910079--3/15/2006--BEDFORD_PROPERTY_INVESTORS

related topics

{investment, property, distribution}

{loan, real, estate}

{debt, indebtedness, cash}

{stock, price, share}

{acquisition, growth, future}

{loss, insurance, financial}

{tax, income, asset}

{regulation, change, law}

{cost, regulation, environmental}

{cost, contract, operation}

{personnel, key, retain}

{control, financial, internal}

{cost, operation, labor}

{capital, credit, financial}

RISKS RELATED TO THE PROPOSED MERGER We may fail to close the proposed merger. We have incurred significant transactions costs that will be required to be expensed for accounting purposes and which will reduce our ability to make future dividend distributions to our stockholders. Our business could be harmed by the proposed merger. The merger agreement restricts our ability to incur indebtedness without the prior consent of LBA, which could harm our liquidity position. RISKS RELATED TO OUR CONTINUING OPERATIONS We could experience a reduction in rental income if we are unable to renew or re-lease space on expiring leases on current lease terms, or at all. Our leases with our 25 largest tenants generate approximately 42% of our base rent, and the loss of one or more of these tenants, as well as the inability to re-lease this space on equivalent terms, could harm our results of operations. A significant portion of our base rent is generated by properties in California, and our business could be harmed by an economic downturn in the California real estate market or a significant earthquake. Future declines in the demand for commercial space in the greater San Francisco Bay Area could harm our results of operations and, consequently, our ability to make distributions to our stockholders. Real estate investments are inherently risky, and many of the risks involved are beyond our ability to control. If our tenants experience financial difficulty or seek the protection of bankruptcy laws, our cash from operating activities could suffer. Our dependence on smaller businesses to rent office space could negatively affect our cash flow. The acquisition and development of real estate is subject to numerous risks, and the cost of bringing any acquired property up to the standards of its intended market position could exceed our estimates. We may abandon development opportunities resulting in direct expenses to us. Our uninsured or underinsured losses could result in a loss in value of our properties. If we fail to maintain our qualification as a real estate investment trust, we could experience adverse tax and other consequences, including the loss of deductibility of dividends in calculating our taxable income and the imposition of federal income tax at regular corporate rates. We must comply with strict income distribution requirements to maintain favorable tax treatment as a REIT. If our cash flow is insufficient to meet our operating expenses and the distribution requirements, we may need to incur additional borrowings or otherwise obtain funds to satisfy these requirements. As a REIT, we are subject to complex constructive ownership rules that limit any holder to 9.8% in value of our outstanding common and preferred stock, taken together. Any shares transferred in violation of this rule are subject to redemption by us and any such transaction is voidable. If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over financial reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the trading price of our stock. We rely on the services of our key personnel, and their expertise and knowledge of our business would be difficult to replace. The commercial real estate industry is highly competitive, and we compete with companies, including REITs, that may be able to purchase properties at lower capitalization rates than would be accretive for us. Many of our properties are located in markets with an oversupply of space, and our ability to compete effectively with other properties to attract tenants may be limited to the extent that competing properties may be newer, better capitalized or in more desirable locations than our properties. We could incur costs from environmental liabilities even though we did not cause, contribute to, or know about them. Costs associated with moisture infiltration and resulting mold remediation may be significant. We could incur unanticipated costs to comply with the Americans with Disabilities Act, and any non-compliance could result in fines. We are subject to numerous federal, state, and local regulatory requirements, and any changes to existing regulations or new laws may result in significant, unanticipated costs. Our $150 million credit agreement and our mortgage loans are collateralized by approximately 94% of our total real estate assets, and in the event of default under any of these debt instruments, our lenders could foreclose on the collateral securing this indebtedness. Our $150 million credit agreement and some of our mortgage loans carry floating interest rates, and increases in market interest rates could harm our results of operations. We use borrowings to finance the acquisition, development and operation of properties and to repurchase our common stock, and we cannot assure you that financing will be available on commercially reasonable terms, or at all, in the future. Our leverage could harm our ability to operate our business and fulfill our debt obligations. We have not used derivatives extensively to mitigate our interest rate risks. An increase in market interest rates could cause the respective prices of our common stock and preferred stock to decrease. We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends. We cannot assure you that we will be able to pay dividends regularly although we have done so in the past. Our ability to pay dividends is further limited by the requirements of Maryland law.

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910079--3/15/2006--BEDFORD_PROPERTY_INVESTORS_INC/MD