<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, 2000
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)
<TABLE>
<S> <C>
CALIFORNIA 94-3188774
------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
2180 SAND HILL ROAD, MENLO PARK, CA 94025
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
</TABLE>
(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 20
Exhibit Index is located on Page 19.
<PAGE> 2
SPIEKER PROPERTIES, L.P.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2000
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 March 31, 2000 and December 31, 1999....................... 4
Consolidated Statements of Operations for the Three months ended
March 31, 2000 and 1999................................................................... 6
Consolidated Statement of Partners' Capital for the Three months ended
March 31, 2000............................................................................ 7
Consolidated Statements of Cash Flows for the Three months ended
March 31, 2000 and 1999................................................................... 8
Notes to Consolidated Financial Statements................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 19
PART II. OTHER INFORMATION
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 unaudited financial statements of Spieker Properties,
L.P. (the "Operating Partnership"):
(i) Consolidated Balance Sheets as of March 31, 2000, and December 31, 1999
(ii) Consolidated Statements of Operations for the Three months ended March 31,
2000 and 1999
(iii) Consolidated Statement of Partners' Capital for the Three months ended
March 31, 2000
(iv) Consolidated Statements of Cash Flows for the Three months ended March 31,
2000 and 1999
(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, 1999.
3
<PAGE> 4
SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 811,220 $ 816,136
Buildings and improvements 3,239,633 3,174,430
Construction in progress 195,493 180,407
----------- -----------
4,246,346 4,170,973
Less - Accumulated depreciation (331,114) (316,240)
----------- -----------
3,915,232 3,854,733
----------- -----------
Land held for investment 129,224 125,356
Investments in mortgages 16,104 18,725
Properties held for disposition, net 112,803 89,220
----------- -----------
Net investments in real estate 4,173,363 4,088,034
CASH AND CASH EQUIVALENTS 11,575 17,114
ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts of $2,023 as of
March 31, 2000 and $2,139 as of December 31, 1999 7,489 4,846
DEFERRED RENT RECEIVABLE 25,331 22,911
RECEIVABLE FROM AFFILIATES 156 144
DEFERRED FINANCING AND LEASING COSTS, net of accumulated amortization of $23,027
as of March 31, 2000 and $20,901 as of December 31, 1999
62,778 59,655
FURNITURE, FIXTURES AND EQUIPMENT, net 5,165 5,107
PREPAID EXPENSES, DEPOSITS ON PROPERTIES AND OTHER ASSETS
17,416 50,091
INVESTMENT IN AFFILIATES 20,559 20,583
----------- -----------
$ 4,323,832 $ 4,268,485
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
SPIEKER PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands)
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
DEBT
Unsecured notes $ 1,836,500 $1,836,500
Unsecured short-term borrowings 73,000 63,012
Mortgage loans 93,289 97,331
----------- -----------
Total debt 2,002,789 1,996,843
----------- -----------
ASSESSMENT BONDS PAYABLE 9,679 10,172
ACCOUNTS PAYABLE 11,250 13,548
ACCRUED REAL ESTATE TAXES 13,931 2,628
ACCRUED INTEREST 36,988 28,634
UNEARNED RENTAL INCOME 36,315 33,244
PARTNERS AND DISTRIBUTIONS PAYABLE 54,636 46,977
OTHER ACCRUED EXPENSES AND LIABILITIES 72,245 76,192
----------- -----------
Total liabilities 2,237,833 2,208,238
----------- -----------
PARTNERS' CAPITAL:
General Partner, a liquidation preference of $381,250 as of
March 31, 2000 and December 31, 1999 1,812,487 1,793,445
Limited Partners 273,512 266,802
----------- ----------
Total Partners' Capital 2,085,999 2,060,247
----------- ----------
$ 4,323,832 $4,268,485
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(unaudited, dollars in thousands, except unit amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Rental income $ 167,413 $ 149,214
Interest and other income 2,099 1,434
----------- -----------
169,512 150,648
----------- -----------
OPERATING EXPENSES:
Rental expenses 35,510 31,641
Real estate taxes 12,497 11,554
Interest expense, including amortization of finance costs 31,263 28,805
Depreciation and amortization 30,416 25,404
General and administrative expenses 6,569 5,650
----------- -----------
116,255 103,054
----------- -----------
Income from operations before disposition of real estate 53,257 47,594
----------- -----------
GAIN ON DISPOSITION OF REAL ESTATE 22,209 5,166
----------- -----------
Net income 75,466 52,760
----------- -----------
Preferred Operating Partnership Unit Distributions (1,441) (2,527)
Preferred Dividends:
Series A Preferred Stock (854) (744)
Series B Preferred Stock (2,510) (2,510)
Series C Preferred Stock (2,953) (2,953)
Series E Preferred Stock (2,000) (2,000)
----------- -----------
Net income available to General and Limited partners $ 65,708 $ 42,026
=========== ===========
General Partners $ 57,807 $ 36,857
=========== ===========
Limited Partners $ 7,901 $ 5,169
----------- -----------
Total $ 65,708 $ 42,026
=========== ===========
NET INCOME PER COMMON OPERATING PARTNERSHIP UNIT
Net Income-basic $ 0.89 $ 0.58
=========== ===========
Net Income-diluted $ 0.87 $ 0.58
=========== ===========
DISTRIBUTIONS PER COMMON OPERATING PARTNERSHIP UNIT
General Partner $ 0.70 $ 0.61
=========== ===========
Limited Partners $ 0.70 $ 0.61
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 7
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
General Limited General Limited
Partner Units Partners Units Partner Partner Total
------------- -------------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 64,961,052 8,822,915 $ 1,793,445 $ 266,802 $ 2,060,247
Conversion of Operating Partnership
Units and to Common Stock 12,500 (12,500) 274 (274) -
Contribution of property for Operating
Partnership units - 222,888 - 8,638 8,638
Restricted Stock Grant 80,386 - 2,929 2,929
Restricted Stock Grant- Deferred - - (2,929) - (2,929)
Compensation
Exercise of Stock options 74,579 - 2,391 - 2,391
Amortization of deferred compensation - - 910 - 910
Allocation to Operating Partnership
Interest - - 4,690 (4,690) -
Partners distributions - - (55,347) (6,306) (61,653)
Net Income - - 66,124 9,342 75,466
------------ ---------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2000 65,128,517 9,033,303 $ 1,812,487 $ 273,512 $ 2,085,999
============ ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 8
SPIEKER PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 75,466 $ 52,760
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization 30,416 25,404
Amortization of discount and deferred financing costs 544 599
Loss from affiliate 24 89
Non-cash compensation 910 246
Gain on disposition of real estate (22,209) (5,166)
(Increase) decrease in accounts receivable and other assets (4,168) 807
Increase in receivable from related parties (13) (1)
Decrease in assessment bonds payable (214) (226)
Decrease in accounts payable and other accrued expenses and liabilities (4,084) (10,775)
Increase in accrued real estate taxes 11,303 10,512
Increase in accrued interest 8,354 7,209
--------- -----------
Net cash provided by operating activities 96,329 81,458
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (128,543) (106,943)
Reductions (additions) to deposits on properties, net 31,573 (175)
Reductions in investment in mortgages 2,621 -
Additions to leasing costs (6,408) (4,269)
Proceeds from disposition of real estate 44,584 41,268
Distributions from affiliates - 295
--------- -----------
Net cash used for investing activities (56,173) (69,824)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 30,000 65,000
Payments on debt (24,091) (10,527)
Payments of distributions (53,995) (51,714)
Capital contributions- stock options exercised 2,391 319
--------- -----------
Net cash (used for) provided by financing activities (45,695) 3,078
--------- -----------
Net increase (decrease) in cash and cash equivalents (5,539) 14,712
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,114 4,916
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,575 $ 19,628
========= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 27,739 $ 26,003
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 9
SPIEKER PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(unaudited, dollars in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
Spieker Properties, L.P. (the "Operating Partnership") a California limited
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 on November 18, 1993. As of March 31, 2000, the Company owned an
approximate 87.8 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 March 31, 2000, and December 31, 1999, and its
consolidated results of operations and cash flows for the three months
ended March 31, 2000 and 1999. The Operating Partnership's investment in
Spieker Northwest, Inc., an unconsolidated Preferred Stock subsidiary, and
its investment in Spieker Griffin/W9 Associates, LLC are 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 as of, and for the three months ended
March 31, 2000 and 1999, have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission 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 accounting principles generally accepted in the United States, 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, 2000 and 1999, 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, 1999.
Land Held for Investment
The Operating Partnership has incurred costs related to land parcels that
are either held for investment or are in a design and approval process. As
of March 31, 2000, approximately $26.2 million of construction in progress
is associated with these land parcels.
9
<PAGE> 10
Net Income Per Unit
Per unit amounts for the Operating Partnership are computed using the
weighted average units outstanding during the period. Additionally,
earnings used in the calculation are reduced by dividends owed to Series A,
B, C and E preferred stockholders, and Preferred Operating Partnership unit
holders. The diluted weighted average units outstanding include the
dilutive effect of options and other unit equivalents. The basic and
diluted weighted average general partner units and limited partner units
outstanding for the three months ended March 31, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
Basic Weighted Average Diluted Weighted Average
General Partner Units General Partner Units
---------------------- ------------------------
<S> <C> <C>
Three Months Ended:
March 31, 2000 65,071,321 67,247,908
March 31, 1999 63,223,217 65,048,670
</TABLE>
<TABLE>
<CAPTION>
Basic Weighted Average Diluted Weighted Average
Limited Partner Units Limited Partner Units
---------------------- ------------------------
<S> <C> <C>
Three months ended:
March 31, 2000 8,893,051 8,893,051
March 31, 1999 8,870,915 8,870,915
</TABLE>
Reclassifications
Certain items in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.
Use of Estimates
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. ACQUISITIONS AND DISPOSITIONS
Acquisitions
The Operating Partnership acquired the following properties (the "2000
Acquisitions") during the three months ended March 31, 2000:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Region-Location Type (1) Square Feet Initial Cost (2)
---------------------------- -------------------------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Larkspur Landing Peninsula/NorthBay-Larkspur, CA O 189,040 $ 42,083
Quadrant Plaza Pacific Northwest-Bellevue, WA O 145,585 33,447
------- ----------
334,625 $ 75,530
======= ==========
</TABLE>
(1) "O" indicates office property.
(2) Represents the initial acquisition costs of the properties excluding
any additional repositioning costs.
During the quarter, the Operating Partnership also acquired an asset to be
redeveloped in Southern California at an initial cost of $11.5 million.
During the three months ended March 31, 1999, the Operating Partnership
acquired two office properties totaling 393,739 square feet at an initial
cost was $58,901.
10
<PAGE> 11
Dispositions
The Operating Partnership disposed of the following properties (the "2000
Dispositions") during the three months ended March 31, 2000.
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Region- Location Type (1) Square Feet
----------------------------------- ------------------------------------- ------------ ---------------
<S> <C> <C> <C>
City Commerce Park Pacific Northwest-Seattle, WA I 179,413
Commerce Park West III East-Bay/Sacramento-Sacramento, CA L - (2)
Front Street East-Bay/Sacramento-Sacramento, CA I 47,322
Vasco Landing East-Bay/Sacramento-Livermore, CA L - (3)
Woodinville Corporate Center I Pacific Northwest-Woodinville, WA I 170,793
Woodinville Corporate Center III Pacific Northwest-Woodinvile, WA I 250,502
</TABLE>
(1) I- Industrial; L- Land.
(2) Represents sale of approximately 4.7 acres.
(3) Represents sale of approximately 0.8 acres.
The gross proceeds for land and property dispositions were $45,819 for the
three months ended March 31, 2000. Cash proceeds, net of closing costs,
received from the dispositions were $44,584. These proceeds were used to
fund the Operating Partnership's recent acquisitions. Gain recognized on
disposition of real estate for the three months ended March 31, 2000 was
$22,209.
During the three months ended March 31, 1999, the aggregated disposition
proceeds for the land and property were $42,420. Included in the proceeds
were $5,170 recognized for a condemnation gain. Cash proceeds, net of
closing costs, received from the disposition of the property and land were
$5,166.
4. TRANSACTIONS WITH AFFILIATES
Revenues and Expenses
The Operating Partnership received $313 for the three months ended March
31, 2000 and $337 for the three months ended March 31, 1999, for management
services provided to certain properties that are controlled and operated by
either Spieker Northwest, L.P., Spieker Griffin/W9 Associates, LLC or
Spieker Partners. Certain officers of Spieker Properties, Inc. are partners
in Spieker Partners.
Receivable From Affiliates
The $156 receivable from affiliates at March 31, 2000, and the $144 at
December 31, 1999, represents management fees and reimbursements due from
Spieker Northwest, L.P., Spieker Griffin/W9 Associates, LLC and Spieker
Partners.
Investments in Mortgages
Included in Investments in Mortgages of $16,104 at March 31, 2000 and
$18,725 at December 31, 1999 are loans to Spieker Northwest, Inc., or SNI.
The loans are secured by deeds of trust on real property, bear interest at
8.5%, and mature in 2012. Interest income on the notes of $342 is included
in interest and other income for the three months ended March 31, 2000 and
$342 for 1999.
Investment in Affiliates
The investment in affiliates represents an investment in SNI. The Operating
Partnership owns 95% of the non-voting Preferred Stock of SNI. Certain
senior officers and one former officer of the Operating Partnership own
100% of the voting units of SNI. At March 31, 2000, SNI owned 225,815
square feet of office and industrial property located in California. In
addition, SNI owns 1 parcel of land totaling 3.4 acres. In addition to
property ownership, SNI provides property management services to certain
properties owned by Spieker Partners.
11
<PAGE> 12
Additionally, investment in affiliates represents the 12.5% common interest
and 37.5% preferred interest in Spieker Griffin/W9 Associates, LLC. Spieker
Griffin/W9, LLC Associates owns a 535,000 square foot office complex,
located in Orange County, California, which is managed by the Operating
Partnership.
5. PROPERTIES HELD FOR DISPOSITION
The Operating Partnership continues to review its portfolio and its
long-term strategy for properties. The Operating Partnership will dispose
of, over time, assets that do not have a strategic fit within the
portfolio. Included in properties held for disposition of $112,803 at March
31, 2000, are twelve properties and two land parcels. Three industrial
properties are located in the Pacific Northwest. Three industrial
properties, one office property, and one land parcel are located in
Southern California. Four industrial properties, one office property and
one land parcel are located in Northern California.
The following summarizes the condensed results of operations of the
properties held for disposition at March 31, 2000 for the three months
ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
-------- ------
<S> <C> <C>
Revenues $ 4,772 $ 4,473
Property Operating Expenses (1) (1,087) (1,033)
-------- --------
Net Operating Income $ 3,685 $ 3,440
========= =========
</TABLE>
(1) Property Operating Expenses includes property related rental expenses
and real estate taxes.
6. DEBT
<TABLE>
<CAPTION>
MARCH 31,
2000
---------
<S> <C>
Unsecured investment grade notes, fixed interest rates varying from 6.65% to
8.00% payable semi-annually, due from 2000 to 2027 $1,836,500
Unsecured short-term borrowings (see "Facility" below), due 2001 73,000
Mortgage loans, fixed interest rates varying from 7.00% to 9.88%,
due 2001 to 2013(1) 93,289
----------
$2,002,789
==========
</TABLE>
(1) Mortgage loans generally require monthly principal and interest
payments.
The Operating Partnership has a $250,000 Unsecured Line of Credit Facility,
or Facility, which matures in August 2001. The Facility carries interest at
the London Interbank Offering Rate plus 0.80%. The one-month LIBOR at March
31, 2000 was 6.13%. The Facility also includes an annual administrative fee
of $50 and an annual Facility fee of 0.20%. The Facility is subject to
financial covenants concerning leverage, interest coverage and certain
other ratios. The Operating Partnership is currently in compliance with all
of the covenants of the Facility concerning its indebtedness.
The Operating Partnership's unsecured investment grade notes are subject to
financial covenants concerning leverage, interest coverage and certain
other ratios. The Operating Partnership is currently in compliance with all
of the covenants in the unsecured note agreements governing its
indebtedness.
The Operating Partnership capitalized interest of $5,389 for the three
months ended March 31, 2000 and $5,022 for the same period in 1999.
12
<PAGE> 13
7. PARTNERS' DISTRIBUTIONS PAYABLE
The distributions payable at March 31, 2000, and December 31, 1999,
represent amounts payable to partners of record. The unit holders of record
are as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Units:
General Partner 65,128,517 64,961,052
Limited Partner 9,033,303 8,822,915
Series A Preferred 1,000,000 1,000,000
Series B Preferred 4,250,000 4,250,000
Series C Preferred 6,000,000 6,000,000
Series D Preferred 1,500,000 1,500,000
Series E Preferred 4,000,000 4,000,000
</TABLE>
8. SEGMENT INFORMATION
The Operating Partnership has five reportable segments: Pacific Northwest;
East Bay/Sacramento, California; Peninsula/NorthBay, California; Silicon
Valley, California; and Southern California. Each region has a Regional
President who is directly responsible for managing all phases of the
region's operations including acquisition, development, leasing and
property management. Each reportable segment includes both office and
industrial properties which are leased to tenants engaged in various types
of businesses. The accounting policies of the five regions are the same as
those described in the summary of significant accounting policies. The
Operating Partnership evaluates performance based upon the combined net
operating income of the properties in each segment. Each of the five
operating regions consists of differing mixes of office and industrial
properties. The rental income and net operating income for the regions is
not comparable, given the differing mixes of properties within the regions.
During the first quarter of 2000, the Operating Partnership split the
North-East Bay/Sacramento region into two regions. The two new regions are
now called East Bay/Sacramento and Peninsula/NorthBay. The 1999 rental
income and net operating income disclosure below has been restated to
reflect these new regions. Significant information used by the Operating
Partnership in the reportable segments for the three months ended March 31,
2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Pacific East Bay/ Peninsula/ Silicon Southern
Northwest Sacramento(1) NorthBay(1) Valley California Total
------------ ----------------- --------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
2000 Rental Income $ 33,134 $ 28,281 $ 19,525 $ 39,247 $ 47,226 $167,413
1999 Rental Income 32,158 22,121 16,936 34,627 43,372 149,214
2000 Net Operating Income (2) 23,345 20,687 13,293 31,156 30,925 119,406
1999 Net Operating Income (2) 23,095 15,067 11,829 27,332 28,696 106,019
2000 Additions to Properties(3) 33,447 - - - 33,447
2000 Reductions to Properties(3) (19,600) (2,176) - - - (21,776)
</TABLE>
(1) The basis of the assets transferred from the split of the North-East
Bay/Sacramento region was approximately $803,710 to the East Bay/Sacramento
region and $477,242 to the Peninsula/North Bay region.
(2) Net operating income for the properties is calculated by subtracting
property related rental expenses and real estate taxes from rental income
on the accompanying consolidated statements of operations
(3) See Note 3 to the consolidated financial statements for the related square
footage by region of the additions and reductions to properties
13
<PAGE> 14
9. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Increase to land and assessment bonds payable $ 34 $ 82
Write-off of fully depreciated property 7,027 1,362
Write-off of fully depreciated furniture, fixtures and equipment 204 89
Write-off of fully amortized deferred financing and leasing costs 921 281
Restricted Stock grants, net of amortization 2,019 -
Capital recorded in relation to properties acquired with Operating Partnership Units 8,638 -
</TABLE>
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 month period ended March 31, 2000, as compared to
the corresponding period ended March 31, 1999 (amounts in tables are
presented in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------- ----------- -------------------------
Rental Revenues CHANGE
--------------- -------------------------
2000 1999 $ %
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1999 Core Portfolio $ 155.3 $ 141.8 $ 13.5 9.5%
1999 Acquisitions 4.1 0.6 3.5 583.3
2000 Acquisitions 0.8 - 0.8 -
Developments 6.9 0.8 6.1 762.5
Dispositions 0.3 6.0 (5.7) (95.0)
------------- ----------- ------------ ------------
$ 167.4 $ 149.2 $ 18.2 12.2%
============= =========== ============ ============
</TABLE>
For the quarter ended March 31, 2000 rental revenues increased by $18.2
million. $13.5 million of the rental revenue increase is generated by the
"1999 Core Portfolio", defined as properties owned at January 1, 1999 and
still owned at March 31, 2000. The increase in the 1999 Core Portfolio
revenue was attributable to higher rental rates realized on the renewal and
re-leasing of the Operating Partnership's rentable space.
During the quarter, the Operating Partnership completed 348 lease
transactions for the renewal and re-lease of 2.1 million square feet of
second generation space. Rollover effective rent growth on these leases was
on average, 60.2% higher than the previous rents received on those same
spaces. This rent growth is the measurement of the difference between
effective (average) rents on new and renewed leases as compared to the
expiring coupon rent on those same spaces.
The Developments contributed $6.1 million to the rental revenue increase
for the quarter. This increase in income is due to the growing occupancy
levels of the completed developments. The Developments include both
properties completed and added to the Operating Partnership's portfolio of
stabilized properties, as well as properties currently in the development
pipeline. The Operating Partnership considers properties "stabilized" at
the earlier of eighteen months after shell completion or when a 95.0%
occupancy rate has been reached. The Operating Partnership's
14
<PAGE> 15
development pipeline at March 31, 2000 consists of seventeen properties
totaling 2.7 million square feet and representing an estimated cost of
$471.7 million. These developments were 81.4% preleased at March 31, 2000.
The 1999 Acquisitions contributed $3.5 million to the rental revenue
increase for the quarter. During 1999, the Operating Partnership acquired
five office properties totaling 807,037 square feet for a total investment
of $134.3 million. The properties, were acquired at various dates
throughout the year, therefore a full quarters worth of revenue and expense
may not be reflected in the three months ended March 31, 2000.
The 2000 Acquisitions contributed $0.8 million of the increase in rental
revenues for the quarter ended March 31, 2000. The 2000 Acquisitions
include two office properties totaling 334,625 square feet for a total
investment of $79.5 million. These properties were acquired on various
dates throughout the quarter and, as such, a full quarter's revenues and
expenses were not recognized during the period. As used herein, the term
"total investment" represents the initial purchase price of acquisitions,
plus projected costs of certain repositioning and rehab capital
expenditures anticipated at the time of purchase.
The increases in rental revenues are partially offset by a decrease of $5.7
million attributable to properties which the Operating Partnership disposed
of during the three months ended March 31, 2000. The 2000 Dispositions took
place at various dates during the quarter, therefore a full quarter's worth
of revenues and expenses may not be reflected in the 2000 rental revenues.
During the quarter the Operating Partnership disposed of four properties
totaling 648,030 square feet and two land parcels. Three properties
totaling 600,708 square feet represent the continuing disposition of
approximately 3.6 million square feet of the Seattle industrial portfolio.
To date, 2.8 million square feet of this portfolio has been disposed.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------- --------- -------------------
CHANGE
-------------------
2000 1999 $ %
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and Other Income $ 2.1 $ 1.4 $ 0.7 50.0%
</TABLE>
Interest and other income increased due to additional management fees
collected from outside parties, and from interest income on deposits held
in escrow from disposed properties. Average cash balances for the three
month period ended March 31, 2000 were $20.9 million and for 1999 were
$21.9.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------- -------- -------------------
CHANGE
-------------------
Property Operating Expenses 2000 1999 $ %
--------------------------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Rental Expenses $ 35.5 $31.6 $ 3.9 12.3%
Real Estate Taxes 12.5 11.6 0.9 7.8
---------- -------- --------- ---------
$ 48.0 $43.2 $ 4.8 11.1%
========== ======== ========= =========
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------- -------- -------------------
CHANGE
-------------------
Property Operating Expenses 2000 1999 $ %
---------------------------------------
<S> <C> <C> <C> <C>
1999 Core Portfolio $ 44.4 $41.2 $ 3.2 7.8%
1999 Acquisitions 1.3 0.2 1.1 550.0
2000 Acquisitions 0.2 - 0.2 -
Developments 2.0 0.7 1.3 185.7
Dispositions 0.1 1.1 (1.0) (90.9)
---------- -------- --------- ---------
$ 48.0 $43.2 $ 4.8 11.1%
========== ======== ========= =========
Property Operating
Expenses as % of
Rental Revenues 28.7% 29.0%
===== =====
</TABLE>
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 square footage of the Operating Partnership's portfolio of
office properties, as well as higher compensation costs included in the
Operating Partnership's rental expenses. These increases are consistent
with the increases in rental revenue.
Rental revenues net of property operating expenses, referred to as "net
operating income," is presented in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
CHANGE
-------------------
Net Operating Income 2000 1999 $ %
--------------------
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
1999 Core Portfolio $ 110.9 $100.6 $ 10.3 10.2%
1999 Acquisitions 2.8 0.4 2.4 600.0
2000 Acquisitions 0.6 - 0.6 -
Developments 4.9 0.1 4.8 4,800.0
Dispositions 0.2 4.9 (4.7) (95.9)
---------- -------- --------- ---------
$ 119.4 $106.0 $ 13.4 12.6%
========== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
CHANGE
-------------------
Other Expenses 2000 1999 $ %
-------------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Interest Expense, including
Amortization of Finance Costs $ 31.3 $ 28.8 $ 2.5 8.7%
Depreciation and Amortization
Expense 30.4 25.4 5.0 19.7
G & A Expenses 6.6 5.6 1.0 17.9
G & A Expenses as % of
Rental Revenues 3.9% 3.8%
Capitalized Interest $ 5.4 $ 5.0
</TABLE>
Interest expense increased due to a higher total average outstanding debt
balance in the first quarter of 2000. This increase is the net effect of
additions to interest expense from additional note offerings, which
occurred during the second quarter of 1999, offset by lower balances in the
Operating Partnership's unsecured short-term borrowings and a slight
increase in interest capitalized in relation to the Developments that the
Operating Partnership had in process. The average outstanding debt for the
three months was $2.0 billion in 2000 compared to $1.9 billion in 1999.
16
<PAGE> 17
Depreciation and amortization expense increased by $5.0 million for the
three month period ended March 31, 2000, compared with the same period in
1999, due primarily to the 1999 Acquisitions and the Developments.
General and administrative expenses increased by $1.0 million for the three
month period ended March 31, 2000 as compared with the same period in 1999,
primarily as a result of increases in salaries given current wage pressures
experienced on the West Coast. General and administrative expenses during
2000 have, however remained consistent with 1999 levels on a percentage of
revenue basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
CHANGE
----------------
2000 1999 $ %
--------- -------- ------- --------
<S> <C> <C> <C> <C>
Income from Operations before
Disposition of Real Estate and
Minority Interests $ 53.3 $ 47.6 $ 5.7 12.0%
</TABLE>
The increase in income from operations before disposition of real estate
and minority interests of $5.7 million for the three month period ended
March 31, 2000 is principally due to rent increases in the 1999 Core
Portfolio, 1999 Acquisitions and the Developments.
During the first quarter of 2000, the Operating Partnership recorded gains
on the dispositions of two land parcels and four industrial properties
totaling $22.2 million (see Note 3 to the consolidated statements).
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 31, 2000, the Operating Partnership generated
$96.3 million in cash flows from operating activities. These cash flows
were primarily generated by net income provided by its operating
properties. The cash flows from investing activities of ($56.2) million was
the net effect of the additions of real estate assets offset by proceeds
from the disposition of assets. The cash flows from financing activities of
($45.7) million can be attributed to the payments of partners
distributions. During the first three months of 2000, net cash provided by
financing activities consisted of net borrowings of approximately $10.0
million under its Facility and principal payments of $4.0 million on
mortgage loans. Payments of partners distributions increased by $2.3
million due to a 14.8% increase in the operating partnership unit
distribution rate to $.70 per share and unit for 2000 from $.61 per unit in
1999, as well as a higher number of units outstanding.
The principal sources of funding for acquisitions, development, expansion
and renovation of the properties and debt maturities are the Operating
Partnership's unsecured short-term borrowings, public and privately placed
equity financing, public unsecured debt financing, the issuance of
partnership units in the Operating Partnership, proceeds from dispositions,
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 and proceeds from disposition
of non-strategic assets are adequate to continue to meet liquidity
requirements for the foreseeable future.
At March 31, 2000, 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
Facility provide sufficient sources of liquidity to fund capital
expenditure costs associated with the renewal or re-leasing of space.
As of March 31, 2000, the Operating Partnership had $1.8 billion of
investment grade rated unsecured debt securities outstanding. The debt
securities have interest rates which vary from 6.65% to 8.00%, and maturity
dates which range from 2000 to 2027. The Operating Partnership is currently
in compliance with all of the covenants in the unsecured note agreements.
The Operating Partnership has a $250.0 million Unsecured Line of Credit
Facility, or Facility, bearing interest at the London Interbank Offering
Rate plus .80%. The Facility matures in August 2001 and has a competitive
bid option that allows the Operating Partnership to request bids from the
lenders for advances up to $150.0 million. At March 31, 2000, the Operating
Partnership had $73.0 million outstanding under the Facility. The Facility
is subject to financial covenants concerning leverage, interest coverage
and certain other ratios. The Operating Partnership is currently in
compliance with all of the covenants in the Facility.
17
<PAGE> 18
In addition to the unsecured debt securities and the Facility, the
Operating Partnership has $93.3 million of secured indebtedness (the
"Mortgages") at March 31, 2000. The Mortgages have interest rates varying
from 7.00% to 9.88% and maturity dates from 2001 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 Operating
Partnership also has $9.7 million of assessment bonds outstanding as of
March 31, 2000.
The Company has the capacity pursuant to shelf registration statements to
issue up to approximately $663.8 million in equity securities and the
Operating Partnership has the capacity to issue up to $413.5 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, or 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
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
partners 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 eliminates the effect of straight-line
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 unit is calculated based on weighted average
units outstanding, assuming the conversion of all shares of dilutive Series
A Preferred Stock, and all Operating Partnership units outstanding into
shares of Common Stock and including the dilutive effect of stock option
equivalents computed using the treasury stock method.
STATEMENT OF FUNDS FROM OPERATIONS
(amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Income from operations before disposition of real estate
and minority interests: $ 53,257 $ 47,594
Partners on Series B Preferred Stock (2,510) (2,510)
Partners on Series C Preferred Stock (2,953) (2,953)
Partners on Series E Preferred Stock (2,000) (2,000)
Distributions on Preferred Operating Partnership Units (1,441) (2,527)
--------- ---------
Income from Operations after Series B, C and E
partners, 44,353 37,604
--------- ---------
and Preferred Operating Partnership Unit distributions
Add:
Depreciation and Amortization 30,064 25,102
Other, net 422 38
--------- ---------
Funds from Operations before Straight-line rent 74,839 62,744
--------- ---------
Straight-line rent (2,420) (2,548)
--------- ---------
Funds from Operations $ 72,419 $ 60,196
========= =========
Weighted average diluted unit equivalents outstanding 76,141 73,919
========= =========
</TABLE>
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Operating Partnership uses fixed and variable rate debt to finance its
operations. The information below summarizes the Operating Partnership's market
risks associated with debt outstanding as of March 31, 2000. The following table
presents principal cash flows and related weighted average interest rates by
year of maturity.
EXPECTED MATURITY DATE
(in millions)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt (1) $100.0 $151.3 $110.0 - $ 300.0 $1,268.5 $1,929.8
Average Interest Rate 6.65% 7.22% 6.95% - 6.83% 7.29% 7.16%
Variable Rate Debt (2) - $ 73.0 - - - - $ 73.0
Average Interest Rate - 6.77% - - - - 6.77%
</TABLE>
(1) Represents 96.4% of all debt outstanding.
(2) Represents 3.6% of all debt outstanding.
The carrying amount of the Operating Partnership's debt approximates fair value.
The Operating Partnership's fixed and variable rate debt is described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." At March 31, 2000, the Operating Partnership had no interest rate
caps or swaps.
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
27.1 Financial Data Schedule (EDGAR Filing Only)
(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 12, 2000 /s/ Elke Strunka
-----------------------------
Elke Strunka
Vice President and
Principal Accounting Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 11,575 19,628
<SECURITIES> 0 0
<RECEIVABLES> 9,512 6,693
<ALLOWANCES> 2,023 1,220
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 4,488,373 4,223,677
<DEPRECIATION> 331,114 262,581
<TOTAL-ASSETS> 4,323,832 4,119,224
<CURRENT-LIABILITIES> 0 0
<BONDS> 2,002,789 1,901,671
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 4,323,832 4,119,224
<SALES> 0 0
<TOTAL-REVENUES> 169,512 150,648
<CGS> 0 0
<TOTAL-COSTS> 48,007 43,195
<OTHER-EXPENSES> 36,985 31,054
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 31,263 28,805
<INCOME-PRETAX> 53,257 47,594
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 75,466 52,760
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 65,708 42,026
<EPS-BASIC> 0.89 0.58
<EPS-DILUTED> 0.87 0.58
</TABLE>
