<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, 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)
(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 .
---- ----
Page 1 of 20
Exhibit Index is located on Page 19.
<PAGE> 2
SPIEKER PROPERTIES, L.P.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 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 March 31, 1997, and December 31, 1996........................ 4
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996............................................................... 6
Consolidated Statement of Partners' Capital for the Three Months
Ended March 31, 1997........................................................................ 7
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996............................................................... 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 2. Changes in Securities.......................................................................... 19
Item 6. Exhibits and Reports on Form 8-K............................................................... 19
Signatures.............................................................................................. 20
</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"):
<TABLE>
<S> <C>
(i) Consolidated Balance Sheets as of March 31, 1997, and December 31, 1996
(ii) Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1996
(iii) Consolidated Statement of Partners' Capital for the Three Months Ended March 31, 1997
(iv) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996
(v) Notes to Consolidated Financial Statements
</TABLE>
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 MARCH 31, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(unaudited)
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 430,024 $ 338,445
Buildings and improvements 1,265,330 944,646
Construction in progress 37,722 31,969
----------- ------------
1,733,076 1,315,060
Less - Accumulated depreciation (135,732) (127,701)
----------- ------------
1,597,344 1,187,359
Investments in mortgages 14,381 14,381
Property held for disposition, net 115,787 117,732
----------- ------------
Net investments in real estate 1,727,512 1,319,472
CASH AND CASH EQUIVALENTS 52,825 29,336
ACCOUNTS RECEIVABLE 5,086 3,799
DEFERRED RENT RECEIVABLE 3,207 3,242
RECEIVABLE FROM AFFILIATES 3,650 117
DEFERRED FINANCING AND LEASING COSTS, net of accumulated
amortization of $8,062 and $7,682 as of
March 31, 1997, and December 31, 1996, respectively 16,676 15,860
FURNITURE, FIXTURES AND EQUIPMENT, net 2,472 2,386
PREPAID EXPENSES AND OTHER ASSETS 7,221 16,102
----------- ------------
$ 1,818,649 $ 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 MARCH 31, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(unaudited)
<S> <C> <C>
DEBT
Unsecured notes $ 635,000 $ 635,000
Unsecured line of credit - 39,000
Mortgage loans 89,979 45,997
----------- ------------
Total debt 724,979 719,997
----------- ------------
ASSESSMENT BONDS PAYABLE 4,860 4,758
ACCOUNTS PAYABLE 6,951 3,258
ACCRUED REAL ESTATE TAXES 5,715 731
ACCRUED INTEREST 12,651 10,471
UNEARNED RENTAL INCOME 9,769 6,345
PARTNER DISTRIBUTIONS PAYABLE 26,047 18,660
OTHER ACCRUED EXPENSES AND LIABILITIES 19,752 16,406
----------- ------------
Total liabilities 810,724 780,626
----------- ------------
MINORITY INTERESTS (1,254) (1,240)
----------- ------------
COMMITMENTS AND CONTINGENCIES - -
PARTNERS' CAPITAL
General Partners, including a liquidation preference of $131,250 936,813 563,928
Limited Partners 72,366 47,000
------------ -----------
Total Partners' Capital 1,009,179 610,928
------------ -----------
$ 1,818,649 $ 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 MONTHS ENDED MARCH 31, 1997 and 1996
(dollars in thousands, except unit amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
--------
1997 1996
----------- ----------
<S> <C> <C>
REVENUES
Rental income $ 64,461 $ 44,345
Interest and other income 1,956 973
----------- -----------
66,417 45,318
----------- -----------
OPERATING EXPENSES
Rental expenses 11,672 7,236
Real estate taxes 5,254 3,446
Interest expense, including amortization of finance costs 12,013 8,837
Depreciation and amortization 10,599 8,538
General and administrative and other expenses 3,067 2,282
----------- -----------
42,605 30,339
----------- -----------
Income from operations before disposition of property and
minority interests 23,812 14,979
----------- -----------
GAIN ON DISPOSITION OF PROPERTY 1,489 -
----------- -----------
Income from operations before minority interests 25,301 14,979
----------- -----------
MINORITY INTERESTS' SHARE IN NET (INCOME) LOSS (4) 3
----------- -----------
Net income $ 25,297 $ 14,982
=========== ===========
General Partner 22,204 12,893
Limited Partner 3,093 2,089
----------- -----------
Totals $ 25,297 $ 14,982
=========== ===========
NET INCOME PER OPERATING PARTNERSHIP UNIT $ .48 $ .38
=========== ===========
DISTRIBUTIONS PER OPERATING PARTNERSHIP UNIT
General Partners $ .56 $ .56
=========== ===========
Limited Partners $ .47 $ .43
=========== ===========
</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 THREE MONTHS ENDED MARCH 31, 1997, AND 1996
(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 78,790 (78,790) - - -
Conversion of Operating Partnership Units -
Employee Stock Incentive Pool 14,984 (14,984) 524 (524) -
Non-cash compensation merit fund - - 59 9 68
Restricted stock grant 25,913 - - - -
Exercise of stock options 19,875 - 405 - 405
Amortization of deferred compensation - - 131 - 131
Partner Distributions - - (25,273) (3,284) (28,557)
Net income - - 22,204 3,093 25,297
------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1997 48,389,051 7,212,900 $ 936,813 $ 72,366 $ 1,009,179
============ ============ ============ ============ ============
</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 THREE MONTHS ENDED MARCH 31, 1997 and 1996
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31
1997 1996
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 25,297 $ 14,982
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 10,599 8,538
Amortization of prepaid interest and deferred financing costs 268 377
Non-cash compensation 199 128
Minority share of net income (loss) 4 (3)
Gain on disposition of property (1,489) -
Decrease (increase) in deferred rent receivable 35 (70)
Increase in accounts receivable (1,287) (237)
(Increase) decrease in receivable from affiliates (3,533) 116
Decrease in prepaid expenses and other assets 8,633 1,318
Decrease in assessment bonds payable (235) (232)
Increase (decrease) in accounts payable 3,693 (581)
Increase in accrued real estate taxes 4,984 3,416
Increase in accrued interest 2,180 4,745
Increase (decrease) in other accrued expenses and liabilities 3,346 (207)
Increase (decrease) in unearned rental income 3,424 (2,033)
----------- -----------
Net cash provided by operating activities 56,118 30,257
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (347,009) (72,664)
Additions to leasing costs (1,829) (1,532)
Additions to investment in mortgages - (14,333)
Proceeds from disposal of property 3,969 -
----------- -----------
Net cash used for investing activities (344,869) (88,529)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt - 100,000
Payments on debt (41,666) (164,706)
Payment of financing fees (146) (1,029)
Partner distributions (21,188) (18,120)
Capital contributions - stock offerings 374,835 151,331
Capital contributions - stock options exercised 405 56
----------- -----------
Net cash provided by financing activities 312,240 67,532
----------- -----------
Net increase in cash and cash equivalents 23,489 9,260
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,336 7,573
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,825 $ 16,833
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest 10,800 4,294
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Debt assumed in relation to property acquisitions 46,648 -
Increase to land and assessment bonds payable 204 581
Minority interest capital recorded in relation to property acquisitions 26,072 -
Write-off of fully depreciated property 1,596 6,059
Write-off of fully amortized deferred financing and leasing costs 839 1,388
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
SPIEKER PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 and 1996
(in thousands, except unit 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 December 31, 1996, the Company owned an
approximate 86.4 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 subsidiary partnerships as of
March 31, 1997, and December 31, 1996, and its consolidated results of
operations and consolidated cash flows for the three months ended March 31,
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 months ended March 31, 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 March 31,
1997 and December 31, 1996, none of the carrying values of the properties
exceeded their estimated fair values. As of March 31, 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 two mortgage loans that are secured by real
estate. The Operating Partnership assesses possible impairment of these
loans by reviewing the fair value of the underlying real estate. As of March
31, 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).
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 23 years. Unamortized financing and
leasing costs are charged to expense upon the early termination of the lease
or upon early payment of financing.
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,
10
<PAGE> 11
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 months ended March 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
General Partner Units Limited Partner Units
--------------------- ---------------------
<S> <C> <C>
Three months ended:
March 31, 1997 45,520,682 7,037,786
March 31, 1996 32,555,597 6,549,819
</TABLE>
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
quarters ended March 31, 1997 and 1996, the Operating Partnership's basic
earnings per unit would have been $.49 and $.38 per unit, respectively, and
its fully diluted earnings per unit would have been $.48 and $.38 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.
11
<PAGE> 12
3. TRANSACTIONS WITH AFFILIATES
Receivable From Affiliates
The receivable from affiliates at March 31, 1997, and December 31, 1996, is
summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Note receivable from Spieker Northwest,
Inc. secured by real property 3,533 -
Management fees and reimbursements due from
Spieker Partners related entities
(certain officers of Spieker Properties, 117 117
Inc., are partners in Spieker Partners)
</TABLE>
4. PROPERTY HELD FOR DISPOSITION
The Operating Partnership has determined to focus exclusively on office and
industrial properties. The Operating Partnership has therefore decided to
divest itself of its retail properties (thirteen properties at the time of
the determined divestiture) and to reinvest the proceeds from these
properties in office and industrial properties.
In December 1996, the Operating Partnership entered into agreements to
dispose of nine retail properties located in California, Oregon, and
Washington to a third party for $106,500. Three of the nine properties
closed on December 20, 1996. Of the remaining six properties, one closed on
January 6, 1997, resulting in a gain on disposition of $1,489; four
properties closed subsequent to quarter end, on April 9, 1997, resulting in
a gain on disposition of approximately $9,800; and the final property is
scheduled to close by December 31, 1997.
In addition, the Operating Partnership is in the process of divesting itself
of four other retail properties. Two of the four other properties closed
subsequent to the quarter end, on April 9, 1997. The gain on disposition of
these two properties located in Fresno, California, was approximately
$3,050. The divestiture of the two remaining properties is subject to the
identification of a purchaser, negotiation of acceptable terms and other
customary conditions.
The net carrying amount of the nine remaining retail properties held for
disposition as of March 31, 1997, is $115,787.
5. DEBT
Unsecured Notes
As of March 31, 1997, the Operating Partnership has outstanding $635,000 in
investment grade rated unsecured notes with varying interest rates from
6.65% to 8.00% payable semi-annually. The notes are due on various dates
from 2000 to 2016.
Unsecured Line of Credit
The maximum amount available under the Operating Partnership's unsecured
line of credit facility is $150,000. The facility carries interest at LIBOR
plus 1.25%. The line of credit matures in November 1997 and the Operating
Partnership has an option to extend it for one year upon payment of a fee
equal to 0.12% of the total amount available. The facility also includes a
fee on average unused funds which varies between 0.125% and
12
<PAGE> 13
0.20% based on the average outstanding balance. As of March 31, 1997, the
amount drawn on the facility was $0.
Mortgage Loans
Mortgage loans of $89,979 as of March 31, 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 March 31, 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. ACQUISITIONS
The Operating Partnership acquired the following properties during the three
months ended March 31, 1997:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Location Type (1) Square Feet Initial Cost
-------------------------------------- ------------------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Southcenter West Business Park (2) Tukwila, WA I 286,921 $ 6,300
Mission West Portfolio San Diego, CA O 818,836 44,800
Emeryville Portfolio (3) Emeryville, CA O 946,835 125,400
Brea Park Centre Brea, CA O 141,837 10,800
555 Twin Dolphin Drive Redwood Shores, CA O 198,941 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 414,737 73,900
1740 Technology (5) San Jose, CA O 196,444 31,300
Fountaingrove Santa Rosa, CA O 160,808 16,100
</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 Operating Partnership 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.
9. DEVELOPMENTS
During the three months ended March 31, 1997, the Operating Partnership
acquired four parcels of land for development. The total initial cost of
these four parcels was $11,418.
13
<PAGE> 14
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 months ended March 31, 1997, as compared to the
corresponding period ended March 31, 1996.
Rental revenues for the first quarter of 1997 increased by $20.2 million or
45.6% to $64.5 million, as compared with $44.3 million for the quarter ended
March 31, 1996. Of this increase, $10.4 million was generated by properties
acquired during 1996 (the "1996 Acquisitions"). During 1996, the Operating
Partnership invested $329.3 million to acquire properties totaling 4.7 million
square feet. As used herein, the terms "invested" and "total investment"
represent the initial purchase price of acquisitions, plus the projected cost of
certain repositioning and rehab capital expenditures anticipated at the time of
purchase.
$7.6 million of the rental revenue increase in the first quarter of 1997 was
generated by properties acquired during the three months ended March 31, 1997.
During the first quarter of 1997, the Operating Partnership acquired properties
totaling 3.3 million square feet (the "1997 Acquisitions"). The Operating
Partnership estimates the total investment in the 1997 Acquisitions will be
$407.9 million. The Operating Partnership closed the 1997 Acquisitions on
various dates during the first quarter and, as such, a full quarter's revenue
and expenses was not recognized during the first quarter of 1997.
$1.8 million of the rental revenue increase in the first 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, as well as
properties currently under development. During the three months ended March 31,
1997, two properties totaling 0.2 million square feet have been completed and
added to the Operating Partnership's portfolio of stabilized properties. The
total cost of such properties, including the estimated cost to complete initial
tenant improvements, is $11.8 million. The Operating Partnership also has a
current development pipeline consisting of seventeen properties representing a
total projected cost of $145.4 million and 2.9 million square feet. Certain of
the properties in the development pipeline are shell complete and partially
occupied.
$2.0 million of the increase in rental revenues is attributable to revenue
increases in properties owned at January 1, 1996, and still owned at March 31,
1997 (the "Core Portfolio"). $1.7 million of the revenue 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 first three months of 1997, the Operating Partnership
completed 178 lease transactions for the renewal or re-leasing of 1.2 million
square feet of second-generation space. On average, the new effective rates were
9.6% higher than the expiring coupon rent. $0.3 million of the increase is
attributable to the realization of a full quarter's revenue on the Walsh @
Lafayette project, a property developed by the Operating Partnership and added
to the Core Portfolio during the first quarter of 1996. A decrease of $1.6
million in rental revenues, quarter over quarter, can be attributed to the
subsequent disposition of assets which were owned by the Operating Partnership
as of March 31, 1996 (the "Asset Dispositions").
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
14
<PAGE> 15
office and industrial properties (i.e. non-retail properties) is presented:
Rental revenues net of property operating expenses increased by $15.0 million or
51.7% to $44.0 million, as compared to $29.0 million for the quarter ended March
31, 1996. Of this increase, $5.3 million and $7.3 million relates to the 1997
and 1996 Acquisitions, $1.4 million is attributable to the Developments, and
$1.0 million is attributable to the Core Portfolio.
As a result of the 1996 Acquisitions, 1997 Acquisitions, and the Developments,
the Operating Partnership's rentable square footage, netted with the disposition
of property, increased by 6.9 million square feet or 38.3% to 24.9 million
square feet on March 31, 1997, from 18.0 million on March 31, 1996. At March 31,
1997, the portfolio of stabilized properties was 96.0% occupied. By property
type, the office portfolio was 94.2% occupied, the industrial portfolio was
97.0% occupied and the retail portfolio was 95.6% occupied.
Interest and other income for the three months ended March 31, 1997, increased
by $1.0 million or 100.0% to $2.0 million, as compared to the same period in
1996. The net increase in interest and other income during the three months
ended March 31, 1997, was primarily due to higher average cash balances related
to a follow-on equity offering completed in January 1997. The average cash
balance during the first quarter of 1997 was $85.9 million as compared with $9.9
million during the first quarter of 1996.
Rental expenses increased by $4.4 million or 60.3% for the three months ended
March 31, 1997, as compared with the same period in 1996. Real estate taxes
increased by $1.8 million or 52.9% for the three months ended March 31, 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. On a percentage basis,
property operating expenses were 26.2% and 24.2% of rental revenues for the
quarters ended March 31, 1997, and March 31, 1996, respectively. The total
increase in property operating expenses is due to a $3.1 million increase
attributable to the 1996 Acquisitions, a $2.3 million increase attributable to
the 1997 Acquisitions, a $0.4 million increase attributable to the Developments,
a $0.7 million increase attributable to the Core Portfolio, and a $0.3 million
decrease attributable to the Asset Dispositions. The increase in the property
operating expenses for the Core Portfolio is principally due to an increase in
real estate taxes.
Interest expense increased by $3.2 million or 36.4% to $12.0 million for the
three months ended March 31, 1997, from $8.8 million for the same period in
1996. The increase in interest expense is due to the increase in average debt
outstanding.
Depreciation and amortization expenses increased by $2.1 million or 24.7% for
the three months ended March 31, 1997, as compared with the same period in 1996,
due to the 1996 and 1997 Acquisitions and the Developments.
General and administrative expenses and other expenses increased by $0.8 million
for the three months ended March 31, 1997, as compared with the same period in
1996, primarily as a result of the increased number of employees. On a
percentage basis, general and administrative expenses were 4.8% of rental
revenues for the three months ended March 31, 1997, as compared with 5.2% for
the same period in 1996.
A gain on disposition of property of $1.5 million was recognized in the first
quarter due to the sale of one retail property.
Net income before minority interests and disposition of property increased by
$8.8 million or 58.7% to $23.8 million for the three months ended March 31,
1997, from $15.0 million for the same period in 1996. The increase in net income
is principally due to the increase in income from the 1996 and 1997
Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, cash provided by operating activities
increased by $25.8 million or 85.2% to $56.1 million, as compared to $30.3
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, a decrease
in prepaid expenses and other assets, and an increase in unearned rental income.
Cash used for investing activities increased by
15
<PAGE> 16
$256.4 million or 289.7% to $344.9 million for the first three months of 1997,
as compared to $88.5 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 $244.7 million or 362.5% to $312.2 million for the first
three months of 1997, as compared to $67.5 million for the same period in 1996.
During the first three months of 1997, cash provided by financing activities
consisted, primarily, of $374.8 million in net proceeds from the sale of Common
Stock, which was offset by net payments of $39.0 million on the line of credit
and net payments of $2.7 million on mortgage loans. Additionally, payments of
distributions increased by $3.1 million to $21.2 million for the first three
months of 1997, as compared with $18.1 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, 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, 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 $150.0 million unsecured line of credit facility
(the "Facility") with interest at London Interbank Offered Rates ("LIBOR") plus
1.25%. 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, 1997, the Operating Partnership had $0 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. As of March 31,
1997, $50.0 million of debt securities remained available for issuance under the
medium-term note program.
As of March 31, 1997, the Operating Partnership had $635 million of investment
grade rated unsecured notes outstanding. The notes have interest rates which
vary from 6.65% to 8.00%, and various maturity dates which range from 2000 to
2016.
In addition to the Unsecured Notes and the Facility, the Operating Partnership
has $90.0 million of secured indebtedness (the "Mortgages") at March 31, 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 $4.9 million of assessment bonds
outstanding as of March 31, 1997.
16
<PAGE> 17
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 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 May 1996, the Company and the Operating Partnership filed a shelf
registration statement (the "May 1996 Shelf Registration Statement") with the
SEC which registered $250.0 million of equity securities of the Company and
$250.0 million of debt securities of the Operating Partnership. The May 1996
Shelf Registration Statement was declared effective by the SEC on June 20, 1996.
After completion of the January 1997 equity offering, the Company has the
capacity pursuant to the January 1997 Shelf Registration Statement to issue up
to approximately $500.0 million in equity securities and the Operating
Partnership has the capacity pursuant to the May 1996 Shelf Registration
Statement and the January 1997 Shelf Registration Statement to issue up to
$615.0 million in debt securities (including the $50.0 million of medium-term
notes available under the Operating Partnership'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 for the period including the dilutive effects of
stock options. The average number of units outstanding for the three months
ended March 31, 1997 and 1996, are 52,558,468 and 39,105,416 respectively.
17
<PAGE> 18
STATEMENT OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net income before minority interest and gain on disposition of $ 23,812 $ 14,979 (1)
property
Add:
Depreciation and Amortization 10,478 8,475
Dividends on Series B Preferred Stock (2,510) (2,510)
Other, net 187 (35) (1)
Straight-lined rent 3 (70)
--------- ---------
Funds from Operations $ 31,970 $ 20,839
========= =========
</TABLE>
(1) Includes reclassification of extraordinary gain realized on the early
extinguishment of debt of $150.
18
<PAGE> 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities
In connection with the acquisition of the Emeryville Portfolio in January
1997, the Operating Partnership issued 756,855 units to the seller of such
properties with an aggregate value of $26.0 million, based on the average
stock price of Spieker Properties, Inc. Common Stock during a specified
period of time prior to closing. Such units were issued in a private
negotiated transaction to four partnerships and a trust, pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act.
Such units are convertible on a one for one basis into shares of Common
Stock of the Company after January 1998.
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.
<TABLE>
<CAPTION>
Exhibit Number Page Number
-------------- -----------
<S> <C> <C>
12.1 Statement of Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
(B) Reports on Form 8-K
None
19
<PAGE> 20
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 13, 1997 /s/ Elke Strunka
---------------- -------------------------
Elke Strunka
Vice President and Principal Accounting Officer
of Spieker Properties, Inc., general partner of
Spieker Properties, L.P.
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBT
NO. DESCRIPTION
- ------- -----------
<S> <C>
12.1 Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
<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,
1997 1996
--------------------------
<S> <C> <C>
Earnings:
Income from operations before disposition of
property and minority interest $ 23,812 $ 14,829
Interest expense (1) 12,013 8,837
Amortization of capitalized interest 72 55
--------------------------
Total earnings 35,897 $ 23,721
==========================
Fixed charges:
Interest expense (1) $ 12,013 $ 8,837
Capitalized interest 1,235 581
--------------------------
Total fixed charges $ 13,248 $ 9,418
==========================
Ratio of earnings to fixed charges 2.71 2.52
==========================
Fixed charges in excess of earnings $ - $ -
==========================
</TABLE>
Notes:
(1) Includes amortization of debt discount and deferred financing fees.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 52,825
<SECURITIES> 0
<RECEIVABLES> 5,086
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,733,076
<DEPRECIATION> 135,732
<TOTAL-ASSETS> 1,818,649
<CURRENT-LIABILITIES> 0
<BONDS> 724,979
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,818,649
<SALES> 0
<TOTAL-REVENUES> 66,417
<CGS> 0
<TOTAL-COSTS> 16,926
<OTHER-EXPENSES> 13,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,013
<INCOME-PRETAX> 23,812
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,297
<EPS-PRIMARY> .48
<EPS-DILUTED> 0
</TABLE>
