<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-98372-01
SPIEKER PROPERTIES, L.P.
(Exact name of registrant as specified in its charter)
MARYLAND 94-3188774
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2180 SAND HILL ROAD, MENLO PARK, CA 94025
(Address of principal executive offices) (Zip code)
(415) 854-5600
-----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
------ ----
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SPIEKER PROPERTIES, L.P.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements .......................................................................3
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 .....................4
Consolidated Statements of Operations for the Three Months Ended March 31, 1996
and March 31, 1995.......................................................................6
Consolidated Statement of Partners' Capital for the Three Months Ended March 31, 1996 ......7
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996
and March 31, 1995.......................................................................8
Notes to Consolidated Financial Statements .................................................9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..........................................................18
Signatures.........................................................................................19
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached are the following financial statements of Spieker Properties, L.P. (the
Operating Partnership):
(i) consolidated balance sheets as of March 31, 1996 and December 31, 1995,
(ii) consolidated statements of operations for the three months ended March 31,
1996 and March 31, 1995,
(iii) consolidated statement of partners' capital for the three months ended
March 31, 1996,
(iv) consolidated statements of cash flows for the three months ended March 31,
1996 and March 31, 1995, and
(v) notes to consolidated financial statements.
The financial statements referred to above should be read in conjunction with
the Operating Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995.
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SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
<S> <C> <C>
INVESTMENTS IN REAL ESTATE:
Land, land improvements and leasehold interests $ 318,638 $ 303,157
Buildings and improvements 797,486 756,734
Construction in progress 49,933 38,980
----------- -----------
1,166,057 1,098,871
Less - Accumulated depreciation (126,194) (124,612)
----------- -----------
1,039,863 974,259
Investments in mortgages 14,333 --
----------- -----------
Net investments in real estate 1,054,196 974,259
CASH AND CASH EQUIVALENTS 16,833 7,573
ACCOUNTS RECEIVABLE 3,588 3,351
DEFERRED RENT RECEIVABLE 4,768 4,698
RECEIVABLE FROM RELATED PARTY 270 386
DEFERRED FINANCING AND LEASING COSTS, net of
accumulated amortization of $9,107 and $9,586 as
of March 31, 1996 and December 31, 1995, respectively 15,055 13,485
FURNITURE, FIXTURES AND EQUIPMENT, net 1,769 1,678
PREPAID EXPENSES AND OTHER ASSETS 4,375 6,067
----------- -----------
$ 1,100,854 $ 1,011,497
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(dollars in thousands)
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
<S> <C> <C>
DEBT:
Unsecured notes $ 360,000 $ 260,000
Unsecured line of credit 4,000 117,700
Mortgage loans 61,696 112,702
----------- -----------
425,696 490,402
----------- -----------
ASSESSMENT BONDS PAYABLE 12,489 12,140
ACCOUNTS PAYABLE 3,223 3,804
ACCRUED REAL ESTATE TAXES 3,922 506
ACCRUED INTEREST 7,255 2,510
UNEARNED RENTAL INCOME 4,939 6,972
PARTNER DISTRIBUTIONS PAYABLE 18,638 15,588
OTHER ACCRUED EXPENSES AND LIABILITIES 11,995 12,202
----------- -----------
Total liabilities 488,157 544,124
----------- -----------
MINORITY INTERESTS (1,227) (1,203)
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
PARTNERS' CAPITAL:
General Partners, including a liquidation preference of $131,250 566,303 419,847
Limited Partners 47,621 48,729
----------- -----------
Total Partners' Capital 613,924 468,576
----------- -----------
$ 1,100,854 $ 1,011,497
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(dollars in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
--------
1996 1995
------- -------
<S> <C> <C>
REVENUE
Rental income $44,345 $34,672
Interest and other income 823 609
------- -------
45,168 35,281
------- -------
OPERATING EXPENSES:
Rental expenses 7,236 5,496
Real estate taxes 3,446 2,845
Interest expense, including amortization of finance costs 8,837 12,969
Depreciation and amortization 8,538 7,379
General and administrative and other expenses 2,282 2,152
------- -------
30,339 30,841
------- -------
Income from operations before minority interests and
extraordinary items 14,829 4,440
------- -------
MINORITY INTERESTS' SHARE IN NET LOSS 3 5
------- -------
Net income before extraordinary items 14,832 4,445
EXTRAORDINARY ITEMS 150 --
------- -------
Net income $14,982 $ 4,445
======= =======
General Partner 12,893 3,480
Limited Partner 2,089 965
------- -------
Totals $14,982 $ 4,445
======= =======
Net income per Operating Partnership unit:
Income before extraordinary items $ .38 $ .16
Extraordinary items -- --
------- -------
Net income $ .38 $ .16
======= =======
Distributions per Operating Partnership Unit:
General Partners $ .56 $ .42
======= =======
Limited Partners $ .43 $ .42
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
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SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(dollars in thousands, except shares)
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partner Partner General Limited
Units Units Partner Partner Total
----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 30,475,232 6,565,356 $ 419,847 $ 48,729 $ 468,576
Contribution-Proceeds from
sale of Common Stock 5,022,500 -- 121,369 -- 121,369
Contribution-Proceeds from
sale of Class C Common Stock 1,176,470 -- 29,963 -- 29,963
Conversion of limited partners' interests 15,537 (15,537) 386 (386) --
Non-cash compensation merit fund -- -- 25 5 30
Restricted stock grant 8,000 -- -- -- --
Exercise of stock options 3,250 -- 56 -- 56
Amortization of deferred
compensation -- -- 97 -- 97
Partner Distributions -- -- (18,333) (2,816) (21,149)
Net income -- -- 12,893 2,089 14,982
---------- ---------- ---------- ---------- ----------
BALANCE AT MARCH 31, 1996 36,700,989 6,549,819 $ 566,303 $ 47,621 $ 613,924
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
--------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 14,982 $ 4,445
Adjustments to reconcile net income (loss) to net cash provided by (used)
for operating activities-
Depreciation and amortization 8,538 7,379
Amortization of prepaid interest and deferred financing costs 377 2,519
Non-cash compensation 127 83
Minority interests' share of net loss (3) (5)
Extraordinary items (150) --
Increase in deferred rent receivable (70) (185)
(Increase) decrease in accounts receivable and other assets (237) 82
Decrease in receivables from related parties 116 568
Additions to leasing costs (1,532) (966)
Decrease in prepaid expenses and other assets 1,318 333
Increase in accounts payable and accrued expenses and liabilities (581) 157
Increase in accrued real estate taxes 3,416 2,490
Increase in accrued interest 4,745 234
(Decrease) increase in other accrued expenses and liabilities (207) 302
(Decrease) increase in unearned rental income (2,033) 691
Decrease in payable to related party -- (1,186)
--------- ---------
Net cash provided by operating activities 28,806 16,941
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties (72,896) (53,089)
Additions to investment in mortgages (14,333) --
--------- ---------
Net cash used for investing activities (87,229) (53,089)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 100,000 56,492
Payments on debt (164,556) (1,007)
Payments of deferred financing fees (1,029) --
Payment of distributions (18,120) (11,027)
Capital contributions - stock offerings 151,332 --
Capital contributions - stock options exercised 56 --
--------- ---------
Net cash provided by financing activities 67,683 44,458
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,260 8,310
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,573 9,663
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,833 $ 17,973
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest 4,294 10,229
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Debt assumed in relation to property acquisitions -- 13,452
Increase to land and assessment bonds payable 349 --
Minority interest capital recorded in relation to property acquisitions -- 10,258
Write-off of fully depreciated property 6,059 1,192
Write-off of fully amortized deferred financing and leasing costs 1,388 539
Conversion of operating partnership units to Common Stock with resulting
reduction in minority interest and increase in additional paid-in-capital 386 343
</TABLE>
The accompanying notes are an integral part of these statements.
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SPIEKER PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
MARCH 31, 1996 AND 1995
1. ORGANIZATION AND BASIS OF PRESENTATION:
Spieker Properties, L.P.
Spieker Properties, L.P. (the "Operating Partnership") was formed on
November 10, 1993 and commenced operations on November 19, 1993 when
Spieker Properties, Inc. ("the Company") completed an initial public
offering ("IPO") and issued 20,400,000 Shares of Common Stock at $20.50 per
share, or $418,200. Net proceeds of $386,800 were used to purchase an
approximate 77.6 percent general partnership interest in the Operating
Partnership. In addition, the individual partners in Spieker Partners
transferred their interests in certain properties to the Operating
Partnership in exchange for an approximate 22.4 percent limited
partnership interest in the Operating Partnership.
The transaction was accounted for as a business combination using the
purchase method for the acquisition of the separate properties and the
interest of the unaffiliated limited partners. The predecessor cost basis
was maintained to the extent of the 22.4 percent interest in those
properties received from the former partners of Spieker Partners.
The Operating Partnership is primarily engaged in the ownership, operation,
management, leasing, acquisition, expansion and development of industrial,
suburban office, and retail income-producing properties. As of March 31,
1996, the Operating Partnership owned (i) 100 percent of 119 properties,
(ii) an effective 100 percent general partner interest in Spieker
Washington Interest Partners ("SWIP"), a California general partnership,
which owns 100 percent of 13 properties, (iii) a 90 percent interest
in one property, (iv) a 93 percent interest with SWIP in one property,
and (v) 95 percent of the Series A Preferred Stock of Spieker Northwest,
Inc., which provides fee management and other services for properties
not owned by the Operating Partnership. The Operating Partnership's 134
stabilized properties, aggregating approximately 18.0 million leasable
square feet, are comprised of 74 industrial properties, 44 office
properties, and 16 retail properties. All of the properties are located
in California and the Pacific Northwest.
As a result of a number of stock offerings and contribution of capital to
the Operating Partnership by the Company, the Company owns approximately
84.9 percent general partner interest in the Operating Partnership as of
March 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the consolidated financial
position of the Operating Partnership and SWIP as of March 31, 1996 and
December 31, 1995 and its consolidated results of operations and cash flows
for the three months ended March 31, 1996 and 1995. The Operating
Partnership's investment in Spieker Northwest, Inc. is accounted for under
the equity method. The carrying value of Spieker Northwest, Inc. of $53 at
March 31, 1996 and December 31, 1995 is included in prepaid expenses and
other assets. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
Properties
Properties are recorded at cost and are depreciated using the straight-line
method over the estimated useful lives of the properties. The estimated
lives are as follows:
<TABLE>
<S> <C>
Land improvements and leasehold interests 18 to 40 years
Buildings and improvements 10 to 40 years
Tenant improvements Term of the related lease
</TABLE>
Investments in real estate are stated at the lower of depreciated cost or
estimated fair value. Fair value for financial reporting purposes is
evaluated periodically by the Operating Partnership on a property by
property basis using undiscounted cash flow. If a potential impairment is
identified, it is measured by the property's fair value based on
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either sales comparables or the net cash expected to be generated by the
property, less estimated carrying costs (including interest) during the
anticipated holding period, plus the estimated cash proceeds from the
ultimate disposition of the property. To the extent that the carrying value
exceeds the estimated fair value, a provision for decrease in net
realizable value is recorded. Estimated fair value is not necessarily an
indication of a property's current value or the amount that will be
realized upon the ultimate disposition of the property. As of March 31,
1996 and December 31, 1995, none of the carrying values of the properties
exceeded their estimated fair values. As of March 31, 1996 and December 31,
1995, the properties are located primarily in California, Oregon and
Washington. As a result of this geographic concentration, the operations of
these properties could be adversely affected by a recession or general
economic downturn in the areas where these properties are located.
Construction in Progress
Project costs clearly associated with the development and construction of a
real estate project are capitalized as construction in progress. In
addition, interest, real estate taxes, insurance, and other holding costs
are capitalized during the period in which activities necessary to get the
property ready for its intended use are in progress.
Investment in Mortgages
The Operating Partnership has invested in mortgages purchased at a
discount. In January 1996, the Operating Partnership acquired two mortgage
loans for $14,333. The mortgages are secured by real estate, have an
aggregate face value of $21,000, require monthly principal and interest
payments of $163, and mature in December 1999.
The Operating Partnership assesses possible impairment of these loans on a
quarterly basis. At March 31, 1996, the value of the underlying real estate
was in excess of the carrying value of the mortgage loans.
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or less
when purchased are classified as cash equivalents.
Ground Leases
The land on which three of the Operating Partnership's properties are
located is owned by Stanford University and is subject to ground leases.
The ground leases expire in 2039 or 2040, and unless the leases are
extended, the use of the land, together with all improvements, will revert
back to Stanford University. The former owners of the three properties
prepaid the ground leases through 2011, 2012 and 2017; thereafter, the
Operating Partnership will be responsible for the ground lease payments, as
defined under the terms of the leases. These ground lease payments have
been segregated from the total purchase price of the properties,
capitalized as leasehold interests in the accompanying consolidated balance
sheet, and are being amortized ratably over the terms of the related
original prepayment periods (18 to 24 years).
Deferred Financing and Leasing Costs
Costs incurred in connection with financing or leasing are capitalized and
amortized on a straight-line basis over the term of the related loan or
lease for periods ranging from 2 to 25 years. Unamortized leasing costs are
charged to expense upon the early termination of the lease.
Fair Value of Financial Investments
Based on the borrowing rates currently available to the Operating
Partnership, the carrying amount of debt approximates fair value. Cash and
cash equivalents consist of demand deposits, certificates of deposit and
overnight repurchase agreements with financial institutions. The carrying
amount of cash and cash equivalents approximates fair value.
Minority Interest
Minority interest in the Operating Partnership represents a 10 percent
interest in one property and a 7.5 percent interest in a second property
held by outside interests.
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Revenues
All leases are classified as operating leases. Rental income is recognized
on the straight-line basis over the terms of the leases. Deferred rent
receivable represents the excess of rental revenue recognized on a
straight-line basis over cash received under the applicable lease
provisions.
Extraordinary Items
Extraordinary items for the three months ended March 31, 1996, represent a
gain on the early extinguishment of debt. See Note 9 - Extraordinary Item.
Net Income Per Unit
Per unit amounts for the Operating Partnership are computed using the
weighted average units outstanding during the period. The weighted average
general partner units and limited partner units outstanding for the three
months ended March 31, 1996 and 1995 are as follow:
<TABLE>
<CAPTION>
General Partner Units Limited Partner Units
--------------------- ---------------------
<S> <C> <C>
Three Months Ended:
March 31, 1996 32,555,597 6,549,819
March 31, 1995 21,641,326 6,018,945
</TABLE>
Reclassifications
Certain items in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. RELATED PARTY TRANSACTIONS
Receivable From Related Party
The receivable from related party at March 31, 1996 and December 31, 1995
represents management fees and reimbursements from Spieker Partners related
entities.
4. DEBT
Unsecured Notes
The Operating Partnership has issued unsecured investment grade notes in
four tranches totaling $360,000 in principal with varying interest rates
from 6.65% to 6.95% payable semi-annually. The notes are due on various
dates from 2000 to 2004.
On January 19, 1996, the Operating Partnership sold $100,000 of unsecured
investment grade notes bearing interest at 6.90% and due January 15, 2004.
Interest is payable semiannually. Net proceeds were used to repay
borrowings on the unsecured line of credit.
Unsecured Line of Credit
The maximum amount available under the unsecured line of credit facility is
$150,000. The facility carries interest at LIBOR plus 1.5% and matures in
November 1997. The facility also includes a fee on average unused funds
which varies between 0.125% and 0.20% based on the average outstanding
balance. As of March 31, 1996 the amount drawn on the facility was $4,000.
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Mortgage Loans
Mortgage loans of $61,696 as of March 31, 1996 are secured by a first or
second deed of trust on related properties. The mortgage loans carry
interest rates ranging from 7.5% to 13.75%, require monthly principal and
interest payments, and mature from 1996 to 2012.
5. PARTNER DISTRIBUTIONS PAYABLE
The dividends and distributions payable at March 31, 1996 and December 31,
1995 represent amounts payable to the partners for the quarters then ended.
6. PARTNERS' CAPITAL
Equity Offerings
On February 28, 1996, the Company concurrently sold 4,887,500 shares of
Common Stock, through an underwritten public offering and directly placed
1,176,470 shares of Class C Common Stock and 135,000 shares of Common Stock
with a limited number of institutional investors at $25.50 per share. Net
proceeds of $151,332 were contributed to the Operating Partnership and were
used primarily to repay floating rate debt.
In December 1995, the Company sold 4,250,000 shares of Series B Preferred
Stock at $25.00 per share and concurrently sold $260,000 of unsecured
investment grade rated notes through underwritten public offerings
(collectively referred to as the "December 1995 Offerings"). Net proceeds
of $360,242 were contributed to the Operating Partnership and were used to
prepay cross-collateralized mortgage obligations outstanding and certain
fees to Prudential Insurance Company (the "Prudential Debt").
On May 11, 1995, the Company sold 5,750,000 shares of Common Stock for
$19.75 per share through an underwritten public offering. Concurrently, the
Company sold 506,329 shares of Common Stock at $19.75 per share and
2,000,000 shares of Class B Common Stock at $25.00 per share to a limited
number of institutional investors (collectively referred to as the
"Concurrent Offerings"). Net proceeds from the underwritten public offering
and the Concurrent Offerings totaling $167,119 were contributed to the
Operating Partnership and were used to repay indebtedness incurred by the
Operating Partnership to fund acquisition and development activities.
7. EMPLOYEE STOCK INCENTIVE POOL
At the time of the Company's initial public offering, the Senior Officers
of the Company reserved a portion of their limited partnership interests
in the Operating Partnership for awards and conversion into Common Stock
to existing employees at that time. The aggregate amount of interests
reserved for the Employee Stock Incentive Pool is equivalent to 69,990
shares of Common Stock. The participants in the Pool were granted 25% of
their respective allocations on January 1, 1994, January 1, 1995, and
January 1, 1996 resulting in a total of 75% of stock awards having been
granted. The remainder of the employees' allocations will be granted in
two equal awards on January 1, 1997, provided that the employee has not
previously terminated employment.
The initial deferred compensation of $1,320 pertaining to the 69,990 units
was recorded on the books of the Company, and is being amortized annually
based on the vesting period. The initial value was calculated by
converting the 69,990 partnership units into shares of Common
Stock and multiplying by the Company's Common Stock price on the date of
the grant.
For the year ended December 31, 1995, non-cash compensation expense
arising from the conversion of 15,537 shares of common stock equivalents
was $97, and deferred compensation was $755.
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8. ACQUISITIONS
The Operating Partnership acquired the following properties during the
quarter ended March 31, 1996:
<TABLE>
<CAPTION>
Total Rentable
Project Name Location Property Type(1) Square Feet Date Acquired Initial Cost
-------------------------------------- --------------- ---------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Bayside Corporate Center Foster City, CA O 84,925 Jan '96 $ 10,035
Benecia Industrial Benecia, CA I 1,822,788 Jan '96 $ 41,060
Marine Drive Distribution Center II(2) Portland, OR I 106,000 Mar '96 $ 622
Everett Industrial Everett, WA I 150,154 Mar '96 $ 7,421
</TABLE>
(1) "O" indicates office property; "I" indicates industrial property.
(2) Purchase of land to be developed.
Additionally, the Company acquired two mortgages secured by two office
properties in San Jose, California for $14,333.
9. EXTRAORDINARY ITEM
On February 14, 1996, the Operating Partnership recognized an extraordinary
gain on the early extinguishment of certain debt. A secured mortgage with
$7,455 in remaining principal was retired at a discount for $7,305.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following comparison is of the Operating Partnership's consolidated
operations for the three months ended March 31, 1996 as compared to the
Operating Partnership's consolidated operations for the three months ended
March 31, 1995.
Rental revenues for the first quarter of 1996 increased by $9.6 million or
28% to $44.3 million, as compared with $34.7 million for the quarter ended
March 31, 1995. Of this increase, $6.3 million was generated by properties
acquired during 1995 (the "1995 Acquisitions"). During 1995, the Operating
Partnership spent approximately $164.8 million to acquire properties
totaling 2.3 million square feet. Of the increase in rental revenues, $1.1
million was generated by developments begun during 1995 and completed
during 1996 (the "1995 Developments"). During the quarter ended March 31,
1996, three projects representing a total projected cost of $42.5 million
and totaling 0.6 million square feet have been completed and added to the
Operating Partnership's portfolio of stabilized properties. In addition,
$1.1 million of the increase in rental revenue was generated by properties
acquired during the quarter ended March 31, 1996. During the first quarter
of 1996, the Operating Partnership spent $58.5 million to acquire
properties totaling 2.1 million square feet (the "1996 Acquisitions"). The
remaining $1.1 million of the increase in rental revenues is attributable
to revenue increases in the properties owned at January 1, 1995 (the "Core
Portfolio"). The revenue increase in the Core Portfolio is due to increases
in occupancy in certain properties, contractual rent increases and
increased rental rates realized on the renewal and re-leasing of second
generation space.
As a result of the 1995 Acquisitions, 1996 Acquisitions, and 1995
Developments, the Operating Partnership's rentable square footage increased
by 3.0 million square feet or 21% to 18.0 million square feet on March 31,
1996 from 15.0 million on March 31, 1995. At March 31, 1996 the portfolio
was 96.5% leased. By property type, the office portfolio was 95.1% leased,
the industrial portfolio was 97.7% leased and the retail portfolio was
92.8% leased.
Interest and other income increased by $0.2 million or 35% for the three
months ended March 31, 1996, as compared with the same period in 1995. The
net increase in interest and other income is due to a $0.3 million increase
in interest income related to the Operating Partnership's $14.3 million
investment to acquire two mortgages secured by two office properties in San
Jose, California at approximately 68% of face value, which was partially
offset by a $0.1 million decrease in management fee income. The decrease in
management fee income is attributable to the Operating Partnership's
acquisition of certain properties previously managed by the Operating
Partnership.
Rental expenses increased by $1.7 million or 32% for the three months ended
March 31, 1996, as compared with the same period in 1995. Real estate taxes
increased by $0.6 million or 21% for the three months ended March 31, 1996,
as compared with the same period in 1995. The overall increase in rental
expenses and real estate taxes (collectively referred to as "operating
expenses") is primarily a result of the growth in the total square footage
of the Operating Partnership's portfolio of properties. On a percentage
basis, operating expenses were 24% of rental revenues for both the first
quarter of 1996 and the first quarter of 1995. The total increase in
operating expenses is due to a $1.9 million increase attributable to the
1995 Acquisitions, a $0.3 million increase attributable to the 1995
developments, a $0.2 million increase attributable to the 1996
Acquisitions, and a $0.1 million decrease attributable to the Core
Portfolio.
Interest expense decreased by $4.1 million or 32% to $8.8 million for the
three months ended March 31, 1996 from $13.0 million for the same period in
1995. The decrease in interest expense is due to both a reduction in total
debt outstanding from $571.4 million as of March 31, 1995 to $425.7 million
as of March 31, 1996, and to the elimination of the amortization of debt
discount as part of the December 1995 refinancing of $347 million of
secured mortgage debt (the "Prudential Debt"). The Prudential Debt was
prepaid with the net proceeds from the concurrent underwritten public
offering of $260.0 million of investment grade rated unsecured notes and
4.25 million shares of Series B Preferred Stock. The prepayment of the
Prudential Debt resulted in the write-off of approximately $28.1 million in
debt discount which was previously being amortized over the remaining term
of the loans and recorded as interest expense.
General and administrative expenses and other expenses increased by $0.1
million for the three months ended March 31, 1996, as compared with the
same period in 1995, primarily as a result of employee growth.
Net income before minority interest increased by $10.4 million or 234% to
$14.8 million for the three months ended March 31, 1996 from $4.4 million
for the same period in 1995. The increase in net income is principally due
(i) to income from the 1995 and 1996 Acquisitions, the 1995 Developments
and the increased property operating income (rental revenue less operating
expenses) generated by the Core Portfolio as a result of increased
occupancy in certain
14
<PAGE> 15
properties, contractual rent increases and increased rental rates realized
on the renewal and re-leasing of second generation space and (ii) the
decrease in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
For the three month period ended March 31, 1996, cash provided by operating
activities increased by $11.9 million or 70% to $28.8 million, as compared
to $16.9 million for the same period in 1995. The increase is primarily due
to the increase in net income resulting from the 1995 and 1996
Acquisitions, 1995 Developments, increased property operating income
generated by the Core Portfolio and a decrease in interest expense. Cash
used for investing activities increased by $34.1 million or 64% to $87.2
million for the first three months of 1996, as compared to $53.1 million
for the same period in 1995. The increase is attributable to the Operating
Partnership's ongoing acquisition and development of suburban office,
industrial and retail properties. Cash provided by financing activities
increased by $23.2 million or 52% to $67.7 million for the first three
months of 1996, as compared to $44.5 million for the same period in 1995.
During the first three months of 1996, cash provided by financing
activities consisted, primarily, of $151.3 million in net proceeds from the
sale of Common Stock and Class C Common Stock, $100.0 million from the
issuance of unsecured investment grade notes and the payment of $164.6
million on a combination of the line of credit and mortgage loans.
Additionally, payments of distributions increased by $7.1 million to $18.1
million for the first three months of 1996, as compared with $11.0 million
for the same period in 1995. The increase is due to the greater number of
shares outstanding and a 2.4% increase in the distribution rate.
The principal sources of funding for acquisitions, development, expansion
and renovation of the properties are an unsecured line of credit,
construction and permanent secured debt financings, public and privately
placed equity financing, public unsecured debt financing, the issuance of
partnership units in the Operating Partnership, and cash flow provided by
operations. The Operating Partnership believes that its liquidity and
capital resources are adequate to continue to meet liquidity requirements
for the foreseeable future.
At March 31, 1996, the Operating Partnership had no mutual commitments for
capital expenditures related to the renewal or re-leasing of space. The
Operating Partnership believes that the cash provided by operations and its
line of credit provide sufficient sources of liquidity to fund capital
expenditure costs associated with renewal or re-leasing of space.
On November 6, 1995, the Operating Partnership converted its secured line
of credit to a $150.0 million unsecured line of credit facility (the
"Facility") with interest at London Interbank Offered Rates ("LIBOR") plus
1.5%. The Facility matures in November 1997 and the Operating Partnership
has an option to extend the Facility for one year upon payment of a fee
equal to 0.12% of the total Facility. The Facility also includes a fee on
average unused funds, which varies between 0.125% and 0.20% based on the
average outstanding balance. At March 31, 1996, the Operating Partnership
had $4.0 million outstanding under the Facility.
In December 1995, the Company and Operating Partnership issued in a public
offering $260.0 million of unsecured investment grade rated debt (the
"Unsecured Notes") and $106.3 million of Series B Preferred Stock (the
offering of the Unsecured Notes and the offering of the Series B Preferred
Stock are collectively referred to as the "December Offerings"). The
Unsecured Notes were issued in three tranches as follows: $100.0 million of
6.65% notes due December 15, 2000 priced to yield 6.683%, $50.0 million of
6.80% notes due December 15, 2001 priced to yield 6.823%, and $110.0
million of 6.95% notes due December 15, 2002 priced at par. The Series B
Preferred Stock was issued at $25.00 per share and a dividend yield of
9.45%.
The proceeds from the December Offerings of $360.2 million were used to
prepay a cross-collateralized mortgage obligation outstanding to Prudential
Insurance Company. The amount paid to Prudential Insurance Company included
the repayment of principal, interest due through December 10, 1995, and a
negotiated prepayment penalty of $11.8 million. The prepayment resulted in
the unencumbrance of 55 of the Operating Partnership's properties.
On January 19, 1996 the Operating Partnership issued $100.0 million of
investment grade rated unsecured notes. The notes carry an interest rate of
6.90%, were priced to yield 6.97%, and mature on January 15, 2004. Net
proceeds of $99.0 million were used to repay borrowings on the unsecured
line of credit. As a result of the December 1995 and January 1996 offerings
of unsecured notes, as of March 31, 1996, the Operating Partnership had
$360.0 million outstanding of investment grade rated unsecured notes in
four tranches that mature from 2000 to 2004.
In addition to the Unsecured Notes and the Facility, the Operating
Partnership has $61.7 million of secured indebtedness (the "Mortgages") at
March 31, 1996. The Mortgages have interest rates varying from 7.5% to
13.75% and maturity
15
<PAGE> 16
dates from 1996 to 2012. The Mortgages are secured by a first or second
deed of trust on the related properties and generally require monthly
principal and interest payments. The Operating Partnership also has $12.5
million of assessment bonds outstanding as of March 31, 1996.
On February 28, 1996, the Company concurrently sold 4,887,500 shares of
Common Stock (including 637,500 shares sold pursuant to the underwriters'
exercise of their over-allotment option), through an underwritten public
offering and directly placed 1,176,470 shares of Class C Common Stock and
135,000 shares of Common Stock with a limited number of institutional
investors at $25.50 per share. The net proceeds of $151.3 million were used
primarily to repay floating rate debt.
In January 1996, the Company and the Operating Partnership filed a shelf
registration statement (the "January 1996 Shelf Registration Statement")
with the Securities and Exchange Commission to register 1,407,005 shares of
Common Stock issuable by the Company upon conversion of shares of Series A
Preferred Stock and upon conversion of partnership units in the Operating
Partnership by certain holders thereof. The Operating Partnership will
receive no proceeds from the sale of Common Stock under the January 1996
Shelf Registration Statement.
After the completion of its February 28, 1996 equity offering, the Company
has capacity pursuant to its October 1995 Shelf Registration Statement to
issue up to $140.0 million in debt securities (such securities would be
offered by the Operating Partnership) and approximately $142.0 million in
equity securities.
FUNDS FROM OPERATIONS
The Operating Partnership considers Funds from Operations to be a useful
financial measure of the operating performance of an equity REIT because,
together with net income and cash flows, Funds from Operations provides
investors with an additional basis to evaluate the ability of a REIT to
incur and service debt and to fund acquisitions, developments, and other
capital expenditures. Funds from Operations does not represent net income
or cash flows from operations as defined by generally accepted accounting
principles ("GAAP") and Funds from Operations should not be considered as
an alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Funds from Operations does not measure whether cash flow is
sufficient to fund all of the Operating Partnership's cash needs including
principal amortization, capital improvements, and distributions to
shareholders. Funds from Operations does not represent cash flows from
operating, investing, or financing activities as defined by GAAP. Further,
Funds from Operations as disclosed by other REITs may not be comparable to
the Operating Partnership's calculation of Funds from Operations, as
described below.
Pursuant to the National Association of Real Estate Investment Trusts
("NAREIT") new definition of Funds from Operations, beginning with the
quarter ended March 31, 1996, the Operating Partnership calculated
Funds from Operations by adjusting net income before minority interest,
calculated in accordance with GAAP, for certain non-cash items, principally
the amortization and depreciation of real property and for dividends on
shares and other equity interests that are not convertible into shares of
Common Stock. The Operating Partnership will not add back the depreciation
of corporate items, such as computers or furniture and fixtures, or the
amortization of deferred financing costs or debt discount. However, the
Operating Partnership will include an adjustment for the straight-lining of
rent under GAAP, as management believes this presents a more meaningful
picture of rental income over the reporting period.
Funds from Operations per share can be calculated based on average shares
equivalents outstanding, assuming the conversion of all shares of Series A
Preferred Stock and all partnership units in the Operating Partnership into
shares of Common Stock. Assuming such conversion, the average number of
shares outstanding for the three months ended March 31, 1996 and 1995 are
39,105,416 and 27,660,271, respectively.
16
<PAGE> 17
STATEMENT OF FUNDS FROM OPERATIONS
(based on the new NAREIT definition)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net income before minority interest $ 14,829 $ 4,440
Add:
Depreciation and Amortization 8,475 7,339
Dividends on Series B Preferred Stock (2,510) --
Other, net 115 75
Straight-lined rent (70) (185)
-------- --------
Funds from Operations $ 20,839 $ 11,669
======== ========
</TABLE>
Because of the impact of the December Offerings on the Operating
Partnership's balance sheet and result of operations, the Operating
Partnership believes that an adjusted calculation of 1995 Funds from
Operations, based on the new NAREIT definition and reflecting the effect of
the December Offerings and the conversion of the secured line of credit
into an unsecured facility, as if such transactions had occurred on January
1, 1995, provides a helpful basis for analyzing the impact of the new
NAREIT definition. The table below sets forth the Operating Partnership's
calculation of Funds from Operations for the quarter ended March 31, 1995,
based on the new NAREIT definition and adjusted to reflect the December
Offerings and the conversion of the secured line of credit into an
unsecured facility.
STATEMENT OF FUNDS FROM OPERATIONS
1995 New NAREIT Definition Adjusted
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1995
--------------
<S> <C>
Funds From Operations - New Definition $ 11,669
Add:
Amortization of Discount and Deferred Financing Fees 2,519
--------
Funds From Operations - Old Definition 14,188
Less:
Restructuring of Secured Debt (1) (958)
Amortization of Discount and Deferred Financing Fees (2) (375)
--------
Funds From Operations - Pro Forma New Definition $ 12,855
========
</TABLE>
(1) Adjustment reflects interest cost of unsecured notes and dividend cost of
Series B Preferred Stock less previously recorded cash interest cost on
$347 million of prepaid debt.
(2) Adjustment reflects amortization of discount and deferred financing fees
added back in calculating FFO based on old NAREIT definition less
amortization on the $347 million of prepaid debt and the previous secured
line of credit and adding in amortization on the new unsecured line of
credit.
17
<PAGE> 18
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The exhibits listed below are filed or incorporated by reference as part
of this quarterly report on Form 10-Q.
Exhibit Number
--------------
4.9 Fourth Supplemental Indenture relating to the 2004
Notes and the 2004 Note (incorporated by reference
to Exhibit 4.9 to Spieker Properties, Inc.'s Form
10-K Report for the year ended December 31, 1995)
10.14 Fourth Amendment, Fifth Amendment, and Sixth
Amendment to First Amended and Restated Agreement
of Limited Partnership of Spieker Properties, L.P.
(incorporated by reference to Exhibit 10.14 to
Spieker Properties, Inc.'s Form 10-K Report for
the year ended December 31, 1995)
10.16 Seventh Amendment to First Amended and Restated
Agreement of Limited Partnership of Spieker
Properties, L.P.
12.1 Statement of Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred 22 Dividends
27.1 Article 5 Financial Data Schedule (EDGAR filing
only)
(B) Reports on Form 8-K
The Company filed a current report on Form 8-K dated January 24,
1996, to file as an exhibit an opinion of counsel relating to the
offering by Spieker Properties, L.P. of 6.90% Notes due January 15,
2004.
The Company filed a current report on Form 8-K dated February 26,
1996, to file as an exhibit an opinion of counsel relating to the
offering by the Company of its Common Stock.
18
<PAGE> 19
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 there unto duly authorized.
Spieker Properties, L.P.
(Registrant)
Dated: May 7, 1996 /s/ Elke Strunka
-------------------------- -------------------------------
Elke Strunka,
Vice President
Principal Accounting Officer
19
<PAGE> 1
SPIEKER PROPERTIES, L.P.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements .......................................................................3
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 .....................4
Consolidated Statements of Operations for the Three Months Ended March 31, 1996
and March 31, 1995.......................................................................6
Consolidated Statement of Partners' Capital for the Three Months Ended March 31, 1996 ......7
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996
and March 31, 1995.......................................................................8
Notes to Consolidated Financial Statements .................................................9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..........................................................18
Signatures.........................................................................................19
</TABLE>
2
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached are the following financial statements of Spieker Properties, L.P. (the
Operating Partnership):
(i) consolidated balance sheets as of March 31, 1996 and December 31, 1995,
(ii) consolidated statements of operations for the three months ended March 31,
1996 and March 31, 1995,
(iii) consolidated statement of partners' capital for the three months ended
March 31, 1996,
(iv) consolidated statements of cash flows for the three months ended March 31,
1996 and March 31, 1995, and
(v) notes to consolidated financial statements.
The financial statements referred to above should be read in conjunction with
the Operating Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995.
3
<PAGE> 3
SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
<S> <C> <C>
INVESTMENTS IN REAL ESTATE:
Land, land improvements and leasehold interests $ 318,638 $ 303,157
Buildings and improvements 797,486 756,734
Construction in progress 49,933 38,980
----------- -----------
1,166,057 1,098,871
Less - Accumulated depreciation (126,194) (124,612)
----------- -----------
1,039,863 974,259
Investments in mortgages 14,333 --
----------- -----------
Net investments in real estate 1,054,196 974,259
CASH AND CASH EQUIVALENTS 16,833 7,573
ACCOUNTS RECEIVABLE 3,588 3,351
DEFERRED RENT RECEIVABLE 4,768 4,698
RECEIVABLE FROM RELATED PARTY 270 386
DEFERRED FINANCING AND LEASING COSTS, net of
accumulated amortization of $9,107 and $9,586 as
of March 31, 1996 and December 31, 1995, respectively 15,055 13,485
FURNITURE, FIXTURES AND EQUIPMENT, net 1,769 1,678
PREPAID EXPENSES AND OTHER ASSETS 4,375 6,067
----------- -----------
$ 1,100,854 $ 1,011,497
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 4
SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(dollars in thousands)
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
<S> <C> <C>
DEBT:
Unsecured notes $ 360,000 $ 260,000
Unsecured line of credit 4,000 117,700
Mortgage loans 61,696 112,702
----------- -----------
425,696 490,402
----------- -----------
ASSESSMENT BONDS PAYABLE 12,489 12,140
ACCOUNTS PAYABLE 3,223 3,804
ACCRUED REAL ESTATE TAXES 3,922 506
ACCRUED INTEREST 7,255 2,510
UNEARNED RENTAL INCOME 4,939 6,972
PARTNER DISTRIBUTIONS PAYABLE 18,638 15,588
OTHER ACCRUED EXPENSES AND LIABILITIES 11,995 12,202
----------- -----------
Total liabilities 488,157 544,124
----------- -----------
MINORITY INTERESTS (1,227) (1,203)
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
PARTNERS' CAPITAL:
General Partners, including a liquidation preference of $131,250 566,303 419,847
Limited Partners 47,621 48,729
----------- -----------
Total Partners' Capital 613,924 468,576
----------- -----------
$ 1,100,854 $ 1,011,497
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 5
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(dollars in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
--------
1996 1995
------- -------
<S> <C> <C>
REVENUE
Rental income $44,345 $34,672
Interest and other income 823 609
------- -------
45,168 35,281
------- -------
OPERATING EXPENSES:
Rental expenses 7,236 5,496
Real estate taxes 3,446 2,845
Interest expense, including amortization of finance costs 8,837 12,969
Depreciation and amortization 8,538 7,379
General and administrative and other expenses 2,282 2,152
------- -------
30,339 30,841
------- -------
Income from operations before minority interests and
extraordinary items 14,829 4,440
------- -------
MINORITY INTERESTS' SHARE IN NET LOSS 3 5
------- -------
Net income before extraordinary items 14,832 4,445
EXTRAORDINARY ITEMS 150 --
------- -------
Net income $14,982 $ 4,445
======= =======
General Partner 12,893 3,480
Limited Partner 2,089 965
------- -------
Totals $14,982 $ 4,445
======= =======
Net income per Operating Partnership unit:
Income before extraordinary items $ .38 $ .16
Extraordinary items -- --
------- -------
Net income $ .38 $ .16
======= =======
Distributions per Operating Partnership Unit:
General Partners $ .56 $ .42
======= =======
Limited Partners $ .43 $ .42
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 6
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(dollars in thousands, except shares)
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partner Partner General Limited
Units Units Partner Partner Total
----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 30,475,232 6,565,356 $ 419,847 $ 48,729 $ 468,576
Contribution-Proceeds from
sale of Common Stock 5,022,500 -- 121,369 -- 121,369
Contribution-Proceeds from
sale of Class C Common Stock 1,176,470 -- 29,963 -- 29,963
Conversion of limited partners' interests 15,537 (15,537) 386 (386) --
Non-cash compensation merit fund -- -- 25 5 30
Restricted stock grant 8,000 -- -- -- --
Exercise of stock options 3,250 -- 56 -- 56
Amortization of deferred
compensation -- -- 97 -- 97
Partner Distributions -- -- (18,333) (2,816) (21,149)
Net income -- -- 12,893 2,089 14,982
---------- ---------- ---------- ---------- ----------
BALANCE AT MARCH 31, 1996 36,700,989 6,549,819 $ 566,303 $ 47,621 $ 613,924
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 7
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
--------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 14,982 $ 4,445
Adjustments to reconcile net income (loss) to net cash provided by (used)
for operating activities-
Depreciation and amortization 8,538 7,379
Amortization of prepaid interest and deferred financing costs 377 2,519
Non-cash compensation 127 83
Minority interests' share of net loss (3) (5)
Extraordinary items (150) --
Increase in deferred rent receivable (70) (185)
(Increase) decrease in accounts receivable and other assets (237) 82
Decrease in receivables from related parties 116 568
Additions to leasing costs (1,532) (966)
Decrease in prepaid expenses and other assets 1,318 333
Increase in accounts payable and accrued expenses and liabilities (581) 157
Increase in accrued real estate taxes 3,416 2,490
Increase in accrued interest 4,745 234
(Decrease) increase in other accrued expenses and liabilities (207) 302
(Decrease) increase in unearned rental income (2,033) 691
Decrease in payable to related party -- (1,186)
--------- ---------
Net cash provided by operating activities 28,806 16,941
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties (72,896) (53,089)
Additions to investment in mortgages (14,333) --
--------- ---------
Net cash used for investing activities (87,229) (53,089)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 100,000 56,492
Payments on debt (164,556) (1,007)
Payments of deferred financing fees (1,029) --
Payment of distributions (18,120) (11,027)
Capital contributions - stock offerings 151,332 --
Capital contributions - stock options exercised 56 --
--------- ---------
Net cash provided by financing activities 67,683 44,458
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,260 8,310
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,573 9,663
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,833 $ 17,973
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest 4,294 10,229
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Debt assumed in relation to property acquisitions -- 13,452
Increase to land and assessment bonds payable 349 --
Minority interest capital recorded in relation to property acquisitions -- 10,258
Write-off of fully depreciated property 6,059 1,192
Write-off of fully amortized deferred financing and leasing costs 1,388 539
Conversion of operating partnership units to Common Stock with resulting
reduction in minority interest and increase in additional paid-in-capital 386 343
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 8
SPIEKER PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
MARCH 31, 1996 AND 1995
1. ORGANIZATION AND BASIS OF PRESENTATION:
Spieker Properties, L.P.
Spieker Properties, L.P. (the "Operating Partnership") was formed on
November 10, 1993 and commenced operations on November 19, 1993 when
Spieker Properties, Inc. ("the Company") completed an initial public
offering ("IPO") and issued 20,400,000 Shares of Common Stock at $20.50 per
share, or $418,200. Net proceeds of $386,800 were used to purchase an
approximate 77.6 percent general partnership interest in the Operating
Partnership. In addition, the individual partners in Spieker Partners
transferred their interests in certain properties to the Operating
Partnership in exchange for an approximate 22.4 percent limited
partnership interest in the Operating Partnership.
The transaction was accounted for as a business combination using the
purchase method for the acquisition of the separate properties and the
interest of the unaffiliated limited partners. The predecessor cost basis
was maintained to the extent of the 22.4 percent interest in those
properties received from the former partners of Spieker Partners.
The Operating Partnership is primarily engaged in the ownership, operation,
management, leasing, acquisition, expansion and development of industrial,
suburban office, and retail income-producing properties. As of March 31,
1996, the Operating Partnership owned (i) 100 percent of 119 properties,
(ii) an effective 100 percent general partner interest in Spieker
Washington Interest Partners ("SWIP"), a California general partnership,
which owns 100 percent of 13 properties, (iii) a 90 percent interest
in one property, (iv) a 93 percent interest with SWIP in one property,
and (v) 95 percent of the Series A Preferred Stock of Spieker Northwest,
Inc., which provides fee management and other services for properties
not owned by the Operating Partnership. The Operating Partnership's 134
stabilized properties, aggregating approximately 18.0 million leasable
square feet, are comprised of 74 industrial properties, 44 office
properties, and 16 retail properties. All of the properties are located
in California and the Pacific Northwest.
As a result of a number of stock offerings and contribution of capital to
the Operating Partnership by the Company, the Company owns approximately
84.9 percent general partner interest in the Operating Partnership as of
March 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the consolidated financial
position of the Operating Partnership and SWIP as of March 31, 1996 and
December 31, 1995 and its consolidated results of operations and cash flows
for the three months ended March 31, 1996 and 1995. The Operating
Partnership's investment in Spieker Northwest, Inc. is accounted for under
the equity method. The carrying value of Spieker Northwest, Inc. of $53 at
March 31, 1996 and December 31, 1995 is included in prepaid expenses and
other assets. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
Properties
Properties are recorded at cost and are depreciated using the straight-line
method over the estimated useful lives of the properties. The estimated
lives are as follows:
<TABLE>
<S> <C>
Land improvements and leasehold interests 18 to 40 years
Buildings and improvements 10 to 40 years
Tenant improvements Term of the related lease
</TABLE>
Investments in real estate are stated at the lower of depreciated cost or
estimated fair value. Fair value for financial reporting purposes is
evaluated periodically by the Operating Partnership on a property by
property basis using undiscounted cash flow. If a potential impairment is
identified, it is measured by the property's fair value based on
9
<PAGE> 9
either sales comparables or the net cash expected to be generated by the
property, less estimated carrying costs (including interest) during the
anticipated holding period, plus the estimated cash proceeds from the
ultimate disposition of the property. To the extent that the carrying value
exceeds the estimated fair value, a provision for decrease in net
realizable value is recorded. Estimated fair value is not necessarily an
indication of a property's current value or the amount that will be
realized upon the ultimate disposition of the property. As of March 31,
1996 and December 31, 1995, none of the carrying values of the properties
exceeded their estimated fair values. As of March 31, 1996 and December 31,
1995, the properties are located primarily in California, Oregon and
Washington. As a result of this geographic concentration, the operations of
these properties could be adversely affected by a recession or general
economic downturn in the areas where these properties are located.
Construction in Progress
Project costs clearly associated with the development and construction of a
real estate project are capitalized as construction in progress. In
addition, interest, real estate taxes, insurance, and other holding costs
are capitalized during the period in which activities necessary to get the
property ready for its intended use are in progress.
Investment in Mortgages
The Operating Partnership has invested in mortgages purchased at a
discount. In January 1996, the Operating Partnership acquired two mortgage
loans for $14,333. The mortgages are secured by real estate, have an
aggregate face value of $21,000, require monthly principal and interest
payments of $163, and mature in December 1999.
The Operating Partnership assesses possible impairment of these loans on a
quarterly basis. At March 31, 1996, the value of the underlying real estate
was in excess of the carrying value of the mortgage loans.
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or less
when purchased are classified as cash equivalents.
Ground Leases
The land on which three of the Operating Partnership's properties are
located is owned by Stanford University and is subject to ground leases.
The ground leases expire in 2039 or 2040, and unless the leases are
extended, the use of the land, together with all improvements, will revert
back to Stanford University. The former owners of the three properties
prepaid the ground leases through 2011, 2012 and 2017; thereafter, the
Operating Partnership will be responsible for the ground lease payments, as
defined under the terms of the leases. These ground lease payments have
been segregated from the total purchase price of the properties,
capitalized as leasehold interests in the accompanying consolidated balance
sheet, and are being amortized ratably over the terms of the related
original prepayment periods (18 to 24 years).
Deferred Financing and Leasing Costs
Costs incurred in connection with financing or leasing are capitalized and
amortized on a straight-line basis over the term of the related loan or
lease for periods ranging from 2 to 25 years. Unamortized leasing costs are
charged to expense upon the early termination of the lease.
Fair Value of Financial Investments
Based on the borrowing rates currently available to the Operating
Partnership, the carrying amount of debt approximates fair value. Cash and
cash equivalents consist of demand deposits, certificates of deposit and
overnight repurchase agreements with financial institutions. The carrying
amount of cash and cash equivalents approximates fair value.
Minority Interest
Minority interest in the Operating Partnership represents a 10 percent
interest in one property and a 7.5 percent interest in a second property
held by outside interests.
10
<PAGE> 10
Revenues
All leases are classified as operating leases. Rental income is recognized
on the straight-line basis over the terms of the leases. Deferred rent
receivable represents the excess of rental revenue recognized on a
straight-line basis over cash received under the applicable lease
provisions.
Extraordinary Items
Extraordinary items for the three months ended March 31, 1996, represent a
gain on the early extinguishment of debt. See Note 9 - Extraordinary Item.
Net Income Per Unit
Per unit amounts for the Operating Partnership are computed using the
weighted average units outstanding during the period. The weighted average
general partner units and limited partner units outstanding for the three
months ended March 31, 1996 and 1995 are as follow:
<TABLE>
<CAPTION>
General Partner Units Limited Partner Units
--------------------- ---------------------
<S> <C> <C>
Three Months Ended:
March 31, 1996 32,555,597 6,549,819
March 31, 1995 21,641,326 6,018,945
</TABLE>
Reclassifications
Certain items in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. RELATED PARTY TRANSACTIONS
Receivable From Related Party
The receivable from related party at March 31, 1996 and December 31, 1995
represents management fees and reimbursements from Spieker Partners related
entities.
4. DEBT
Unsecured Notes
The Operating Partnership has issued unsecured investment grade notes in
four tranches totaling $360,000 in principal with varying interest rates
from 6.65% to 6.95% payable semi-annually. The notes are due on various
dates from 2000 to 2004.
On January 19, 1996, the Operating Partnership sold $100,000 of unsecured
investment grade notes bearing interest at 6.90% and due January 15, 2004.
Interest is payable semiannually. Net proceeds were used to repay
borrowings on the unsecured line of credit.
Unsecured Line of Credit
The maximum amount available under the unsecured line of credit facility is
$150,000. The facility carries interest at LIBOR plus 1.5% and matures in
November 1997. The facility also includes a fee on average unused funds
which varies between 0.125% and 0.20% based on the average outstanding
balance. As of March 31, 1996 the amount drawn on the facility was $4,000.
11
<PAGE> 11
Mortgage Loans
Mortgage loans of $61,696 as of March 31, 1996 are secured by a first or
second deed of trust on related properties. The mortgage loans carry
interest rates ranging from 7.5% to 13.75%, require monthly principal and
interest payments, and mature from 1996 to 2012.
5. PARTNER DISTRIBUTIONS PAYABLE
The dividends and distributions payable at March 31, 1996 and December 31,
1995 represent amounts payable to the partners for the quarters then ended.
6. PARTNERS' CAPITAL
Equity Offerings
On February 28, 1996, the Company concurrently sold 4,887,500 shares of
Common Stock, through an underwritten public offering and directly placed
1,176,470 shares of Class C Common Stock and 135,000 shares of Common Stock
with a limited number of institutional investors at $25.50 per share. Net
proceeds of $151,332 were contributed to the Operating Partnership and were
used primarily to repay floating rate debt.
In December 1995, the Company sold 4,250,000 shares of Series B Preferred
Stock at $25.00 per share and concurrently sold $260,000 of unsecured
investment grade rated notes through underwritten public offerings
(collectively referred to as the "December 1995 Offerings"). Net proceeds
of $360,242 were contributed to the Operating Partnership and were used to
prepay cross-collateralized mortgage obligations outstanding and certain
fees to Prudential Insurance Company (the "Prudential Debt").
On May 11, 1995, the Company sold 5,750,000 shares of Common Stock for
$19.75 per share through an underwritten public offering. Concurrently, the
Company sold 506,329 shares of Common Stock at $19.75 per share and
2,000,000 shares of Class B Common Stock at $25.00 per share to a limited
number of institutional investors (collectively referred to as the
"Concurrent Offerings"). Net proceeds from the underwritten public offering
and the Concurrent Offerings totaling $167,119 were contributed to the
Operating Partnership and were used to repay indebtedness incurred by the
Operating Partnership to fund acquisition and development activities.
7. EMPLOYEE STOCK INCENTIVE POOL
At the time of the Company's initial public offering, the Senior Officers
of the Company reserved a portion of their limited partnership interests
in the Operating Partnership for awards and conversion into Common Stock
to existing employees at that time. The aggregate amount of interests
reserved for the Employee Stock Incentive Pool is equivalent to 69,990
shares of Common Stock. The participants in the Pool were granted 25% of
their respective allocations on January 1, 1994, January 1, 1995, and
January 1, 1996 resulting in a total of 75% of stock awards having been
granted. The remainder of the employees' allocations will be granted in
two equal awards on January 1, 1997, provided that the employee has not
previously terminated employment.
The initial deferred compensation of $1,320 pertaining to the 69,990 units
was recorded on the books of the Company, and is being amortized annually
based on the vesting period. The initial value was calculated by
converting the 69,990 partnership units into shares of Common
Stock and multiplying by the Company's Common Stock price on the date of
the grant.
For the year ended December 31, 1995, non-cash compensation expense
arising from the conversion of 15,537 shares of common stock equivalents
was $97, and deferred compensation was $755.
12
<PAGE> 12
8. ACQUISITIONS
The Operating Partnership acquired the following properties during the
quarter ended March 31, 1996:
<TABLE>
<CAPTION>
Total Rentable
Project Name Location Property Type(1) Square Feet Date Acquired Initial Cost
-------------------------------------- --------------- ---------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Bayside Corporate Center Foster City, CA O 84,925 Jan '96 $ 10,035
Benecia Industrial Benecia, CA I 1,822,788 Jan '96 $ 41,060
Marine Drive Distribution Center II(2) Portland, OR I 106,000 Mar '96 $ 622
Everett Industrial Everett, WA I 150,154 Mar '96 $ 7,421
</TABLE>
(1) "O" indicates office property; "I" indicates industrial property.
(2) Purchase of land to be developed.
Additionally, the Company acquired two mortgages secured by two office
properties in San Jose, California for $14,333.
9. EXTRAORDINARY ITEM
On February 14, 1996, the Operating Partnership recognized an extraordinary
gain on the early extinguishment of certain debt. A secured mortgage with
$7,455 in remaining principal was retired at a discount for $7,305.
13
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following comparison is of the Operating Partnership's consolidated
operations for the three months ended March 31, 1996 as compared to the
Operating Partnership's consolidated operations for the three months ended
March 31, 1995.
Rental revenues for the first quarter of 1996 increased by $9.6 million or
28% to $44.3 million, as compared with $34.7 million for the quarter ended
March 31, 1995. Of this increase, $6.3 million was generated by properties
acquired during 1995 (the "1995 Acquisitions"). During 1995, the Operating
Partnership spent approximately $164.8 million to acquire properties
totaling 2.3 million square feet. Of the increase in rental revenues, $1.1
million was generated by developments begun during 1995 and completed
during 1996 (the "1995 Developments"). During the quarter ended March 31,
1996, three projects representing a total projected cost of $42.5 million
and totaling 0.6 million square feet have been completed and added to the
Operating Partnership's portfolio of stabilized properties. In addition,
$1.1 million of the increase in rental revenue was generated by properties
acquired during the quarter ended March 31, 1996. During the first quarter
of 1996, the Operating Partnership spent $58.5 million to acquire
properties totaling 2.1 million square feet (the "1996 Acquisitions"). The
remaining $1.1 million of the increase in rental revenues is attributable
to revenue increases in the properties owned at January 1, 1995 (the "Core
Portfolio"). The revenue increase in the Core Portfolio is due to increases
in occupancy in certain properties, contractual rent increases and
increased rental rates realized on the renewal and re-leasing of second
generation space.
As a result of the 1995 Acquisitions, 1996 Acquisitions, and 1995
Developments, the Operating Partnership's rentable square footage increased
by 3.0 million square feet or 21% to 18.0 million square feet on March 31,
1996 from 15.0 million on March 31, 1995. At March 31, 1996 the portfolio
was 96.5% leased. By property type, the office portfolio was 95.1% leased,
the industrial portfolio was 97.7% leased and the retail portfolio was
92.8% leased.
Interest and other income increased by $0.2 million or 35% for the three
months ended March 31, 1996, as compared with the same period in 1995. The
net increase in interest and other income is due to a $0.3 million increase
in interest income related to the Operating Partnership's $14.3 million
investment to acquire two mortgages secured by two office properties in San
Jose, California at approximately 68% of face value, which was partially
offset by a $0.1 million decrease in management fee income. The decrease in
management fee income is attributable to the Operating Partnership's
acquisition of certain properties previously managed by the Operating
Partnership.
Rental expenses increased by $1.7 million or 32% for the three months ended
March 31, 1996, as compared with the same period in 1995. Real estate taxes
increased by $0.6 million or 21% for the three months ended March 31, 1996,
as compared with the same period in 1995. The overall increase in rental
expenses and real estate taxes (collectively referred to as "operating
expenses") is primarily a result of the growth in the total square footage
of the Operating Partnership's portfolio of properties. On a percentage
basis, operating expenses were 24% of rental revenues for both the first
quarter of 1996 and the first quarter of 1995. The total increase in
operating expenses is due to a $1.9 million increase attributable to the
1995 Acquisitions, a $0.3 million increase attributable to the 1995
developments, a $0.2 million increase attributable to the 1996
Acquisitions, and a $0.1 million decrease attributable to the Core
Portfolio.
Interest expense decreased by $4.1 million or 32% to $8.8 million for the
three months ended March 31, 1996 from $13.0 million for the same period in
1995. The decrease in interest expense is due to both a reduction in total
debt outstanding from $571.4 million as of March 31, 1995 to $425.7 million
as of March 31, 1996, and to the elimination of the amortization of debt
discount as part of the December 1995 refinancing of $347 million of
secured mortgage debt (the "Prudential Debt"). The Prudential Debt was
prepaid with the net proceeds from the concurrent underwritten public
offering of $260.0 million of investment grade rated unsecured notes and
4.25 million shares of Series B Preferred Stock. The prepayment of the
Prudential Debt resulted in the write-off of approximately $28.1 million in
debt discount which was previously being amortized over the remaining term
of the loans and recorded as interest expense.
General and administrative expenses and other expenses increased by $0.1
million for the three months ended March 31, 1996, as compared with the
same period in 1995, primarily as a result of employee growth.
Net income before minority interest increased by $10.4 million or 234% to
$14.8 million for the three months ended March 31, 1996 from $4.4 million
for the same period in 1995. The increase in net income is principally due
(i) to income from the 1995 and 1996 Acquisitions, the 1995 Developments
and the increased property operating income (rental revenue less operating
expenses) generated by the Core Portfolio as a result of increased
occupancy in certain
14
<PAGE> 14
properties, contractual rent increases and increased rental rates realized
on the renewal and re-leasing of second generation space and (ii) the
decrease in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
For the three month period ended March 31, 1996, cash provided by operating
activities increased by $11.9 million or 70% to $28.8 million, as compared
to $16.9 million for the same period in 1995. The increase is primarily due
to the increase in net income resulting from the 1995 and 1996
Acquisitions, 1995 Developments, increased property operating income
generated by the Core Portfolio and a decrease in interest expense. Cash
used for investing activities increased by $34.1 million or 64% to $87.2
million for the first three months of 1996, as compared to $53.1 million
for the same period in 1995. The increase is attributable to the Operating
Partnership's ongoing acquisition and development of suburban office,
industrial and retail properties. Cash provided by financing activities
increased by $23.2 million or 52% to $67.7 million for the first three
months of 1996, as compared to $44.5 million for the same period in 1995.
During the first three months of 1996, cash provided by financing
activities consisted, primarily, of $151.3 million in net proceeds from the
sale of Common Stock and Class C Common Stock, $100.0 million from the
issuance of unsecured investment grade notes and the payment of $164.6
million on a combination of the line of credit and mortgage loans.
Additionally, payments of distributions increased by $7.1 million to $18.1
million for the first three months of 1996, as compared with $11.0 million
for the same period in 1995. The increase is due to the greater number of
shares outstanding and a 2.4% increase in the distribution rate.
The principal sources of funding for acquisitions, development, expansion
and renovation of the properties are an unsecured line of credit,
construction and permanent secured debt financings, public and privately
placed equity financing, public unsecured debt financing, the issuance of
partnership units in the Operating Partnership, and cash flow provided by
operations. The Operating Partnership believes that its liquidity and
capital resources are adequate to continue to meet liquidity requirements
for the foreseeable future.
At March 31, 1996, the Operating Partnership had no mutual commitments for
capital expenditures related to the renewal or re-leasing of space. The
Operating Partnership believes that the cash provided by operations and its
line of credit provide sufficient sources of liquidity to fund capital
expenditure costs associated with renewal or re-leasing of space.
On November 6, 1995, the Operating Partnership converted its secured line
of credit to a $150.0 million unsecured line of credit facility (the
"Facility") with interest at London Interbank Offered Rates ("LIBOR") plus
1.5%. The Facility matures in November 1997 and the Operating Partnership
has an option to extend the Facility for one year upon payment of a fee
equal to 0.12% of the total Facility. The Facility also includes a fee on
average unused funds, which varies between 0.125% and 0.20% based on the
average outstanding balance. At March 31, 1996, the Operating Partnership
had $4.0 million outstanding under the Facility.
In December 1995, the Company and Operating Partnership issued in a public
offering $260.0 million of unsecured investment grade rated debt (the
"Unsecured Notes") and $106.3 million of Series B Preferred Stock (the
offering of the Unsecured Notes and the offering of the Series B Preferred
Stock are collectively referred to as the "December Offerings"). The
Unsecured Notes were issued in three tranches as follows: $100.0 million of
6.65% notes due December 15, 2000 priced to yield 6.683%, $50.0 million of
6.80% notes due December 15, 2001 priced to yield 6.823%, and $110.0
million of 6.95% notes due December 15, 2002 priced at par. The Series B
Preferred Stock was issued at $25.00 per share and a dividend yield of
9.45%.
The proceeds from the December Offerings of $360.2 million were used to
prepay a cross-collateralized mortgage obligation outstanding to Prudential
Insurance Company. The amount paid to Prudential Insurance Company included
the repayment of principal, interest due through December 10, 1995, and a
negotiated prepayment penalty of $11.8 million. The prepayment resulted in
the unencumbrance of 55 of the Operating Partnership's properties.
On January 19, 1996 the Operating Partnership issued $100.0 million of
investment grade rated unsecured notes. The notes carry an interest rate of
6.90%, were priced to yield 6.97%, and mature on January 15, 2004. Net
proceeds of $99.0 million were used to repay borrowings on the unsecured
line of credit. As a result of the December 1995 and January 1996 offerings
of unsecured notes, as of March 31, 1996, the Operating Partnership had
$360.0 million outstanding of investment grade rated unsecured notes in
four tranches that mature from 2000 to 2004.
In addition to the Unsecured Notes and the Facility, the Operating
Partnership has $61.7 million of secured indebtedness (the "Mortgages") at
March 31, 1996. The Mortgages have interest rates varying from 7.5% to
13.75% and maturity
15
<PAGE> 15
dates from 1996 to 2012. The Mortgages are secured by a first or second
deed of trust on the related properties and generally require monthly
principal and interest payments. The Operating Partnership also has $12.5
million of assessment bonds outstanding as of March 31, 1996.
On February 28, 1996, the Company concurrently sold 4,887,500 shares of
Common Stock (including 637,500 shares sold pursuant to the underwriters'
exercise of their over-allotment option), through an underwritten public
offering and directly placed 1,176,470 shares of Class C Common Stock and
135,000 shares of Common Stock with a limited number of institutional
investors at $25.50 per share. The net proceeds of $151.3 million were used
primarily to repay floating rate debt.
In January 1996, the Company and the Operating Partnership filed a shelf
registration statement (the "January 1996 Shelf Registration Statement")
with the Securities and Exchange Commission to register 1,407,005 shares of
Common Stock issuable by the Company upon conversion of shares of Series A
Preferred Stock and upon conversion of partnership units in the Operating
Partnership by certain holders thereof. The Operating Partnership will
receive no proceeds from the sale of Common Stock under the January 1996
Shelf Registration Statement.
After the completion of its February 28, 1996 equity offering, the Company
has capacity pursuant to its October 1995 Shelf Registration Statement to
issue up to $140.0 million in debt securities (such securities would be
offered by the Operating Partnership) and approximately $142.0 million in
equity securities.
FUNDS FROM OPERATIONS
The Operating Partnership considers Funds from Operations to be a useful
financial measure of the operating performance of an equity REIT because,
together with net income and cash flows, Funds from Operations provides
investors with an additional basis to evaluate the ability of a REIT to
incur and service debt and to fund acquisitions, developments, and other
capital expenditures. Funds from Operations does not represent net income
or cash flows from operations as defined by generally accepted accounting
principles ("GAAP") and Funds from Operations should not be considered as
an alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Funds from Operations does not measure whether cash flow is
sufficient to fund all of the Operating Partnership's cash needs including
principal amortization, capital improvements, and distributions to
shareholders. Funds from Operations does not represent cash flows from
operating, investing, or financing activities as defined by GAAP. Further,
Funds from Operations as disclosed by other REITs may not be comparable to
the Operating Partnership's calculation of Funds from Operations, as
described below.
Pursuant to the National Association of Real Estate Investment Trusts
("NAREIT") new definition of Funds from Operations, beginning with the
quarter ended March 31, 1996, the Operating Partnership calculated
Funds from Operations by adjusting net income before minority interest,
calculated in accordance with GAAP, for certain non-cash items, principally
the amortization and depreciation of real property and for dividends on
shares and other equity interests that are not convertible into shares of
Common Stock. The Operating Partnership will not add back the depreciation
of corporate items, such as computers or furniture and fixtures, or the
amortization of deferred financing costs or debt discount. However, the
Operating Partnership will include an adjustment for the straight-lining of
rent under GAAP, as management believes this presents a more meaningful
picture of rental income over the reporting period.
Funds from Operations per share can be calculated based on average shares
equivalents outstanding, assuming the conversion of all shares of Series A
Preferred Stock and all partnership units in the Operating Partnership into
shares of Common Stock. Assuming such conversion, the average number of
shares outstanding for the three months ended March 31, 1996 and 1995 are
39,105,416 and 27,660,271, respectively.
16
<PAGE> 16
STATEMENT OF FUNDS FROM OPERATIONS
(based on the new NAREIT definition)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net income before minority interest $ 14,829 $ 4,440
Add:
Depreciation and Amortization 8,475 7,339
Dividends on Series B Preferred Stock (2,510) --
Other, net 115 75
Straight-lined rent (70) (185)
-------- --------
Funds from Operations $ 20,839 $ 11,669
======== ========
</TABLE>
Because of the impact of the December Offerings on the Operating
Partnership's balance sheet and result of operations, the Operating
Partnership believes that an adjusted calculation of 1995 Funds from
Operations, based on the new NAREIT definition and reflecting the effect of
the December Offerings and the conversion of the secured line of credit
into an unsecured facility, as if such transactions had occurred on January
1, 1995, provides a helpful basis for analyzing the impact of the new
NAREIT definition. The table below sets forth the Operating Partnership's
calculation of Funds from Operations for the quarter ended March 31, 1995,
based on the new NAREIT definition and adjusted to reflect the December
Offerings and the conversion of the secured line of credit into an
unsecured facility.
STATEMENT OF FUNDS FROM OPERATIONS
1995 New NAREIT Definition Adjusted
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1995
--------------
<S> <C>
Funds From Operations - New Definition $ 11,669
Add:
Amortization of Discount and Deferred Financing Fees 2,519
--------
Funds From Operations - Old Definition 14,188
Less:
Restructuring of Secured Debt (1) (958)
Amortization of Discount and Deferred Financing Fees (2) (375)
--------
Funds From Operations - Pro Forma New Definition $ 12,855
========
</TABLE>
(1) Adjustment reflects interest cost of unsecured notes and dividend cost of
Series B Preferred Stock less previously recorded cash interest cost on
$347 million of prepaid debt.
(2) Adjustment reflects amortization of discount and deferred financing fees
added back in calculating FFO based on old NAREIT definition less
amortization on the $347 million of prepaid debt and the previous secured
line of credit and adding in amortization on the new unsecured line of
credit.
17
<PAGE> 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The exhibits listed below are filed or incorporated by reference as part
of this quarterly report on Form 10-Q.
Exhibit Number
--------------
4.9 Fourth Supplemental Indenture relating to the 2004
Notes and the 2004 Note (incorporated by reference
to Exhibit 4.9 to Spieker Properties, Inc.'s Form
10-K Report for the year ended December 31, 1995)
10.14 Fourth Amendment, Fifth Amendment, and Sixth
Amendment to First Amended and Restated Agreement
of Limited Partnership of Spieker Properties, L.P.
(incorporated by reference to Exhibit 10.14 to
Spieker Properties, Inc.'s Form 10-K Report for
the year ended December 31, 1995)
10.16 Seventh Amendment to First Amended and Restated
Agreement of Limited Partnership of Spieker
Properties, L.P.
12.1 Statement of Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred 22 Dividends
27.1 Article 5 Financial Data Schedule (EDGAR filing
only)
(B) Reports on Form 8-K
The Company filed a current report on Form 8-K dated January 24,
1996, to file as an exhibit an opinion of counsel relating to the
offering by Spieker Properties, L.P. of 6.90% Notes due January 15,
2004.
The Company filed a current report on Form 8-K dated February 26,
1996, to file as an exhibit an opinion of counsel relating to the
offering by the Company of its Common Stock.
18
<PAGE> 18
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 there unto duly authorized.
Spieker Properties, L.P.
(Registrant)
Dated: May 7, 1996 /s/ Elke Strunka
-------------------------- -------------------------------
Elke Strunka,
Vice President
Principal Accounting Officer
19
<PAGE> 19
EXHIBIT 10.16
SEVENTH AMENDMENT TO FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SPIEKER PROPERTIES, L.P.
This Seventh Amendment ("Seventh Amendment") to the First Amended and
Restated Agreement of Limited Partnership of Spieker Properties, L.P., a
California limited partnership, dated as of February 2, 1995, as subsequently
amended (collectively, the "Partnership Agreement"), is executed as of this
20th day of March, 1996, by and among Spieker Properties, Inc., a Maryland
corporation, the General Partner of the Partnership, and the undersigned
Limited Partners of the Partnership, who constitute a Majority-in-Interest of
the Limited Partners as of the date hereof.
The Partners hereby agree as follows:
1. Capitalized terms used herein, unless otherwise defined herein, shall
have the same meanings as set forth in the Partnership Agreement.
2. Notwithstanding anything to the contrary provided in the Partnership
Agreement, including, without limitation, Section 9.2(c) thereof, Common
Stock that is transferred to employees of the General Partner during
1996 pursuant to the terms of the Partnership Agreement and Employee
Stock Incentive Pool of Spieker Properties, L.P. dated November 18, 1993
(the "Stock Pool") and that is subsequently sold by such employees shall
not be subject to the restrictions on such Common Stock that were
imposed on the transferor immediately prior to such transfer under the
Partnership Agreement, including, without limitation, the lien on the
Partnership Interests described in Section 12.5 of the Partnership
Agreement, provided that the aggregate number of shares of Common Stock
released from such restrictions pursuant to this Paragraph 2 shall not
exceed 16,000 shares of Common Stock.
3. This Seventh Amendment may be executed in two or more counterparts, each
of which shall be deemed originals, and all of which taken together
shall constitute one instrument.
4. This Seventh Amendment shall be governed by and construed in conformity
with the laws of the State of California.
5. Except as specifically provided herein, the Partnership Agreement shall
remain in full force and effect.
6. This Seventh Amendment shall become effective only upon the execution
of this Seventh Amendment by the General Partner and a
Majority-In-Interest of the Limited Partners.
<PAGE> 20
IN WITNESS WHEREOF, this Amendment is hereby entered into among the
undersigned Partners as of the date first written above.
GENERAL PARTNER: SPIEKER PROPERTIES, INC.
a Maryland corporation
By:_________________________
Its:________________________
<PAGE> 1
Exhibit 12.1
Spieker Properties, L.P. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(in thousands, except ratios)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Earnings:
Income from operations before
minority interest and extraordinary
items $14,829 $ 4,440
Interest expense(1) 8,837 12,969
Amortization of capitalized interest 55 46
------- -------
Total earnings $23,721 $17,455
======= =======
Fixed charges:
Interest expense(1) $ 8,837 $12,969
Capitalized interest 581 325
------- -------
Total fixed charges $ 9,418 $13,294
======= =======
Ratio of earnings to fixed charges 2.52 1.31
======= =======
Fixed charges in excess of earnings $ -- $ --
======= =======
Notes:
(1) Includes amortization of debt discount and deferred financing fees.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Spieker
Properties, L.P. quarterly report for the period ended March 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 16,833
<SECURITIES> 0
<RECEIVABLES> 3,588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,166,057
<DEPRECIATION> 126,194
<TOTAL-ASSETS> 1,100,854
<CURRENT-LIABILITIES> 0
<BONDS> 425,696
0
0
<COMMON> 0
<OTHER-SE> 613,924
<TOTAL-LIABILITY-AND-EQUITY> 1,100,854
<SALES> 0
<TOTAL-REVENUES> 45,168
<CGS> 0
<TOTAL-COSTS> 10,682
<OTHER-EXPENSES> 10,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,837
<INCOME-PRETAX> 14,829
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,829
<DISCONTINUED> 0
<EXTRAORDINARY> 150
<CHANGES> 0
<NET-INCOME> 14,982
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0
</TABLE>
