UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report (date of earliest event reported): April 9, 2003
MISSION WEST PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland Commission File Number: 95-2635431
-------- 1-8383 ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification)
10050 Bandley Drive, Cupertino, California 95014
(Address of principal executive offices)
(408) 725-0700
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
Mission West Properties, Inc. (the "Company") hereby amends its Current Report
on Form 8-K dated April 9, 2003, filed with the Securities and Exchange
Commission on April 23, 2003, to amend Item 7 in its entirety to include
required financial statements, pro forma information, additional required
information and certain exhibits.
Certain responses to the items in this Amendment to Current Report contain
forward-looking statements. Such statements can be identified by the use of
forward-looking terminology such as "will", "anticipate", "estimate", "expect",
"intends", or similar words. Forward-looking statements involve a number of
risks, uncertainties or other factors beyond the Company's control, which may
cause material differences in actual results, performance or other expectations.
These factors include, but are not limited to, the Company's future operating
results for the acquired properties, and other factors detailed in the Company's
registration statements, and periodic filings with the Securities and Exchange
Commission.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements and additional information specified by Rule 3-14 of
Regulation S-X.
(1) Historical Summary of Gross Income and Direct Operating Expenses of
the San Tomas Technology Park for the three months ended March 31,
2003 (unaudited) and for the year ended December 31, 2002.
(2) Additional Information.
The San Tomas Technology Park (the "Property") is located in the
portion of the San Francisco Bay Area known as "Silicon Valley." All
the Company's R&D properties are located in the Silicon Valley, and
the Company's management considered current rental and occupancy
rates, competition, operating expenses and other relevent factors in
making the Company's decision to acquire the Property. Financial
information about the Property is set forth in the Current Report on
Form 8-K dated April 9, 2003 (the "Initial Report") and in this
Amendment to Current Report.
After reasonable inquiry, the Company is not aware of any
material factors relating to the Property other than those discussed
in the Initial Report, the financial information provided in response
to Item 7 in this Amendment to Current Report, and information
disclosed in periodic reports filed by the Company with the Securities
and Exchange Commission, that would cause the reported financial
information for the Property not to be necessarily indicative of
future operating results.
(b) Pro Forma Financial Information.
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2003
(unaudited).
Pro Forma Condensed Consolidated Statements of Operations for the three
months ended March 31, 2003 (unaudited) and for the year ended December 31,
2002 (unaudited).
(c) Exhibits.
Exhibit No. Description
----------- -------------------------------
10.44 Agreement of Purchase and Sale*
23.1 Consent of Ernst & Young LLP
----------------------------------------
*Previously filed as an exhibit to Current Report on Form 8-K, dated April 9,
2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MISSION WEST PROPERTIES, INC.
Date: June 20, 2003 By: /s/ Wayne N. Pham
---------------------------------------
Wayne N. Pham
Vice President of Finance and Controller
- 2 -
Report of Independent Accountants
The Board of Directors and Stockholders of
Mission West Properties, Inc.:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (the "Statement") of the San Tomas Technology Park (the
"Property") for the year ended December 31, 2002. This Statement is the
responsibility of the Property's management. Our responsibility is to express an
opinion on this Statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for the
inclusion in the current report on Form 8-K/A of Mission West Properties, Inc.
dated April 9, 2003) as described in Note 2 and is not intended to be a complete
presentation of the Property's revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all material
aspects, the gross income and direct operating expenses (as described in Note
2), of the Property for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Ernst & Young LLP
June 16, 2003
- 3 -
SAN TOMAS TECHNOLOGY PARK
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(Dollars in thousands)
For the three months ended For the year ended
March 31, 2003 December 31, 2002
-------------------------- -------------------------
(Unaudited)
Revenues:
Rental revenues from real estate $3,691 $14,682
Tenant reimbursements 310 1,951
------------------------- -------------------------
Total revenues 4,001 16,633
------------------------- -------------------------
Expenses:
Operating expenses 165 587
Bad debt expense - 315
Real estate taxes 180 1,676
------------------------- -------------------------
Total expenses 345 2,578
------------------------- -------------------------
Gross income in excess of direct operating
expenses $3,656 $14,055
========================= =========================
The accompanying notes are an integral part of these statements.
- 4 -
SAN TOMAS TECHNOLOGY PARK
NOTES TO THE HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(Dollars in thousands)
1. PROPERTY DESCRIPTION
The accompanying Historical Summary of Gross Income and Direct Operating
Expenses (the "Statement") include the operations of the San Tomas
Technology Park (the "Property"). On April 9, 2003, the Property was
acquired by Mission West Properties, Inc. (the "Company") from an unrelated
party for a purchase price of $110,000 (unaudited). The Property is located
in Santa Clara, California, which is in the "Silicon Valley." The Property
consists of seven office buildings and aggregates approximately 625,000 net
rentable square feet (unaudited).
2. BASIS OF ACCOUNTING
The Statement has been prepared in accordance with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission for real estate properties
acquired or to be acquired. Accordingly, this Statement and certain
historical expenses are not comparable to the operations of the Property
after the acquisition, including but not limited to, corporate expenses,
certain owner occupant expenses, interest, amortization, depreciation, and
certain other costs not directly related to the future operations of the
Property. Also excluded are management fees, which are not applicable in
the future operations of the Property, because the Property will be managed
by the Company's employees. Management is not aware of any material factors
relating to the Property that would cause the reported financial
information not to be indicative of future operating results.
3. SIGNIFICANT ACCOUNTING POLICIES
Rental Revenue Recognition:
Rental revenue is recognized on the straight-line method of accounting
required by accounting principles generally accepted in the United States
of America ("GAAP") under which contractual rent payment increases are
recognized evenly over the lease term. The excess of recognized rental
revenue over rental cash receipts is recorded as deferred rent. The impact
of the straight-line rent adjustment increased revenue by approximately
$142 and $596 for the three months ended March 31, 2003 (unaudited) and for
the year ended December 31, 2002, respectively. Certain lease agreements
contain terms that provide for additional rents based on reimbursement of
certain costs. These additional rents are reflected on the accrual basis.
All rental revenue applicable to each tenant was recognized under the
straight-line method of accounting with the exception of two tenants who
terminated their lease early, which were recognized on a cash basis (see
Subsequent Event under Note 5).
Unaudited Interim Information:
The Statement for the three months ended March 31, 2003 is unaudited. In
the opinion of management, all adjustments necessary for a fair
presentation of such Statement (in accordance with the Basis of Accounting
as described in Note 2) have been included. The results of operations are
not necessarily indicative of the Property's future results of operations.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates, judgments and assumptions that affect
the reported amounts of revenues and expenses during the reported period.
Actual results may differ from those estimates under different assumptions
or conditions.
4. FUTURE MINIMUM RENTS
The office buildings on the Property are leased to a total of four tenants
representing 90% of the rentable square footage as of April 9, 2003. All of
the leases are triple net operating leases with initial terms extending to
the year 2010. Excluding the lease to Auspex Systems, Inc, ("Auspex")(see
Note 5), total minimum annual lease payments due on a cash basis under the
other non-cancelable operating leases in effect as of April 9, 2003
(unaudited), excluding tenant reimbursements of expenses, for the remainder
of 2003 and annually thereafter are as follows:
- 5 -
2003 (4/9/03 - 12/31/03) $ 7,272
2004 10,338
2005 9,825
2006 9,614
2007 9,738
2008 5,837
Thereafter 3,081
------------
Total $55,705
============
5. SUBSEQUENT EVENT
In April 2003, prior to the Company's acquisition of the San Tomas
Technology Park, Turnstone Systems, Inc. ("Turnstone") terminated its lease
agreement with the previous owner. The cash rent received from Turnstone
for the year ended December 31, 2002 and for the three months ended March
31, 2003 is $3,832 and $974, respectively. The future minimum rents in Note
4 above do not include rent from that lease.
On April 22, 2003, Auspex, which leases approximately 98,000 rentable
square feet at the San Tomas Technology Park, filed a petition under
Chapter 11 of the Bankruptcy Code. Under the bankruptcy laws, this tenant
may have the right to reject its lease for these premises and the Company's
claim for rent will be limited to the greater of one year or 15% of the
total amount owing under the lease 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 the Company gains repossession of
the property, as well as any rent that was unpaid on the earlier of those
dates. Prior to the bankruptcy filing, all amounts due to the Company from
Auspex were current (unaudited). Auspex is in the process of selling its
assets, and management believes that Auspex will reject its lease
obligation following the sale of its assets, which should take place in the
next 30-90 days. The cash rent received from Auspex for the year ended
December 31, 2002 and for the three months ended March 31, 2003 is $1,580
and $399, respectively. Excluding the Auspex lease, the occupancy rate for
the Property at April 9, 2003 would have been 74%. The future minimum rents
in Note 4 above do not include rent from that lease.
- 6 -
MISSION WEST PROPERTIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2003
(Unaudited)
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet of
Mission West Properties, Inc. (the "Company") is presented as if the acquisition
of the San Tomas Technology Park (the "Property"), which occurred subsequent to
March 31, 2003, had been consummated on March 31, 2003.
Such pro forma information is based on the historical consolidated balance sheet
of the Company as of that date, giving effect to the transaction described
above. This unaudited Pro Forma Condensed Consolidated financial information
should be read in conjunction with the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003 (unaudited) (SEC File No. 1-8383, Form
10-Q, dated May 14, 2003). In management's opinion, all adjustments necessary to
reflect the above transaction have been made.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming the above transaction had been consummated on March 31, 2003 nor does
it purport to represent the future financial position of the Company.
- 7 -
MISSION WEST PROPERTIES, INC
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(Unaudited)
---------
Mission West Acquisition of
Properties, Inc. San Tomas Pro Forma
March 31, 2003 (A) Technology Park (B) March 31, 2003
-------------------- -------------------- ---------------------
ASSETS
Real estate assets, at cost
Land $234,707 $ 46,411 (C) $ 281,118
Buildings and improvements 727,135 63,601 (C) 790,736
-------------------- -------------------- ---------------------
Total investments in properties 961,842 110,012 1,071,854
Less accumulated depreciation (71,123) - (71,123)
-------------------- -------------------- ---------------------
Net investments in properties 890,719 110,012 1,000,731
Investments in unconsolidated joint venture 2,037 - 2,037
-------------------- -------------------- ---------------------
Net investments in real estate assets 892,756 110,012 1,002,768
Cash and cash equivalents 2,721 - 2,721
Deferred rent 17,245 - 17,245
Other assets 16,855 - 16,855
-------------------- -------------------- ---------------------
Total assets $929,577 $110,012 $1,039,589
==================== ==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit (related parties) $ 26 - $ 26
Revolving line of credit - $ 29,229 (D) 29,229
Mortgage notes payable 223,586 80,000 (D) 303,586
Mortgage notes payable (related parties) 11,001 - 11,001
Interest payable 337 - 337
Security deposits 10,398 223 (E) 10,621
Prepaid rental income 13,892 560 (F) 14,452
Dividend/distribution payable 24,996 - 24,996
Accounts payable and accrued expenses 4,819 - 4,819
-------------------- -------------------- ---------------------
Total liabilities 289,055 110,012 399,067
Minority interests 528,288 - 528,288
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000
shares authorized, none issued and outstanding - - -
Common stock, $.001 par value, 200,000,000
shares authorized, 17,653,691 and 17,487,329
shares issued and outstanding at March 31, 2003
and December 31, 2002, respectively 18 - 18
Paid-in-capital 129,911 - 129,911
Accumulated deficit/profit (17,695) - (17,695)
-------------------- -------------------- ---------------------
Total stockholders' equity 112,234 - 112,234
-------------------- -------------------- ---------------------
Total liabilities and stockholders' equity $929,577 $110,012 $1,039,589
==================== ==================== =====================
The accompanying notes are an integral part of these consolidated
financial statements.
- 8 -
MISSION WEST PROPERTIES, INC.
NOTES TO THE PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(Unaudited)
(A) Reflects the historical consolidated balance sheet of Mission West
Properties, Inc. (the "Company") as of March 31, 2003. See the historical
consolidated financial statements and notes thereto included in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2003 (unaudited) (SEC File No. 1-8383, dated May 14, 2003).
(B) Reflects the acquisition of the San Tomas Technology Park (the "Property").
(C) Cost allocation of the Property is based on fair market value as estimated
by the Company's management solely for the purpose of this Pro Forma
Condensed Consolidated Balance Sheet.
(D) The Company acquired the Property with proceeds from a new $80,000
short-term mortgage note and borrowings under its line of credit with
Cupertino National Bank.
(E) Reflects the assumption of security deposits from two tenants at the
Property.
(F) Reflects prepaid rent.
- 9 -
MISSION WEST PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND
FOR THE YEAR ENDED DECEMBER 31, 2002
(Unaudited)
The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations for the three months ended March 31, 2003 (unaudited) and for
the year ended December 31, 2002 (unaudited) are presented as if the April
9, 2003 acquisition of the San Tomas Technology Park and the related
financing had occurred on January 1, 2002.
These Pro Forma Condensed Consolidated Statements of Operations (unaudited)
should be read in conjunction with the historical consolidated financial
statements and notes thereto of the Company, reported on the Company's
Annual Report on Form 10-K for the year ended December 31, 2002 (SEC File
No. 1-8383, Form 10-K, dated March 27, 2003) and the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003 (unaudited) (SEC
File No. 1-8383, Form 10-Q, dated May 14, 2003).
The unaudited Pro Forma Condensed Consolidated financial information
prepared by the Company's management is not necessarily indicative of what
the actual results of operations would have been for the three months ended
March 31, 2003 or for the year ended December 31, 2002, had the previously
described transaction actually occurred on January 1, 2002 and the effect
thereof carried forward through the three-month period ended March 31,
2003, nor does it purport to present future results of operations of the
Company.
- 10 -
MISSION WEST PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Dollars in thousands, except per share amounts)
(Unaudited)
--------
Acquisition of
Three months ended San Tomas
March 31, 2003 Technology Park Pro Forma
-------------------- -------------------- ---------------------
Revenues:
Rental revenues from real estate $31,431 $3,734 (A) $35,165
Tenant reimbursements 4,575 310 (B) 4,885
Other income, including interest 735 - 735
-------------------- -------------------- ---------------------
Total revenues 36,741 4,044 40,785
-------------------- -------------------- ---------------------
Expenses:
Operating expenses 1,519 165 1,684
Real estate taxes 3,075 180 3,255
Depreciation of real estate 4,563 398 (D) 4,961
General and administrative 358 - 358
Interest 3,406 897 (E) 4,303
Interest (related parties) 294 - 294
-------------------- -------------------- ---------------------
Total expenses 13,215 1,640 14,855
-------------------- -------------------- ---------------------
Income before minority interests and equity in
earnings of unconsolidated joint venture 23,526 2,404 25,930
Equity in earnings of unconsolidated
joint venture 737 - 737
-------------------- -------------------- ---------------------
Income before minority interests 24,263 2,404 26,667
Minority interests 20,229 2,004 (F) 22,233
-------------------- -------------------- ---------------------
Income from continuing operations 4,034 400 4,434
-------------------- -------------------- ---------------------
Net income to common stockholders $ 4,034 $ 400 $ 4,434
==================== ==================== =====================
Net income to minority interests $20,229 $2,004 $22,233
==================== ==================== =====================
Income per share from continuing operations:
Basic $0.23 $0.25
==================== =====================
Diluted $0.23 $0.25
==================== =====================
Net income per share to common stockholders:
Basic $0.23 $0.25
==================== =====================
Diluted $0.23 $0.25
==================== =====================
Weighted average number of shares of
common stock outstanding (basic) 17,637,260 17,637,260
==================== =====================
Weighted average number of shares of
common stock outstanding (diluted) 17,695,001 17,695,001
==================== =====================
The accompanying notes are an integral part of these consolidated
financial statements.
- 11 -
MISSION WEST PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(Dollars in thousands, except per share amounts)
(Unaudited)
--------
Acquisition of
Year ended San Tomas
December 31, 2002 Technology Park Pro Forma
-------------------- -------------------- ---------------------
Revenues:
Rental revenues from real estate $129,781 $14,856 (A) $144,637
Tenant reimbursements 20,097 1,960 (B) 22,057
Other income, including interest 4,250 - 4,250
-------------------- -------------------- ---------------------
Total revenues 154,128 16,816 170,944
-------------------- -------------------- ---------------------
Expenses:
Operating expenses 9,781 780 (C) 10,561
Real estate taxes 12,234 1,676 13,910
Depreciation of real estate 17,928 1,590 (D) 19,518
General and administrative 1,488 - 1,488
Interest 9,588 4,107 (E) 13,695
Interest (related parties) 3,422 - 3,422
-------------------- -------------------- ---------------------
Total expenses 54,441 8,153 62,594
-------------------- -------------------- ---------------------
Income before minority interests 99,687 8,663 108,350
Minority interests 83,251 7,218 (F) 90,469
-------------------- -------------------- ---------------------
Income from continuing operations 16,436 1,445 17,881
-------------------- -------------------- ---------------------
Discontinued operations, net minority interests:
Gain from disposal of discontinued operations 1,018 - 1,018
Income attributable to discontinued operations 47 - 47
-------------------- -------------------- ---------------------
Income from discontinued operations 1,065 - 1,065
-------------------- -------------------- ---------------------
Net income to common stockholders $ 17,501 $ 1,445 $ 18,946
==================== ==================== =====================
Net income to minority interests $ 88,576 $ 7,218 $ 95,794
==================== ==================== =====================
Income per share from continuing operations:
Basic $0.94 $1.03
==================== =====================
Diluted $0.92 $1.00
==================== =====================
Income per share from discontinued operations:
Basic $0.06 $0.06
==================== =====================
Diluted $0.06 $0.06
==================== =====================
Net income per share to common stockholders:
Basic $1.00 $1.09
==================== =====================
Diluted $0.98 $1.06
==================== =====================
Weighted average number of shares of
common stock outstanding (basic) 17,455,799 17,455,799
==================== =====================
Weighted average number of shares of
common stock outstanding (diluted) 17,854,892 17,854,892
==================== =====================
The accompanying notes are an integral part of these consolidated
financial statements.
- 12 -
MISSION WEST PROPERTIES, INC.
NOTES TO THE PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
The unaudited Pro Forma Condensed Consolidated Statements of Operations reflect
the historical results of operations for Mission West Properties, Inc. for the
quarter ended March 31, 2003 and for the year ended December 31, 2002 and the
historical results of operations as reflected in the Historical Summary of Gross
Income and Direct Operating Expenses (the "Statement") of the San Tomas
Technology Park (the "Property"), assuming acquisition of the Property on
January 1, 2002, as adjusted for base rent, interest expense and depreciation
for the three months ended March 31, 2003 and for the year ended December 31,
2002.
(A) Rental revenues from real estate includes adjustments based on the pro
forma acquisition date of January 1, 2002 are as follows:
Three months ended Year ended
March 31, 2003 December 31, 2002
----------------------- -----------------------
(Dollars in thousands)
Rental revenues from real estate $3,691 $14,682
Pro forma rental revenues adjustments 43 174
----------------------- -----------------------
Pro forma rental revenues from real estate $3,734 $14,856
======================= =======================
Rental revenue is recognized on the straight-line method of accounting
required by accounting principles generally accepted in the United States
of America under which contractual rent payment increases are recognized
evenly over the lease term.
(B) Tenant reimbursements are based on the occupancy level of 90% as of
December 31, 2002, multiplied by net operating expenses and real estate
taxes, excluding bad debt expense.
(C) Comprises of direct operating expenses and $278 of bad debt expense,
excluding professional fees.
(D) Reflects the pro forma depreciation expense for the Property. Depreciation
for the Property is based on an allocation of the purchase price to land
and building as estimated by the Company's management solely for the
purpose of this pro forma. Depreciation expense is computed over an
estimated useful life of 40 years for the buildings.
(E) Reflects the increase in interest expense as a result of financing the
acquired Property. The adjustment relates to the new $80,000 mortgage note
and borrowings under the Cupertino National Bank line of credit at an
interest rate equal to LIBOR plus 200 basis points, which were
approximately 3.33% and 3.76% for the three-month period ended March 31,
2003 and for the year ended December 31, 2002, respectively.
(F) Reflects an adjustment for the minority interest in the Operating
Partnership's share of pro forma income before discontinued operations.
- 13 -
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement on
Form S-8 No. 333-80369 of Mission West Properties, Inc. of our report dated June
16, 2003 with respect to the Historical Summary of Gross Income and Direct
Operating Expenses of the San Tomas Technology Park for the year ended December
31, 2002, included in this Form 8K/A of Mission West Properties, Inc. dated as
of April 9, 2003 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
June 16, 2003