 88 -
<PAGE>

10.29     Cupertino National Bank Revolving Credit Loan Agreement(13)
10.29.1   Cupertino National Bank Revolving Credit Loan Agreement Change in Terms Agreement(14)
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)
10.33     Mission West Properties, L.P. I Promissory Note to Northwestern Mutual Life Insurance Company(13)
10.34     Mission West Properties, L.P. II Promissory Note to Northwestern Mutual Life Insurance Company(13)
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)
10.37     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)
10.39     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)
10.41     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     Not in use
10.45     Citicorp USA, Inc.$80,000,000 Secured Promissory Note (15)
10.45.1   Citicorp USA, Inc.$80,000,000 First Amendment to Promissory Note (11)
10.45.2   Citicorp USA, Inc.$80,000,000 Second Amendment to Promissory Note (16a)
10.45.3   Citicorp USA, Inc.$80,000,000 Third Amendment to Promissory Note (16b)
10.45.4   Citicorp USA, Inc.$80,000,000 Fourth Amendment to Promissory Note (14)
10.46     2004 Equity Incentive Plan(17)
21.1      Subsidiaries of the Registrant (18)
23.1      Consent of Independent Registered Public Accounting Firm
24.1      Powers of Attorney (included on the signature page hereto)
31.1      Certificate of Principal Executive Officer pursuant to Rule 13a-14
31.2      Certificate of Principal Operating Officer pursuant to Rule 13a-14
31.3      Certificate of Principal Financial Officer pursuant to Rule 13a-14
99.1      Section 1350 Certificate
</TABLE>

(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.

(2a) 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).

(2b) 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.

(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.

(4b) Incorporated  herein  by  reference  to  Exhibit  10.16  to  the  Company's
     Registration  Statement  on Form S-4/A filed on June 17, 1998 and  declared
     effective on November 23, 1998.

(4c) 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.

(5)  Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     Company's  Registration  Statement  on Form S-4/A filed on October 27, 1998
     and declared effective on November 23, 1998.

(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.

                                     - 89 -
<PAGE>

(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.

(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).

(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.

(11) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly report on Form 10-Q filed on August 12, 2003.

(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.

(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.

(14) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly report on Form 10-Q filed on November 2, 2004.

(15) Incorporated  herein  by  reference  to the  same-numbered  exhibit  to the
     quarterly report on Form 10-Q filed on May 15, 2003.

(16a)Incorporated  herein by reference to Exhibit  10.45.1 to the annual  report
     on Form 10-K for 2003 filed on July 30, 2004.

(16b)Incorporated  herein by reference to Exhibit  10.45.2 to the annual  report
     on Form 10-K for 2003 filed on July 30, 2004.

(17) 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.

(18) Incorporated herein by reference to the same-numbered exhibit to the annual
     report on Form 10-K for 1998 filed on March 31, 1999.



     (b)  Reports on Form 8-K.

     The  Company  filed a  Current  Report  on Form 8-K on  October  14,  2004,
     regarding its results of operations  and financial  condition for the third
     quarter of 2004.

                                     - 90 -
<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 11, 2005                     By: /s/ CARL E. BERG
                                                  ----------------------
                                                  Carl E. Berg
                                                  Chief Executive Officer

         Date: March 11, 2005                     By: /s/ WAYNE N. PHAM
                                                  ----------------------
                                                  Wayne N. Pham
                                                  Vice President of Finance and
                                                  Controller
                                                  (Principal 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.

      Signature                   Title                                Date

/s/  CARL E. BERG
-------------------------
Carl E. Berg                  Chairman of the Board, Chief        March 11, 2005
                              Executive Officer, and Director

/s/  RAYMOND V. MARINO
-------------------------
Raymond V. Marino             President, Chief Operating Officer  March 11, 2005
                              and Director

/s/  JOHN C. BOLGER
-------------------------
John C. Bolger                Director                            March 11, 2005


/s/  WILLIAM A. HASLER
-------------------------
William A. Hasler             Director                            March 11, 2005


/s/  LAWRENCE B. HELZEL
-------------------------
Lawrence B. Helzel            Director                            March 11, 2005


                                     - 91 -

<PAGE>



                             CERTIFICATE PURSUANT TO
               RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Carl E. Berg, certify that:

1. I have reviewed  this Annual Report on Form 10-K of Mission West  Properties,
Inc. (the "Company") for the year ended December 31, 2004;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report;

4. The Company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-14(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f)) for the Company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          Company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this annual report is being prepared;
     b)   designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   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;
     c)   evaluated the effectiveness of the Company's  disclosure  controls and
          procedures and presented in this annual report our  conclusions  about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the  period  covered  by  this  annual  report  based  on  such
          evaluation; and
     d)   disclosed in this annual report any change in the  Company's  internal
          control over financial  reporting  that occurred  during the Company's
          fourth fiscal quarter that has materially  affected,  or is reasonably
          likely to  materially  affect,  the  Company's  internal  control over
          financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed,  based on our
most recent  evaluation of internal  control over  financial  reporting,  to the
Company's  auditors and the audit  committee of the Company's board of directors
(or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably likely to adversely affect the Company's ability to record,
          process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          control over financial reporting.


Carl E. Berg
Chairman and Chief Executive Officer
March 11, 2005

                                     - 92 -
<PAGE>


                             CERTIFICATE PURSUANT TO
               RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Raymond V. Marino, certify that:

1. I have reviewed  this Annual Report on Form 10-K of Mission West  Properties,
Inc. (the "Company") for the year ended December 31, 2004;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report;

4.  The  Company's  other  certifying  officer(s)  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-14(e)) and internal  control over financial
reporting (as defined in Exchange Act Rules 13a-15(f)) for the Company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          Company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this annual report is being prepared;
     b)   designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   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;
     c)   evaluated the effectiveness of the Company's  disclosure  controls and
          procedures and presented in this annual report our  conclusions  about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the  period  covered  by  this  annual  report  based  on  such
          evaluation; and
     d)   disclosed in this annual report any change in the  Company's  internal
          control over financial  reporting  that occurred  during the Company's
          fourth fiscal quarter that has materially  affected,  or is reasonably
          likely to  materially  affect,  the  Company's  internal  control over
          financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed,  based on our
most recent  evaluation of internal  control over  financial  reporting,  to the
Company's  auditors and the audit  committee of the Company's board of directors
(or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably likely to adversely affect the Company's ability to record,
          process, summarize and report financial information; and
     b)   any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          control over financial reporting.


Raymond V. Marino
President and Chief Operating Officer
March 11, 2005

                                     - 93 -
<PAGE>

                             CERTIFICATE PURSUANT TO
               RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Wayne N. Pham, certify that:

1. I have reviewed  this Annual Report on Form 10-K of Mission West  Properties,
Inc. (the "Company") for the year ended December 31, 2004;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report;

4.  The  Company's  other  certifying  officer(s)  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-14(e)) and internal  control over financial
reporting (as defined in Exchange Act Rules 13a-15(f)) for the Company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          Company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this annual report is being prepared;
     b)   designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   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;
     c)   evaluated the effectiveness of the Company's  disclosure  controls and
          procedures and presented in this annual report our  conclusions  about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the  period  covered  by  this  annual  report  based  on  such
          evaluation; and
     d)   disclosed in this annual report any change in the  Company's  internal
          control over financial  reporting  that occurred  during the Company's
          fourth fiscal quarter that has materially  affected,  or is reasonably
          likely to  materially  affect,  the  Company's  internal  control over
          financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed,  based on our
most recent  evaluation of internal  control over  financial  reporting,  to the
Company's  auditors and the audit  committee of the Company's board of directors
(or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably likely to adversely affect the Company's ability to record,
          process, summarize and report financial information; and
     b)   any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          control over financial reporting.


Wayne N. Pham
Vice President of Finance and Controller
March 11, 2005

                                     - 94 -