<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12528
SPIEKER PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 94-3185802
(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)
</TABLE>
(415) 854-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
31,811,861 shares of Common Stock, $0.0001 par value as of November 1, 1996.
2,000,000 shares of Class B Common Stock, $0.0001 par value as of November 1,
1996. 1,176,470 shares of Class C Common Stock, $0.0001 par value as of November
1, 1996.
<PAGE> 2
SPIEKER PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements ...............................................................................
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995..........................
Consolidated Statements of Operations for the Three Month and Nine Month Periods
Ended September 30, 1996 and September 30, 1995..................................................
Consolidated Statement of Stockholders' Equity for the Nine Month Period
Ended September 30, 1996.........................................................................
Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1996
and September 30, 1995...........................................................................
Notes to Consolidated Financial Statements..........................................................
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............
PART II. OTHER INFORMATION
Item 2. Changes in Securities...............................................................................
Item 6. Exhibits and Reports on Form 8-K....................................................................
Signatures ....................................................................................................
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached are the following financial statements of Spieker Properties, Inc.
("the Company"):
(i) Consolidated Balance Sheets as of September 30, 1996 and December 31,
1995
(ii) Consolidated Statements of Operations for the Three Month and Nine
Month Periods Ended September 30, 1996 and September 30, 1995
(iii) Consolidated Statement of Stockholders' Equity for the Nine Month
Period Ended September 30, 1996
(iv) Consolidated Statements of Cash Flows for the Nine Month Periods Ended
September 30, 1996 and September 30, 1995
(v) Notes to Consolidated Financial Statements
The financial statements referred to above should be read in conjunction with
the Company's Annual Report on the Form 10-K/A for the year ended December 31,
1995.
<PAGE> 4
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Properties:
Land, land improvements and leasehold interests $ 357,280 $ 303,157
Buildings and improvements 947,005 756,734
Construction in progress 31,901 38,980
----------- -----------
1,336,186 1,098,871
Less - Accumulated depreciation (135,592) (124,612)
----------- -----------
Net investments in properties 1,200,594 974,259
Investments in mortgages 14,342 --
----------- -----------
Net investments in real estate 1,214,936 974,259
CASH AND CASH EQUIVALENTS 24,541 7,573
ACCOUNTS RECEIVABLE 3,353 3,351
DEFERRED RENT RECEIVABLE 4,391 4,698
RECEIVABLE FROM RELATED PARTY 109 386
DEFERRED FINANCING AND LEASING COSTS, net of accumulated
amortization of $8,834 and $9,586 as of September 30,
1996 and December 31, 1995, respectively 16,686 13,485
FURNITURE, FIXTURES AND EQUIPMENT, net 2,225 1,678
PREPAID EXPENSES AND OTHER ASSETS 3,649 6,067
----------- -----------
$ 1,269,890 $ 1,011,497
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
DEBT
Unsecured notes $ 510,000 $ 260,000
Unsecured line of credit 39,000 117,700
Mortgage loans 47,301 112,702
----------- -----------
Total debt 596,301 490,402
----------- -----------
ASSESSMENT BONDS PAYABLE 12,176 12,140
ACCOUNTS PAYABLE 3,619 3,804
ACCRUED REAL ESTATE TAXES 5,018 506
ACCRUED INTEREST 9,658 2,510
UNEARNED RENTAL INCOME 6,410 6,972
DIVIDENDS AND DISTRIBUTIONS PAYABLE 18,655 15,588
OTHER ACCRUED EXPENSES AND LIABILITIES 14,918 12,202
----------- -----------
Total liabilities 666,755 544,124
----------- -----------
MINORITY INTERESTS 44,768 47,526
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series A Preferred Stock: cumulative, convertible, $.0001 par value,
1,000,000 shares authorized, issued and outstanding, $25,000
liquidation preference 23,949 23,949
Series B Preferred Stock: cumulative, redeemable, $.0001 par value,
5,000,000 shares authorized, 4,250,000 issued and outstanding, $106,250
liquidation preference 102,064 102,064
Common Stock: $.0001 par value, 660,500,000 shares authorized, 31,811,861
and 26,724,074 shares issued and outstanding as of September 30, 1996,
and December 31, 1995, respectively 3 3
Class B Common Stock: $.0001 par value, 2,000,000 shares authorized,
issued and outstanding -- --
Class C Common Stock: $.0001 par value, 1,500,000 shares authorized,
1,176,470 issued and outstanding as of September 30, 1996 -- --
Excess Stock: $.0001 par value per share, 330,000,000 shares authorized,
no shares issued or outstanding -- --
Additional paid-in capital 432,912 303,320
Deferred compensation (561) (652)
Retained earnings (deficit) -- (8,837)
----------- -----------
Total stockholders' equity 558,367 419,847
----------- -----------
$ 1,269,890 $ 1,011,497
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(dollars in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Rental income $ 51,079 $ 38,627 $ 142,131 $ 110,529
Interest and other income 1,064 397 3,026 1,521
--------- --------- --------- ---------
52,143 39,024 145,157 112,050
--------- --------- --------- ---------
OPERATING EXPENSES
Rental expenses 9,578 6,177 24,351 17,556
Real estate taxes 3,989 3,132 11,292 8,822
Interest expense, including amortization of finance costs 9,761 10,690 26,443 35,711
Depreciation and amortization 10,033 8,100 27,373 23,384
General and administrative and other expenses 2,686 2,114 7,491 6,335
--------- --------- --------- ---------
36,047 30,213 96,950 91,808
--------- --------- --------- ---------
Income from operations before disposal of real estate
properties and minority interests 16,096 8,811 48,207 20,242
--------- --------- --------- ---------
DISPOSAL OF REAL ESTATE PROPERTIES
Loss on sale (1,483) -- (1,483) --
--------- --------- --------- ---------
Income from operations before minority interests 14,613 8,811 46,724 20,242
--------- --------- --------- ---------
MINORITY INTERESTS' SHARE IN NET INCOME (1,826) (1,556) (6,121) (3,885)
--------- --------- --------- ---------
Net income 12,787 7,255 40,603 16,357
--------- --------- --------- ---------
PREFERRED DIVIDENDS
Series A Preferred Stock (524) (512) (1,573) (1,536)
Series B Preferred Stock (2,510) -- (7,530) --
--------- --------- --------- ---------
Net income available to Common Stockholders $ 9,753 $ 6,743 $ 31,500 $ 14,821
========= ========= ========= =========
INCOME PER SHARE OF COMMON STOCK
Net income $ .27 $ .23 $ .92 $ .59
========= ========= ========= =========
DIVIDENDS AND DISTRIBUTIONS PER SHARE
Series A Preferred Stock $ .52 $ .51 $ 1.57 $ 1.53
========= ========= ========= =========
Series B Preferred Stock $ .59 $ -- $ 1.77 $ --
========= ========= ========= =========
Common Stock, including Class B and Class C $ .43 $ .42 $ 1.34 $ 1.26
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Series B Common Class B Class C Common Additional
Preferred Preferred Stock Common Common Stock Par Paid-in
Stock Stock Shares Stock Shares Stock Shares Value Capital
----- ----- ------ ------------------------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 23,949 $102,064 26,724,074 2,000,000 - $ 3 $303,320
Common Stock Offering - - 5,022,500 - - - 121,368
Class C Common Stock Offering - - - - 1,176,470 - 29,963
Stock Options Exercised - - 41,750 - - - 856
Restricted Stock Grant - - 8,000 - - - 200
Non-cash Compensation Merit Fund - - - - - - 75
Conversion of Operating Partnership - - 15,537 - - - 386
Interests
Amortization of Deferred Compensation - - - - - - -
Dividends Declared - - - - - - (23,256)
Net Income - - - - - - -
-------- -------- ---------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996 $ 23,949 $102,064 31,811,861 2,000,000 1,176,470 $ 3 $432,912
======== ======== ========== ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Retained
Deferred Earnings
Compensation (Deficit) Total
------------ --------- -----
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ (652) $ (8,837) $419,847
Common Stock Offering - - 121,368
Class C Common Stock Offering - - 29,963
Stock Options Exercised - - 856
Restricted Stock Grant (200) - -
Non-cash Compensation Merit Fund - - 75
Conversion of Operating Partnership - - 386
Interests
Amortization of Deferred Compensation 291 - 291
Dividends Declared - (31,766) (55,022)
Net Income - 40,603 40,603
-------- -------- --------
BALANCE AT SEPTEMBER 30, 1996 $ (561) $ - $558,367
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30
------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 40,603 $ 16,357
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 27,373 23,384
Amortization of prepaid interest and deferred financing costs 956 7,418
Non-cash compensation 381 276
Minority share of net income 6,121 3,885
Loss on sale of real estate 1,483 --
Decrease (increase) in deferred rent receivable 307 (275)
(Increase) decrease in accounts receivable (2) 1,002
Decrease in receivable from related party 277 65
Decrease (increase) in prepaid expenses and other assets 1,239 (994)
Decrease in assessment bonds payable (573) (342)
(Decrease) increase in accounts payable (185) 5,155
Increase in accrued real estate taxes 4,512 3,390
Increase (decrease) in accrued interest 7,148 (480)
Increase in other accrued expenses and liabilities 2,520 2,294
Decrease in unearned rental income (562) (1,181)
Decrease in payable to related party -- (1,186)
--------- ---------
Net cash provided by operating activities 91,598 58,768
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (253,374) (128,401)
Additions to leasing costs (4,288) (2,994)
Additions to investment in mortgages (14,342) --
Proceeds from disposal of property 2,001 --
--------- ---------
Net cash used for investing activities (270,003) (131,395)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 513,050 139,431
Payments on debt (407,151) (196,755)
Payment of financing fees (2,250) (303)
Payment of dividends/distributions (60,463) (38,201)
Proceeds from sale of Common Stock, net of issuance costs 121,368 117,158
Proceeds from sale of Class B Common Stock, net of issuance costs -- 49,961
Proceeds from sale of Class C Common Stock, net of issuance costs 29,963 --
Proceeds from stock options exercised 856 645
--------- ---------
Net cash provided by financing activities 195,373 71,936
--------- ---------
Net increase (decrease) in cash and cash equivalents 16,968 (691)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,573 9,663
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,541 $ 8,972
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest 20,181 29,119
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Debt assumed in relation to property acquisitions -- 22,827
Increase to land and assessment bonds payable 609 4,034
Minority interest capital recorded in relation to property acquisitions -- 10,113
Write-off of fully depreciated property 12,979 3,369
Write-off of fully amortized deferred financing and leasing costs 4,098 1,847
Conversion of operating partnership units into Common Stock with resulting
reduction in minority interest and increase in additional paid-in-capital 386 343
Restricted Stock Grants 200 --
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
SPIEKER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(dollars in thousands, except share data)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Spieker Properties, Inc.
Spieker Properties, Inc. (the "Company") was organized in the state of
Maryland on August 20, 1993, and commenced operations on November 19, 1993.
On November 18, 1993, the Company completed an initial public offering
("IPO") and issued 20,400,000 shares of Common Stock at $20.50 per share,
or $418,200. Net proceeds of $386,800 were used to purchase an approximate
77.6 percent general partnership interest in Spieker Properties L.P. (the
"Operating Partnership"). The Company and the Operating Partnership are
collectively referred to as the Company. The Company qualifies as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986
(the "Code"), as amended.
The Company is primarily engaged in the ownership, operation, management,
leasing, acquisition, expansion and development of industrial, suburban
office, and retail income-producing properties. As of September 30, 1996,
the Company owned (i) 100 percent of 134 properties, (ii) an effective 100
percent general partner interest in Spieker Washington Interest Partners
("SWIP"), a California general partnership, which owns 100 percent of 13
properties, (iii) a 90 percent interest in 1 property, (iv) a 92.5 percent
interest with SWIP in 1 property, and (v) 95 percent of the Series A
Preferred Stock of Spieker Northwest, Inc., which provides fee management
and other services for properties not owned by the Company. The Company's
149 stabilized properties, aggregating approximately 20.4 million leasable
square feet, are comprised of 80 industrial properties, 54 office
properties, and 15 retail properties. All of the properties are located in
California and the Pacific Northwest.
The Company owned approximately 84.9 percent of the Operating Partnership
as of September 30, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Company's consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries as of
September 30, 1996, and December 31, 1995, its consolidated results of
operations, for the three and nine month periods ended September 30, 1996
and 1995, and its consolidated cash flows for the nine month periods ended
September 30, 1996 and 1995. The Company's investment in Spieker Northwest,
Inc. is accounted for under the equity method. The carrying value of
Spieker Northwest, Inc. of $53 at September 30, 1996, and December 31,
1995, is included in prepaid expenses and other assets. All significant
intercompany balances and transactions have been eliminated in the
consolidated financial statements.
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
Company believes that adequate disclosures have been made.
The interim results for the three and nine month periods ended September
30, 1996 and 1995 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 Company's Annual Report on Form 10-K/A for the year ended
December 31, 1995.
<PAGE> 10
Investments in Real Estate
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:
Land improvements and leasehold interests 18 to 40 years
Buildings and improvements 10 to 40 years
Tenant improvements Term of the related lease
Investments in properties are stated at the lower of depreciated cost or
estimated fair value. Fair value for financial reporting purposes is
evaluated periodically by the Company 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) during the anticipated holding period,
plus the estimated cash proceeds from the ultimate disposition of the
property. To the extent that the carrying value exceeds the estimated fair
value, a provision for decrease in net realizable value is recorded.
Estimated fair value is not necessarily an indication of a property's
current value or the amount that will be realized upon the ultimate
disposition of the property. As of September 30, 1996, none of the carrying
values of the properties exceeded their estimated fair values.
As of September 30, 1996, the properties are located primarily in
California, Oregon and Washington. As a result of this geographic
concentration, the operations of these properties could be adversely
affected by a recession or general economic downturn in the areas where
these properties are located.
The Company is considering the sale of certain retail properties, though as
of September 30, 1996, the Board of Directors had not yet approved a plan
of disposition.
Project costs clearly associated with the development and construction of a
real estate project are capitalized as construction in progress. In
addition, interest and real estate taxes are capitalized during the period
in which activities necessary to get the property ready for its intended
use are in progress.
In January 1996, the Company acquired two mortgage loans for the initial
cost of $14,333. The mortgages are secured by real estate, have an
aggregate face value of $21,000, require monthly principal and interest
payments of $163, and mature in December 1999. The Company assesses
possible impairment of these loans on a quarterly basis by reviewing the
fair value of the underlying real estate. At September 30, 1996, the value
of the underlying real estate was in excess of the carrying value of the
mortgage loans.
The land on which three of the Company'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 Company will be
responsible for the ground lease payments, as defined under the terms of
the leases. These ground lease payments have been segregated from the total
purchase price of the properties, capitalized as leasehold interests in the
accompanying consolidated balance sheet, and are being amortized ratably
over the terms of the related original prepayment periods (18 to 24 years).
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or less
when purchased are classified as cash equivalents.
Deferred Financing and Leasing Costs
Costs incurred in connection with financing or leasing are capitalized and
amortized on a straight-line basis over the term of the related loan or
lease for periods ranging from 2 to 25 years. Unamortized leasing costs are
charged to expense upon the early termination of the lease.
Fair Value of Financial Investments
Based on the borrowing rates currently available to the Company, the
carrying amount of debt approximates fair value. Cash and cash equivalents
consist of demand deposits, certificates of deposit, overnight repurchase
agreements, and
<PAGE> 11
investments in money market funds, with financial institutions. The
carrying amount of cash and cash equivalents approximates fair value.
Minority Interest
Minority interest in the Company represents (i) the individual Spieker
Partners' approximate 15.1 percent limited partnership interest in the
Operating Partnership, and (ii) a 10 percent interest in one property and a
7.5 percent interest in another property held by outside interests.
Revenues
All leases are classified as operating leases. Rental income is recognized
on the straight-line basis over the terms of the leases. Deferred rent
receivable represents the excess of rental revenue recognized on a
straight-line basis over cash received under the applicable lease
provisions.
Interest and Other Income
Interest and other income includes interest income on cash, cash
equivalents and mortgage investments, management fee income and a $150
extraordinary gain on the early extinguishment of debt.
Net Income (Loss) Per Share of Common Stock
Per share amounts for the Company are computed using the weighted average
common shares outstanding (including Class B Common Stock and Class C
Common Stock) during the period, including the dilutive effect of vested
stock options. The weighted average common shares outstanding for the three
and nine month periods ended September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Weighted Average
Common Shares Outstanding
-------------------------
<S> <C>
Three months ended:
September 30, 1996 35,728,317
September 30, 1995 29,247,568
Nine months ended:
September 30, 1996 34,280,115
September 30, 1995 25,023,655
</TABLE>
Earnings used in the calculation are reduced by dividends owed to preferred
stockholders.
Reclassifications
Certain items in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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. RELATED PARTY TRANSACTIONS
Receivable From Related Party
The receivable from related party at September 30, 1996, and December 31,
1995, represents management fees and reimbursements from Spieker Partners
related entities.
<PAGE> 12
4. DEBT
Unsecured Notes
On July 19 and 22, 1996, the Company issued unsecured notes totaling
$150,000 in principal, consisting of $100,000 of notes maturing in 2005
with an 8.00% interest rate and $50,000 of notes maturing in 2001 with a
7.58% interest rate. Net proceeds were used to repay borrowings on the
unsecured line of credit.
As of September 30, 1996, the Company has outstanding $510,000 in
investment grade rated unsecured notes with varying interest rates from
6.65% to 8.00% payable semi-annually. The notes are due on various dates
from 2000 to 2005.
Unsecured Line of Credit
The maximum amount available under the Company's unsecured line of credit
facility is $150,000. The facility carries interest at LIBOR plus 1.25% and
matures in November 1997. The facility also includes a fee on average
unused funds which varies between 0.125% and 0.20% based on the average
outstanding balance. As of September 30, 1996, the amount drawn on the
facility was $39,000.
Mortgage Loans
Mortgage loans of $47,301 as of September 30, 1996, are secured by a first
or second deed of trust on related properties. The mortgage loans carry
interest rates ranging from 7.5% to 13.75%, require monthly principal and
interest payments, and mature on various dates from 1996 to 2012.
5. DIVIDENDS AND DISTRIBUTIONS PAYABLE
The dividends and distributions payable at September 30, 1996, and December
31, 1995, represent amounts payable to stockholders of record and
distributions payable to minority interest holders as of the same dates.
The stockholders of record and minority interests holders as of September
30, 1996, and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Shares of:
Common Stock 31,811,861 26,724,074
Class B Common Stock 2,000,000 2,000,000
Class C Common Stock 1,176,470 -
Series A Preferred Stock 1,000,000 1,000,000
Series B Preferred Stock 4,250,000 4,250,000
Minority Interest Holders 6,549,819 6,565,356
</TABLE>
6. STOCKHOLDERS' EQUITY
Equity Offerings
On February 28, 1996, the Company concurrently sold 4,887,500 shares of
Common Stock, through an underwritten public offering, and directly placed
1,176,470 shares of Class C Common Stock and 135,000 shares of Common Stock
with a limited number of institutional investors at $25.50 per share. Net
proceeds of $151,332 were used primarily to repay floating rate debt.
In December 1995, the Company sold 4,250,000 shares of Series B Preferred
Stock at $25.00 per share and concurrently sold $260,000 of unsecured
investment grade rated notes through underwritten public offerings
(collectively referred to as the "December 1995 Offerings"). Net proceeds
of $358,900 were used to prepay cross-collateralized mortgage obligations
outstanding and certain fees to Prudential Insurance Company.
On May 11, 1995, the Company sold 5,750,000 shares of Common Stock for
$19.75 per share through an underwritten public offering. Concurrently, the
Company sold 506,329 shares of Common Stock at $19.75 per share and
2,000,000 shares of Class B Common Stock at $25.00 per share to a limited
number of institutional investors (collectively referred to as the
"Concurrent Offerings"). Net proceeds from the underwritten public offering
and the Concurrent Offerings
<PAGE> 13
totaling $167,119 were used to repay indebtedness incurred by the Company
to fund acquisition and development activities.
Preferred Stock
The 1,000,000 shares of Series A Cumulative, Convertible, Preferred Stock
rank senior to the Company's Common Stock as to dividends and liquidation
rights. The shares are convertible at $20.50 per share into 1,219,512
shares of the Company's Common Stock and have voting rights equal to
1,219,512 shares of Common Stock. The dividend per share, calculated on the
converted numbers of shares, is equal to the Common Stock dividend,
provided that the dividend yield on the preferred stock may not be less
than the initial dividend rate thereof. With respect to the payment of
dividends and amounts upon liquidation, the Series A Preferred Stock ranks
on parity with the Company's Series B Preferred Stock and ranks senior to
the Company's Common Stock, Class B Common Stock and Class C Common Stock.
The Series B Preferred Stock dividends are paid quarterly in arrears at
9.45% of the initial liquidation preference per annum. The Series B
Preferred Stock are redeemable on or after December 11, 2000 at the option
of the Company in whole or in part at a redemption price of $25.00 per
share, plus accrued and unpaid dividends. With respect to the payments of
dividends and amounts upon liquidation, the Series B Preferred Stock ranks
on parity with the Company's Series A Preferred Stock and ranks senior to
the Company's Common Stock, Class B Common Stock and Class C Common Stock.
Class B Common Stock
The Class B Common Stock ranks on parity with the Company's Common Stock
and Class C Common Stock with respect to dividends. In the event of any
liquidation of the Company, the holders of Class B Common Stock rank on
parity with Class C Common Stock and are entitled to receive prior and in
preference to holders of Common Stock, an amount per share of Class B
Common Stock equal to all declared but unpaid dividends for each share of
Class B Common Stock.
Class C Common Stock
The Class C Common Stock ranks on parity with the Company's Common Stock
and Class B Common Stock with respect to dividends. In the event of any
liquidation of the Company, the holders of Class C Common Stock rank on
parity with Class B Common Stock and are entitled to receive prior to and
in preference to the holders of Common Stock, an amount per share of Class
C Common Stock equal to all declared but unpaid dividends for each share of
Class C Common Stock.
Ownership Limitations
To maintain its qualification as a REIT, not more than 50 percent in value
of the outstanding shares of the Company may be owned, directly or
indirectly, by five or fewer individuals (defined to include certain
entities), applying certain constructive ownership rules. To help ensure
that the Company will not fail this test, the Company's Charter provides
for certain restrictions on the transfer of the Common Stock to prevent
further concentration of stock ownership. Moreover, to evidence compliance
with these requirements, the Company must maintain records that disclose
the actual ownership of its outstanding Common Stock and will demand
written statements each year from the record holders of designated
percentages of its Common Stock disclosing the actual owners of such Common
Stock.
7. EMPLOYEE STOCK PLANS
Employee Stock Incentive Pool
At the time of the Company's initial public offering, the Senior Officers
of the Company reserved a portion of their Operating Partnership Units for
awards to personnel employed by the Company at the time of the IPO. The
units are converted into Common Stock at the time of grant. The aggregate
amount of interests reserved for the Employee Stock Incentive Pool is
equivalent to 69,990 shares of Common Stock. The participants in the Pool
were granted 25% of their respective allocations on January 1, 1994,
January 1, 1995, and January 1, 1996, resulting in a total of 75% of
potential stock awards having been granted. The remainder of the employees'
allocations will be granted on January 1, 1997, provided that the employee
has not previously terminated employment.
<PAGE> 14
The initial deferred compensation of $1,320 pertaining to the 69,990 units
was recorded on the books of the Company, and is being amortized annually
based on the vesting period. The initial value was calculated by converting
the 69,990 partnership units into shares of Common Stock and multiplying by
the Company's Common Stock price on the date of the grant.
Non-cash compensation expense for the awards is measured by the number of
Operating Partnership units converted multiplied by the Company's Common
Stock price on the date of conversion.
For the nine month period ended September 30, 1996, non-cash compensation
expense recognized for such awards was $291.
Stock Incentive Plan
The Company has adopted the Spieker Properties, Inc. 1993 Stock Incentive
Plan (the "Stock Incentive Plan") to provide incentives to attract and
retain officers and key employees. Under the Plan as amended on May 22,
1996, the number of shares available for option grant is 9.9% of the number
of shares of Common Stock outstanding as of the last day of the immediately
preceding quarter, reduced by the number of shares of Common Stock reserved
for issuance under other stock compensation plans of the Company. As of
September 30, 1996, options on approximately 1,529,750 shares of Common
Stock at an exercise price of $20.50 per share, and 200,000 shares of
Common Stock at an exercise price of $25.00 per share have been granted
under the Plan. To date, 75,250 share options have been exercised and
747,000 share options are currently exercisable.
Directors' Stock Option Plan
On May 22, 1996, the Directors' Stock Option Plan was amended to increase
the number of shares of Common Stock subject to automatic annual option
grants to Independent Directors from 500 shares to 4,000 shares, to
increase the number of shares of Common Stock available for option grant
from 30,000 to 150,000, and to provide that, in the event of a Change in
Control, outstanding options will become fully vested.
8. ACQUISITIONS
The Company acquired the following properties during the nine month period
ended September 30, 1996:
<TABLE>
<CAPTION>
Total Rentable
Project Name Location Property Type(1) Square Feet Date Acquired Initial Cost
------------ -------- ---------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Bayside Corporate Center Foster City, CA O 84,925 Jan '96 $ 10,000
Benicia Industrial Benicia, CA I 1,822,788 Jan '96 $ 41,100
Everett Industrial Everett, WA I 150,154 Mar '96 $ 7,400
Carmel Valley Centre I & II San Diego, CA O 106,921 Apr '96 $ 14,000
2290 North First Street San Jose, CA O 75,680 May '96 $ 6,000
Everett 526 Everett, WA I 97,523 May '96 $ 4,300
Port of Oakland Oakland, CA I 199,733 May '96 $ 6,800
Doolittle Drive San Leandro, CA I 113,196 May '96 $ 3,500
10700 Northup Building Bellevue, WA O 55,854 May '96 $ 4,600
Dove Street Newport Beach, CA O 78,052 June '96 $ 7,900
Fidelity Plaza Sacramento, CA O 77,453 July '96 $ 5,000
The City Orange, CA O 595,056 July '96 $ 34,400
MacArthur Park Santa Ana, CA I 93,158 Aug '96 $ 6,200
Fairchild Corporate Center Irvine, CA O 104,973 Aug '96 $ 10,100
Stadium Plaza Anaheim, CA I 769,003 Aug '96 $ 38,400
</TABLE>
(1) "O" indicates office property; "I" indicates industrial property.
Additionally, the Company acquired two mortgages secured by two office
properties in San Jose, California for the initial cost of $14,333.
<PAGE> 15
9. DEVELOPMENTS
During the nine month period ended September 30, 1996, the Company acquired
five parcels of land for development. The total initial cost of these five
parcels was $7,243.
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Statements contained in this Item 2, "Management's Discussion and Analysis
of Financial Conditions and Results of Operations," and elsewhere in this
Quarterly Report on Form 10-Q which are not historical facts may be
forward-looking statements. Such statements are subject to certain risks
and uncertainties which could cause actual results to differ materially
from those projected, including, but not limited to, those risks and
special considerations set forth in the Company'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 Company 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 Company's consolidated operations for
the three and nine month periods ended September 30, 1996, as compared to
the corresponding periods ended September 30, 1995.
Rental revenues for the third quarter of 1996 increased by $12.5 million or
32.4% to $51.1 million, as compared with $38.6 million for the quarter
ended September 30, 1995. Of this increase, $3.5 million was generated by
properties acquired during 1995 (the "1995 Acquisitions"). During 1995, the
Company invested $164.8 million to acquire properties totaling 2.3 million
square feet. As used herein, the terms "invested" and "total investment"
represent the initial purchase price of acquisitions, plus the projected
cost of certain repositioning capital expenditures anticipated at the time
of purchase.
$2.5 million of the rental increase in the third quarter of 1996 was
generated by property developments (the "Developments"). During the nine
month period ended September 30, 1996, seven properties totaling 0.9
million square feet have been completed and added to the Company's
portfolio of stabilized properties. The total cost of such properties,
including the estimated cost to complete initial tenant improvements, is
$63.0 million. The Company also has a current development pipeline
consisting of eleven properties representing a total projected cost of
$82.3 million and 1.3 million square feet. Certain of the properties in the
development pipeline are shell complete and partially occupied.
$6.1 million of the rental revenue increase in the third quarter of 1996
was generated by properties acquired during the nine month period ended
September 30, 1996. During the first three quarters of 1996, the Company
acquired properties totaling 3.4 million square feet, net of 1.0 million
square feet, in two properties acquired, undergoing substantial
repositioning (the "1996 Acquisitions"). The Company estimates the total
investment in the 1996 Acquisitions completed as of September 30, 1996,
will be $227.9 million.
The remaining $0.4 million of the increase in rental revenues is
attributable to revenue increases in the properties owned at January 1,
1995, (the "Core Portfolio"). The revenue increase in the Core Portfolio is
due to increased rental rates realized on the renewal and re-leasing of
second-generation space. During the first nine months of 1996, the Company
completed 470 lease transactions for the renewal or re-leasing of 2.7
million square feet of second-generation space. On average, the new
effective rates were 10.8% higher than the expiring rent.
For the nine month period ended September 30, 1996, rental revenues
increased by $31.6 million or 28.6% to $142.1 million, as compared to
$110.5 million for the corresponding period ended September 30, 1995. The
increase was attributable to revenues in the amount of $14.0 million from
the 1995 Acquisitions, $5.3 million from the Developments, $10.0 million
from the 1996 Acquisitions, and $2.3 million from the Core Portfolio.
As a result of the 1995 Acquisitions, 1996 Acquisitions, and the
Developments, the Company's rentable square footage increased by 4.8
million square feet or 30.8% to 20.4 million square feet on September 30,
1996, from 15.6 million on September 30, 1995. At September 30, 1996, the
portfolio of stabilized properties was 94.9% leased. By property type, the
office portfolio was 93.4% leased, the industrial portfolio was 95.8%
leased and the retail portfolio was 93.7% leased.
Interest and other income increased by $0.7 million and $1.5 million or
175.0% and 100.0% for the three and nine month periods ended September 30,
1996, respectively, as compared to the same periods in 1995. The net
increases in interest and other income were primarily due to $0.5 million
and $1.3 million in interest income earned on investments in mortgages
during the three and nine month periods ended September 30, 1996,
respectively.
Rental expenses increased by $3.4 million or 54.8% for the three month
period ended September 30, 1996, as compared with the same period in 1995.
Real estate taxes increased by $0.9 million or 29.0% for the three month
period ended September 30, 1996, as compared with the same period in 1995.
The overall increase in rental expenses and real estate
<PAGE> 17
taxes (collectively referred to as "property operating expenses") is
primarily a result of the growth in the total square footage of the
Company's portfolio of properties. On a percentage basis, property
operating expenses were 26.6% and 24.1% of rental revenues for the quarters
ended September 30, 1996, and September 30, 1995, respectively. The total
increase in property operating expenses is due to a $1.2 million increase
attributable to the 1995 Acquisitions, a $0.6 million increase attributable
to the Developments, a $2.1 million increase attributable to the 1996
Acquisitions, and a $0.4 million increase attributable to the Core
Portfolio.
For the nine month period ended September 30, 1996, rental expenses
increased by $6.8 million or 38.6% to $24.4 million, as compared to $17.6
million for the corresponding period ended September 30, 1995. Real estate
taxes increased by $2.5 million or 28.4% to $11.3 million for the nine
month period ended September 30, 1996, as compared to $8.8 million for the
corresponding period ended September 30, 1995. The total increase in
property operating expenses is due to a $4.6 million increase attributable
to the 1995 Acquisitions, a $1.5 million increase attributable to the
Developments, a $0.3 million increase attributable to the Core Portfolio,
and a $2.9 million increase attributable to the 1996 Acquisitions. On a
percentage basis, property operating expenses were 25.1% and 23.9% of
rental revenues for the nine month periods ended September 30, 1996 and
1995, respectively.
Interest expense decreased by $0.9 million or 8.4% to $9.8 million for the
three month period ended September 30, 1996, from $10.7 million for the
same period in 1995. For the nine month period ended September 30, 1996,
interest expense decreased by $9.3 million or 26.1% to $26.4 million, from
$35.7 million for the same period in 1995. The decrease in interest expense
is due to the elimination of the amortization of debt discount as a result
of the December 1995 refinancing of $347 million of secured mortgage debt
(the "Prudential Debt"). The Prudential Debt was prepaid with the net
proceeds from the concurrent underwritten public offering of $260.0 million
of investment grade rated unsecured notes and 4.25 million shares of Series
B Preferred Stock. The prepayment of the Prudential Debt resulted in the
write-off of approximately $28.1 million in debt discount which was
previously being amortized over the remaining term of the loans and
recorded as interest expense.
Depreciation and amortization expenses increased by $1.9 million or 23.5%
and $4.0 million or 17.1% for the three and nine month periods ended
September 30, 1996, respectively, as compared with the same periods in 1995
due to the 1995 and 1996 Acquisitions and the Developments.
General and administrative expenses and other expenses increased by $0.6
and $1.2 million for the three and nine month periods ended September 30,
1996, respectively, as compared with the same periods in 1995, primarily as
a result of the increased number of employees. On a percentage basis,
general and administrative expenses were 5.3% and 5.3% of rental revenues
for the three and nine month periods ended September 30, 1996,
respectively, as compared with 5.4% and 5.7%, respectively, for the same
periods in 1995.
Net income before minority interests and disposal of real estate properties
increased by $7.3 million or 83.0% to $16.1 million for the three month
period ended September 30, 1996, from $8.8 million for the same period in
1995. For the nine month period ended September 30, 1996, net income before
minority interests and disposal of real estate properties increased by
$28.0 million or 138.6% to $48.2 million from the amount for the same
period in 1995. The increase in net income is principally due to (i) the
increase in income from the 1995 and 1996 Acquisitions, the Developments
and the increased property operating income (rental revenue less property
operating expenses) generated by the Core Portfolio as a result of
increased rental rates realized on the renewal and re-leasing of
second-generation space and (ii) the decrease in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended September 30, 1996, cash provided by
operating activities increased by $32.8 million or 55.8% to $91.6 million,
as compared to $58.8 million for the same period in 1995. The increase is
primarily due to the increase in net income resulting from the 1995 and
1996 Acquisitions, the Developments, increased property operating income
generated by the Core Portfolio and a decrease in interest expense. Cash
used for investing activities increased by $138.6 million or 105.5% to
$270.0 million for the first nine months of 1996, as compared to $131.4
million for the same period in 1995. The increase is attributable to the
Company's ongoing acquisition and development of suburban office,
industrial and retail properties. Cash provided by financing activities
increased by $123.5 million or 171.8% to $195.4 million for the first nine
months of 1996, as compared to $71.9 million for the same period in 1995.
During the first nine months of 1996, cash provided by financing activities
consisted, primarily, of $152.2 million in net proceeds from the sale of
Common Stock and Class C Common Stock, and $248.1 million in net proceeds
from the issuance of unsecured notes, which was offset by net payments of
$78.7 million on the line of credit
<PAGE> 18
and net payments of $65.4 million on mortgage loans. Additionally, payments
of distributions increased by $22.3 million to $60.5 million for the first
nine months of 1996, as compared with $38.2 million for the same period in
1995. The increase is due to the greater number of shares outstanding and a
2.4% increase in the distribution rate.
The principal sources of funding for acquisitions, development, expansion
and renovation of the properties are an unsecured line of credit,
construction and permanent secured debt financings, public and privately
placed equity financing, public unsecured debt financing, the issuance of
partnership units in the Operating Partnership, and cash flow provided by
operations. The Company believes that its liquidity and capital resources
are adequate to continue to meet liquidity requirements for the foreseeable
future.
At September 30, 1996, the Company had no material commitments for capital
expenditures related to the renewal or re-leasing of space. The Company
believes that the cash provided by operations and its line of credit
provide sufficient sources of liquidity to fund capital expenditure costs
associated with the renewal or re-leasing of space.
The Company has a $150.0 million unsecured line of credit facility (the
"Facility") with interest at London Interbank Offered Rates ("LIBOR") plus
1.25%. The Facility matures in November 1997 and the Company has an option
to extend the Facility for one year upon payment of a fee equal to 0.12% of
the total Facility. The Facility also includes a fee on average unused
funds, which varies between 0.125% and 0.20% based on the average
outstanding balance. At September 30, 1996, the Company had $39.0 million
outstanding under the Facility.
In December 1995, the Company issued in a public offering $260.0 million of
unsecured investment grade rated notes (the "Unsecured Notes") and the
Company issued $106.3 million of Series B Preferred Stock (the offering of
the Unsecured Notes and the offering of the Series B Preferred Stock are
collectively referred to as the "December Offerings"). The Unsecured Notes
were issued in three tranches as follows: $100.0 million of 6.65% notes due
December 15, 2000, priced to yield 6.683%, $50.0 million of 6.80% notes due
December 15, 2001, priced to yield 6.823%, and $110.0 million of 6.95%
notes due December 15, 2002, priced at par. The Series B Preferred Stock
was issued at $25.00 per share and a dividend yield of 9.45%.
The proceeds from the December Offerings of $358.9 million were used to
prepay a cross-collateralized mortgage obligation outstanding to Prudential
Insurance Company. The amount paid to Prudential Insurance Company included
the repayment of principal, interest due through December 10, 1995, and a
negotiated prepayment penalty of $11.8 million. The prepayment resulted in
the unencumbrance of 55 of the Company's properties.
On January 19, 1996, the Company issued $100.0 million of investment grade
rated unsecured notes. The notes carry an interest rate of 6.90%, were
priced to yield 6.97%, and mature on January 15, 2004. Net proceeds of
$98.9 million were used to repay borrowings on the unsecured line of
credit. In June 1996, the Company commenced a $200.0 million medium-term
note program. In July 1996, the Company issued $100.0 million of 8.00%
medium-term notes due July 19, 2005 and $50.0 million of 7.58% medium-term
notes due December 17, 2001 (the "July Notes"). The net proceeds of $149.2
million from the issuance of the July Notes were used to repay borrowings
on the line of credit and to fund ongoing acquisition and development
projects. As of September 30, 1996, $50.0 million of debt securities
remained available for issuance under the medium-term note program.
As of September 30, 1996, the Company had $510.0 million of investment
grade rated unsecured notes outstanding. The notes have interest rates
which vary from 6.65% to 8.00%, and various maturity dates which range
from 2000 to 2005.
In addition to the Unsecured Notes and the Facility, the Company has $47.3
million of secured indebtedness (the "Mortgages") at September 30, 1996.
The Mortgages have interest rates varying from 7.5% to 13.75% and maturity
dates from 1996 to 2012. The Mortgages are secured by a first or second
deed of trust on the related properties and generally require monthly
principal and interest payments. The Company also has $12.2 million of
assessment bonds outstanding as of September 30, 1996.
On February 28, 1996, the Company concurrently sold 4,887,500 shares of
Common Stock (including 637,500 shares sold pursuant to the underwriters'
exercise of their over-allotment option) through an underwritten public
offering and directly placed 1,176,470 shares of Class C Common Stock and
135,000 shares of Common Stock with a limited number of institutional
investors at $25.50 per share. The net proceeds of $151.3 million were used
primarily to repay floating rate debt.
In January 1996, the Company filed a shelf registration statement (the
"January 1996 Shelf Registration Statement") with the SEC to register
1,407,005 shares of Common Stock issuable by the Company upon conversion of
shares of
<PAGE> 19
Series A Preferred Stock and upon conversion of partnership units in the
Operating Partnership by certain holders thereof. The January 1996 Shelf
Registration Statement was declared effective by the SEC on February 28,
1996. The Company will receive no proceeds from the sale of Common Stock
under the January 1996 Shelf Registration Statement.
In May 1996, the Company and the Operating Partnership filed a shelf
registration statement (the "May 1996 Shelf Registration Statement") with
the SEC which registered $250.0 million of equity securities of the Company
and $250.0 million of debt securities of the Operating Partnership. The May
1996 Shelf Registration Statement was declared effective by the SEC on June
20, 1996.
After completion of the issuance of the July Notes, the Company has the
capacity pursuant to the October 1995 Shelf Registration Statement and the
May 1996 Shelf Registration Statement to issue up to approximately $392.0
million in equity securities and the Operating Partnership has the capacity
pursuant to the October 1995 Shelf Registration Statement and the May 1996
Shelf Registration Statement to issue up to $240.0 million in debt
securities (including the $50.0 million of medium-term notes available
under the medium-term note program).
In August 1996, the Company filed a shelf registration statement (the
"August 1996 Shelf Registration Statement") with the SEC to register 50,000
shares of Common Stock issuable by the Company upon exchange of partnership
units in the Operating Partnership by certain holders thereof. In October
1996, the Company filed a registration statement (the "October 1996 Shelf
Registration Statement") with the SEC to register 245,738 shares of Common
Stock issuable by the Company upon exchange of partnership units in the
Operating Partnership by certain holders thereof. The Company will receive
no proceeds from the sale of Common Stock under the August 1996 Shelf
Registration Statement and the October 1996 Shelf Registration Statement.
FUNDS FROM OPERATIONS
The Company 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 Company'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 Company's calculation
of Funds from Operations, as described below.
Pursuant to the National Association of Real Estate Investment Trusts
("NAREIT") revised definition of Funds from Operations, beginning with the
quarter ended March 31, 1996, the Company calculated Funds from Operations
by adjusting net income before minority interest, calculated in accordance
with GAAP, for certain non-cash items, principally the amortization and
depreciation of real property and for dividends on shares and other equity
interests that are not convertible into shares of Common Stock. The Company
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 Company includes an adjustment for the
straight-lining of rent under GAAP, as management believes this presents a
more meaningful picture of rental income over the reporting period.
Funds from Operations per share is calculated based on weighted average
shares equivalents outstanding, assuming the conversion of all shares of
Series A Preferred Stock, Class B Common Stock, Class C Common Stock and
all partnership units in the Operating Partnership into shares of Common
Stock. Assuming such conversion, the average number of shares outstanding
for the three and nine month periods ended September 30, 1996, are
43,497,648 and 42,049,446, respectively, and 37,027,543 and 32,601,038 for
the same periods in 1995.
<PAGE> 20
STATEMENT OF FUNDS FROM OPERATIONS
(based on the new NAREIT definition)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income before minority interest
and disposal of real estate properties $ 16,096 $ 8,811 $ 48,207 $ 20,242
Add:
Depreciation and Amortization 9,938 8,081 27,135 23,275
Dividends on Series B Preferred Stock (2,510) - (7,530) -
Other, net 116 107 201 247
Straight-lined rent 252 (12) 307 (275)
--------- --------- --------- ---------
Funds from Operations $ 23,892 $ 16,987 $ 68,320 $ 43,489
========= ========= ========= =========
</TABLE>
Because of the impact of the December Offerings on the Company's balance
sheet and result of operations, the Company believes that an adjusted
calculation of 1995 Funds from Operations, based on the new NAREIT
definition and reflecting the effect of the December Offerings and the
conversion of the secured line of credit into an unsecured facility, as if
such transactions had occurred on January 1, 1995, provides a helpful basis
for analyzing the impact of the new NAREIT definition. The table below sets
forth the Company's calculation of Funds from Operations for the three and
nine month periods ended September 30, 1995, based on the new NAREIT
definition and adjusted to reflect the December Offerings and the
conversion of the secured line of credit into an unsecured facility.
STATEMENT OF FUNDS FROM OPERATIONS
1995 New NAREIT Definition Adjusted
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, 1995 September 30, 1995
------------------ ------------------
<S> <C> <C>
Funds From Operations - New Definition $ 16,987 $ 43,489
Add:
Amortization of Discount and Deferred Financing Fees 2,443 7,417
-------- --------
Funds From Operations - Old Definition 19,430 50,906
Less:
Restructuring of Secured Debt (1) (958) (2,874)
Amortization of Discount and Deferred Financing Fees (2) (299) (985)
-------- --------
Funds From Operations - Pro Forma New Definition $ 18,173 $ 47,047
======== ========
</TABLE>
(1) Adjustment reflects interest cost of unsecured notes and dividend cost of
Series B Preferred Stock less previously recorded cash interest cost on
$347 million of prepaid debt.
(2) Adjustment reflects amortization of discount and deferred financing fees
added back in calculating FFO based on old NAREIT definition less
amortization on the $347 million of prepaid debt and the previous secured
line of credit and adding in amortization on the new unsecured line of
credit.
<PAGE> 21
PART II. OTHER INFORMATION
Item 2. Changes in Securities
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The exhibits listed below are filed or incorporated by reference as part
of this quarterly report on Form 10-Q.
Exhibit Number
--------------
12.1 Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends
27.1 Article 5 Financial Data Schedule
(B) Reports on Form 8-K
The Company filed a current report on Form 8-K dated June 18,
1996, containing combined statements of revenue and certain expenses
for the six acquired properties and two investments in mortgages.
The Company filed a current report on Form 8-K dated July 15,
1996, containing combined statements of revenue and certain expenses
for the City Portfolio.
<PAGE> 22
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: November 8, 1996 /s/ ELKE STRUNKA
----------------------- -----------------------------
Elke Strunka,
Vice President
Principal Accounting Officer
<PAGE> 23
EXHIBIT INDEX
Exhibit Number Page Number
-------------- ------------
12.1 Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends
27.1 Article 5 Financial Data Schedule
<PAGE> 1
Exhibit 12.1
Spieker Properties, Inc. and Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends
(in thousands, except ratios)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Income from operations before
disposal of real estate
properties and minority
interest........................ $16,096 $ 8,811 $48,207 $20,242
Interest expense(1).............. 9,761 10,690 26,443 35,711
Amortization of capitalized
interest........................ 61 52 182 156
------- ------- ------- -------
Total earnings.................. $25,918 $19,553 $74,832 $56,109
======= ======= ======= =======
Fixed charges:
Interest expense(1).............. $ 9,761 $10,690 $26,443 $35,711
Capitalized interest............ 640 325 1,842 976
Series A Preferred Dividends.... 524 512 1,573 1,536
Series B Preferred
Dividends(2).................. 2,510 -- 7,530 --
------- ------ ------- -------
Total fixed charges and
preferred dividends........... $13,435 $11,527 $37,388 $38,223
======= ======= ======= =======
Ratio of earnings to fixed
charges (excluding preferred
divdends)....................... 2.49 1.78 2.65 1.53
======= ======= ======= =======
Ratio of earnings to combined
fixed charges and preferred
dividends(2)..................... 1.93 1.70 2.00 1.47
======= ======= ======= =======
Fixed charges in excess of
earnings......................... $ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
Notes:
(1) Includes amortization of debt discount and deferred financing fees.
(2) The Company issued 4,250 shares of Series B Preferred Stock in
December 1995.
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