<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 JUNE 30, 1998
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
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SPIEKER PROPERTIES L.P.
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Financial Statements (unaudited)........................................................... 3
Consolidated Balance Sheets as of June 30, 1998, and December 31, 1997..................... 4
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1998 and 1997........................................................... 6
Consolidated Statement of Partners' Capital for the Six Months Ended June 30, 1998......... 7
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997...... 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 unaudited financial statements of Spieker Properties
L.P. (the "Operating Partnership"):
(i) Consolidated Balance Sheets as of June 30, 1998, and December 31,
1997
(ii) Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1998 and 1997
(iii) Consolidated Statement of Partners' Capital for the Six Months
Ended June 30, 1998
(iv) Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997
(v) Notes to Consolidated Financial Statements
The financial statements referred to above should be read in conjunction with
the Operating Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997.
3
<PAGE> 4
SPIEKER PROPERTIES L.P.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998, AND DECEMBER 31, 1997
(unaudited, dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------- -----------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 902,325 $ 694,621
Buildings and improvements 2,887,391 2,159,581
Construction in progress 149,153 89,509
----------- -----------
3,938,869 2,943,711
Less - Accumulated depreciation (201,788) (169,051)
----------- -----------
3,737,081 2,774,660
Investments in mortgages 123,101 271,675
Property held for disposition, net 7,663 37,186
----------- -----------
Net investments in real estate 3,867,845 3,083,521
CASH AND CASH EQUIVALENTS 28,649 22,628
ACCOUNTS RECEIVABLE, net of allowance for doubtful
accounts of $382 and $260 as
of June 30, 1998, and December 31, 1997,
respectively 6,350 8,661
DEFERRED RENT RECEIVABLE 8,406 5,276
RECEIVABLE FROM AFFILIATES 1,476 294
DEFERRED FINANCING AND LEASING COSTS, net of
accumulated amortization of $11,730
and $10,036 as of June 30, 1998, and
December 31, 1997, respectively 38,250 30,983
FURNITURE, FIXTURES AND EQUIPMENT, net 4,066 3,375
PREPAID EXPENSES AND OTHER ASSETS 19,664 50,892
INVESTMENT IN AFFILIATE 37,304 37,304
----------- -----------
$ 4,012,011 $ 3,242,934
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SPIEKER PROPERTIES L.P.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998, AND DECEMBER 31, 1997
(unaudited, dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
---------- ----------
<S> <C> <C>
DEBT
Unsecured notes $1,436,500 $1,135,000
Unsecured short-term borrowings 275,000 200,000
Mortgage loans 112,803 96,502
---------- ----------
Total debt 1,824,303 1,431,502
---------- ----------
ASSESSMENT BONDS PAYABLE 16,351 12,672
ACCOUNTS PAYABLE 22,150 9,519
ACCRUED REAL ESTATE TAXES 2,418 1,003
ACCRUED INTEREST 29,916 21,541
UNEARNED RENTAL INCOME 17,288 13,712
PARTNER DISTRIBUTIONS PAYABLE 45,265 41,110
OTHER ACCRUED EXPENSES AND LIABILITIES 42,499 32,034
---------- ----------
Total liabilities 2,000,190 1,563,093
---------- ----------
COMMITMENTS AND CONTINGENCIES -- --
PARTNERS' CAPITAL
General Partner, including a liquidation preference of $381,250
and $281,250, at June 30, 1998 and 1997, respectively 1,721,404 1,493,828
Limited Partners 290,417 186,013
---------- ----------
Total Partners' Capital 2,011,821 1,679,041
---------- ----------
$4,012,011 $3,242,934
========== ==========
</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 SIX MONTHS ENDED JUNE 30, 1998 and 1997
(dollars in thousands, except share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 132,443 $ 74,459 $ 250,080 $ 138,921
Interest and other income 6,173 1,419 13,844 3,374
--------- --------- --------- ---------
138,616 75,878 263,924 142,295
--------- --------- --------- ---------
OPERATING EXPENSES
Rental expenses 29,086 15,411 53,476 27,083
Real estate taxes 10,350 5,785 19,650 11,039
Interest expense, including amortization of finance costs 30,931 12,687 60,198 24,700
Depreciation and amortization 22,646 12,416 42,231 23,015
General and administrative and other expenses 4,973 3,468 9,795 6,535
--------- --------- --------- ---------
97,986 49,767 185,350 92,372
--------- --------- --------- ---------
Income from operations before disposition of property 40,630 26,111 78,574 49,923
--------- --------- --------- ---------
GAIN ON DISPOSITION OF PROPERTIES 6,689 12,691 15,715 14,180
--------- --------- --------- ---------
Net income 47,319 38,802 94,289 64,103
--------- --------- --------- ---------
Preferred Operating Partnership Unit Distribution (2,223) -- (3,489) --
--------- --------- --------- ---------
Net income available to general and limited partners $ 45,096 $ 38,802 $ 90,800 $ 64,103
========= ========= ========= =========
General Partner $ 40,547 $ 34,080 $ 81,775 $ 56,284
Limited Partner 4,549 4,722 9,025 7,819
--------- --------- --------- ---------
Total $ 45,096 $ 38,802 $ 90,800 $ 64,103
========= ========= ========= =========
NET INCOME PER OPERATING PARTNERSHIP UNIT
Basic earnings $ .63 $ .70 $ 1.29 $ 1.19
========= ========= ========= =========
Diluted earnings $ .62 $ .69 $ 1.27 $ 1.18
========= ========= ========= =========
DISTRIBUTION PER OPERATING PARTNERSHIP UNITS
General Partner $ .67 $ .52 $ 1.32 $ 1.08
========= ========= ========= =========
Limited Partners $ .55 $ .47 $ 1.12 $ .97
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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SPIEKER PROPERTIES L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited General Limited
Partner Units Partner Units Partner Partners Total
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 60,700,260 7,322,126 $ 1,493,828 $ 186,013 $ 1,679,841
Contribution - Proceeds from sale of Common Stock 2,485,803 -- 96,039 -- 96,039
Contribution - Common Stock issued for property 165,985 -- 6,900 -- 6,900
Contribution - Proceeds from Sale of Preferred
Operating Partnership Units -- -- -- 73,125 73,125
Contribution - Proceeds from Sale of Series E
Preferred Stock -- -- 96,401 -- 96,401
Acquisition of limited partnership interests -- 1,332,644 -- 55,420 55,420
Conversion of Preferred Operating Units to
Common Stock 259,694 -- 10,096 (10,096) --
Conversion of Operating Partnership Units to
Common Stock 57,500 (57,500) 971 (971) --
Restricted stock grant 86,401 -- -- -- --
Exercise of stock options 275,025 -- 5,749 -- 5,749
Amortization of deferred compensation -- -- 42 -- 42
Allocation from General Partner to Limited Partner -- -- 13,126 (13,126) --
Partner Distributions -- -- (83,523) (12,462) (95,985)
Net Income -- -- 81,775 12,514 94,289
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1998 64,030,668 8,597,270 $ 1,721,404 $ 290,417 $ 2,011,821
=========== =========== =========== =========== ===========
</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 SIX MONTHS ENDED JUNE 30, 1998 and 1997
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 94,289 $ 64,103
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 42,231 23,015
Amortization of prepaid interest and deferred financing costs 1,165 532
Non-cash compensation 42 398
Gain on disposition of property (15,715) (14,180)
Increase in deferred rent receivable (3,130) (471)
Decrease in accounts receivable 2,311 51
Increase in receivable from affiliates (1,182) (2,933)
Decrease in prepaid expenses and other assets 1,016 6,611
Decrease in assessment bonds payable (517) (486)
Increase in accounts payable 12,633 7,066
Increase in accrued real estate taxes 1,415 97
Increase in accrued interest 8,375 683
Increase in other accrued expenses and liabilities 5,789 6,072
Increase in unearned rental income 3,576 3,402
--------- ---------
Net cash provided by operating activities 152,298 93,960
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (923,209) (529,445)
Reductions to deposits on properties, net 29,018 --
Additions to investment in mortgages (11,610) --
Additions to leasing costs (7,561) (3,200)
Proceeds from investment in mortgages 160,184 --
Proceeds from disposition of property 56,436 76,862
--------- ---------
Net cash used for investing activities (696,742) (455,783)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 981,500 127,000
Payments on debt (607,326) (112,104)
Payments of financing fees (3,192) (146)
Partner distributions (91,839) (49,745)
Capital contributions - Common Stock, net of issuance costs 96,039 374,835
Capital contributions - Stock options exercised 5,748 1,871
Capital contributions - Preferred Stock, net of issuance costs 96,401 --
Capital contributions - Preferred Operating Partnership Units 73,125 --
Capital contributions - Operating Partnership Units -- 25
--------- ---------
Net cash provided by financing activities 550,465 341,736
--------- ---------
Net increase (decrease) in cash and cash equivalents 6,021 (20,087)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,628 29,336
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,649 $ 9,249
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 50,734 $ 26,014
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Liabilities assumed in relation to property acquisitions 23,252 51,852
Increase to land and assessment bonds payable 4,196 1,049
Limited Partnership interest recorded in relation to properties acquired
with Operating Partnership Units 55,420 26,072
Write-off of fully depreciated property 4,660 3,103
Write-off of fully amortized deferred financing and leasing costs -- 1,170
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
SPIEKER PROPERTIES L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1997
(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"), the general partner in the
Operating Partnership, 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 June 30, 1998, the Company owned an approximate 88.2 percent general
and limited partnership interest in the Operating Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Operating Partnership's consolidated financial statements include the
consolidated financial position of the Operating Partnership and its
subsidiaries as of June 30, 1998, and December 31, 1997, and its
consolidated results of operations for the three and six months ended June
30, 1998 and 1997 and its consolidated cash flows for the six months ended
June 30, 1998 and 1997. The Operating Partnership's investment in Spieker
Northwest, Inc. (an unconsolidated Preferred Stock subsidiary) and its
investment in Spieker Griffin/W9 Associates, LLC is accounted for under the
equity method. 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 six months ended June 30, 1998 and
1997, 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, 1997.
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.
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<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 June 30,
1998, and December 31, 1997, none of the carrying values of the properties
exceeded their estimated fair values. As of June 30, 1998, and December 31,
1997, 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 mortgage loans that are secured by real
estate. Certain of the loans are with an affiliate of the Operating
Partnership (see note 4). The Operating Partnership assesses possible
impairment of these loans by reviewing the fair value of the underlying
real estate. As of June 30, 1998, the estimated 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.
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. Unamortized financing and leasing costs are charged to expense upon
the early termination of the lease or upon the early payment of financing.
Fair Value of Financial Instruments
Based on the borrowing rates currently available to the Operating
Partnership, the carrying amount of debt approximates fair value. Cash and
cash equivalents consist of demand deposits, certificates of deposit, and
overnight repurchase agreements with financial institutions. The carrying
amount of cash and cash equivalents approximates fair value.
10
<PAGE> 11
Preferred Operating Partnership Units
In November, 1997, the Operating Partnership issued limited partners'
interest of 2,007,495 Preferred Operating Partnership Units. Preferred
Operating Partnership Units are convertible into 1,824,994 Operating
Partnership Units at the discretion of the holder subsequent to May 3,
1998, or they may be redeemable for cash at the discretion of the Operating
Partnership subsequent to December 3, 2002. Preferred Operating Partnership
Units are paid distributions quarterly in the amount of $.63 per share.
During the quarter ended June 30, 1998, 285,664 Preferred Operating
Partnership Units were converted into 259,694 Shares of Common Stock, held
by the general partner as Operating Partnership Units.
In April 1998, the Operating Partnership sold 1,500,000 Series D Preferred
Units to an institutional investor for $50.00 per unit. The net proceeds
of $73.1 million for the Series D Preferred Units were used to pay down
the line of credit and to fund future growth for the Company.
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 Per Unit
Per unit amounts for the Operating Partnership are computed using the
weighted average units outstanding during the period. The diluted weighted
average general partner units and limited partner units outstanding include
the dilutive effect of stock options. The basic and diluted weighted
average common units outstanding for the three and six months ended June
30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Basic Weighted Average Diluted Weighted Average
General Partner Units General Partner Units
--------------------- ---------------------
<S> <C> <C>
Three months ended:
June 30, 1998 63,564,032 64,509,703
June 30, 1997 48,460,550 49,138,960
Six months ended:
June 30, 1998 62,402,618 63,339,954
June 30, 1997 46,648,799 47,342,428
Basic Weighted Average Diluted Weighted Average
Limited Partner Units Limited Partner Units
--------------------- ---------------------
Three months ended:
June 30, 1998 8,373,023 8,373,023
June 30, 1997 7,213,675 7,213,675
Six months ended:
June 30, 1998 8,007,419 8,007,419
June 30, 1997 7,123,689 7,123,689
</TABLE>
Reclassifications
Certain items in the 1997 financial statements have been reclassified to
conform to the 1998 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
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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. ACQUISITIONS AND DISPOSITIONS
The Operating Partnership acquired the following properties (the "1998
Acquisitions") during the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Location Type (1) Square Feet Initial Cost (2)
- -------------------------------------- ---------------------------- ------------ ----------------- ----------------
<S> <C> <C> <C> <C>
The Concourse San Jose, CA O 540,224 $172,421 (4)
Koll Bellefield Center Bellevue, WA O 65,946 10,324
Santa Monica Business Park (3) Santa Monica, CA O 960,081 105,649
Marina Business Center (3) Marina Del Rey, CA O 261,966 21,613
The City Office Park Orange, CA O 409,492 97,306 (5)
Skyport Plaza San Jose, CA O 359,600 56,873 (6)
Hayward Business Park Hayward, CA I 630,944 33,610
Enterprise Business Park II Sacramento, CA I 579,945 26,202 (7)
Brea Park Center - Building C Brea, CA O 26,856 2,297
Allegiance Center Ontario, CA O 73,778 5,191
Ontario Corporate Center Ontario, CA O 97,703 10,479
2600 Michelson (3) Irvine, CA O 391,166 64,287
Cerritos Towne Center (3) Cerritos, CA O 332,608 41,531
Metro Center (3) San Mateo, CA O 711,584 131,058
Biltmore Commerce Center (3) Phoenix, AZ O 262,875 41,786
Benjamin Franklin Plaza Portland, OR O 273,239 50,047
</TABLE>
(1) "O" indicates office property; "I" indicates industrial property.
(2) Represents the initial acquisition costs of the properties excluding
any additional repositioning costs.
(3) Previously identified as a part of the TDC Portfolio.
(4) Includes approximately $22.1 million allocated to 6.6 acres of land
held for future development.
(5) Includes approximately $3.5 million allocated to 10.5 acres of land
held for future development and $27.6 million allocated to a property
currently under redevelopment.
(6) Includes approximately $23.1 million allocated to 20.0 acres of land
held for future development.
(7) Includes approximately $2.0 million allocated to 11.5 acres of land
held for future development.
The Operating Partnership disposed of the following properties (the "1998
Dispositions") during the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Location Type Square Feet Sales Price
- ------------------------------ --------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Rose Pavilion Pleasanton, CA Retail 292,902 $ 40,928
Camino West Business Park Carlsbad, CA Office 44,574 2,750
Fresno Warehouse II Fresno, CA Industrial 122,000 3,934
Fresno Warehouse III Fresno, CA Industrial 100,200 3,653
Fresno Associates I Fresno, CA Industrial 175,900 6,463
</TABLE>
During the six months ended June 30, 1998, the Operating Partnership acquired
nine parcels of land for development which were purchased in addition to the
1998 Acquisitions land parcels listed above. The total initial cost of these
nine parcels was $34,658.
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<PAGE> 13
4. TRANSACTIONS WITH AFFILIATES
Revenues and Expenses
The Operating Partnership received $1,856 and $17 for six months ended June
30, 1998, and 1997, respectively, for management services provided to
certain properties that are controlled and operating by Spieker Northwest,
Inc., Spieker Griffin/W9 Associates, LLC and Spieker Partners related
entities (collectively, "Spieker Partners"). Certain officers of Spieker
Properties, Inc. are partners in Spieker Partners.
Receivable From Affiliates
The receivable from affiliates at June 30, 1998, and December 31, 1997,
represents management fees and reimbursements due from Spieker Northwest,
Inc., Spieker Griffin/W9 Associates, LLC and Spieker Partners related
entities.
Investments in Mortgages
Included in Investments in Mortgages are $108,720 of loans to Spieker
Northwest, Inc.. The loans are secured by deeds of trust on real property,
bear interest at 8.5%, and mature in 2012. Interest income of $9,209 is
included in interest and other income for the six months ended June 30,
1998.
Investment in Affiliate
The investment in affiliate represents an investment in Spieker Northwest,
Inc. ("SNI"). The Operating Partnership owns 95% of the Preferred Stock of
SNI. Certain Senior Officers of the Company own 100% of the voting stock of
SNI. SNI owns 1.1 million square feet of office and industrial property
located in various states. In addition, SNI owns three parcels of land
totaling 30.2 acres. The entire portfolio of property is held for sale at
June 30, 1998. In addition to property ownership, SNI provides property
management services to certain properties owned by Spieker Partners.
Additionally, investment in affiliates represents the 12.5% interest in
Spieker Griffin/W9 Associates, LLC. Spieker Griffin/W9 Associates purchased
in April 1998 a 535,000 square foot office complex, which is managed by the
Operating Partnership, located in Orange County, California for an initial
cost of $100,000.
5. PROPERTY HELD FOR DISPOSITION
The Operating Partnership has determined to focus exclusively on properties
that meet its long-term strategic objectives. The Operating Partnership has
therefore decided to divest itself of certain properties. Included in
property held for disposition of $7,663 at June 30, 1998, one industrial
property located in Southern California and one industrial property located
in Washington. The divestiture of these properties is subject to
identification of a purchaser, negotiation of acceptable terms and other
customary conditions.
6. DEBT
Unsecured Notes
As of June 30, 1998, the Operating Partnership has outstanding $1,436,500
in investment grade rated unsecured debt securities with interest rates
ranging from 6.65% to 8.00% payable semi-annually. The debt securities
mature on various dates from 2000 to 2027.
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<PAGE> 14
On April 30, 1998, the Operating Partnership sold $25,000 of unsecured
investment grade rated notes bearing interest at 6.88% and due April 30,
2007. Net proceeds of $23,400 were used principally to fund the TDC
acquisition.
Unsecured Short-Term Borrowings
The Operating Partnership has an Unsecured Line of Credit facility. The
maximum amount available under the facility is $250,000. The facility
carries interest at LIBOR (London Interbank Offered Rates) plus 0.80%,
matures in August 2001, includes an annual administrative fee of $50 and an
annual facility fee of .20%. As of June 30, 1998, the amount drawn on the
facility was $75,000. In addition, the Operating Partnership has a $200,000
short-term bank facility. This short-term facility carries interest at
LIBOR plus .65% and matures November 1998 with an option to extend for one
more year.
Mortgage Loans
Mortgage loans of $ 112,803 as of June 30, 1998, are secured by deeds of
trust on related properties. The mortgage loans carry interest rates
ranging from 7.37% to 9.88%, require monthly principal and interest
payments, and mature on various dates from 1998 to 2013.
7. PARTNER DISTRIBUTIONS PAYABLE
The partners distributions payable at June 30, 1998, and December 31, 1997,
represent amounts payable to partners for the quarter then ended.
8. PARTNERS' CAPITAL
Equity Offerings
The Company placed 1,166,144 shares of Common Stock at $39.88 per share on
April 23, 1998, in a Registered Unit Investment Trust. Net proceeds of
$44,059, were contributed to the Operating Partnership and were used to
repay borrowings on the Unsecured Line of Credit and to fund the ongoing
acquisition and development of properties.
In June 1998, the Company sold 4,000,000 shares of Series E Cumulative
Redeemable Preferred Stock for $25.00 per share through an underwritten
public offering. The aggregate net proceeds of $96,800 were used primarily
to repay short term borrowings.
9. COMMITMENTS AND CONTINGENCIES
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.
10. GAIN ON DISPOSITION OF PROPERTIES
Gain on disposition of property for the six months ended June 30, 1998,
represents the gain on dispositions of one retail property located in
Pleasanton, California, one office property located in Carlsbad, California
and three industrial buildings located in Fresno, California.
14
<PAGE> 15
11. SUBSEQUENT EVENTS
On various dates subsequent to June 30, 1998, through July 10, 1998, the
Operating Partnership acquired one property totaling approximately 63,000
square feet at a total initial acquisition cost of $16,000 and land parcels
for an initial acquisition cost of $19,430. These acquisitions were funded
by proceeds from Common Stock offerings, borrowings from short-term
unsecured bank facilities, and issuances of Operating Partnership Units.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 six month period ended June 30, 1998, as
compared to the corresponding periods ended June 30, 1997.
Rental revenues for the second quarter of 1998 increased by $57.9 million
or 77.7% to $132.4 million, as compared with $74.5 million for the quarter
ended June 30, 1997. Of this increase, $21.6 million was generated by
properties acquired during the first six months of 1998 (the "1998
Acquisitions"). In the second quarter of 1998 the Operating Partnership
acquired properties totaling 2.0 million square feet for a total investment
of $339.5 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 second
quarter were acquired on various dates throughout the quarter and, as such,
a full quarter's revenue and expenses were not recognized during the
quarter.
$32.9 million of the rental revenue increase in the second quarter of 1998
was generated by properties acquired during 1997. During 1997, the
Operating Partnership invested $1.5 billion to acquire properties totaling
12.5 million square feet (the "1997 Acquisitions").
$2.7 million of the increase in rental revenues is attributable to revenue
increases in properties owned at January 1, 1997, and still owned at June
30, 1998 (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 June 30, 1998, the Operating Partnership completed
361 lease transactions for the renewal or re-leasing of 2.6 million square
feet of second-generation space. On average for the quarter, the new
effective rates were 40.0% higher than the expiring coupon rent.
$4.2 million of the rental revenue increase in the second quarter of 1998
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 1997 and 1998, as well as properties currently under development.
During the six months ended June 30, 1998, two properties totaling 383,690
square feet were completed for an estimated final cost of $26.0 million and
were added to the Operating Partnership's portfolio of stabilized
properties. Properties are considered stabilized when a 95.0% occupancy
rate has been achieved. The Operating Partnership also has a current
development pipeline of 3.8 million square feet representing a total
projected cost of $432.6 million. Certain of the properties in the
development pipeline are shell complete and partially occupied but are not
considered stabilized.
The increases in rental revenue are partially offset by a decrease of $3.5
million attributable to the disposition of properties which were owned by
the Operating Partnership during the quarter ended June 30, 1997 and sold
subsequent to the end of such quarter (the "Property Dispositions").
Rental revenues for the six month period ended June 30, 1998, increased by
$111.2 million or 80.1% to $250.1 million as compared to $138.9 million for
the same period ended June 30, 1997. $30.8 million and $75.4 million,
respectively, of this increase was attributable to the 1998 and 1997
Acquisitions, $5.4 million relates to
16
<PAGE> 17
the Core Portfolio, $7.7 million is attributable to the Developments, with
the remainder attributable to a $8.1 million decrease from Property
Dispositions.
As a result of the 1998 Acquisitions, the 1997 Acquisitions, and the
Developments, the Operating Partnership's rentable square footage,
increased by 16.3 million square feet or 67.3% to 40.4 million square feet
on June 30, 1998, from 24.1 million on June 30, 1997. At June 30, 1998, the
portfolio of stabilized properties was 95.6% occupied. By property type,
the office portfolio was 94.5% occupied and the industrial portfolio was
96.7% occupied.
Interest and other income increased by $4.8 million and $10.4 million or
342.9% and 305.9% for the three and six month periods ended June 30, 1998,
over the same periods ended June 30, 1997. The net increase in interest and
other income is due to interest income from mortgage loans made to Spieker
Northwest, Inc. (SNI), an affiliate of the Operating Partnership, in
relation to SNI's acquisition of non-core assets in the WCB Portfolio.
Refer to footnote (4) Transactions with Affiliates --"Investment in
Affiliate" for further explanation.
Rental expenses increased by $13.7 million or 89.0% for the quarter ended
June 30, 1998, as compared with the same period in 1997. Real estate taxes
increased by $4.6 million or 79.3% in 1998, as compared to $5.8 million in
1997. 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 $18.3 million increase
in property operating expenses, $9.6 million is attributable to the 1997
Acquisitions, $8.2 million is attributable to the 1998 Acquisitions, $1.4
million is attributable to the Developments, and $0.2 million is
attributable to the Core Portfolio offset by a $1.1 million decrease
attributable to the Property Dispositions. On a percentage basis, property
operating expenses were 29.8% and 28.5% of rental revenues for the quarter
ended June 30, 1998, and June 30, 1997, 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 June 30, 1998,
66.2% of the Operating Partnership's net operating income (rental revenues
less property operating expenses) was generated by office properties as
compared with 62.5% during the same period in 1997.
In relation to the Operating Partnership's decision to divest itself of
certain properties, the following analysis is presented: Rental revenues
net of property operating expenses (referred to as "property operating
income") increased by $42.0 million or 82.8% to $92.7 million, as compared
to $50.7 million for the quarter ended June 30, 1997. Of this increase,
$23.3 million and $13.4 million relates to the 1997 and 1998 Acquisitions,
$2.5 million is attributable to the Core Portfolio, and $2.8 million is
attributable to the Developments. For the six month period ended June 30,
1998, property operating income increased by $81.9 million or 87.4% from
$93.7 million to $175.6 million at June 30, 1997. $53.0 million and $19.0
million related to the 1997 and 1998 Acquisitions, $4.7 million is related
to the Core Portfolio, and $5.2 million is attributed to the Developments.
For the six month period ended June 30, 1998, rental expenses increased by
$26.4 million from $27.1 million for the six months ended September 30,
1997. This represents a 97.4% increase year over year. Real estate taxes
increased by $8.6 million or 78.2% to $19.6 million for the first two
quarters of 1998 as compared to $11.0 million for the same period in 1997.
Of the total $35.0 million increase in property operating expenses, $22.4
million is attributable to the 1997 Acquisitions, $11.8 million is for the
1998 Acquisitions, $2.5 million relates to the Developments, $0.7 million
is attributed to the Core Portfolio, and a $2.4 reduction attributable to
the Property Dispositions. On a percentage basis property operating
expenses were 29.2% and 27.4% of rental revenues for the six months ended
June 30, 1998, and 1997, respectively.
Interest expense increased by $18.2 million or 143.3% to $30.9 million for
the three months ended June 30, 1998, from $12.7 million for the same
period in 1997. For the six month period ended June 30, 1998, interest
expense increased by $35.5 million or 143.7% to $60.2 million from $24.7
million for the same period in 1997. 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 June 30, 1998, and 1997
was $1.9 billion and $0.8 billion respectively. The average balance
outstanding for the six months ended June 30, 1998, was $1.8 billion and
$0.7 billion for the same period in 1997. The increases in the average
outstanding debt balances are consistent with the increases in the size of
the Operating Partnership's portfolio of properties.
17
<PAGE> 18
Depreciation and amortization expenses increased by $10.2 million and $19.2
million or 82.3% and 83.5% for the three and six month periods ended June
30, 1998, respectively, as compared with the same periods in 1997, due to
the 1998 and 1997 Acquisitions and the completed Developments.
General and administrative expenses and other expenses increased by $1.5
million and $3.3 million for the three and six month periods ended June 30,
1998 as compared with the same period in 1997, primarily as a result of the
increased growth in the portfolio. On a percentage basis, general and
administrative expenses were 3.8% and 3.9% of rental revenues for the three
and six month periods ended June 30, 1998, respectively, as compared with
4.7% for the same periods in 1997.
During the second quarter of 1998, the Operating Partnership disposed of
properties resulting in a gain on disposition of $6.7 million. This brings
the total gain on disposition of property for the first two quarters of
1998 to $15.7 million on five properties.
Net income before minority interests and disposition of property increased
by $14.5 million or 55.6% to $40.6 million for the three month period ended
June 30, 1998, from $26.1 million for the same period in 1997. For the six
month period ended June 30, 1998, net income before minority interests and
disposition of property increased by $28.6 million or 57.2% to $78.6
million, from $50.0 million for the same period in 1997. The increase in
net income is due to the 1998 and 1997 Acquisitions and revenue growth in
the Company's Core Portfolio.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended June 30, 1998, cash provided by operating activities
increased by $58.3 million, or 62.0%, to $152.3 million, as compared to
$94.0 million for 1997. The increase is primarily due to the increase in
net income resulting from the 1997 and 1998 Acquisitions, the Developments,
increased property operating income generated by the Core Portfolio and is
partially offset by an increase in interest expense. Cash used for
investing activities increased by $240.9 million, or 52.9%, to $696.7
million for the first six months of 1998, as compared to $455.8 million for
the first six months of 1997. The increase is attributable to the Operating
Partnership's ongoing acquisition and development of office and industrial
properties offset by proceeds from dispositions. Cash provided by financing
activities increased by $208.8 million, or 61.1%, to $550.5 million for the
first six months of 1998, as compared to $341.7 million for the same period
in 1997. During the first six months of 1998, cash provided by financing
activities consisted primarily of $265.6 million in net proceeds from the
sale of Common and Preferred Stock and Preferred Operating Partnership
Units, $299.1 million in proceeds from the issuance of unsecured notes (see
below), net borrowings of $75.0 million on the Facility (as defined below)
and an $19.3 million increase in mortgage loans due to loans assumed in
conjunction with property acquisitions. Additionally, payments of
distributions increased by $42.1 million to $91.8 million for the first six
months of 1998, as compared with $49.7 million for the same period in 1997.
The distribution payment increase is due to the greater number of shares
outstanding and a 21.3% increase in the distribution rate of $.94 per share
for the first six months of 1998 from $1.14 per share in 1997.
The principal sources of funding for acquisitions, development, expansion
and renovation of the properties are unsecured short-term borrowings,
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 its ability to access capital are adequate to continue to
meet liquidity requirements for the foreseeable future.
At June 30, 1998, 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.
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 used to purchase properties during the
18
<PAGE> 19
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 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 statement (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
which became effective in October 1997.
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 7.875% of the liquidation preference of $150.0
million. Net proceeds of $146.0 million were used principally to repay
borrowings on the unsecured line of credit and to fund the 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 $425.0 million were used to repay
indebtedness and to purchase properties which were under contract at the
time of the offering.
In December 1997, the Company placed 573,134 shares of Common Stock in a
Registered Unit Investment Trust at $41.875 per share together with other
publicly traded REITs. The net proceeds of $22.8 million were used to repay
borrowings on the unsecured line of credit and to fund the ongoing
acquisition and development of properties.
In February, March and April 1998, the Company placed 710,832 shares,
608,828 shares and 1,166,144 shares, respectively, of Common Stock at
prices of $42.25, $41.06 and $39.88 in Registered Unit Investment Trusts
along with other publicly traded REITs. The net proceeds of $96.3 million
were used to paydown borrowings on the line of credit and to fund the
ongoing acquisition and development of properties.
In April 1998, the Company sold 1,500,000 Series D Cumulative Redeemable
Preferred Units (the "Series D Preferred Units") to an institutional
investor for $50.00 per unit. Dividends are payable at an annual rate of
7.6875%. The Series D Preferred Units may be called at par on or after
April 20, 2003, and have no stated maturity or mandatory redemption. The
Series D Preferred Units are exchangeable for the Series D Cumulative
Redeemable Preferred Stock of the Company on or after April 20, 2008. The
net proceeds of $73.1 million for the Series D Preferred Units were used to
paydown the line of credit and fund future growth of the Operating
Partnership.
In June 1998, the Company sold 4,000,000 shares of Series E Cumulative
Redeemable Preferred Stock for $25.00 per share. Dividends are payable at
an annual rate of 8.00% of the liquidation preference of $100.0 million.
Net proceeds of $96.8 million were used principally to repay borrowings on
the unsecured line of credit and to fund the ongoing acquisition and
development of property.
In 1997 the Operating Partnership issued $500.0 million of investment grade
rated debt in three tranches as follows: 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. On December 8, 1997, the
Operating Partnership issued $200.0 million of 7.35% debentures, priced to
yield 7.37%, and mature on December 1, 2017. Net proceeds from the July
1997, September 1997 and December 1997 unsecured debt securities of $489.0
million were used to repay borrowings on the unsecured line of credit and
to fund the ongoing acquisition and development of properties.
During the first six months of 1998 the Operating Partnership issued $301.5
million of investment grade rated unsecured notes in four tranches as
follows: $150.0 million of 6.75% notes due January 15, 2008,
19
<PAGE> 20
$125.0 million of 6.875% notes due February 1, 2005; $1.5 million of 7.0%
notes due February 2, 2007 and $25.0 million of 6.875% notes due April 30,
2007.
As of June 30, 1998, the Operating Partnership had in total $1.4 billion of
investment grade rated unsecured debt securities outstanding. The debt
securities have interest rates which vary from 6.65% to 8.0%, and maturity
dates which range from 2000 to 2027. Through its issuance of debt the
Company has extended the average maturity for its unsecured debt from 6.4
years at June 30, 1997, to 9.7 years at June 30, 1998.
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 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 June 30, 1998,
the Operating Partnership had $75.0 million outstanding under the Facility.
In addition, the Operating Partnership had $200.0 million outstanding under
a separate short-term bank facility at December 31, 1997. This short-term
facility carries interest at LIBOR plus 0.65% and matures in November 1998
with an option to extend for one more year.
In addition to the unsecured debt securities and the Facility, the
Operating Partnership has $112.8 million of secured indebtedness (the
"Mortgages") at June 30, 1998. The Mortgages have interest rates varying
from 10.0% to 7.4% and maturity dates from 1998 to 2013. 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 Company also
has $16.4 million of assessment bonds outstanding as of June 30, 1998.
The Company and Operating Partnership filed a shelf registration statement
(the "May 1998 Shelf Registration Statement") with SEC which registered
$500.0 million of equity securities of the Company and $500.0 million of
debt securities of the Operating Partnership, which became effective in May
1998.
After completion of the equity and debt offerings, the Company has the
capacity pursuant to a shelf registration statement declared effective in
September 1997 (the "September 1997 Registration Statement") and the May
1998 Shelf Registration Statement to issue up to approximately $663.8
million in equity securities and the Operating Partnership has the capacity
pursuant to the September 1997 Registration Statement and the May 1998
Shelf Registration Statement to issue up to $813.5 million in debt
securities.
FUNDS FROM OPERATIONS
The Operating Partnership considers Funds from Operations to be a useful
financial measure of the operating performance of an equity REIT because,
together with net income and cash flows, Funds from Operations provides
investors with an additional basis to evaluate the ability of a REIT to
incur and service debt and to fund acquisitions, developments, and other
capital expenditures. Funds from Operations does not represent net income
or cash flows from operations as defined by generally accepted accounting
principles ("GAAP") and Funds from Operations should not be considered as
an alternative to net income as an indicator of the Company'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, the Operating
Partnership calculates 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
20
<PAGE> 21
items, such as computers or furniture and fixtures, or the amortization of
deferred financing costs or debt discount. However, the Operating
Partnership eliminates the effect of straight-lined rents, as defined under
GAAP, in its FFO calculation, as management believes this presents a more
meaningful picture of rental income over the reporting period.
Funds from Operations per share is calculated based on weighted average
share equivalents outstanding, assuming the conversion of all shares of
Series A Preferred Stock, Class B and, Class C Common Stock and all
partnership units in the Operating Partnership into shares of Common Stock
and including the dilutive effect of stock options.
STATEMENT OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income before disposition of
property and minority interest $ 40,630 $ 26,111 $ 78,574 $ 49,923
Adjustments:
Dividends on Series B Preferred (2,510) (2,510) (5,020) (5,020)
Stock
Dividends on Series C Preferred (2,953) -- (5,906) --
Stock
Dividends on Series E Preferred (600) -- (600) --
Stock
Distributions on Preferred
Operating Partnership Units (2,223) -- (3,488) --
Depreciation and Amortization 22,404 12,276 41,769 22,753
Other, net (14) 187 (28) 375
Straight-lined rent (1,508) (579) (3,488) (576)
--------- --------- --------- ---------
Funds from Operations $ 53,226 $ 35,485 $ 101,813 $ 67,455
========= ========= ========= =========
</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
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)
(B) Reports on Form 8-K
The Company filed a current report on Form 8-K dated July 1,
1998, which included certain audited historical and unaudited
proforma financial information concerning the TDC Portfolio.
22
<PAGE> 23
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, Inc.
(Registrant)
Dated: August 14, 1998 /s/ Elke Strunka
------------------------ --------------------------------------------
Elke Strunka
Vice President and
Principal Accounting Officer
23
<PAGE> 24
EXHIBIT INDEX
Exhibit Number
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)
<PAGE> 1
EXHIBIT 12.1
Spieker Properties, LP and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(in thousands, except ratios)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings:
Income from operations before disposition of
property and minority interest $40,630 $26,111 $ 78,574 $49,923
Interest expense(1) 30,931 12,687 60,198 24,700
Amortization of capitalized interest 127 79 110 158
-------- -------- -------- --------
Total earnings $71,688 $38,877 $138,882 $74,781
======== ======== ======== ========
Fixed charges:
Interest expense(1) $30,931 $12,687 $ 60,198 $24,700
Capitalized interest 3,613 1,407 6,585 2,641
-------- -------- -------- --------
Total fixed charges $34,544 $14,094 $ 66,783 $27,341
======== ======== ======== ========
Ratio of earnings to fixed charges 2.08 2.76 2.08 2.74
======== ======== ======== ========
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
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 28,649 9,249
<SECURITIES> 0 0
<RECEIVABLES> 6,732 3,748
<ALLOWANCES> 382 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 3,946,531 1,975,891
<DEPRECIATION> 201,781 145,572
<TOTAL-ASSETS> 4,012,011 1,892,504
<CURRENT-LIABILITIES> 0 0
<BONDS> 1,824,303 786,745
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 4,012,011 1,892,504
<SALES> 0 0
<TOTAL-REVENUES> 263,942 142,295
<CGS> 0 0
<TOTAL-COSTS> 73,126 38,122
<OTHER-EXPENSES> 52,026 29,550
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 60,198 24,700
<INCOME-PRETAX> 78,574 49,923
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 94,289 64,103
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 90,801 64,094
<EPS-PRIMARY> 1.29 1.19
<EPS-DILUTED> 1.27 1.18
</TABLE>
