<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 SEPTEMBER 30, 1997
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)
CALIFORNIA 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)
(650) 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 .
----- -----
Page 1 of 23
Exhibit Index is located on Page 22
<PAGE> 2
SPIEKER PROPERTIES, L.P.
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Financial Statements........................................................................ 3
Consolidated Balance Sheets as of September 30, 1997, and December 31, 1996................. 4
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996...................................................... 6
Consolidated Statement of Partners' Capital for the Nine Months
Ended September 30, 1997............................................................... 7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996...................................................... 8
Notes to Consolidated Financial Statements.................................................. 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................ 22
Signatures ............................................................................................ 23
</TABLE>
2
<PAGE> 3
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 September 30, 1997, and December
31, 1996
(ii) Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1997 and 1996
(iii) Consolidated Statement of Partners' Capital for the Nine Months
Ended September 30, 1997
(iv) Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996
(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 the Form 10-K for the year ended
December 31, 1996.
3
<PAGE> 4
SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 537,642 $ 338,445
Buildings and improvements 1,631,077 944,646
Construction in progress 78,313 31,969
----------- -----------
2,247,032 1,315,060
Less - Accumulated depreciation (152,676) (127,701)
----------- -----------
2,094,356 1,187,359
Investments in mortgages 31,454 14,381
Property held for disposition, net 49,239 117,732
----------- -----------
Net investments in real estate 2,175,049 1,319,472
CASH AND CASH EQUIVALENTS 38,786 29,336
ACCOUNTS RECEIVABLE 5,012 3,799
DEFERRED RENT RECEIVABLE 4,468 3,242
RECEIVABLE FROM AFFILIATES 41 117
DEFERRED FINANCING AND LEASING COSTS, net of
accumulated amortization of $9,102 and $7,682
as of September 30, 1997, and December 31, 1996,
respectively 26,453 15,860
FURNITURE, FIXTURES AND EQUIPMENT, net 2,968 2,386
PREPAID EXPENSES AND OTHER ASSETS 26,490 16,102
----------- -----------
$ 2,279,267 $ 1,390,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
DEBT
Unsecured notes $ 935,000 $ 635,000
Unsecured line of credit 138,000 39,000
Mortgage loans 84,863 45,997
----------- -----------
Total debt 1,157,863 719,997
----------- -----------
ASSESSMENT BONDS PAYABLE 6,778 4,758
ACCOUNTS PAYABLE 7,032 3,258
ACCRUED REAL ESTATE TAXES 6,614 731
ACCRUED INTEREST 16,388 10,471
UNEARNED RENTAL INCOME 10,263 6,345
PARTNER DISTRIBUTIONS PAYABLE 26,195 18,660
OTHER ACCRUED EXPENSES AND LIABILITIES 25,590 16,406
----------- -----------
Total liabilities 1,256,723 780,626
----------- -----------
MINORITY INTERESTS (1,265) (1,240)
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
PARTNERS' CAPITAL
General Partners, including a liquidation preference of $131,250 949,789 563,928
Limited Partners 74,020 47,000
----------- -----------
Total Partners' Capital 1,023,809 610,928
----------- -----------
$ 2,279,267 $ 1,390,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997, and 1996
(dollars in thousands, except unit amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
September 30 September 30
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 82,504 $ 51,079 $ 221,424 $ 142,131
Interest and other income 1,392 1,064 4,767 3,026
--------- --------- --------- ---------
83,896 52,143 226,191 145,157
--------- --------- --------- ---------
OPERATING EXPENSES
Rental expenses 17,431 9,578 44,514 24,351
Real estate taxes 6,038 3,989 17,077 11,292
Interest expense, including amortization of finance costs 16,214 9,761 40,914 26,443
Depreciation and amortization 13,442 10,033 36,457 27,373
General and administrative and other expenses 3,720 2,686 10,255 7,491
--------- --------- --------- ---------
56,845 36,047 149,217 96,950
--------- --------- --------- ---------
Income from operations before disposition of property and
minority interests
27,051 16,096 76,974 48,207
--------- --------- --------- ---------
GAIN ON DISPOSITION OF PROPERTY 3,937 (1,483) 18,117 (1,483)
--------- --------- --------- ---------
Income from operations before minority interests 30,988 14,613 95,091 46,724
--------- --------- --------- ---------
MINORITY INTERESTS' SHARE IN NET INCOME (4) (4) (13) (6)
--------- --------- --------- ---------
Net income $ 30,984 $ 14,609 $ 95,078 $ 46,718
========= ========= ========= =========
General Partner $ 27,303 $ 12,787 $ 83,587 $ 40,603
Limited Partner 3,681 1,822 11,491 6,115
--------- --------- --------- ---------
Totals $ 30,984 $ 14,609 $ 95,078 $ 46,718
========= ========= ========= =========
NET INCOME PER OPERATING PARTNERSHIP UNIT $ .55 $ .34 $ 1.72 $ 1.11
========= ========= ========= =========
DISTRIBUTIONS PER OPERATING PARTNERSHIP UNIT
General Partner $ .47 $ .50 $ 1.45 $ 1.56
========= ========= ========= =========
Limited Partner $ .47 $ .43 $ 1.41 $ 1.29
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited General Limited
Partner Units Partner Units Partner Partner Total
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 36,749,489 6,549,819 $ 563,928 $ 47,000 $ 610,928
Contribution-Proceeds from sale of Common Stock
11,500,000 -- 374,835 -- 374,835
Acquisition of limited partnership interests
-- 756,855 -- 26,072 26,072
Conversion of Operating Partnership Units to Common
Stock 91,880 (91,880) -- -- --
Conversion of Operating Partnership Units - Employee
Stock Incentive Pool 14,984 (14,984) 524 (524) --
Sale of Operating Partnership Units -- 775 -- 25 25
Non-cash compensation merit fund -- -- 177 27 204
Restricted stock grant 25,913 -- -- -- --
Exercise of stock options 109,625 -- 2,245 -- 2,245
Amortization of deferred compensation -- -- 393 -- 393
Partner Distributions -- -- (75,900) (10,071) (85,971)
Net income -- -- 83,587 11,491 95,078
----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 48,491,891 7,200,585 $ 949,789 $ 74,020 $ 1,023,809
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1996
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 95,078 $ 46,718
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 36,457 27,373
Amortization of prepaid interest and deferred financing costs 848 956
Non-cash compensation 597 381
Minority share of net income 13 6
Gain on disposition of property (18,117) 1,483
(Increase) decrease in deferred rent receivable (1,406) 307
Increase in accounts receivable (1,213) (2)
Decrease in receivable from affiliates 76 277
(Increase) decrease in prepaid expenses and other assets (11,973) 1,239
Decrease in assessment bonds payable (624) (573)
Increase (decrease) in accounts payable 3,774 (185)
Increase in accrued real estate taxes 5,883 4,512
Increase in accrued interest 5,917 7,148
Increase in other accrued expenses and liabilities 9,184 2,520
Increase (decrease) in unearned rental income 3,918 (562)
--------- ---------
Net cash provided by operating activities 128,412 91,598
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (872,246) (253,374)
Additions to leasing costs (5,541) (4,288)
Additions to investment in mortgages (17,073) (14,342)
Proceeds from disposal of property 100,115 2,001
--------- ---------
Net cash used for investing activities (794,745) (270,003)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 708,000 513,050
Payments on debt (321,986) (407,151)
Payment of financing fees (8,862) (2,250)
Partner distributions (78,474) (60,463)
Capital contributions - stock offerings 374,835 151,331
Capital contributions - stock options exercised 2,245 856
Proceeds from the sale of limited partnership units 25 --
--------- ---------
Net cash provided by financing activities 675,783 195,373
--------- ---------
Net (decrease) increase in cash and cash equivalents 9,450 16,968
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,336 7,573
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,786 $ 24,541
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest 38,416 20,181
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Debt assumed in relation to property acquisitions 51,852 --
Increase to land and assessment bonds payable 2,644 609
Limited partnership interest recorded in relation to property acquisitions 26,072 --
Write-off of fully depreciated property 4,973 12,979
Write-off of fully amortized deferred financing and leasing costs 6,591 4,098
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
SPIEKER PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 and 1996
(in thousands, except share data)
(UNAUDITED)
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 its initial public offering
("IPO") on November 18, 1993. The Company qualifies as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986 (the
"Code"), as amended. As of September 30, 1997, the Company owned an
approximate 87.1 percent general partnership interest in the Operating
Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the consolidated financial
position of the Operating Partnership and its subsidiaries as of September
30, 1997, and December 31, 1996, and its consolidated results of operations
for the three and nine months ended September 30, 1997 and 1996 and its
consolidated cash flows for the nine months ended September 30, 1997 and
1996. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
Interim Financial Information
The consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and,
in management's opinion, include all adjustments necessary for a fair
presentation of results for such interim periods. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to SEC rules or regulations; however, the Operating
Partnership believes that adequate disclosures have been made.
The interim results for the three and nine months ended September 30, 1997
and 1996, are not necessarily indicative of results for the full year. It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Operating
Partnership's Annual Report on Form 10-K for the year ended December 31,
1996.
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>
The cost of buildings and improvements includes the purchase price of the
property or interests in property, legal fees, acquisition costs and
interest, property taxes and other costs incurred during the period of
construction.
9
<PAGE> 10
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments which extend the economic
useful life of assets are capitalized.
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 either sales comparables
or the net cash expected to be generated by the property, less estimated
carrying costs (including interest) throughout 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 September 30, 1997, and December 31, 1996, none of the
carrying values of the properties exceeded their estimated fair values. As of
September 30, 1997, and December 31, 1996, 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.
The Operating Partnership owns four mortgage loans that are secured by real
estate. Two of the four loans are with an affiliate of the Operating
Partnership (see note 3). The Operating Partnership assesses possible
impairment of these loans by reviewing the fair value of the underlying real
estate. As of September 30, 1997, the fair value of the underlying real
estate was in excess of the Operating Partnership's book value of the
mortgage loans.
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 and other costs are capitalized during the period
in which activities necessary to get the property ready for its intended use
are in progress.
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).
In addition, the Operating Partnership has entered into operating ground
leases on certain land parcels with periods ranging from 16 to 53 years,
certain of the operating ground leases contain purchase options.
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or less
when purchased are classified as cash equivalents.
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 1 to 30 years. Unamortized financing and leasing
costs are charged to expense upon the early termination of the lease or upon
early payment of financing.
10
<PAGE> 11
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,
overnight repurchase agreements, and investments in money market funds, with
financial institutions. The carrying amount of cash and cash equivalents
approximates fair value.
Minority Interest
Minority interest in the Operating Partnership represents a 10.0 percent
interest in one property and a 7.5 percent interest in another property held
by outside interests.
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.
Interest and Other Income
Interest and other income includes interest income on cash, cash equivalents,
investments in mortgages, and management fee income.
Net Income (Loss) Per Operating Partnership Unit
Per unit amounts for the Operating Partnership are computed using the
weighted average units outstanding during the period, including the dilutive
effect of stock options. The weighted average units outstanding for the three
and nine months ended September 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
General Partner Units Limited Partner Units
--------------------- ---------------------
<S> <C> <C>
Three months ended:
September 30, 1997 49,258,379 7,200,585
September 30, 1996 36,947,829 6,549,819
Nine months ended:
September 30, 1997 47,986,750 7,150,682
September 30, 1996 35,499,627 6,549,819
</TABLE>
11
<PAGE> 12
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 ("SFAS No. 128"), Earnings Per Share.
SFAS No. 128 requires the disclosure of basic earnings per share and modifies
existing guidance for computing fully diluted earnings per share. Under the
new standard, basic earnings per share is computed as earnings divided by
weighted average shares, excluding the dilutive effects of stock options and
other potentially dilutive securities. The effective date of SFAS No. 128 is
December 15, 1997, and early adoption is not permitted. The Operating
Partnership intends to adopt SFAS No. 128 during the quarter and year ended
December 31, 1997. Had the provisions of SFAS No. 128 been applied to the
Operating Partnership's results of operations for the three months ended
September 30, 1997 and 1996, the Operating Partnership's basic earnings per
unit would have been $.56 and $.34 per unit, respectively, and its fully
diluted earnings per unit would have been $.55 and $.34 per unit,
respectively. Had the provisions of SFAS No. 128 been applied to the
Operating Partnership's results of operations for the nine months ended
September 30, 1997 and 1996, the Operating Partnership's basic earnings per
unit would have been $1.75 and $1.12 per unit, respectively, and its fully
diluted earnings per unit would have been $1.72 and $1.11 per unit,
respectively.
Reclassifications
Certain items in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the 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. TRANSACTIONS WITH AFFILIATES
Receivable From Affiliates
The receivable from affiliates at September 30, 1997, and December 31, 1996,
represents management fees and reimbursements due from Spieker Partners
related entities (certain officers of Spieker Properties, Inc. are partners
in Spieker Partners).
Investments in Mortgages
Included in Investments in Mortgages are $17,073 of loans to Spieker
Northwest, Inc. an unconsolidated Preferred Stock Subsidiary of the Operating
Partnership. The loans are secured by deeds of trust on real property, bear
interest at 7.8%, and mature in 2012.
4. PROPERTY HELD FOR DISPOSITION
The Operating Partnership has determined to focus exclusively on properties
that meet its continuing strategic objectives. The Operating Partnership has
therefore decided to divest itself of its retail properties and certain other
properties. Included in property held for disposition at September 30, 1997,
are two retail and two office properties located in California. One of the
retail properties and the two office properties are in contract and are
scheduled to close by December 31, 1997. The divestiture of the remaining
property is subject to identification of a purchaser, negotiation of
acceptable terms and other customary conditions. The net carrying amount of
property held for disposition as of September 30, 1997, is $49,239.
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<PAGE> 13
5. DEBT
Unsecured Notes
As of September 30, 1997, the Operating Partnership has outstanding $935,000
in investment grade rated unsecured debt securities with varying interest
rates from 6.65% to 8.00% payable semi-annually. The debt securities are due
on various dates from 2000 to 2027.
On July 14, 1997, the Operating Partnership sold $150,000 of unsecured
investment grade rated notes bearing interest at 7.125% and due July 1, 2009.
Net proceeds of $146,112 were used principally to repay borrowings on the
unsecured line of credit and to fund the ongoing acquisition and development
of property.
On September 29, 1997, the Operating Partnership sold $150,000 of unsecured
investment grade rated debentures bearing interest at 7.5% and due October 1,
2027. Net proceeds of $146,088 were used primarily to repay borrowings on the
unsecured line of credit and to fund the ongoing acquisition and development
of property.
Unsecured Line of Credit
Effective August 8, 1997, the Operating Partnership has amended its Unsecured
Line of Credit facility. The maximum amount available under the facility is
$250,000. The facility carries interest at LIBOR plus 0.80%, matures in
August 2001, includes an annual administrative fee of $50 and an annual
facility fee of .20%. As of September 30, 1997 the amount drawn on the
facility was $138,000.
Mortgage Loans
Mortgage loans of $84,863 as of September 30, 1997, are secured by deeds of
trust on related properties. The mortgage loans carry interest rates ranging
from 7.37% to 9.75%, require monthly principal and interest payments, and
mature on various dates from 1997 to 2012.
6. PARTNER DISTRIBUTIONS PAYABLE
The partner distributions payable at September 30, 1997, and December 31,
1996, represent amounts payable to partners for the quarters then ended.
7. PARTNERS' CAPITAL
Equity Offerings
On January 21, 1997, the Company sold 11,500,000 shares of Common Stock at
$34.50 per share through an underwritten public offering, including the
underwriters' exercise of their over-allotment option. The aggregate net
proceeds of $374,835 were contributed to the Operating Partnership and used
primarily to acquire properties under contract at the time of the offering.
8. GAIN ON DISPOSITION OF PROPERTY
Gain on disposition of property for the nine months ended September 30, 1997,
represents the gain on disposition of eight retail properties, one industrial
property, and one office property. These properties were located in
California, Oregon, Washington and Idaho. The gain recognized on disposition
of retail, industrial and office property was $16,228, $1,123 and $766,
respectively.
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<PAGE> 14
9. ACQUISITIONS
The Operating Partnership acquired the following properties during the nine
months ended September 30, 1997:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Location Type (1) Square Feet Initial Cost
- ------------------------------------------ ------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Southcenter West Business Park (2) Tukwila, WA I 286,921 $ 6,300
Mission West Portfolio San Diego, CA O 619,935 44,800
Emeryville Portfolio (3) Emeryville, CA O 946,385 125,400
Brea Park Centre Brea, CA O 141,837 10,800
555 Twin Dolphin Drive Redwood Shores, CA O 198,494 41,000
North Creek Parkway Centre (4) Bothell, WA O 204,871 22,600
Riverside Centre Portland, OR O 98,434 9,300
Metro Plaza San Jose, CA O 411,288 73,900
1740 Technology (5) San Jose, CA O 194,538 31,300
Fountaingrove Santa Rosa, CA O 160,808 16,100
Pasadena Financial Pasadena, CA O 145,702 26,700
Century Square Pasadena, CA O 205,653 41,500
Point West Corporate Center Sacramento, CA O 145,184 17,200
Sierra Point Brisbane, CA O 99,150 10,300
Brea Corporate Plaza Brea, CA O 119,406 10,800
McKesson Building Pasadena, CA O 150,951 19,100
Coral Tree Commerce Center Vista, CA I 130,866 8,400
Progress Industrial Park Vista, CA I 123,275 7,500
Lafayette Terrace Lafayette, CA O 47,392 7,500
Parkway Industrial Portland, OR I 175,000 7,500
Brea Corporate Place Brea, CA O 490,000 61,700
Sepulveda Center Los Angeles, CA O 170,134 25,200
Kennedy Portfolio (6) Portland, OR I 1,265,000 110,900
790 E. Colorado Pasadena, CA O 130,000 19,300
Washington Park (7) Federal Way, WA O 50,000 6,100
Nobel Corporate Plaza San Diego, CA O 103,192 16,700
Kelley Point Distribution Center (8) Portland, OR I 500,000 16,400
Tower 17 Irvine, CA O 229,133 40,100
</TABLE>
(1) "O" indicates office property; "I" indicates industrial property.
(2) Previously identified as Andover Park in the January 1997 Equity Offering
Prospectus.
(3) The Company paid cash and issued Operating Partnership Units to the sellers
of this portfolio.
(4) Previously identified as Quadrant Corporate Center in the January 1997
Equity Offering Prospectus.
(5) Previously identified as Kodak Center in the January 1997 Equity Offering
Prospectus.
(6) Also includes properties located in Redmond, WA; Fremont, CA and Hayward,
CA.
(7) Includes land to be developed.
(8) Previously identified as Tyco Building in the September 22, 1997, Report on
Form 8-K
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<PAGE> 15
10. DEVELOPMENTS
During the nine months ended September 30, 1997, the Operating Partnership
acquired seven parcels of land for development. The total initial cost of
these seven parcels was $23,682.
11. SUBSEQUENT EVENTS
On October 10, 1997, the Company sold 6,000,000 shares of Series C
Cumulative Redeemable Preferred Stock for $25.00 per share. Dividends are
payable at an annual rate of 7.88% of the liquidation preference of
$150,000. Net proceeds of $146,135 were contributed to the Operating
Partnership and were used principally to repay borrowings on the unsecured
line of credit and to fund the ongoing acquisition and development of
property.
On October 10, 1997, the Operating Partnership deposited $36,250 towards the
purchase of a portfolio which consists of 44 properties in twelve states
aggregating 6,354,450 square feet, as well as 124.5 acres of land.
On October 29, 1997, the Company sold 11,500,000 shares of Common Stock at
$38.875 per share through an underwritten public offering, including the
underwriters' exercise of their over-allotment option. The aggregate net
proceeds of $425,027 were contributed to the Operating Partnership and were
used principally to repay borrowings on the unsecured line of credit and to
fund the ongoing acquisition and development of property.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Statements contained in this Item 2, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," and elsewhere in this
Quarterly Report on Form 10-Q which are not historical facts may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from
those projected, including, but not limited to, those risks and special
considerations set forth in the Operating Partnership's other SEC filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Operating Partnership
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The following comparison is of the Operating Partnership's consolidated
operations for the three and nine month periods ended September 30, 1997, as
compared to the corresponding periods ended September 30, 1996.
Rental revenues for the third quarter of 1997 increased by $31.4 million or
61.4% to $82.5 million, as compared with $51.1 million for the quarter ended
September 30, 1996. Of this increase, $24.9 million was generated by
properties acquired during the first nine months of 1997 (the "1997
Acquisitions"). In the third quarter of 1997 the Operating Partnership
acquired properties totaling 3.1 million square feet for a total investment
of $311.0 million. During the first nine months of 1997 the Operating
Partnership acquired properties totaling 7.5 million square feet for a total
investment of $871.6 million. As used herein, the terms "invested" and "total
investment" represent the initial purchase price of acquisitions, plus
projected cost of certain repositioning and rehab capital expenditures
anticipated at the time of purchase. The properties acquired in the third
quarter were acquired on various dates throughout the quarter and, as such, a
full quarter's revenue and expenses was not recognized during the quarter.
$6.1 million of the rental revenue increase in the third quarter of 1997 was
generated by properties acquired during 1996. During 1996, the Operating
Partnership invested $329.3 million to acquire properties totaling 4.7
million square feet (the "1996 Acquisitions").
$2.4 million of the increase in rental revenues is attributable to revenue
increases in properties owned at January 1, 1996, and still owned at
September 30, 1997 (the "Core Portfolio"). This increase in the Core
Portfolio is due to increased rental rates realized on the renewal and
re-leasing of second-generation space and contractual rent increases in
existing leases. During the quarter ended September 30, 1997, the Operating
Partnership completed 204 lease transactions for the renewal or re-leasing of
1.2 million square feet of second-generation space. On average for the
quarter, the new effective rates were 24.7% higher than the expiring coupon
rent. This brings the total second-generation activity for the first nine
months of 1997 to 603 completed lease transactions for 3.6 million square
feet at a 22.5% increase in effective rates, over expiring coupon rents.
$2.0 million of the rental revenue increase in the third quarter of 1997 was
generated by properties developed by the Operating Partnership (the
"Developments"). The Developments include both properties completed and added
to the Operating Partnership's portfolio of stabilized properties during 1996
and 1997, as well as properties currently under development. During the nine
months ended September 30, 1997, seven properties totaling 1.6 million square
feet have been completed and added to the Operating Partnership's portfolio
of stabilized properties. The total cost of these properties, including the
estimated cost to complete initial tenant improvements, is $59.2 million. The
Operating Partnership also has a current development pipeline of 3.2 million
square feet representing a total projected cost of $287.0 million. Certain of
the properties in the development pipeline are shell complete and partially
occupied.
The increases in rental revenue are partially offset by a decrease of $4.0
million attributable to the disposition of properties which were owned by the
Operating Partnership during the quarter ended September 30, 1996 (the
"Property Dispositions").
16
<PAGE> 17
Rental revenues for the nine month period ended September 30, 1997, increased
by $79.3 million or 55.8% to $221.4 million as compared to $142.1 million for
the same period ended September 30, 1996. $50.2 million and $25.8 million,
respectively, of this increase was attributable to the 1997 and 1996
Acquisitions, $6.1 million relates to the Core Portfolio, $5.7 million is
attributable to the Developments, with the remainder attributable to a $8.5
million decrease from Property Dispositions.
As a result of the 1997 Acquisitions, the 1996 Acquisitions, and the
Developments, the Operating Partnership's rentable square footage, not
including retail properties, increased by 11.0 million square feet or 60.8%
to 29.1 million square feet on September 30, 1997, from 18.1 million on
September 30, 1996. At September 30, 1997, the portfolio of stabilized
properties was 95.1% occupied. By property type, the office portfolio was
95.9% occupied and the industrial portfolio was 94.5% occupied.
Interest and other income increased by $.3 million and $1.8 million or 27.3%
and 60.0% for the three and nine month periods ended September 30, 1997, over
the same respective periods ended September 30, 1996. The net increase in
interest and other income is due to higher average cash balances of $30.7
million and $49.2 million for the three and nine month periods ended
September 30, 1997, as compared to $14.7 million and $11.1 million for the
corresponding periods in 1996.
Rental expenses increased by $7.8 million or 81.3% for the three months ended
September 30, 1997, as compared with the same period in 1996. Real estate
taxes increased by $2.0 million or 50.0% for the three months ended September
30, 1997, as compared with the same period in 1996. The overall increase in
rental expenses and real estate taxes (collectively referred to as "property
operating expenses") is primarily a result of the growth in the total square
footage of the Operating Partnership's portfolio of properties. Of the total
$9.8 million increase in property operating expenses $8.0 million is
attributable to the 1997 Acquisitions, $2.1 million is attributable to the
1996 Acquisitions, $0.4 million is attributable to the Developments, and a
$0.7 million decrease attributable to the Property Dispositions. The Core
Portfolio remained essentially unchanged for the comparable quarters. On a
percentage basis, property operating expenses were 28.4% and 26.6% of rental
revenues for the quarters ended September 30, 1997, and September 30, 1996,
respectively. The increase in property operating expenses as a percentage of
rental revenues is attributable to the increased percentage of office
properties in the Operating Partnership's portfolio. For the quarter ended
September 30, 1997, 62.0% of the Operating Partnership's net operating income
(rental revenues less property operating expenses) was generated by office
properties as compared with 45.6% during the same period in 1996.
In December 1996, the Operating Partnership announced the strategic decision
to divest itself of its retail properties and focus exclusively on office and
industrial properties. As such, the following analysis of the office and
industrial properties (i.e. non-retail properties) is presented: Rental
revenues net of property operating expenses (referred to as "property
operating income") increased by $24.9 million or 76.6% to $57.4 million, as
compared to $32.5 million for the quarter ended September 30, 1996. Of this
increase, $16.9 million and $4.0 million relates to the 1997 and 1996
Acquisitions $2.4 million is attributable to the Core Portfolio, and $1.6
million is attributable to the Developments. For the nine month period ended
September 30, 1997, property operating income increased by $60.5 million or
65.8% from $92.0 million to $152.5 million at September 30, 1997. $33.7
million and $17.4 million related to the 1997 and 1996 Acquisitions, $5.0
million is related to the Core Portfolio, and $4.4 million is attributed to
the Developments.
For the nine month period ended September 30, 1997, rental expenses increased
by $20.1 million from $24.4 million for the nine months ended September 30,
1996. This represents a 82.4% increase year over year. Real estate taxes
increased by $5.8 million or 51.3% to $17.1 million for the first three
quarters of 1997 as compared to $11.3 million for the same period in 1996.
The total increase in the property operating expenses is attributable to a
$16.5 million increase for the 1997 Acquisitions, a $8.4 million increase for
the 1996 Acquisitions, a $1.3 million increase for the Developments, a $1.1
million increase in the Core Portfolio, and a $1.4 reduction attributable to
the Property Dispositions. On a percentage basis property operating expenses
were 27.8% and 25.1% of rental revenues for the nine months ended September
30, 1997, and 1996, respectively.
17
<PAGE> 18
Interest expense increased by $6.4 million or 65.3% to $16.2 million for the
three months ended September 30, 1997, from $9.8 million for the same period
in 1996. For the nine month period ended September 30, 1997, interest expense
increased by $14.5 million or 54.9% to $40.9 million from $26.4 million for
the same period in 1996. These increases in interest expense are due to
increases in the total average outstanding debt balances. The average
outstanding debt for the three months ended September 30, 1997, and 1996 was
$981.3 million and $557.3 million respectively. The average balance
outstanding for the nine months ended September 30, 1997, was $823.6 million
and $520.5 million for the same period in 1996. The increases in the average
outstanding debt balances are consistent with the increases in the size of
the Operating Partnership's portfolio of properties.
Depreciation and amortization expenses increased by $3.4 million and $9.1
million or 34.0% and 33.2% for the three and nine month periods ended
September 30, 1997, as compared with the same periods in 1996, due to the
1997 and 1996 Acquisitions and the completed Developments.
General and administrative expenses and other expenses increased by $1.0
million and $2.8 million for the three and nine month periods ended September
30, 1997, respectively, as compared with the same periods in 1996, primarily
as a result of the increased number of employees. On a percentage basis,
general and administrative expenses were 4.5% and 4.7% of rental revenues for
the three and nine month periods ended September 30, 1997, respectively, as
compared with 5.3% for both periods in 1996.
During the third quarter of 1997, the Operating Partnership disposed of a
retail property resulting in a gain on disposition of $2.0 million. In
addition, the Operating Partnership disposed of one industrial property and
one parking lot resulting in a gain of $1.9 million. This brings the total
gain on disposition of property for the first three quarters of 1997 to $18.1
million on ten properties.
Net income before minority interests and disposition of property increased by
$11.0 million or 68.3% to $27.1 million for the three month period ended
September 30, 1997, from $16.1 million for the same period in 1996. For the
nine month period ended September 30, 1997, net income before minority
interests and disposition of property increased by $28.8 million or 59.8% to
$77.0 million, from $48.2 million for the same period in 1996. The increase
in net income is principally due to the 1997 and 1996 Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
For the nine-month period ended September 30, 1997, cash provided by
operating activities increased by $36.8 million or 40.2% to $128.4 million,
as compared to $91.6 million for the same period in 1996. The increase is
primarily due to the increase in net income resulting from the 1996 and 1997
Acquisitions. Cash used for investing activities increased by $524.7 million
or 194.3% to $794.7 million for the first nine months of 1997, as compared to
$270.0 million for the same period in 1996. The increase is attributable to
the Operating Partnership's ongoing acquisition and development of suburban
office and industrial properties. Cash provided by financing activities
increased by $480.4 million or 245.9% to $675.8 million for the first nine
months of 1997, as compared to $195.4 million for the same period in 1996.
During the first nine months of 1997, cash provided by financing activities
consisted, primarily, of $374.8 million in net proceeds from the sale of
Common Stock, $292.2 million in net proceeds from the issuance of unsecured
investment grade notes, net borrowings of $99.0 million on the line of credit
and a net increase of $38.9 million in mortgage loans outstanding.
Additionally, payments of distributions increased by $18.0 million to $78.5
million for the first nine months of 1997, as compared with $60.5 million for
the same period in 1996. The increase is due to the greater number of shares
outstanding and a 9.3% 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, public and
privately placed equity financing, public unsecured debt financing, the
issuance of partnership units in the Operating Partnership, the assumption of
secured debt on properties acquired 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.
18
<PAGE> 19
At September 30, 1997, the Operating Partnership had no material 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 the renewal or re-leasing of space.
The Operating Partnership has a $250.0 million unsecured line of credit
facility (the "Facility") with interest at London Interbank Offered Rates
("LIBOR") plus .80%. The Facility matures in August 2001. This increased
facility has a competitive bid option that allows the Operating Partnership
to request bids from the Lenders for advances up to $150.0 million. At
September 30, 1997, the Operating Partnership had $138.0 million outstanding
under the Facility.
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 $98.9 million were used to repay borrowings on the unsecured line
of credit. In June 1996, the Operating Partnership commenced a $200.0 million
medium-term note program. In July 1996, the Operating Partnership issued
$100.0 million of 8.00% medium-term notes due July 19, 2005, and $50.0
million of 7.58% medium-term notes due December 17, 2001 (the "July Notes").
The net proceeds of $149.2 million from the issuance of the July Notes were
used to repay borrowings on the line of credit and to fund ongoing
acquisition and development projects. In December 1996, the Operating
Partnership issued $100.0 million of 7.125% investment grade rated unsecured
notes, priced to yield 7.14% and maturing on December 1, 2006, and $25.0
million of 7.875% investment grade rated unsecured notes, priced to yield
7.91% and maturing on December 1, 2016. The net proceeds of $123.9 million
were used to pay down borrowings on the line of credit and to fund the
ongoing acquisition and development of properties. On July 14, 1997, the
Operating Partnership issued $150.0 million of investment grade rated
unsecured notes. The notes carry an interest rate of 7.125%, were priced to
yield 7.183%, and mature on July 1, 2009. On September 29, 1997, the
Operating Partnership issued $150.0 million of investment grade rated
unsecured debentures. The debentures carry an interest rate of 7.5%, were
priced to yield 7.57% and mature on October 1, 2027. Net proceeds from the
July 1997 and September 1997 unsecured debt securities of $292.2 million were
used to repay borrowings on the unsecured line of credit and to fund the
ongoing acquisition and development of properties.
As of September 30, 1997, the Operating Partnership had $935.0 million of
investment grade rated unsecured debt securities outstanding. The debt
securities have interest rates which vary from 6.65% to 8.00%, and various
maturity dates which range from 2000 to 2027. As of September 30, 1997, $50.0
million of debt securities remained available for issuance under the
medium-term note program.
In addition to the Unsecured Notes and the Facility, the Operating
Partnership has $84.9 million of secured indebtedness (the "Mortgages") at
September 30, 1997. The Mortgages have interest rates varying from 7.37% to
9.75% and maturity dates from 1997 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
$6.8 million of assessment bonds outstanding as of September 30, 1997.
In January 1997, the Company sold 11,500,000 shares of Common Stock
(including 1,500,000 shares sold to the underwriters in the exercise of their
over-allotment option in February 1997) through an underwritten public
offering at $34.50 per share. The net proceeds of $374.8 million were
contributed to the Operating Partnership and were used to purchase properties
during the first quarter of 1997, many of which were under contract or letter
of intent at the time of the offering, and to repay indebtedness. Also, in
January 1997, the Company and the Operating Partnership filed a shelf
registration statement (the "January 1997 Shelf Registration Statement") with
the SEC which registered $500.0 million of equity securities of the Company
and $500.0 million of debt securities of the Operating Partnership and became
effective in January 1997.
In September 1997, the Company and the Operating Partnership filed a shelf
registration (the "September 1997 Shelf Registration Statement") with the SEC
which registered $500.0 million of equity securities of the Company and
$500.0 million of debt securities of the Operating Partnership and became
effective in October 1997.
19
<PAGE> 20
On October 10, 1997, the Company sold 6,000,000 shares of Series C Cumulative
Redeemable Preferred Stock for $25.00 per share. Dividends are payable at an
annual rate of 7.88% of the liquidation preference of $150,000. Net proceeds
of $146,135 were contributed to the Operating Partnership and were used
principally to repay borrowings on the unsecured line of credit and to fund
ongoing acquisition and development of property.
In November 1997, the Company sold 11,500,000 shares of Common Stock
(including 1,500,000 shares sold to the underwriters in the exercise of their
over-allotment option) through an underwritten public offering at $38.875 per
share. The net proceeds of $425,027 were contributed to the Operating
Partnership and were used to repay indebtedness and to purchase properties
which were under contract at the time of the offering.
After completion of the equity and debt offerings, the Company has the
capacity pursuant to the September 1997 Registration Statement to issue up to
approximately $402.9 million in equity securities and the Operating
Partnership has the capacity pursuant to the January 1997 Shelf Registration
Statement and the September 1997 Registration Statement to issue up to $815.0
million in debt securities (including the $50.0 million of medium-term notes
available under the Company's existing medium-term note program).
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 stockholders. 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") revised 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 does 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 includes 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 unit is calculated based on weighted average
Operating Partnership units outstanding, including the dilutive effect of
stock options. The average number of units outstanding for the three and nine
months ended September 30, 1997, are 56,458,964 and 55,186,005, respectively,
and 43,497,648 and 42,049,446 for the same periods in 1996.
20
<PAGE> 21
STATEMENT OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income before disposition of property and
minority interest $ 27,051 $ 16,096 $ 76,974 $ 48,207
Add:
Depreciation and Amortization 13,282 9,938 36,036 27,135
Dividends on Series B Preferred Stock (2,510) (2,510) (7,530) (7,530)
Other, net 186 116 560 201
Straight-lined rent (624) 252 (1,200) 307
------------ ------------ ------------ ------------
Funds from Operations $ 37,385 $ 23,892 $ 104,840 $ 68,320
============ ============ ============ ============
</TABLE>
21
<PAGE> 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The exhibits listed below are filed as part of this quarterly report on
Form 10-Q.
Exhibit Number
4.1 Ninth Supplemental Indenture relating to the 2027 Debentures.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
(B) Reports on Form 8-K
The Operating Partnership filed a current report on Form 8-K dated
September 22, 1997, as amended by Form 8-K/A dated October 10, 1997,
relating to the acquisition of the WCB Portfolio.
22
<PAGE> 23
SPIEKER PROPERTIES, L.P.
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: November 13, 1997 /s/ Elke Strunka
--------------------- ---------------------------
Elke Strunka
Vice President and
Principal Accounting Officer of
Spieker Properties, Inc. the General
Partner
23
<PAGE> 24
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
4.1 Ninth Supplemental Indenture relating to the 2027 Debentures.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
24
<PAGE> 1
EXHIBIT 4.1
NINTH SUPPLEMENTAL INDENTURE
NINTH SUPPLEMENTAL INDENTURE, dated as of September 29, 1997 (this
"Ninth Supplemental Indenture"), among Spieker Properties, Inc., a corporation
organized under the laws of Maryland (the "General Partner"), Spieker
Properties, L.P., a limited partnership organized under the laws of California
(the "Issuer"), First Trust of California, National Association, as Trustee (the
"Trustee") and State Street Bank and Trust Company ("State Street.").
W I T N E S S E T H:
WHEREAS, the Issuer, the General Partner and State Street executed and
delivered an Indenture, dated as of December 6, 1995 (as supplemented hereby,
the "Indenture"), to provide for the issuance by the Issuer from time to time of
debt securities evidencing its unsecured indebtedness;
WHEREAS, pursuant to Section 609(b) of the Indenture, the Issuer and the
General Partner desire to appoint the Trustee as trustee with respect to the
series of securities established by this Supplemental Indenture and future
series of securities under the Indenture;
WHEREAS, the Issuer and the General Partner desire that State Street
remain trustee of all former series of securities issued under the Indenture;
WHEREAS, pursuant to Board Resolution, the Issuer has authorized the
issuance of $150,000,000 of its 7.50% Debentures Due October 1, 2027 (the
"Notes");
WHEREAS, the Issuer desires to establish the terms of the Notes in
accordance with Section 301 of the Indenture and to establish the form of the
Notes in accordance with Section 201 of the Indenture.
ARTICLE 1
APPOINTMENT OF SUCCESSOR TRUSTEE
SECTION 101. APPOINTMENT OF SUCCESSOR TRUSTEE. Pursuant to Section
609(b) of the Indenture, the Issuer and the General Partner hereby appoint the
Trustee as trustee, with all rights, powers, trusts and duties provided for in
the Indenture, for the series of securities established by this Supplemental
Indenture and, until the Issuer and the General Partner appoint another trustee
pursuant to the applicable provisions of the Indenture, for all future series of
securities issued under the Indenture, and the Trustee hereby accepts such
appointment.
-1-
<PAGE> 2
SECTION 102. OUTSTANDING SECURITIES. State Street shall remain trustee
for securities outstanding on the date hereof and not issued pursuant to this
Supplemental Indenture and shall retain all rights, powers, trusts and duties
with respect to such securities.
SECTION 103. NO CHANGES IN DUTIES OF TRUSTEE. Except as otherwise
provided in herein, there shall be no change, modification or amendment of the
powers, rights and duties of any trustee under the Indenture.
SECTION 104. DESIGNATION OF ADDITIONAL AGENCY FOR PAYMENT. Pursuant to
Section 1002 of the Indenture, the Issuer hereby appoints the corporate trust
office of the Trustee, which, as of the date hereof, is located in care of First
Trust National Association, 180 E. Fifth Street, St. Paul, Minnesota 55101 (the
"Corporate Trust Office"), as its agent to receive presentations and surrenders,
and the corporate trust office of the Trustee at One California Street, Suite
400, San Francisco, California 94111, as its agent to receive notices and
demands, of securities issued under the Indenture from the date hereof and
hereafter.
ARTICLE 2
TERMS
SECTION 201. TERMS OF NOTES. The following terms relating to the Notes
are hereby established:
(1) The Notes shall constitute a series of Securities having the
title "7.50% Debentures Due October 1, 2027."
(2) The aggregate principal amount of the Notes that may be
authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Sections 304, 305,
306, 906, 1107 or 1305 of the Indenture) shall be up to $150,000,000.
(3) The entire outstanding principal of the Notes shall be
payable on October 1, 2027 (the "Stated Maturity Date").
(4) The rate at which the Notes shall bear interest shall be
7.50%; the date from which interest shall accrue shall be September 29,
1997; the Interest Payment Dates for the Notes on which interest will be
payable shall be October 1 and April 1 in each year, beginning April 1,
1998; the Regular Record Dates for the interest payable on the Notes on
any Interest Payment Date shall be the 15th calendar day preceding the
applicable Interest Payment Date; and the basis upon which interest
shall be calculated shall be that of a 360-day year consisting of twelve
30-day months.
-2-
<PAGE> 3
(5) The Place of Payment where the principal of and interest on
the Notes shall be payable and Notes may be surrendered for the
registration of transfer or exchange shall be the Corporate Trust Office
of the Trustee in St. Paul, Minnesota. The place where notices or
demands to or upon the Issuer in respect of the Notes and the Indenture
may be served shall be the corporate trust office of the Trustee at One
California Street, Suite 400, San Francisco, California 94111.
(6) (A) The Notes may be redeemed at any time at the option of
the Issuer, in whole or from time to time in part, at a redemption price
equal to the sum of (i) the principal amount of the Notes (or portion
thereof) being redeemed plus accrued interest thereon to the redemption
date and (ii) the Make-Whole Amount (as defined below), if any, with
respect to such Notes (or portion thereof) (the "Redemption Price").
If notice has been given as provided in the Indenture and
funds for the redemption of any Notes (or any portion thereof) called
for redemption shall have been made available on the redemption date
referred to in such notice, such Notes (or any portion thereof) will
cease to bear interest on the date fixed for such redemption specified
in such notice and the only right of the Holders of the Notes will be to
receive payment of the Redemption Price, with respect to such Notes or
portion thereof so redeemed.
Notice of any optional redemption of any Notes (or any
portion thereof) will be given to Holders at their addresses, as shown
in the security register for the Notes, not more than 60 nor less than
30 days prior to the date fixed for redemption. The notice of redemption
will specify, among other items, the Redemption Price and the principal
amount of the Notes held by such Holder to be redeemed. On the third
Business Day preceding the date notice of redemption is given, the
Company will notify the Trustee of the Redemption Price and the Trustee
may rely and shall be fully protected in acting upon the determination
of the Company as to such Redemption Price.
The Issuer will notify the Trustee in writing at least 45
days prior to giving notice of redemption (or such shorter period as is
satisfactory to the Trustee in its sole discretion) of the aggregate
principal amount of Notes to be redeemed and their redemption date. If
less than all the Notes are to be redeemed at the option of the Issuer,
the Trustee shall select by lot, the Notes to be redeemed in whole or in
part.
In the event of redemption of the Notes in part only, a
new Note for the amount of the unredeemed portion thereof shall be
issued in the name of the Holder thereto, upon cancellation thereof.
(B) As used herein:
"Make-Whole Amount" means, in connection with any optional
redemption or accelerated payment of any Notes, the excess, if any, of
(i) the aggregate present value as of the date of such redemption or
accelerated payment of each dollar of
-3-
<PAGE> 4
principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment)
that would have been payable in respect of each such dollar if such
redemption or accelerated payment had not been made, determined by
discounting, on a semi-annual basis, such principal and interest at the
Reinvestment Rate (determined on the third Business Day preceding the
date such notice of redemption is given or declaration of acceleration
is made) from the respective dates on which such principal and interest
would have been payable if such redemption or accelerated payment had
not been made, over (ii) the aggregate principal amount of the Notes
being redeemed or paid.
"Reinvestment Rate" means 0.25% plus the arithmetic mean
of the yields under the respective heading "Week Ending" published in
the most recent Statistical Release under the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date
of the principal being redeemed or paid. If no maturity exactly
corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant
to the immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the
purpose of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" means the statistical release
designated "H.15(519)" or any successor publication which is published
weekly by the Federal Reserve System and which establishes yields on
actively traded United States government securities adjusted to constant
maturities, or, if such statistical release is not published at the time
of any determination under the Indenture, then such other reasonably
comparable index which shall be designated by the Issuer.
(7) The Notes shall not be redeemable at the option of any Holder
thereof, upon the occurrence of any particular circumstances or
otherwise. The Notes will not have the benefit of any sinking fund.
(8) The Notes shall be issuable in denominations of $1,000 and
any integral multiple thereof.
(9) The Trustee shall also be the Security Registrar and Paying
Agent for the Notes.
(10) The entire outstanding principal amount plus the Make-Whole
Amount of the Notes shall be payable upon declaration of acceleration of
the maturity thereof pursuant to Section 502 of the Indenture.
-4-
<PAGE> 5
(11) Payments of the principal of and interest on the Notes shall
be made in U.S. Dollars, and the Notes shall be denominated in U.S.
Dollars.
(12) The Notes will be payable on the Stated Maturity Date in an
amount equal to the principal amount thereof plus any unpaid interest
accrued to the Stated Maturity Date.
(13) The Holders of the Notes shall have no special rights in
addition to those provided in the Indenture upon the occurrence of any
particular events.
(14) (A) There shall be no deletions from, modifications of or
additions to the Events of Default with respect to the Notes set forth
in the Indenture.
(B) There shall be the following additions to the
covenants set forth in the Indenture with respect to the Notes, which
shall be effective only for so long as any of the Notes are Outstanding:
Limitations On Incurrence of Debt. The Issuer will not,
and will not permit any Subsidiary to, incur any Debt (as defined
below), other than inter-company debt representing Debt to which
the only parties are Spieker Properties, Inc., a Maryland
corporation (the "General Partner"), the Issuer and any of their
Subsidiaries (but only so long as such Debt is held solely by any
of the General Partner, the Issuer and any Subsidiary) that is
subordinate in right of payment to the Notes if, immediately
after giving effect to the incurrence of such additional Debt,
the aggregate principal amount of all outstanding Debt of the
Issuer and its Subsidiaries on a consolidated basis is greater
than 60% of the sum of (i) Total Assets (as defined below) as of
the end of the calendar quarter covered in the Issuer's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case
may be, most recently filed with the Trustee (or such reports of
the General Partner if filed by the Issuer with the Trustee in
lieu of filing its own reports) prior to the incurrence of such
additional Debt and (ii) the increase in Total Assets from the
end of such quarter including, without limitation, any increase
in Total Assets resulting from the incurrence of such additional
Debt (such increase, together with the Total Assets, is referred
to as "Adjusted Total Assets").
In addition to the foregoing limitation on the incurrence
of Debt, the Issuer will not, and will not permit any Subsidiary
to, incur any Debt if the ratio of Consolidated Income Available
for Debt Service to the Annual Service Charge (in each case as
defined below) for the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is
to be incurred shall have been less than 1.5 to 1, on a pro forma
basis after giving effect to the incurrence of such Debt and to
the application of the proceeds therefrom, and calculated on the
assumption that (i) such Debt and any other Debt incurred by the
Issuer or its Subsidiaries since the first day of such
four-quarter period and the application of
-5-
<PAGE> 6
the proceeds therefrom, including to refinance other Debt, had
occurred at the beginning of such period, (ii) the repayment or
retirement of any other Debt by the Issuer or its Subsidiaries
since the first day of such four-quarter period had been
incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Debt
under any revolving credit facility shall be computed based upon
the average daily balance of such Debt during such period), (iii)
the income earned on any increase in Adjusted Total Assets since
the end of such four-quarter period had been earned, on an
annualized basis, during such period, and (iv) in the case of any
acquisition or disposition by the Issuer or any Subsidiary of any
asset or group of assets since the first day of such four-quarter
period, including, without limitation, by merger, stock purchase
or sale, or asset purchase or sale, such acquisition or
disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included in
such pro forma calculation.
In addition to the foregoing limitations on the incurrence
of Debt, the Issuer will not, and will not permit any Subsidiary
to, incur any Debt secured by any mortgage, lien, charge, pledge,
encumbrance or security interest of any kind upon any of the
property of the Issuer or any Subsidiary ("Secured Debt"),
whether owned at the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence
of such additional Secured Debt, the aggregate principal amount
of all outstanding Secured Debt is greater than 40% of Adjusted
Total Assets.
For purposes of the foregoing provisions regarding the
limitation on the incurrence of Debt, Debt shall be deemed to be
"incurred" by the Issuer or a Subsidiary whenever the Issuer and
its Subsidiary shall create, assume, guarantee or otherwise
become liable in respect thereof.
Maintenance of Total Unencumbered Assets. The Issuer is
required to maintain Total Unencumbered Assets of not less than
165% of the aggregate outstanding principal amount of all
outstanding Unsecured Debt.
As used herein:
"Annual Service Charge" as of any date means the amount
which is expensed in any 12-month period for interest on Debt of
the Issuer and its Subsidiaries.
"Consolidated Income Available For Debt Service" for any
period means Consolidated Net Income plus amounts which have been
deducted for (a) interest on Debt of the Issuer and its
Subsidiaries, (b) provision for taxes of the Issuer and its
Subsidiaries based on income, (c) amortization of Debt discount,
(d) provisions
-6-
<PAGE> 7
for gains and losses on properties, (e) depreciation and
amortization, (f) the effect of any noncash charge resulting from
a change in accounting principles in determining Consolidated Net
Income for such period and (g) amortization of deferred charges.
"Consolidated Net Income" for any period means the amount
of consolidated net income (or loss) of the Issuer and its
Subsidiaries for such period determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Debt" of the Issuer or any Subsidiary means any
indebtedness of the Issuer or such Subsidiary, as applicable,
whether or not contingent, in respect of (i) borrowed money
evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned
by the Issuer or such Subsidiary, (iii) the reimbursement
obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the
balance that constitutes an accrued expense or trade payable or
(iv) any lease of property by the Issuer or such Subsidiary as
lessee which is reflected in the Issuer's consolidated balance
sheet as a capitalized lease in accordance with generally
accepted accounting principles, in the case of items of
indebtedness under (i) through (iii) above to the extent that any
such items (other than letters of credit) would appear as a
liability on the Issuer's consolidated balance sheet in
accordance with generally accepted accounting principles, and
also includes, to the extent not otherwise included, any
obligation by the Issuer or such Subsidiary to be liable for, or
to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business),
indebtedness of another person (other than the Issuer or any
Subsidiary).
"Subsidiary" means a corporation, partnership or limited
liability company, a majority of the outstanding voting stock,
partnership interests or membership interests, as the case may
be, of which is owned or controlled, directly or indirectly, by
the Issuer or by one or more other Subsidiaries of the Issuer.
For the purposes of this definition, "voting stock" means stock
having the voting power for the election of directors, general
partners, managers or trustees, as the case may be, whether at
all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i)
Undepreciated Real Estate Assets and (ii) all other assets of the
Issuer and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles (but
excluding intangibles and accounts receivable).
-7-
<PAGE> 8
"Total Unencumbered Assets" as of any date means the sum
of (i) those Undepreciated Real Estate Assets which have not been
pledged, mortgaged or otherwise encumbered by the owner thereof
to secure Debt, excluding infrastructure assessment bonds, and
(ii) all other assets of the Issuer and its Subsidiaries
determined in accordance with generally accepted accounting
principles (but excluding intangibles and accounts receivable)
which have not been pledged, mortgaged or otherwise encumbered by
the owner thereof to secure Debt.
"Undepreciated Real Estate Assets" as of any date means
the cost (original cost plus capital improvements) of real estate
assets of the Issuer and its Subsidiaries on such date, before
depreciation and amortization, determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Unsecured Debt" as of any date means Debt which is not
secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of the properties of the
Issuer or any Subsidiary.
(C) The Trustee shall not be obligated to monitor or
confirm, on a continuing basis or otherwise, the Issuer's compliance
with the covenants contained in this subsection or with respect to
reports or other documents filed under the Indenture; provided, however,
that nothing herein shall relieve the Trustee of any obligations to
monitor the Issuer's timely delivery of all reports and certificates
required under Sections 703 and 1005 of the Indenture and to fulfill its
obligations under Article Six of the Indenture.
(15) The Notes shall be issuable only as Registered Securities in
permanent global form (without coupons). Beneficial owners of interests
in the permanent global Notes may exchange such interests for Notes of
like tenor or any authorized form and denomination only in the manner
provided in Section 305 of the Indenture. DTC shall be the depository
with respect to the permanent global Note.
(16) The Notes shall not be issuable as Bearer Securities.
(17) Interest on any Note shall be payable only to the Person in
whose name that Note (or one or more predecessor Notes thereof) is
registered at the close of business on the Regular Record Date for such
interest.
(18) Sections 1402 and 1403 of the Indenture shall be applicable
to the Notes.
(19) The Notes shall not be issuable in definitive form except
under the circumstances described in Section 305 of the Indenture.
-8-
<PAGE> 9
(20) Articles Sixteen and Seventeen of the Indenture shall not be
applicable to the Notes.
(21) The Issuer shall not pay Additional Amounts with respect to
the Notes as contemplated by Section 1009 of the Indenture.
(22) The Notes shall not be subordinated to any other debt of the
Issuer, and shall constitute senior unsecured obligations of the Issuer.
SECTION 202. FORM OF NOTE. The form of the Note is attached hereto as
Exhibit A.
ARTICLE III
MISCELLANEOUS
SECTION 301. DEFINITIONS. Capitalized terms used but not defined in this
Ninth Supplemental Indenture shall have the meanings ascribed thereto in the
Indenture.
SECTION 302. CONFIRMATION OF INDENTURE. The Indenture, as heretofore
supplemented and amended by this Ninth Supplemental Indenture, is in all
respects ratified and confirmed, and the Indenture, this Ninth Supplemental
Indenture and all indentures supplemental thereto shall be read, taken and
construed as one and the same instrument.
SECTION 303. CONCERNING THE TRUSTEE. The Trustee assumes no duties,
responsibilities or liabilities by reason of this Ninth Supplemental Indenture
other than as set forth in the Indenture and, in carrying out its
responsibilities hereunder, shall have all of the rights, protections and
immunities which it possesses under the Indenture.
SECTION 304. GOVERNING LAW. This Ninth Supplemental Indenture, the
Indenture and the Securities shall be governed by and construed in accordance
with the law of the State of New York.
SECTION 305. SEPARABILITY. In case any provision in this Ninth
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 306. COUNTERPARTS. This Ninth Supplemental Indenture may be
executed in any number of counterparts each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Ninth
Supplemental Indenture to be duly executed, and the corporate seal of the
General Partner to be hereunto affixed and attested, as of the day and year
first above written.
SPIEKER PROPERTIES, L.P.
By: Spieker Properties, Inc., as General Partner
By: /s/ Craig G. Vought
---------------------------------------------
Name: Craig G. Vought
Title: Executive Vice President
and Chief Financial Officer
(seal)
Attest:
By: /s/ Stuart A. Rothstein
----------------------------
Name: Stuart A. Rothstein
Title: Assistant Secretary
SPIEKER PROPERTIES, INC.
By: /s/ Craig G. Vought
---------------------------------------------
Name: Craig G. Vought
Title: Executive Vice President
and Chief Financial Officer
(seal)
Attest:
By: /s/ Stuart A. Rothstein
----------------------------
Name: Stuart A. Rothstein
Title: Assistant Secretary
-10-
<PAGE> 11
FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Jennifer Holder
--------------------------------
Name: Jennifer Holder
Title: Vice President
Attest:
By: /s/ Josephine Libunao
--------------------------------
Name: Josephine Libunao
Title: Assistant Vice President
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Ruth A. Smith
--------------------------------
Name: Ruth A. Smith
Title: Vice President
Attest:
By: /s/ Carolina D. Altomare
--------------------------------
Name: Carolina D. Altomare
Title: Assistant Vice President
-11-
<PAGE> 12
STATE OF California )
COUNTY OF San Mateo ) ss.:
On the 26th day of September, 1997, before me personally came Craig G.
Vought to me known, who, being by me duly sworn, did depose and say that he is
the EVP and CFO of Spieker Properties, Inc., one of the entities described in
and which executed the above instrument; that he knows the corporate seal of
said corporation; that the seal affixed to the said instrument is such corporate
seal; that it was so affixed by authority of the corporation, and that he signed
his name thereto by like authority.
/s/ Julie L. Bartlow
-------------------------------
[Seal]
-12-
<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 Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Earnings:
Income from operations before disposition of
property and minority interest $27,051 $16,096 $ 76,974 $48,207
Interest expense(1) 16,214 9,761 40,914 26,443
Amortization of capitalized interest 87 61 260 182
------- ------- -------- -------
Total earnings $43,352 $25,918 $118,148 $74,832
======= ======= ======== =======
Fixed charges:
Interest expense(1) $16,214 $ 9,761 $ 40,914 $26,443
Capitalized interest 1,688 640 4,330 1,842
------- ------- ------- -------
Total fixed charges $17,902 $10,401 $ 45,244 $28,285
======= ======= ======== =======
Ratio of earnings to fixed charges 2.42 2.49 2.61 2.65
======= ======= ======== =======
Fixed charges in excess of earnings $ -- $ -- $ -- $ --
======= ======= ======== =======
</TABLE>
Notes:
(1) Includes amortization of debt discount and deferred financing fees.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 38,786
<SECURITIES> 0
<RECEIVABLES> 5,012
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,296,271
<DEPRECIATION> 152,676
<TOTAL-ASSETS> 2,279,267
<CURRENT-LIABILITIES> 0
<BONDS> 1,157,863
0
0
<COMMON> 0
<OTHER-SE> 1,023,809
<TOTAL-LIABILITY-AND-EQUITY> 2,276,267
<SALES> 0
<TOTAL-REVENUES> 226,191
<CGS> 0
<TOTAL-COSTS> 61,591
<OTHER-EXPENSES> 46,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,457
<INCOME-PRETAX> 76,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 95,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,078
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 0
</TABLE>
