<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration Statement No. 333-04299
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 20, 1996
10,000,000 SHARES
SPIEKER PROPERTIES, INC.
SPIEKER LOGO
COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
---------------------
Spieker Properties, Inc. is a real estate investment trust that acquires,
develops and operates suburban office and industrial properties in California,
Washington, Oregon and Idaho. As of December 31, 1996, the Company owned and
operated 156 income-producing properties, aggregating approximately 21.4 million
rentable square feet. The Company has entered into contracts to acquire eight
additional office properties, aggregating approximately 2.8 million square feet,
for an estimated total investment of approximately $332.5 million. The Company
intends to fund these pending acquisitions with the proceeds of this offering
and expects to complete such acquisitions in the first quarter of 1997.
The 10,000,000 shares of Common Stock of the Company offered hereby are
being sold by the Company. After giving effect to this offering, the senior
members of the Company's management will beneficially own Common Stock and
partnership units exchangeable for Common Stock that represent approximately
11.1% of the Company's Common Stock on a fully-converted basis. The Common Stock
is listed on the New York Stock Exchange under the symbol "SPK." The last
reported sale price of the shares of Common Stock on the New York Stock Exchange
on January 21, 1997 was $34.50 per share. See "Price Range of Common Stock and
Dividends."
The shares of Common Stock are subject to certain restrictions on ownership
designed to preserve the Company's status as a real estate investment trust for
federal income tax purposes. See "Description of Common Stock" in the
accompanying Prospectus.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -------------
<S> <C> <C> <C>
Per Share.......................................... $34.50 $1.81 $32.69
Total(3)........................................... $345,000,000 $18,100,000 $326,900,000
</TABLE>
- ---------------
(1) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting estimated expenses of $813,000 payable by the Company.
(3) The Company has granted the Underwriters an option exercisable for 30 days
after the date hereof to purchase up to 1,500,000 additional shares of
Common Stock at the initial public offering price per share, less the
underwriting discount, solely to cover over-allotments. If such option is
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $396,750,000, $20,815,000 and
$375,935,000, respectively. See "Underwriting."
---------------------
These shares are offered severally by the Underwriters, as specified herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that certificates for the shares
will be ready for delivery in New York, New York, on or about January 27, 1997,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
ALEX.BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
---------------------
The date of this Prospectus Supplement is January 21, 1997.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus and incorporated herein and therein by reference. The
information contained in this Prospectus Supplement assumes no exercise of the
Underwriters' over-allotment option, unless indicated otherwise. The offering of
10,000,000 shares of Common Stock, par value $.0001 per share (the "Common
Stock"), made hereby is herein referred to as the "Offering." All references to
the "Company" in this Prospectus Supplement and the accompanying Prospectus
include Spieker Properties, Inc., those entities controlled by Spieker
Properties, Inc. and predecessors of Spieker Properties, Inc., unless the
context indicates otherwise. Information regarding shares of Common Stock,
unless otherwise indicated, is based on a per-share market price of $34.50. This
Prospectus Supplement and the accompanying Prospectus contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the section
entitled "Special Considerations" beginning on page 6 of the accompanying
Prospectus.
THE COMPANY
Spieker Properties, Inc. is a real estate investment trust ("REIT") that
acquires, develops and operates suburban office and industrial properties in
California and Washington, Oregon and Idaho (the "Pacific Northwest"). As of
December 31, 1996, the Company owned and operated 156 income-producing
properties (the "Properties," and each a "Property"), aggregating approximately
21.4 million rentable square feet and comprised of 85 industrial Properties, 60
office Properties and 11 retail Properties. The Company is in the process of
acquiring eight additional suburban office properties and divesting its retail
Properties. See "-- Recent Activities and Continued Growth." The Company's
strategic focus is to invest in California and the Pacific Northwest because of
the area's growth prospects arising from its Pacific Rim location, quality of
life, well developed transportation infrastructure, high technology industries,
well-educated employee base and excellent universities.
The Company's 25 most senior members of management (the "Senior Officers")
have extensive real estate experience through various cycles of the commercial
property markets and possess a wide variety of skills that provide in-house
resources to add value to its Properties through the entire cycle of
acquisition, development and redevelopment including design, financing,
construction management, leasing and property management. After giving effect to
the Offering, the Senior Officers will beneficially own Common Stock and
partnership units exchangeable for Common Stock representing approximately 11.1%
of the Company's outstanding Common Stock on a fully-converted basis, or
approximately $207.7 million of the aggregate market value of the Company's
outstanding Common Stock on a fully-converted basis.
The Company's revenues increased 29.5% from $112.1 million for the nine
months ended September 30, 1995 to $145.2 million for the nine months ended
September 30, 1996. The Company's earnings before interest expense,
depreciation, amortization, and minority interests ("EBIDA") increased 28.6%
from $79.3 million for the nine months ended September 30, 1995 to $102.0
million for the nine months ended September 30, 1996. During the nine months
ended September 30, 1996, the Company's funds from operations (calculated by
adjusting net income before minority interest for certain non-cash items,
principally the amortization and depreciation of real property and for dividends
on equity securities that are not convertible into shares of Common Stock,
"Funds from Operations") increased 57.1% from $43.5 million for the nine months
ended September 30, 1995 to $68.3 million for the nine months ended September
30, 1996. The Company believes that EBIDA and Funds from Operations are useful
financial performance measures of the operating performance of an equity REIT.
EBIDA and Funds from Operations do not represent net income or cash flows from
operating, financing and investing activities as defined by generally
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<PAGE> 4
accepted accounting principles ("GAAP") and do not necessarily indicate that
cash flows will be sufficient to fund cash needs. EBIDA and Funds from
Operations should not be considered as alternatives to net income as an
indicator of the Company's operating performance or to cash flows as a measure
of liquidity. Furthermore, Funds from Operations as disclosed by other REITs may
not be comparable to the Company's calculation of Funds from Operations. For a
further discussion of EBIDA and Funds from Operations, net income and cash flow
from operations, see "-- Summary Financial and Other Data."
RECENT ACTIVITIES AND CONTINUED GROWTH
The Company seeks to achieve sustainable long-term growth in Funds from
Operations per share through the acquisition and development of office and
industrial properties and through growth in operating income from its existing
Properties. The Company believes that attractive opportunities continue to exist
to purchase properties in the markets in which the Company operates, often at
prices below replacement costs due to, among other factors, the changing
composition of ownership of institutional-grade commercial property. The Company
has extensive experience in making acquisitions and continues to acquire
commercial properties, many of which the Company believes can be enhanced
through repositioning and/or active leasing. The Company has entered into
contracts to purchase eight additional suburban office properties (the "Pending
Acquisitions") in the first quarter of 1997 for an estimated total investment of
approximately $332.5 million. The Company intends to fund the purchase of the
Pending Acquisitions with the net proceeds of the Offering. In 1996, the Company
acquired 25 suburban office and industrial properties and two mortgages for a
total investment of approximately $352.8 million. The Company also has extensive
experience in developing new properties and continues to develop new properties
in certain of its markets. The Company believes that a general decrease in
competition in development activity as well as lower vacancy rates in most of
the Company's markets will lead to additional attractive development
opportunities. The Company is in the process of developing 17 properties for a
total investment of approximately $126.2 million, and completed the development
of five Properties in 1996 for a total investment of approximately $32.8
million. The Company's existing Properties also continue to generate increasing
cash flow due to high average occupancy rates, increasing rental rates and
controlled capital expenditures.
ACQUIRING OFFICE AND INDUSTRIAL PROPERTIES
PENDING ACQUISITIONS
As of December 31, 1996, the Company had entered into contracts to purchase
eight additional suburban office properties in the first quarter of 1997
aggregating approximately 2.8 million square feet, for an estimated total
investment of approximately $332.5 million. The Pending Acquisitions are
predominately high quality, suburban office properties, which are similar in
type and location to the Company's existing Properties. The Company believes the
Pending Acquisitions' purchase prices are below their replacement costs and that
rental income from the Pending Acquisitions can be increased while maintaining
controlled capital expenditures. Of the $332.5 million estimated total
investment in the Pending Acquisitions, approximately $286.5 million will be
paid in cash, approximately $21.0 million will be in the form of assumption of
debt and approximately $25.0 million will be in the form of partnership units in
Spieker Properties, L.P. (the "Operating Partnership"). The Company expects the
Pending Acquisitions will produce an average unleveraged return of approximately
10.0% during their initial 12 months of ownership. The Company calculates the
expected unleveraged return on a Pending Acquisition by dividing the expected
property operating income during the initial 12 months of ownership (on a cash
basis and not on a straight-line basis) by the estimated total investment,
including the costs to renovate or reposition the property or release space
expected to be incurred during that time. The purchase of a number of the
Pending Acquisitions is subject to various contingencies, including, among
others, completion of due diligence and other customary conditions. Accordingly,
there can be no assurance that the Company will acquire any or all of the
Pending Acquisitions, or if acquired, that the Pending Acquisitions will
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<PAGE> 5
yield the expected average unleveraged return. See "Special
Considerations -- Acquisition and Development Activities" in the accompanying
Prospectus.
The following table and discussion set forth certain information regarding
the Pending Acquisitions.
PENDING ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL
INVESTMENT(1)
TOTAL RENTABLE -------------
PROPERTY NAME LOCATION SQUARE FEET
------------------------------- ------------------- -------------- (IN MILLIONS)
<S> <C> <C> <C>
OFFICE PROPERTIES
Emeryville Portfolio......... Emeryville, CA 946,000 $ 134.2
Mission West Portfolio....... San Diego, CA 819,000 53.6
555 Twin Dolphin Drive....... Redwood Shores, CA 198,900 43.4
Kodak Center................. San Jose, CA 198,000 39.9
Quadrant Corporate Center.... Bothell, WA 205,000 23.0
Fountaingrove Office
Complex................... Santa Rosa, CA 162,000 17.2
Brea Corporate Place......... Brea, CA 142,000 11.7
Riverside Center............. Portland, OR 99,000 9.5
--------- ------
Total..................... 2,769,900 $ 332.5
========= ======
</TABLE>
- ---------------
(1) Represents initial estimated purchase price plus estimated repositioning
costs.
Emeryville Portfolio. The largest of the Pending Acquisitions is a
portfolio of predominately office properties located in Emeryville, California
(the "Emeryville Portfolio"), a submarket located east of San Francisco. The
Emeryville Portfolio consists of 889,000 square feet of office space and 57,000
square feet of light industrial space. As of September 30, 1996, this portfolio,
which has approximately 154 tenants and an average tenant size of 6,200 square
feet, was 94% leased. The total investment in the Emeryville Portfolio will be
approximately $134.2 million, of which approximately $25 million will be in the
form of partnership units in the Operating Partnership and the balance will be
in the form of cash. The Company estimates that the total investment in the
Emeryville Portfolio is approximately 80% of replacement cost. The Emeryville
Portfolio also contains sufficient undeveloped land for the Company to construct
an additional 150,000 square feet of office space at some point in the future,
representing an incremental investment of approximately $22 million. The Company
believes the Emeryville Portfolio provides the Company with a dominant position
in an attractive submarket with low vacancy rates, a limited supply of land and
rising rental rates. According to a recent CB Commerical/Torto Wheaton Research
report, as of June 30, 1996, the vacancy rate in the Emeryville submarket was
2.6%, and Emeryville was identified as the submarket with the largest forecasted
rent increases over the next two years out of 22 submarkets in the East San
Francisco Bay Area market.
Mission West Portfolio. The Company has entered into a contract to acquire
all of the real estate assets of Mission West Properties (the "Mission West
Portfolio"), a publicly traded company. This portfolio, consisting of five class
A office properties, four industrial properties and one mixed-use property
totaling 819,000 square feet, enables the Company to increase its presence in
the improving Northern San Diego County area. The Company estimates that the
total investment in the Mission West Portfolio of $53.6 million is approximately
75% of replacement cost. The properties are consistent with the Company's
current assets in product type, flexibility, quality, age and improvements. The
proximity of the Mission West Portfolio to the Company's existing properties in
San Diego is expected to result in greater operating efficiencies. According to
information obtained from a recent CB Commercial report, office and industrial
property rental rates in select Northern San Diego County submarkets have
increased 25% and 20%, respectively, from 1994 to 1996. Vacancy rates for office
and industrial property space in such submarkets were 8% and 7%, respectively,
as of September 30, 1996.
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555 Twin Dolphin Drive. 555 Twin Dolphin Drive is a 198,900 square foot,
six-story class A suburban office building constructed in 1989. The property is
located south of San Francisco in the mid-peninsula office submarket, one of the
strongest suburban office submarkets in the San Francisco Bay Area. The total
investment in 555 Twin Dolphin Drive will be approximately $43.4 million. The
Company has extensive experience in owning and operating office properties in
the mid-peninsula submarket and, after completing this acquisition, will own
over 425,000 square feet of property in this submarket. According to a recent BT
Commercial Real Estate report, rental rates in the mid-peninsula submarket for
class A office space have increased approximately 50% from $1.75 per square foot
per month in 1994 to $2.60 per square foot per month in 1996 and the vacancy
rate as of September 30, 1996 was below 3%.
Kodak Center. The Kodak Center is a 198,000 square foot, six-story class A
suburban office building located in the San Jose Airport submarket, where the
Company currently owns approximately 450,000 rentable square feet of office
space. The Company's total investment in the Kodak Center will be approximately
$39.9 million. The Company believes that during the last 18 months the San Jose
Airport submarket has been one of the strongest submarkets in the San Francisco
Bay Area. According to a Colliers Parrish International report, during this
period, the vacancy rate in the San Jose Airport submarket has fallen from 14.5%
to 3.2% and rental rates have increased approximately 35% from $1.85 per square
foot per month to $2.50 per square foot per month.
Quadrant Corporate Center. Quadrant Corporate Center is a six building,
205,000 square foot suburban office complex located northeast of Seattle,
Washington. According to a recent CB Commericial/Torto Wheaton Research report,
from 1993 to 1996 vacancy rates in this submarket decreased from 12.0% to 4.1%.
Fountaingrove Office Complex. Fountaingrove Office Complex is a three
building, 162,000 square foot property constructed from 1986 to 1992, and is the
premier class A suburban office property in the Santa Rosa, California
submarket, located north of San Francisco. The Company believes the total
investment in the property of $17.2 million is approximately 75% of replacement
cost.
Brea Corporate Place. Brea Corporate Place is a two building, 142,000
square foot suburban office complex located in the City of Brea, a submarket of
Orange County, California. The Company believes the total investment in this
property of $11.7 million is approximately 65% of replacement cost.
Riverside Center. Riverside Center is a 99,000 square foot, five-story
suburban office building located in the Johns Landing submarket of suburban
Portland, Oregon. After completion of the acquisition of Riverside Center, the
Company will own over 324,000 square feet of office property in this submarket
where, according to a Real-Net Commercial Property Database Services report,
vacancy rates are below 1.0%.
1996 COMPLETED ACQUISITIONS
In 1996, the Company acquired 14 office Properties, 11 industrial
Properties and two mortgage investments aggregating approximately 6.0 million
rentable square feet for a total investment of approximately $352.8 million as
of December 31, 1996. The Company expects these acquisitions will produce an
initial stabilized average unleveraged return of approximately 10.7%. The
Company calculates the expected unleveraged return on a completed property
acquisition by dividing the expected property operating income during the
initial 12 months after stabilization (on a cash basis and not on a
straight-line basis) by the estimated total investment, including the costs to
renovate or reposition the property or release space incurred during the
stabilization period. There can be no assurance that the Company's expected
returns on these acquisitions will be realized. See "Special
Considerations -- Acquisitions and Development Activities" in the accompanying
Prospectus.
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The following table sets forth certain information regarding acquisitions
by the Company during the year ended December 31, 1996.
ACQUISITIONS COMPLETED IN 1996
<TABLE>
<CAPTION>
TOTAL
TOTAL INVESTMENT(1)
MONTH RENTABLE -------------
PROPERTY NAME LOCATION ACQUIRED SQUARE FEET
- ---------------------------- -------------------- -------------- ----------- (IN MILLIONS)
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
Bayside Corporate Center.. Foster City, CA January 1996 84,925 $ 10.1
Airport Office
Center(2).............. San Jose, CA January 1996 201,903 14.4
Carmel Valley Centre...... Del Mar, CA April 1996 107,112 14.3
2290 North First St. ..... San Jose, CA May 1996 75,680 6.7
10700 Northrup............ Bellevue, WA May 1996 55,854 4.7
Dove Street............... Newport Beach, CA June 1996 78,123 8.3
The City(3)............... Orange, CA July 1996 595,078 39.9
Fidelity Plaza............ Sacramento, CA July 1996 77,453 6.0
Fairchild Corporate
Center................. Irvine, CA August 1996 104,973 9.7
One Pacific Plaza......... Huntington Beach, CA October 1996 110,000 10.1
Central Park Plaza........ Santa Clara, CA December 1996 305,918 35.0
One Lakeshore Center...... Ontario, CA December 1996 175,840 19.0
Corona Corporate Center... Corona, CA December 1996 46,227 4.0
Avenida Encinas Plaza..... Carlsbad, CA December 1996 48,700 5.2
Wood Island............... Larkspur, CA December 1996 73,731 14.5
--------- ------
Subtotal............... 2,141,517 $ 201.9
--------- ------
INDUSTRIAL PROPERTIES
Benicia Industrial
Park(4)................ Benicia, CA January 1996 1,822,788 $ 45.7
Everett Industrial
Center................. Everett, WA March 1996 150,154 7.5
Everett 526............... Everett, WA May 1996 97,523 4.5
Port of Oakland Center.... Oakland, CA May 1996 199,733 7.2
Doolittle Business
Center................. San Leandro, CA May 1996 113,196 4.0
MacArthur Park............ Santa Ana, CA August 1996 94,023 6.0
Stadium Plaza............. Anaheim, CA August 1996 769,003 39.0
Charcot Business Park..... San Jose, CA October 1996 163,370 12.2
Airport Service Center.... Burlingame, CA November 1996 36,300 2.7
Keifer Road Industrial
Park................... Sunnyvale, CA November 1996 287,000 14.1
Ravendale................. Mountain View, CA December 1996 81,000 8.0
--------- ------
Subtotal............... 3,814,090 $ 150.9
--------- ------
Total................ 5,955,607 $ 352.8
========= ======
</TABLE>
- ---------------
(1) Represents capitalized cost as of December 31, 1996 plus estimated
repositioning costs.
(2) Represents an investment in two mortgages with an aggregate face value of
$21.0 million secured by this Property.
(3) Includes square footage for one of the four buildings totaling 165,300
square feet that is currently under redevelopment and is not yet stabilized.
(4) Includes square footage for eight of the 17 buildings totaling 891,049
square feet that are currently under redevelopment and are not yet
stabilized.
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<PAGE> 8
DEVELOPING NEW PROPERTIES
PROPERTY DEVELOPMENTS IN PROCESS
As of December 31, 1996, the Company was in the process of developing 17
properties aggregating approximately 2.1 million rentable square feet for a
total estimated investment of approximately $126.2 million. The Company expects
these development activities will produce an average unleveraged return of
approximately 11.4%. The Company calculates the expected unleveraged return on a
property development by dividing the expected property operating income during
the initial 12 months after stabilization (on a cash basis and not on a
straight-line basis) by the estimated total investment at stabilization. There
can be no assurance that the Company's expected returns on such development
projects will be realized. See "Special Considerations -- Acquisition and
Development Activities" in the accompanying Prospectus.
The following table sets forth certain information regarding properties
under development by the Company as of December 31, 1996.
PROPERTY DEVELOPMENTS IN PROCESS
<TABLE>
<CAPTION>
TOTAL
ACTUAL OR INVESTMENT(2)
ESTIMATED SHELL RENTABLE -------------
PROPERTY NAME LOCATION COMPLETION DATE(1) SQUARE FEET
- ------------------------------- --------------- ------------------ ----------- (IN MILLIONS)
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
Gateway Oaks III............. Sacramento, CA March 1996 45,321 $ 5.5
Bellefield Maplewood
Building.................. Seattle, WA January 1997 34,500 5.0
Ryan Ranch Phase III......... Monterey, CA February 1997 24,343 3.0
Ridder Park.................. San Jose, CA February 1997 83,841 8.5
4949 Meadows................. Portland, OR August 1997 119,000 16.2
Bellefield Building N........ Seattle, WA November 1997 45,000 6.2
--------- ------
Subtotal.................. 352,005 $ 44.4
--------- ------
INDUSTRIAL PROPERTIES
Ryan Ranch Industrial........ Monterey, CA April 1996 31,560 $ 2.6
Woodinville III.............. Seattle, WA May 1996 240,505 11.6
Concord North Center......... Concord, CA October 1996 191,950 9.4
Marine Drive II.............. Portland, OR November 1996 106,000 3.3
Airport Way.................. Portland, OR December 1996 205,000 7.2
Sorrento Vista............... San Diego, CA March 1997 226,500 9.9
Riverside Business Center.... Sacramento, CA April 1997 175,000 7.5
Bay Center Business Park
III....................... Hayward, CA June 1997 108,000 5.0
Marine Drive III............. Portland, OR June 1997 258,500 8.5
Dixon Landing North II....... Milpitas, CA August 1997 84,000 7.4
Dixon Landing North I........ Milpitas, CA September 1997 110,000 9.4
--------- ------
Subtotal.................. 1,737,015 $ 81.8
--------- ------
Total................... 2,089,020 $ 126.2
========= ======
</TABLE>
- ---------------
(1) Shell completion date refers to the date when the property is first
available for occupancy.
(2) Represents total estimated cost of development.
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<PAGE> 9
In addition, as of December 31, 1996, the Company had entered into
contracts and letters of intent to purchase various land parcels, on which the
Company could develop an aggregate of approximately 1.3 million square feet of
suburban office and industrial properties, representing a potential total
investment of approximately $111.5 million. The Company anticipates that if such
land is purchased, development would commence in 1997 and revenue from completed
developments on such land parcels would not be received until 1998 or
thereafter. These land purchases are subject to various conditions and there can
be no assurance that any of such purchases will be consummated or that the
development of any of the parcels will be successful.
1996 COMPLETED PROPERTY DEVELOPMENTS
During 1996, the Company completed development of seven Properties, two of
which are retail Properties which will be sold as a result of the Company's
divestiture of its retail portfolio. See "-- Divestiture of Retail Portfolio."
The remaining five Properties aggregate approximately 664,288 rentable square
feet for a total investment of approximately $32.8 million, with an expected
initial stabilized average unleveraged return of approximately 12.7%. The
Company calculates the expected unleveraged return on a property development by
dividing the expected property operating income during the initial 12 months
after stabilization (on a cash basis and not on a straight-line basis) by the
estimated total investment at stabilization. There can be no assurance that the
Company's expected returns on such development projects will be realized. See
"Special Considerations -- Acquisition and Development Activities" in the
accompanying Prospectus.
OFFICE AND INDUSTRIAL PROPERTY DEVELOPMENTS COMPLETED IN 1996
<TABLE>
<CAPTION>
TOTAL
INVESTMENT(1)
TOTAL RENTABLE --------------
PROPERTY NAME LOCATION SQUARE FEET
------------------------------------- ---------------- -------------- (IN MILLIONS)
<S> <C> <C> <C>
OFFICE PROPERTIES
Ryan Ranch Office Phase II......... Monterey, CA 25,700 $ 3.0
4004 S.W. Kruse Way Place.......... Portland, OR 56,713 7.2
------- -----
Subtotal........................ 82,413 $ 10.2
------- -----
INDUSTRIAL PROPERTIES
Cadillac Court II.................. Milpitas, CA 36,120 $ 2.5
Marine Drive Distribution Center... Portland, OR 225,250 6.6
Walsh at Lafayette................. Santa Clara, CA 320,505 13.5
------- -----
Subtotal........................ 581,875 $ 22.6
------- -----
Total......................... 664,288 $ 32.8
======= =====
</TABLE>
- ---------------
(1) Represents capitalized cost as of December 31, 1996.
GROWTH IN OPERATING INCOME FROM EXISTING PROPERTIES
In addition to the Company's acquisition and development activities, the
Company continues to seek to increase Funds from Operations by maximizing cash
flow from existing Properties through active leasing and property management.
The Company's objectives include increasing the occupancy of all Properties that
are not fully leased, maintaining high average occupancy rates, increasing
effective rental rates and strictly controlling operating expenses and capital
expenditures.
As of September 30, 1996, the occupancy rate of the Properties owned and
operated by the Company was approximately 94.9%. Effective rental rates on the
314 office leases (representing approximately 864,157 rentable square feet)
signed by the Company during the nine months ended September 30, 1996 were on
average 14.6% higher than the ending contract rental rates on the expiring
leases for the same space. Effective rental rates on the 121 industrial property
leases (representing approximately 1.7 million rentable square feet) signed by
the Company during the nine months ended September 30, 1996 were on average 7.4%
higher than the ending contract rental rates on the expiring leases for the same
space.
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<PAGE> 10
The Company seeks to control the capital expenditures associated with
releasing space by concentrating on general purpose, medium-size properties that
are easily divisible so as to accommodate users of various sizes. For the
five-year period ended December 31, 1995 on an average annual basis and for the
nine months ended September 30, 1996, the Company's office Properties averaged
$4.36 and $4.45, respectively, and its industrial Properties averaged $1.30 and
$0.99, respectively, per square foot in capitalized tenant improvements and
leasing commissions on renewed or released space.
CONTINUED EXPANSION INTO SOUTHERN CALIFORNIA
The Company first entered the Southern California market in November 1995
and, including the Pending Acquisitions, will own 14 suburban office Properties
and three industrial Properties, aggregating approximately 3.5 million rentable
square feet, in Southern California. Including the Pending Acquisitions, the
Company will have invested over $278.0 million in acquiring properties in
Southern California during the last 15 months. The Company continues to find
opportunities to acquire properties in Southern California at favorable prices,
which are often at meaningful discounts to replacement costs. To manage this
expansion, the Company has opened two regional offices in Southern California,
which are staffed by over 15 of the Company's real estate professionals.
DIVESTITURE OF RETAIL PORTFOLIO
After an extensive review of the Company's investment opportunities and
strategic position, the Company has decided to focus exclusively on office and
industrial properties. The Company has therefore decided to sell its retail
Properties and to reinvest the proceeds from these Properties in office and
industrial properties, which the Company believes offer better growth prospects.
In December 1996, the Company sold three retail properties and signed definitive
contracts to sell six additional retail Properties to Pacific Retail Trust
("PRT") at an aggregate gross sales price of approximately $106.5 million, of
which approximately $45.4 million has been paid by PRT. Assuming all of the
remaining six sales are consummated, the Company anticipates a net aggregate
gain of approximately $25.0 million. Of the six Properties under contract with
PRT, five will be purchased by PRT before May 1, 1997, on dates to be determined
by the Company, with the final Property to be purchased by December 31, 1997. In
connection with these sales, the Company's retail division employees have become
employees of PRT, and PRT has agreed to manage the Company's remaining retail
Properties pending disposition. The Company is in the process of marketing and
selling four other retail Properties to third parties and anticipates that such
divestiture will be completed by the end of 1998. Assuming the six PRT contracts
are consummated and the four other retail Properties are sold to third parties,
the Company expects to receive aggregate gross proceeds of approximately $141.2
million for reinvestment in office and industrial properties. The sale of the
remaining retail Properties is subject to negotiation of acceptable terms and
other customary conditions, and there can be no assurance that any of these
Properties will ultimately be sold by the Company.
IMPROVEMENTS IN PROPERTY MARKETS
The Company's Properties are all located in California and in the Pacific
Northwest in six geographic areas: the East and South San Francisco Bay Areas;
Sacramento; San Diego/Orange County; Seattle and Portland. The Company has
noticed significant improvements in most of the markets in which the Company
owns and operates Properties, including decreasing vacancy rates and increasing
rental rates. The Company believes that these markets continue to offer
opportunities for profitable investment because of the strengths of the local
economies and the improvement over the last several years in the property
markets themselves.
As reported in Emerging Trends, a publication of Equitable Real Estate
Management, a panel of more than 100 real estate professionals has ranked San
Francisco, Seattle and San Diego among the top six markets in the country for
general real estate investment in 1997. In addition, the Fall 1996 issue of
MarketScore, a publication of KOLL (a real estate services company), ranked San
Francisco, Portland and San Jose among the top four markets for suburban office
property
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<PAGE> 11
investment and San Jose and Portland among the top three markets for industrial
property investment for relative total return for a two-year time horizon.
<TABLE>
<CAPTION>
TOP MARKETS FOR GENERAL TOP MARKETS FOR SUBURBAN TOP MARKET FOR INDUSTRIAL
REAL ESTATE INVESTMENT 1997(1) OFFICE PROPERTY INVESTMENT(2) PROPERTY INVESTMENT(2)
- ------------------------------ ----------------------------- -------------------------
<S> <C> <C>
1. SAN FRANCISCO 1. SAN FRANCISCO 1. SAN JOSE
2. SEATTLE 2. Phoenix 2. Austin
3. Boston 3. PORTLAND 3. PORTLAND
4. Chicago 4. SAN JOSE 4. Milwaukee
5. Denver 5. Austin 5. Grand Rapids
6. SAN DIEGO 6. Minneapolis - St. Paul 6. Tulsa
</TABLE>
- ---------------
(1) Source: Emerging Trends (Equitable Real Estate Management)
(2) Source: MarketScore, Volume 15 (KOLL)
RECENT FINANCINGS
During 1996, the Company extended its fixed-rate debt maturities and
decreased its exposure to floating interest rate risk through the issuance of
five tranches of fixed-rate, investment-grade rated, unsecured notes aggregating
$375 million in principal amount with maturity dates ranging from 2001 to 2016.
The net proceeds from these notes were used primarily to repay borrowings on the
Company's line of credit which are subject to floating interest rates.
As of December 31, 1996, the Company's ratio of total indebtedness to total
market capitalization was 30.2%. On a pro forma basis, giving effect to the
Offering and the application of the net proceeds therefrom as described in "Use
of Proceeds," the ratio of total indebtedness to total market capitalization
would be 26.3%. The Company believes that such a leverage level will allow it to
use debt financing to fund a significant amount of future acquisition and
development activities. Total market capitalization is calculated based on (i)
the aggregate market value of the Company's Common Stock, assuming conversion of
all Class B Common Stock, Class C Common Stock and Series A Preferred Stock and
partnership units in the Operating Partnership, (ii) the aggregate liquidation
value of the Series B Preferred Stock and (iii) the Company's total
indebtedness.
THE PROPERTIES
The following table sets forth, as of December 31, 1996, the location and
type of the Properties by rentable square feet on a pro forma basis, assuming
the acquisition of all of the Pending Acquisitions and the divestiture of all
the retail Properties, as if such transactions had occurred on December 31,
1996. For similar information regarding the Properties actually owned by the
Company as of December 31, 1996, see "The Company -- Rentable Square Footage."
PRO FORMA RENTABLE SQUARE FOOTAGE OF PROPERTIES BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
PERCENT
OF
GEOGRAPHIC AREA INDUSTRIAL OFFICE TOTAL TOTAL
---------------------------------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C>
Seattle, WA/Boise, ID............. 3,093,072 872,526 3,965,598 17.5%
Portland, OR...................... 1,758,627 522,989 2,281,616 10.0
Sacramento, CA.................... 1,123,744 1,228,831 2,352,575 10.4
East San Francisco Bay Area, CA... 3,742,985 1,524,652 5,267,637 23.2
South San Francisco Bay Area,
CA.............................. 3,015,110 2,285,772 5,300,882 23.3
San Diego/Orange County, CA....... 1,275,843 2,266,019 3,541,862 15.6
---------- --------- ---------- -----
Total................... 14,009,381 8,700,789 22,710,170 100.0%
========== ========= ========== =====
Percent of Total........ 61.7% 38.3% 100.0%
---- ---- ------
---- ---- ------
Number of Properties.... 85 68 153
-- --
----
-- --
----
</TABLE>
S-11
<PAGE> 12
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby............. 10,000,000 shares of Common Stock
Common Stock to be outstanding after the
Offering.............................. 41,821,861 shares of Common Stock(1)
Use of proceeds from the Offering....... To fund the Pending Acquisitions, repay
indebtedness incurred in connection with
the Pending Acquisitions and for general
corporate purposes.
New York Stock Exchange Symbol.......... "SPK"
</TABLE>
- ---------------
(1) If all of the partnership units in the Operating Partnership were exchanged
for Common Stock and all of the outstanding shares of Series A Preferred
Stock, Class B Common Stock and Class C Common Stock were converted into
Common Stock, the total number of shares of Common Stock outstanding would
be 54,032,984, which includes approximately 733,676 shares of Common Stock
issuable upon exchange of partnership units in the Operating Partnership
that may be issued in connection with the Pending Acquisitions. Excludes
3,067,500 shares of Common Stock that may also be issued pursuant to the
exercise of outstanding employee stock options granted under the Spieker
Properties, Inc. 1993 Stock Incentive Plan as amended and the 1993 Directors
Stock Option Plan at an average exercise price of $25.51 per share.
S-12
<PAGE> 13
SUMMARY FINANCIAL AND OTHER DATA
The Company's consolidated summary financial and other data is presented on
a historical basis for the nine months ended September 30, 1996 and 1995 and the
years ended December 31, 1995 and 1994, and on a pro forma basis for the nine
months ended September 30, 1996 and the year ended December 31, 1995. The
Company's consolidated balance sheet data is presented on a historical basis as
of September 30, 1996 and December 31, 1995 and 1994 and on a pro forma basis as
of September 30, 1996. Pro forma operating and other data are presented as if
the Offering, the Pending Acquisitions and certain other financial transactions
described in the Company's pro forma financial statements and notes thereto
included elsewhere herein, had been completed on January 1, 1995. Pro forma
balance sheet data are presented as if the Offering, the Pending Acquisition and
certain other transactions described in the Company's pro forma financial
statements and notes thereto included elsewhere herein had been completed on
September 30, 1996. See "Spieker Properties, Inc. Pro Forma Financial
Information."
The summary financial and other data should be read in conjunction with the
consolidated financial statements and notes thereto of the Company included
elsewhere herein and included in the Company's filings under the Exchange Act,
which are incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus.
SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------------- ---------------------------------
PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL
1996(1) 1996 1995 1995(1) 1995 1994
--------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................................. $201,497 $145,157 $112,050 $259,248 $153,391 $121,037
Income from operations before disposal of
properties, minority interests, and
extraordinary items.................... 66,937 48,207 20,242 80,760 30,335 13,363
Income before extraordinary items........ 57,919 40,603 16,357 69,892 24,666 10,541
Net income (loss)........................ 57,919 40,603 16,357 69,892 (8,837) 10,541
Net income (loss) available to common
stockholders........................... 48,816 31,500 14,821 57,803 (11,471) 9,303
Net income per share of common stock
before extraordinary items(2).......... $ 1.06 $ 0.92 $ 0.59 $ 1.26 $ 0.84 $ 0.46
Net income (loss) per share of common
stock(2)............................... 1.06 0.92 0.59 1.26 (0.44) 0.46
Dividends and distributions per share:
Series A Preferred Stock............... 1.57 1.57 1.53 2.05 2.05 1.24
Series B Preferred Stock............... 1.77 1.77 -- 2.36 0.14 --
Common Stock(2)........................ 1.34 1.34 1.26 1.68 1.68 1.60
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996 AS OF DECEMBER 31,
-------------------------- --------------------------
PRO FORMA(1) ACTUAL ACTUAL 1995 ACTUAL 1994
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate (before accumulated
depreciation)........................................ $1,772,906 $1,350,528 $1,098,871 $ 870,613
Net investment in real estate.......................... 1,637,314 1,214,936 974,259 770,827
Total assets........................................... 1,738,460 1,269,890 1,011,497 809,938
Property indebtedness, net(3).......................... 68,301 47,301 112,702 522,277
Unsecured debt......................................... 635,000 549,000 377,700 --
Total debt............................................. 703,301 596,301 490,402 522,277
Stockholders' equity................................... 894,937 558,367 419,847 206,304
</TABLE>
S-13
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------------ ------------------------------------
PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL
1996(1) 1996 1995 1995(1) 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(4)............... $ 95,342 $ 68,320 $ 43,489 $ 117,109 $ 61,428 $ 41,935
Weighted average share equivalents(5).. 54,402,094 42,049,446 32,601,038 54,402,094 33,769,742 27,069,241
EBIDA(6)............................... $ 140,647 $ 102,023 $ 79,337 $ 180,501 $ 108,323 $ 86,711
Cash flow provided by (used in):
Operating activities................. 118,620 91,598 58,768 127,891 72,210 45,358
Investing activities................. (44,004) (270,003) (131,395) (709,348) (196,254) (158,189)
Financing activities................. (29,644) 195,373 71,936 797,802 121,954 96,627
Total rentable square footage of
properties at end of period.......... 24,167 20,404 15,561 -- 16,282 13,933
Number of properties at end of
period............................... 164 149 122 -- 128 111
Occupancy rate at end of period........ -- 94.9% 97.3% -- 96.9% 97.6%
Ratio of earnings to fixed
charges(7)........................... 2.67x 2.65x 1.53x 2.51x 1.61x 1.29x
Ratio of earnings to combined fixed
charges and preferred stock
dividends(8)......................... 2.17x 2.00x 1.47x 2.05x 1.53x 1.26x
Ratio of FFO before interest expense
and Series B Preferred Stock
dividends to interest expense(9)..... 3.70x 3.87x 2.22x 3.39x 2.34x 1.94x
Total market equity(10)................ $1,970,388 $1,377,873 $ 888,937 -- $1,036,895 $ 560,590
</TABLE>
- ---------------
(1) See "Spieker Properties, Inc. Pro Forma Financial Information."
(2) Per share amounts are presented for nine months ended September 30, 1996
and 1995 and for the years ended December 31, 1995 and 1994 based upon
weighted average common shares outstanding of 34,280,115, 25,023,655,
26,140,488 and 20,417,513, respectively. The pro forma per share amounts
have been based upon weighted average common shares outstanding of
45,899,087 for nine months ended September 30, 1996 and the year ended
December 31, 1995. Dividends and distributions per share do not include
dividends on the Class B Common Stock and Class C Common Stock. The actual
Class B Common Stock dividends declared in 1996 and 1995 were $1.67 and
$1.64 per share, respectively, and the Class C Common Stock dividends
declared in 1996 were $1.33 per share.
(3) Net of discount of approximately $31,617 as of December 31, 1994.
(4) Funds from Operations means income (loss) from operations before disposal
of real estate properties, minority interests and extraordinary items plus
depreciation and amortization and an adjustment for straight-lined rents
less cash distributable to minority interests in certain properties owned
by the Company. In February 1995, the National Association of Real Estate
Investment Trusts ("NAREIT") established new guidelines clarifying its
definition of Funds from Operations and requested that REITs adopt this new
definition beginning in 1996. The new definition provides that the
amortization of debt discount and deferred financing costs is no longer to
be added back to net income to calculate Funds from Operations. In 1996,
the Company substantially implemented the new NAREIT definition for
calculating Funds from Operations. The amounts presented above for the nine
months ended September 30, 1995 and the years ended December 31, 1995 and
1994 have been restated to reflect the new NAREIT definition. Funds from
Operations previously reported by the Company based on the old NAREIT
definition for the nine months ended September 30, 1995 and the years ended
December 31, 1995 and 1994 were $50,906, $70,790 and $52,142, respectively.
Management generally considers Funds from Operations to be a useful
financial performance 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 and
other capital expenditures. Funds from Operations does not represent net
income or cash flows from operations as defined by GAAP and does not
necessarily indicate that cash flows will be sufficient to fund cash needs.
It should not be considered as an alternative to net income as an indicator
of the Company's operating performance or 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 also does not represent cash flows generated 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.
(5) Assumes conversion of shares of Class B Common Stock, Class C Common Stock,
Series A Preferred Stock and partnership units in the Operating Partnership
into shares of Common Stock.
(6) EBIDA means earnings before interest expense, depreciation, amortization,
disposal of real estate properties and minority interests. EBIDA is
computed as income from operations before minority interests and
extraordinary items plus interest expense, depreciation and amortization.
The Company believes that in addition to cash flows and net income, EBIDA
is a useful financial performance measure for assessing the operating
performance of an equity REIT because,
S-14
<PAGE> 15
together with net income and cash flows, EBIDA provides investors with an
additional basis to evaluate the ability of a REIT to incur and service
debt and to fund acquisitions and other capital expenditures. To evaluate
EBIDA and the trends it depicts, the components of EBIDA, such as rental
revenues, rental expenses, real estate taxes and general and administrative
expenses, should be considered. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Excluded from EBIDA are
financing costs such as interest as well as depreciation and amortization,
each of which can significantly affect a REIT's results of operations and
liquidity and should be considered in evaluating a REIT's operating
performance. Further, EBIDA does not represent net income or cash flows
from operating, financing and investing activities as defined by generally
accepted accounting principles and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
(7) The ratio of earnings to fixed charges is computed as income (loss) from
operations, before gains or losses on sales of properties, extraordinary
items, plus fixed charges (excluding capitalized interest) divided by fixed
charges. Fixed charges consist of interest costs including amortization of
debt discount and deferred financing fees, whether capitalized or expensed,
and the interest component of rental expense.
(8) The ratio of earnings to combined fixed charges and preferred stock
dividends is computed as income (loss) from operations, before gains or
losses on sales of properties, and extraordinary items, plus fixed charges
(excluding capitalized interest) divided by fixed charges plus dividends on
preferred stock.
(9) The ratio of Funds from Operations before interest expense and dividends on
Series B Preferred Stock to interest expense is calculated as Funds from
Operations plus interest expense, excluding amortization of prepaid
interest and deferred financing fees and dividends on Series B Preferred
Stock divided by interest expense. The Company believes that in addition to
the ratio of earnings to fixed charges, this ratio provides a useful
measure of a REIT's ability to service its debt because of the exclusion of
non-cash items such as depreciation and amortization from the definition of
Funds from Operations. This ratio differs from a GAAP-based ratio of
earnings to fixed charges and should not be considered as an alternative to
that ratio. Further, Funds from Operations as disclosed by other REITs may
not be comparable to the Company's calculation of Funds from Operations.
(10) Total market equity is presented as of the end of the period and is
calculated as the sum of (i) the total number of shares of Common Stock
outstanding, assuming conversion into Common Stock of the Series A
Preferred Stock, Class B Common Stock, Class C Common Stock and the
partnership units in the Operating Partnership, multiplied by the closing
price of the Common Stock as of the end of the period and (ii) the total
number of shares of Series B Preferred Stock multiplied by their
liquidation preference of $25.00 per share. The closing prices of the
Common Stock on the New York Stock Exchange for the periods ended September
30, 1996 and 1995 and December 31, 1995 and 1994, which were used in
calculating total market equity, were $29.375, $24.00, $25.125 and $20.375,
respectively. Pro forma total market equity is calculated based upon the
last reported price of the Common Stock on the New York Stock Exchange on
January 21, 1997 of $34.50 per share of Common Stock. The Company believes
that total market equity is an indicator of the Company's relative size as
compared to other public REITs and can be used to evaluate the Company's
total market capitalization, which includes indebtedness and total market
equity, and, the Company believes, has gained acceptance as an indicator of
leverage for a company whose assets are primarily operating real estate.
Total market equity, however, does not represent the Company's assets or
net assets on a GAAP or fair market basis.
S-15
<PAGE> 16
THE COMPANY
GENERAL
The Company is a REIT that acquires, develops and operates suburban office
and industrial properties in California and Washington, Oregon and Idaho (the
"Pacific Northwest"). As of December 31, 1996, the Company owned and operated
156 income-producing Properties, aggregating approximately 21.4 million rentable
square feet and comprised of 85 industrial Properties, 60 office Properties and
11 retail Properties. The Company is in the process of acquiring eight
additional properties and divesting its retail Properties. See "Prospectus
Supplement Summary -- Recent Activities and Continued Growth." The Company's
strategic focus is to invest in California and the Pacific Northwest because of
the area's growth prospects arising from its Pacific Rim location, quality of
life, well developed transportation infrastructure, high technology industries,
well-educated employee base and excellent universities.
The Company's 25 Senior Officers have extensive real estate experience
through various cycles of the commercial property markets and possess a wide
variety of skills that provide in-house resources to add value to its Properties
through the entire cycle of acquisition, development and redevelopment including
design, financing, construction management, leasing and property management.
After giving effect to the Offering, the Senior Officers will beneficially own
Common Stock and partnership units exchangeable for Common Stock representing
approximately 11.1% of the Company's outstanding Common Stock on a
fully-converted basis, or approximately $207.7 million of the aggregate market
value of the Company's outstanding Common Stock on a fully-converted basis.
The Company's revenues increased 29.5% from $112.1 million for the nine
months ended September 30, 1995 to $145.2 million for the nine months ended
September 30, 1996. The Company's EBIDA increased 28.6% from $79.3 million for
the nine months ended September 30, 1995 to $102.0 million for the nine months
ended September 30, 1996. During the nine months ended September 30, 1996, the
Company's Funds from Operations increased 57.1% from $43.5 million for the nine
months ended September 30, 1995 to $68.3 million for the nine months ended
September 30, 1996. The Company believes that EBIDA and Funds from Operations
are useful financial performance measures of the operating performance of an
equity REIT. EBIDA and Funds from Operations do not represent net income or cash
flows from operating, financing and investing activities as defined by GAAP and
do not necessarily indicate that cash flows will be sufficient to fund cash
needs. EBIDA and Funds from Operations should not be considered as alternatives
to net income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. Funds from Operations as disclosed by other
REITs may not be comparable to the Company's calculation of Funds from
Operations. For a further discussion of EBIDA and Funds from Operations, net
income and cash flow from operations, see "Selected Financial and Other Data."
The Company's Common Stock is listed on the New York Stock Exchange under
the Symbol "SPK." The Company was incorporated in Maryland in August 1993. The
Company's executive offices are located at 2180 Sand Hill Road, Menlo Park,
California 94025 and the telephone number is (415) 854-5600.
BUSINESS STRATEGY AND OPERATIONAL PHILOSOPHY
The Company's principal objective is to achieve sustainable long-term
growth in Funds from Operations per share. The Company has pursued this goal
since its inception through focused business strategies and operational
philosophies.
S-16
<PAGE> 17
BUSINESS STRATEGY
Focus on Quality Commercial Property. The Company invests in quality
office and industrial properties that possess attributes that enable the
properties to be competitive in both the short and the long run. The Company
seeks to own properties in locations which provide easy access to major
transportation arteries and are close to important services. With more than 25
years of experience in owning and operating income-producing properties, the
Company's management possesses a high degree of knowledge of the physical and
locational characteristics that give a property long term viability.
The Company takes significant steps to differentiate its Properties from
those of nearby competitors so as to maximize their attractiveness to potential
users. The Company focuses on office properties that have ample glass line per
square foot of office space, and user friendly common areas, stairs, elevators
and restrooms, convenient parking and efficient suite layouts. Additionally, the
Company seeks to provide amenities and services such as conference rooms and
health clubs. The Company's warehouse Properties typically have high clear
heights, numerous dock facilities, appropriate truck staging and high capacity
sprinkler systems. The Company also seeks to differentiate its industrial
Properties through the use of landscaping as well as exterior glass walls.
The Company pays careful attention to the long term quality of the
buildings that it develops by emphasizing first class materials, systems and
workmanship during their construction. The exterior appearances of the Company's
Properties are designed to be attractive, enduring and appropriately simple. The
Company avoids projects which are lavish or unnecessarily intricate as these
features tend to prematurely date buildings and often fail to deliver value from
the tenants' perspective.
Serve Wide Range of Tenants. The Company focuses on leasing space to
tenants of various sizes and on owning properties that are easily divisible and
therefore appeal to a wide range of potential tenants. Such property flexibility
also allows the Company to better serve existing tenants by accommodating their
inevitable expansion and contraction needs. In addition, the Company's
experience is that such project flexibility helps it maintain high occupancy
rates particularly when market conditions are less favorable.
By focusing on divisible projects and a wide range of tenants, the Company
has been able to control the capital expenditures associated with releasing
space. Consequently, the Company's capital expenditure requirements are
relatively lower than those associated with downtown office buildings or large
single tenant suburban projects. The Company also attempts to limit tenant
improvement expenditures to those which are in demand by, and adaptable to, a
high number of users.
Own Suburban Properties. The Company focuses its efforts on properties in
suburban markets surrounding major metropolitan areas. The Company believes that
a number of significant demographic and technological factors have caused, and
will continue to cause, properties in suburban areas to perform better than
properties in central business districts. The desire of employees to work near
their residence as well as transportation difficulties and safety concerns
associated with central business districts have generally caused employers to
seek facilities in the suburbs in the recent past. These factors are reinforced
by technological changes which have enabled companies to operate efficiently
from disparate locations. According to a CB Commercial/Torto Wheaton Research
report, nationwide suburban office vacancy rates have fallen from nearly 20% in
December 1992 to 11.7% in September 1996 while nationwide downtown vacancy rates
have changed only from 17% to 14.4% during the same period.
In each specific local submarket of a suburban area in which it operates,
the Company generally seeks to own a number of properties and to be one of the
most significant commercial landlords in that market. The Company believes that
this strategy gives it a measure of control over the rental rates it charges for
its Properties. Through this approach, the Company can also offer prospective
S-17
<PAGE> 18
tenants a variety of property options and can provide existing tenants, who are
growing, additional space in Properties owned by the Company in the same area.
The Company believes that it has achieved significant market penetration within
a number of the submarkets in which it operates.
Invest in Growing Regions. The Company focuses its activities in
California and the Pacific Northwest where it believes economic growth will
exceed national averages. The Company believes these regions possess diverse and
vibrant economies with strong prospects for future growth due to their Pacific
Rim location, quality of life, well developed transportation infrastructures,
high technology industries, well-educated employee base and excellent
universities. Within California and the Pacific Northwest, the Company focuses
its activities on the major metropolitan areas of Seattle, Portland, San
Francisco, San Jose, Sacramento, Los Angeles, Orange County and San Diego, which
have shown to be desired locations of a large number of businesses.
Provide Superior Level of Service. The Company's goal is to provide a
superior level of service to its tenants in order to achieve high occupancy and
rental rates as well as low turnover. The Company's office property managers are
located on-site, providing tenants with convenient access to management and
allowing tenants to focus on their business rather than on property issues. On-
site staff enable the Company's properties to be well maintained and to convey a
sense of quality, order and security that complements the suburban environments
in which the properties are located. The Company has significant experience in
acquiring properties managed by others and thereafter improving tenant
satisfaction, occupancy levels, renewal rates and rental income by implementing
the Company's tenant service programs.
OPERATING PHILOSOPHY
Fully Integrated Management Capabilities. The Company has had and will
continue to have a philosophy of maintaining in-house resources to add value to
properties through the entire cycle of acquisition, development, and ownership
including design, construction, leasing and management. The Company utilizes
in-house resources to market, lease and manage its properties and does not
typically list its properties with outside businesses or use third party
management contractors. All of the Company's officers with real estate
responsibility have had extensive experience marketing various properties and
have, at least one time in their careers, been directly responsible for leasing
specific properties. The Company believes this approach gives it a significant
advantage as such depth of experience provides it with a detailed knowledge of
markets and tenant preferences.
Accountability. The Company has a philosophy of holding one Senior Officer
or a small group of Senior Officers accountable, under the supervision and
direction of the Company's executive officers, for all phases of a property's
development, from purchase, design and budgeting through construction, leasing
and ongoing management. The Company believes that this approach increases the
likelihood of a project's success because of the Senior Officer's
accountability, continuity of involvement in the project and resulting detailed
knowledge of the property and its tenants, particularly as compared to a
compartmentalized approach to the real estate business where individuals are
responsible for only certain limited areas of a project.
Training and Retention. The Company's hiring, training and retention of a
talented management group has been a important factor in its success. The
Company expends significant efforts in the training of new employees in
fundamental real estate skills as well as in the continuing education of
existing employees. All of the Company's officers, including the executive
officers, are involved in the education program, which reinforces the program's
importance to the Company and its personnel. The Company's officer compensation
program includes cash bonuses and restricted stock payments tied largely to
growth in net operating income from existing properties under their management,
as well as contribution to Funds from Operations from new acquisitions and
developments in their regions. Non-officer compensation includes subjective
bonuses based upon,
S-18
<PAGE> 19
among other factors, tenant satisfaction and leasing and releasing success. The
Company also believes that stock options are an effective means of linking
employees' actions to stockholder value and has granted options to 70 of the
Company's 215 employees.
THE LOCATION AND TYPE OF THE COMPANY'S PROPERTIES
The Company focuses on six geographic areas in California and the Pacific
Northwest: the East and South San Francisco Bay Areas; Sacramento; San
Diego/Orange County; Seattle and Portland.
The following tables set forth certain information relating to the
Company's Properties. Consistent with the Company's strategy to focus on office
and industrial properties, the Company is in the process of divesting its retail
portfolio and anticipates such divestiture will be completed in 1998. After
divestiture of the retail Properties, the Company's portfolio will consist of
primarily office and industrial Properties and will therefore differ from the
information set forth in the tables below. See "Prospectus Supplement
Summary -- Recent Activities and Continued Growth -- Divestiture of Retail
Portfolio."
RENTABLE SQUARE FOOTAGE
The following table sets forth, as of December 31, 1996, the location and
type of Properties by rentable square footage.
RENTABLE SQUARE FOOTAGE OF PROPERTIES BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
PERCENT
GEOGRAPHIC AREA INDUSTRIAL OFFICE RETAIL TOTAL OF TOTAL
- -------------------------------------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Seattle, WA/Boise, ID................. 3,093,072 667,526 214,195 3,974,793 18.6%
Portland, OR.......................... 1,758,627 423,989 89,624 2,272,240 10.6
Sacramento, CA........................ 1,123,744 1,228,831 360,531 2,713,106 12.7
East San Francisco Bay Area, CA....... 3,685,985 274,752 624,155 4,584,892 21.4
South San Francisco Bay Area, CA...... 3,015,110 2,087,772 168,619 5,271,501 24.7
San Diego/Orange County, CA........... 1,004,051 1,576,811 -- 2,580,862 12.0
---------- --------- --------- ---------- -----
Total....................... 13,680,589 6,259,681 1,457,124 21,397,394 100.0%
========== ========= ========= ========== =====
Percent of Total............ 63.9% 29.3% 6.8% 100.0%
---- ---- --- -----
---- ---- --- -----
Number of Properties........ 85 60 11 156
---
-- -- --
---
-- -- --
</TABLE>
S-19
<PAGE> 20
PROPERTY OPERATING INCOME
The following table sets forth for the quarter ended September 30, 1996,
the Company's Property operating income, which is rental revenue less rental
expenses and real estate taxes and excluding interest, depreciation and
amortization and general and administrative expenses, on a percentage basis by
the location and type of the Company's Properties. This table includes
information for three retail properties sold subsequent to September 30, 1996
and excludes information for Properties acquired subsequent to September 30,
1996.
PERCENTAGE OF PROPERTY OPERATING INCOME BY LOCATION AND TYPE OF PROPERTY
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PERCENT
GEOGRAPHIC AREA INDUSTRIAL OFFICE RETAIL OF TOTAL
------------------------------------------------------ ---------- ------ ------ --------
<S> <C> <C> <C> <C>
Seattle, WA/Boise, ID................................. 8.5% 5.3% 3.6% 17.4%
Portland, OR.......................................... 4.5 3.8 0.7 9.0
Sacramento, CA........................................ 2.8 9.1 2.6 14.5
East San Francisco Bay Area, CA....................... 10.8 2.1 4.7 17.6
South San Francisco Bay Area, CA...................... 12.4 19.6 1.4 33.4
San Diego/Orange County, CA........................... 2.2 5.9 -- 8.1
---- ---- ---- -----
Percent of Total............................ 41.2% 45.8% 13.0% 100.0%
==== ==== ==== =====
</TABLE>
AVERAGE OCCUPANCY RATES
The following table sets forth the aggregate average occupancy rates as of
September 30, 1996 of the Properties in terms of the location and type of the
Company's Properties. This table includes information for three retail
properties sold subsequent to September 30, 1996 and excludes information for
Properties acquired subsequent to September 30, 1996.
AVERAGE OCCUPANCY RATE BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
GEOGRAPHIC AREA INDUSTRIAL OFFICE RETAIL TOTAL
------------------------------------------------ ---------- ------ ------ -----
<S> <C> <C> <C> <C>
Seattle, WA/Boise, ID........................... 91.6% 91.0% 94.7% 91.4%
Portland, OR.................................... 95.3 99.9 100.0 96.4
Sacramento, CA.................................. 96.8 90.3 97.9 93.9
East San Francisco Bay Area, CA................. 97.5 100.0 93.3 96.9
South San Francisco Bay Area, CA................ 100.0 96.9 93.5 98.5
San Diego/Orange County, CA..................... 90.8 89.1 -- 89.8
---- ---- ---- ----
Weighted Average...................... 95.6% 93.4% 94.9% 94.9%
==== ==== ==== ====
</TABLE>
S-20
<PAGE> 21
LEASE EXPIRATIONS OF THE COMPANY'S PORTFOLIO
The following tables set forth scheduled lease expirations for leases in
effect as of September 30, 1996, for each of the next ten years, for (i) all of
the Company's Properties, (ii) all of the Company's office Properties and (iii)
all of the Company's industrial Properties. The tables assume that none of the
tenants exercises renewal options or termination rights. The tables include
lease information for three retail properties sold subsequent to September 30,
1996, and exclude lease information for Properties acquired subsequent to
September 30, 1996.
LEASE EXPIRATIONS OF THE COMPANY'S PORTFOLIO
<TABLE>
<CAPTION>
ANNUAL BASE PERCENTAGE OF
RENTABLE RENT UNDER TOTAL ANNUAL
SQUARE FOOTAGE EXPIRING LEASES(1) BASE RENT
SUBJECT TO ------------------ REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING LEASES EXPIRING LEASES(2)
----------------------------------- --------------- (IN THOUSANDS) ------------------
<S> <C> <C> <C>
1996(3)............................ 558,520 $ 1,567 0.9%
1997............................... 3,893,143 29,870 16.6
1998............................... 3,722,187 32,588 18.2
1999............................... 2,130,089 21,049 11.7
2000............................... 2,758,257 28,140 15.7
2001............................... 3,081,252 32,506 18.1
2002............................... 756,326 7,869 4.4
2003............................... 336,085 3,703 2.1
2004............................... 810,510 7,744 4.3
2005............................... 336,056 2,402 1.3
2006 and thereafter................ 986,622 12,006 6.7
---------- -------- -----
Total.................... 19,369,047 $179,444 100.0%
========== ======== =====
</TABLE>
LEASE EXPIRATIONS OF THE OFFICE PROPERTIES
<TABLE>
<CAPTION>
ANNUAL BASE PERCENTAGE OF
RENTABLE RENT UNDER TOTAL ANNUAL
SQUARE FOOTAGE EXPIRING LEASES(1) BASE RENT
SUBJECT TO ------------------ REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING LEASES EXPIRING LEASES(2)
----------------------------------- --------------- (IN THOUSANDS) ------------------
<S> <C> <C> <C>
1996(3)............................ 211,978 $ 956 1.1%
1997............................... 875,539 15,139 16.9
1998............................... 988,274 17,238 19.3
1999............................... 666,920 11,838 13.2
2000............................... 696,334 14,773 16.5
2001............................... 1,068,683 19,862 22.1
2002............................... 396,958 5,632 6.3
2003............................... 59,009 1,001 1.1
2004............................... 140,242 2,519 2.8
2005............................... 5,184 139 0.2
2006 and thereafter................ 26,348 432 0.5
--------- ------- -----
Total.................... 5,135,469 $ 89,529 100.0%
========= ======= =====
</TABLE>
S-21
<PAGE> 22
LEASE EXPIRATIONS OF THE INDUSTRIAL PROPERTIES
<TABLE>
<CAPTION>
ANNUAL BASE PERCENTAGE OF
RENTABLE RENT UNDER TOTAL ANNUAL
SQUARE FOOTAGE EXPIRING LEASES(1) BASE RENT
SUBJECT TO ------------------ REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING LEASES EXPIRING LEASES(2)
----------------------------------- --------------- (IN THOUSANDS) ------------------
<S> <C> <C> <C>
1996(3)............................ 309,170 $ 421 0.6%
1997............................... 2,779,117 13,207 19.5
1998............................... 2,596,667 13,473 19.8
1999............................... 1,381,668 7,924 11.7
2000............................... 1,953,106 11,408 16.8
2001............................... 1,957,610 11,518 16.9
2002............................... 336,155 1,698 2.5
2003............................... 204,419 2,094 3.1
2004............................... 578,840 4,172 6.1
2005............................... 280,654 1,451 2.1
2006 and thereafter................ 54,963 615 0.9
----------- ------- -----
Total.................... 12,432,369 $ 67,981 100.0%
=========== ======= =====
</TABLE>
- ---------------
(1) Annual Base Rent means the sum of amounts contractually due on an annual
basis, which in addition to standard rent may in some cases include taxes,
insurance and common area maintenance.
(2) Calculated by dividing Annual Base Rent as adjusted for contractual
increases for leases expiring during each period by the total Annual Base
Rent inclusive of contractual increases.
(3) Represents leases expiring between October 1, 1996 and December 31, 1996.
S-22
<PAGE> 23
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "SPK." The following table sets forth the high and low sale prices
for the Common Stock and dividends declared by the Company for each quarterly
period indicated, as reported by the New York Stock Exchange Composite Tape. On
January 21, 1997, the last reported sale price on the New York Stock Exchange
was $34.50 per share.
<TABLE>
<CAPTION>
COMMON STOCK
QUARTERLY PERIOD HIGH LOW DIVIDENDS DECLARED
------------------------------------------------ ---- ---- ------------------
<S> <C> <C> <C>
1995
First quarter................................. $ 21 $19 3/8 $.42
Second quarter................................ $22 1/2 $19 3/8 $.42
Third quarter................................. $24 7/8 $21 1/8 $.42
Fourth quarter................................ $25 7/8 $23 1/2 $.42
1996
First quarter................................. $ 27 $24 5/8 $.43
Second quarter................................ $27 7/8 $23 7/8 $.43
Third quarter................................. $30 3/8 $27 1/8 $.43
Fourth quarter................................ $ 36 $ 29 $.43(1)
1997
First quarter(2).............................. $ 36 $33 1/2 $ --(3)
</TABLE>
- ---------------
(1) Paid on January 17, 1997 to stockholders of record as of December 31, 1996.
Accordingly, purchasers of Common Stock in the Offering will not receive
fourth quarter 1996 dividends with respect to the shares of Common Stock
offered hereby.
(2) Through January 21, 1997.
(3) Dividends for the quarter ending March 31, 1997 had not been declared as of
January 21, 1997.
Since the Company's initial public offering in November 1993, the Company
has declared regular quarterly dividends to its stockholders. Federal income tax
law requires that a REIT distribute annually at least 95% of its REIT taxable
income. See "Federal Income Tax Considerations -- Annual Distribution
Requirements" in the accompanying Prospectus. In addition to the dividends
declared to holders of Common Stock, the Company also declared dividends to
holders of its Series A Preferred Stock, Series B Preferred Stock, Class B
Common Stock and Class C Common Stock. For each of the four quarters of 1995,
the Company declared dividends to holders of Series A Preferred Stock of $0.5122
per share, and for each of the four quarters of 1996, the Company declared
dividends of $0.524391 per share to such holders. For the interim period between
the closing of the sale of Series B Preferred Stock on December 11, 1995 and
December 31, 1995, the Company declared dividends to the holders of Series B
Preferred Stock of $0.1379 per share, and for each of the four quarters of 1996,
the Company declared dividends of $0.59063 per share to such holders. For each
of the second, third and fourth quarters of 1995, the Company declared dividends
to holders of Class B Common Stock of $0.5472 per share, and for each of the
four quarters of 1996, the Company declared dividends of $0.5575 per share to
such holders. For each of the four quarters of 1996 the Company declared
dividends to holders of Class C Common Stock of $0.4425 per share. Future
dividends by the Company will be at the discretion of the Board of Directors and
will depend upon the actual Funds from Operations of the Company, its financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code, applicable legal restrictions and
such other factors as the Board of Directors deems relevant. Although the
Company intends to continue to make quarterly distributions to its stockholders,
no assurances can be given as to the amounts of dividends, if any, distributed
in the future.
S-23
<PAGE> 24
The Company has an automatic dividend reinvestment plan which allows
stockholders to acquire additional shares of Common Stock through the automatic
reinvestment of cash dividends, without payment of any brokerage commission.
HISTORICAL TOTAL RETURN
An investor who purchased Common Stock in the Company's initial public
offering on November 18, 1993, who reinvested all dividends paid in additional
shares of Common Stock, and who held such shares through the close of business
on December 31, 1996 would have had a cumulative pretax total return of 100.9%
or an annual compounded pretax return of 25.9% based upon the closing price of
the Common Stock on December 31, 1996 of $36.00 per share. Past performance,
however, is not necessarily indicative of the results that will be obtained in
the future from an investment in the Company's Common Stock, and no assurance
can be given that an investor in this Offering will achieve similar results. See
"Special Considerations" in the accompanying Prospectus for a discussion of
risks associated with the Company's future performance.
S-24
<PAGE> 25
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are expected to be approximately $326.1 million (approximately $375.1
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to contribute such proceeds to the Operating Partnership, of
which the Company is the sole general partner, to purchase an estimated
additional 1.7% interest in the Operating Partnership. The Operating Partnership
will use the net proceeds to fund the Pending Acquisitions and to repay
borrowings on the Company's unsecured line of credit incurred in connection
therewith. Any remaining proceeds after the purchase of the Pending Acquisitions
will be used to fund future acquisition and development activities and for
general corporate purposes.
As of December 31, 1996, the weighted average interest rate on indebtedness
expected to be repaid with the net proceeds of the Offering was approximately
7.0% and the weighted average maturity of such indebtedness was approximately
one year.
S-25
<PAGE> 26
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and on a pro forma basis as if the Offering, the Pending
Acquisitions and certain other transactions described in the Company's pro forma
financial statements and notes thereto included elsewhere herein had been
completed on September 30, 1996. See "Spieker Properties, Inc. Pro Forma
Financial Information." The capitalization table should be read in conjunction
with the Company's consolidated financial statements included or incorporated by
reference in the Prospectus Supplement and the accompanying Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------
ACTUAL PRO FORMA
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage loans(1).............................................. $ 47,301 $ 68,301
Unsecured line of credit(2).................................... 39,000 --
Unsecured Notes(3)............................................. 510,000 635,000
---------- ----------
Total debt............................................. 596,301 703,301
---------- ----------
Minority interest................................................ 44,768 69,768
---------- ----------
Stockholders' equity (deficit):
Series A Preferred Stock: $.0001 par value, 1,000,000
authorized,
1,000,000 issued and outstanding............................ 23,949 23,949
Series B Preferred Stock: $.0001 par value, 5,000,000
authorized,
4,250,000 issued and outstanding............................ 102,064 102,064
Common Stock: $.0001 par value; 660,500,000 authorized,
31,811,861 and 41,821,861, respectively, issued and
outstanding................................................. 3 4
Class B Common Stock: $.0001 par value, 2,000,000 authorized,
issued and outstanding...................................... -- --
Class C Common Stock: $.0001 par value, 1,500,000 authorized,
1,176,470 issued and outstanding............................ -- --
Excess Stock: $.0001 par value per share, 330,000,000 shares
authorized, no shares issued or outstanding................. -- --
Additional paid-in capital..................................... 432,912 758,998
Deferred compensation.......................................... (561) (561)
Retained earnings.............................................. -- 10,483
---------- ----------
Total stockholders' equity................................ 558,367 894,937
---------- ----------
Total capitalization................................... $1,199,436 $1,668,006
========== ==========
</TABLE>
- ---------------
(1) The pro forma balance reflects the assumption of a mortgage loan in
connection with one of the Pending Acquisitions.
(2) The pro forma balance reflects a net decrease in borrowings under the
Company's unsecured line of credit comprising pro forma borrowings to fund
the Pending Acquisitions and certain other property acquisitions offset by
repayment of such borrowings with a portion of the net proceeds from the
issuance of $125,000 of unsecured debt securities and a portion of the net
proceeds from the Offering.
(3) The pro forma balance reflects the issuance of $125,000 of unsecured debt
securities on December 10, 1996.
S-26
<PAGE> 27
SELECTED FINANCIAL AND OTHER DATA
The Company's consolidated selected financial and other data is presented
on a historical basis for the nine months ended September 30, 1996 and 1995 and
the years ended December 31, 1995 and 1994, and on a pro forma basis for the
nine months ended September 30, 1996 and the year ended December 31, 1995. The
Company's consolidated balance sheet data is presented on a historical basis as
of September 30, 1996 and December 31, 1995 and 1994 and on a pro forma basis as
of September 30, 1996. Pro forma operating and other data are presented as if
the Offering, the Pending Acquisitions and certain other transactions described
in the Company's pro forma financial statements and notes thereto included
elsewhere herein had been completed on January 1, 1995. Pro forma balance sheet
data are presented as if the Offering, the Pending Acquisitions and certain
other transactions described in the pro forma financial statements and notes
thereto included elsewhere herein had been completed on September 30, 1996. See
"Spieker Properties, Inc. Pro Forma Financial Information."
The selected financial and other data should be read in conjunction with
the consolidated financial statements and notes thereto of the Company included
elsewhere herein and included in the Company's filings under the Exchange Act,
which are incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus.
SELECTED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------------- ---------------------------------
PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL
1996(1) 1996 1995 1995(1) 1995 1994
--------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............................................... $201,497 $145,157 $112,050 $259,248 $153,391 $121,037
Income from operations before disposal of properties,
minority interests, and extraordinary items.......... 66,937 48,207 20,242 80,760 30,335 13,363
Income before extraordinary items...................... 57,919 40,603 16,357 69,892 24,666 10,541
Net income (loss)...................................... 57,919 40,603 16,357 69,892 (8,837) 10,541
Net income (loss) available to common stockholders..... 48,816 31,500 14,821 57,803 (11,471) 9,303
Net income per share of common stock before
extraordinary items(2)............................... $ 1.06 $ 0.92 $ 0.59 $ 1.26 $ 0.84 $ 0.46
Net income (loss) per share of common stock(2)......... 1.06 0.92 0.59 1.26 (0.44) 0.46
Dividends and distributions per share:
Series A Preferred Stock............................. 1.57 1.57 1.53 2.05 2.05 1.24
Series B Preferred Stock............................. 1.77 1.77 -- 2.36 0.14 --
Common Stock(2)...................................... 1.34 1.34 1.26 1.68 1.68 1.60
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996 AS OF DECEMBER 31,
----------------------------- -----------------------------
PRO FORMA(1) ACTUAL ACTUAL 1995 ACTUAL 1994
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate (before accumulated
depreciation)............................................. $1,772,906 $1,350,528 $1,098,871 $ 870,613
Net investment in real estate............................... 1,637,314 1,214,936 974,259 770,827
Total assets................................................ 1,738,460 1,269,890 1,011,497 809,938
Property indebtedness, net(3)............................... 68,301 47,301 112,702 522,277
Unsecured debt.............................................. 635,000 549,000 377,700 --
Total debt.................................................. 703,301 596,301 490,402 522,277
Stockholders' equity........................................ 894,937 558,367 419,847 206,304
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------------------------- ------------------------------------------
PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL
1996(1) 1996 1995 1995(1) 1995 1994
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(4)............... $ 95,342 $ 68,320 $ 43,489 $ 117,109 $ 61,428 $ 41,935
Weighted average share
equivalents(5)....................... 54,402,094 42,049,446 32,601,038 54,402,094 33,769,742 27,069,241
EBIDA(6)............................... $ 140,647 $ 102,023 $ 79,337 $ 180,501 $ 108,323 $ 86,711
Cash flow provided by (used in):
Operating activities................. 118,620 91,598 58,768 127,891 72,210 45,358
Investing activities................. (44,004) (270,003) (131,395) (709,348) (196,254) (158,189)
Financing activities................. (29,644) 195,373 71,936 797,802 121,954 96,627
Total rentable square footage of
properties at end of period.......... 24,167 20,404 15,561 -- 16,282 13,933
Number of properties at end of
period............................... 164 149 122 -- 128 111
Occupancy rate at end of period........ -- 94.9% 97.3% -- 96.9% 97.6%
Ratio of earnings to fixed
charges(7)........................... 2.67x 2.65x 1.53x 2.51x 1.61x 1.29x
Ratio of earnings to combined fixed
charges and
preferred stock dividends(8)......... 2.17x 2.00x 1.47x 2.05x 1.53x 1.26x
Ratio of FFO before interest expense
and Series B Preferred Stock
dividends to interest expense(9)..... 3.70x 3.87x 2.22x 3.39x 2.34x 1.94x
Total market equity(10)................ $ 1,970,388 $ 1,377,873 $ 888,937 -- $ 1,036,895 $ 560,590
</TABLE>
S-27
<PAGE> 28
- ---------------
(1) See "Spieker Properties, Inc. Pro Forma Financial Information."
(2) Per share amounts are presented for nine months ended September 30, 1996
and 1995 and for the years ended December 31, 1995 and 1994 based upon
weighted average common shares outstanding of 34,280,115, 25,023,655,
26,140,488 and 20,417,513, respectively. The pro forma per share amounts
have been based upon weighted average common shares outstanding of
45,899,087 for nine months ended September 30, 1996 and the year ended
December 31, 1995. Dividends and distributions per share do not include
dividends on the Class B Common Stock and Class C Common Stock. The actual
Class B Common Stock dividends declared in 1996 and 1995 were $1.67 and
$1.64 per share, respectively, and the Class C Common Stock dividends
declared in 1996 were $1.33 per share.
(3) Net of discount of approximately $31,617 as of December 31, 1994.
(4) Funds from Operations means income (loss) from operations before disposal
of real estate properties, minority interests and extraordinary items plus
depreciation and amortization and an adjustment for straight-lined rents
less cash distributable to minority interests in certain properties owned
by the Company. In February 1995, the National Association of Real Estate
Investment Trusts established new guidelines clarifying its definition of
Funds from Operations and requested that REITs adopt this new definition
beginning in 1996. The new definition provides that the amortization of
debt discount and deferred financing costs is no longer to be added back to
net income to calculate Funds from Operations. In 1996, the Company
substantially implemented the new NAREIT definition for calculating Funds
from Operations. The amounts presented above for the nine months ended
September 30, 1995 and the years ended December 31, 1995 and 1994 have been
restated to reflect the new NAREIT definition. Funds from Operations
previously reported by the Company based on the old NAREIT definition for
the nine months ended September 30, 1995 and the years ended December 31,
1995 and 1994 were $50,906, $70,790 and $52,142, respectively. Management
generally considers Funds from Operations to be a useful financial
performance 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 and other capital
expenditures. Funds from Operations does not represent net income or cash
flows from operations as defined by GAAP and does not necessarily indicate
that cash flows will be sufficient to fund cash needs. It should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or 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 also
does not represent cash flows generated 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.
(5) Assumes conversion of shares of Class B Common Stock, Class C Common Stock,
Series A Preferred Stock and partnership units in the Operating Partnership
into shares of Common Stock.
(6) EBIDA means earnings before interest expense, depreciation, amortization,
disposal of real estate properties and minority interests. EBIDA is
computed as income from operations before minority interests and
extraordinary items plus interest expense, depreciation and amortization.
The Company believes that in addition to cash flows and net income, EBIDA
is a useful financial performance measure for assessing the operating
performance of an equity REIT because, together with net income and cash
flows, EBIDA provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. To evaluate EBIDA and the trends it depicts,
the components of EBIDA, such as rental revenues, rental expenses, real
estate taxes and general and administrative expenses, should be considered.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Excluded from EBIDA are financing costs such as
interest as well as depreciation and amortization, each of which can
significantly affect a REIT's results of operations and liquidity and
should be considered in evaluating a REIT's operating performance. Further,
EBIDA does not represent net income or cash flows from operating, financing
and investing activities as defined by generally accepted accounting
principles and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
(7) The ratio of earnings to fixed charges is computed as income (loss) from
operations, before extraordinary items, plus fixed charges (excluding
capitalized interest) divided by fixed charges. Fixed charges consist of
interest costs including amortization of debt discount and deferred
financing fees, whether capitalized or expensed and the interest component
of rental expense.
(8) The ratio of earnings to combined fixed charges and preferred stock
dividends is computed as income (loss) from operations, before
extraordinary items, plus fixed charges (excluding capitalized interest)
divided by fixed charges plus dividends on preferred stock.
(9) The ratio of Funds from Operations before interest expense and dividends on
Series B Preferred Stock to interest expense is calculated as Funds from
Operations plus interest expense, excluding amortization of prepaid
interest and deferred financing fees and dividends on Series B Preferred
Stock divided by interest expense. The Company believes that in addition to
the ratio of earnings to fixed charges, this ratio provides a useful
measure of a REIT's ability to service its debt because of the exclusion of
non-cash items such as depreciation and amortization from the definition of
Funds from Operations. This ratio differs from a GAAP-based ratio of
earnings to fixed charges and should not be considered as an alternative to
that ratio. Further, Funds from Operations as disclosed by other REITs may
not be comparable to the Company's calculation of Funds from Operations.
(10) Total market equity is presented as of the end of the period and is
calculated as the sum of (i) the total number of shares of Common Stock
outstanding, assuming conversion into Common Stock of the Series A
Preferred Stock, Class B Common Stock, Class C Common Stock and the
partnership units in the Operating Partnership, multiplied by the closing
price of the Common Stock as of the end of the period and (ii) the total
number of shares of Series B Preferred Stock multiplied by their
liquidation preference of $25.00 per share. The closing prices of the
Common Stock on the New York Stock Exchange for the periods ended September
30, 1996 and 1995 and December 31, 1995 and 1994, which were used in
calculating total market equity, were $29.375, $24.00, $25.125 and $20.375,
respectively. Pro forma total market equity is calculated based upon the
last reported price of the Common Stock on the New York Stock Exchange on
January 21, 1997 of $34.50 per share of Common Stock. The Company believes
that total market equity is an indicator of the Company's relative size as
compared to other public REITs and can be used to evaluate the Company's
total market capitalization, which includes indebtedness and total market
equity, and, the Company believes, has gained acceptance as an indicator of
leverage for a company whose assets are primarily operating real estate.
Total market equity, however, does not represent the Company's assets or
net assets on a GAAP or fair market basis.
S-28
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the selected
financial data and the Company's financial statements included elsewhere or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus.
OVERVIEW
During the nine month period ended September 30, 1996, the Company
continued to generate growth through its abilities in both managing and leasing
commercial property space and in finding attractive acquisition and development
opportunities. As of September 30, 1996, the Company's portfolio of Properties
was in excess of 94.9% leased. The Company's commitment to superior tenant
service and to maintaining a strong local presence in each of its markets
enabled the Company to lease approximately 3.5 million rentable square feet of
space during this period. Significantly, effective rents on the 2.7 million
square feet of second generation space leased increased by 10.4% as compared to
the rents of expiring leases. Also, during the nine month period ended September
30, 1996, the Company acquired 15 Properties and completed two investments in
mortgages aggregating over 4.6 million rentable square feet for a total
investment of approximately $228.0 million and committed $82.3 million to the
development of another 1.3 million square feet. During the nine month period
ended September 30, 1996, the Company completed development on seven Properties,
representing 899,324 rentable square feet, for a total investment of
approximately $63.3 million.
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 revenue 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 investment in such properties, including the
estimated cost to complete initial tenant improvements, is $63.3 million. The
Company also has a current development pipeline consisting of eleven properties
representing an estimated total investment 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 $228.0 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 releasing of second-
generation space. During the first nine months of 1996, the Company completed
470 lease
S-29
<PAGE> 30
transactions for the renewal or releasing of 2.7 million square feet of
second-generation space. On average, the new effective rates were 10.4% 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 95.6% leased and the retail
portfolio was 94.9% 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 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 writeoff 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.
S-30
<PAGE> 31
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
releasing 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 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 releasing 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 releasing 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
S-31
<PAGE> 32
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.
In December 1996, the Company issued $100 million of its 7.125% Notes Due
December 1, 2006 and $25 million of its 7.875% Notes Due December 1, 2016. Net
proceeds of approximately $123.9 million from the issuance of these notes were
used to repay borrowings on the line of credit and to fund ongoing acquisition
and development projects.
As of December 31, 1996, the Company had approximately $635.0 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 2016.
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
Series A Preferred Stock and upon conversion of partnership units in the
Operating Partnership by certain holders thereof. The January 1996 Shelf
S-32
<PAGE> 33
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.
In December 1996, the Company and the Operating Partnership filed a shelf
registration statement (the "December 1996 Shelf Registration Statement") with
the SEC which registered $500.0 million of equity securities of the Company and
$500.0 million of debt securities of the Operating Partnership. As of December
31, 1996, the December 1996 Shelf Registration Statement had not been declared
effective by the SEC.
As of December 31, 1996, the Company has the capacity pursuant to the
October 1995 Shelf Registration Statement, the May 1996 Shelf Registration
Statement and the December 1996 Shelf Registration Statement to issue up to
approximately $892.0 million in equity securities and the Operating Partnership
has the capacity to issue up to $565.0 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 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.
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<PAGE> 34
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.
STATEMENT OF FUNDS FROM OPERATIONS
(BASED ON THE NEW NAREIT DEFINITION)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------- ----------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 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>
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<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the Directors and Executive Officers of the
Company, and their ages as of December 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Warren E. Spieker, Jr...... 52 Chairman of the Board and Chief Executive Officer
John K. French............. 52 Director, Executive Vice President and Chief Operating Officer
Dennis E. Singleton........ 52 Director, Executive Vice President and Chief Investment Officer
Craig G. Vought............ 36 Executive Vice President and Chief Financial Officer
Richard J. Bertero......... 57 Director; Partner, Hogland, Bogart & Bertero; former Partner,
RREEF Funds
Harold M. Messmer.......... 50 Director; Chairman and Chief Executive Officer of Robert Half
International Inc.
David M. Petrone........... 52 Director; Chairman, Housing Capital Company; former Vice
Chairman of Wells Fargo and Company
William S. Thompson, Jr.... 51 Director; Managing Director and Chief Executive Officer of
Pacific Investment Management Company; former Chairman of
Salomon Brothers Asia Ltd.
</TABLE>
SENIOR OFFICERS
The Senior Officers include the Executive Officers listed above and the
officers listed in the table below, which also sets forth the ages of such
officers as of December 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Bruce E. Hosford........... 48 Executive Vice President
John G. Davenport.......... 40 Regional Senior Vice President -- Southern California
James C. Eddy.............. 45 Regional Senior Vice President -- Oregon
John A. Foster............. 38 Regional Senior Vice President -- South Bay
Donald S. Jefferson........ 45 Regional Senior Vice President -- Washington/Idaho
Peter H. Schnugg........... 45 Regional Senior Vice President -- East Bay/Sacramento
Vincent D. Mulroy.......... 40 Senior Vice President -- North Bay
Richard L. Romney.......... 42 Senior Vice President -- San Diego
Joseph D. Russell, Jr...... 37 Senior Vice President -- South Bay
John B. Souther, Jr........ 37 Senior Vice President -- Portland
Frank L. Alexander......... 39 Vice President -- North Bay
Richard P. Gervais......... 37 Vice President -- Seattle
Susan B. Hawkins........... 45 Vice President -- Central Valley
Eli Khouri................. 37 Vice President -- Investments
Richard T. Leider.......... 40 Vice President -- Seattle
Sara H. Reynolds........... 36 Vice President -- General Counsel and Secretary
Stuart A. Rothstein........ 30 Vice President -- Finance
Elke Strunka............... 54 Vice President -- Principal Accounting Officer
Peter C. Thompson.......... 37 Vice President -- Sacramento
John R. Winther............ 30 Vice President -- East Bay
James R. Wood, Jr.......... 32 Vice President -- Orange County
</TABLE>
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<PAGE> 36
MANAGEMENT'S OWNERSHIP
After giving effect to the Offering, the Senior Officers will beneficially
own Common Stock and partnership units exchangeable for Common Stock
representing approximately 5,938,596 shares of Common Stock, equaling
approximately 11.1% of the Company's outstanding Common Stock on a
fully-converted basis or approximately $207.7 million of the aggregate market
value of the Company's outstanding Common Stock on a fully-converted basis,
based on the last reported sale price of the Common Stock on the New York Stock
Exchange on January 21, 1997.
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<PAGE> 37
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement and
related Pricing Agreement, the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Goldman, Sachs
& Co., Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Prudential Securities Incorporated are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
-------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co. ......................................... 1,400,000
Alex. Brown & Sons Incorporated............................... 1,400,000
Dean Witter Reynolds Inc. .................................... 1,400,000
Donaldson, Lufkin & Jenrette Securities Corporation........... 1,400,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................... 1,400,000
Prudential Securities Incorporated............................ 1,400,000
Jefferies & Company, Inc...................................... 400,000
Montgomery Securities......................................... 400,000
J.P. Morgan Securities Inc.................................... 400,000
Morgan Stanley & Co. Incorporated............................. 400,000
---------
Total............................................... 10,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement and the
related Pricing Agreement, the Underwriters are committed to take all of the
shares of Common Stock, if any are taken.
The Underwriters propose to offer the Common Stock in part directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of $1.08 per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
1,500,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the Underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof which the number of shares to be purchased by each
of them, as shown in the foregoing table, bears to the 10,000,000 shares of
Common Stock offered.
The Company has agreed that during the period beginning from the date of
this Prospectus Supplement and continuing to and including the date 90 days
after the date of this Prospectus Supplement, not to sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities of the Company
that are substantially similar to the shares of Common Stock, or any other
security convertible into or exchangeable for, or represent the right to
receive, shares of Common Stock or any such similar securities, except for (i)
shares of Common Stock issuable pursuant to employee stock option plans existing
on, or upon the conversion of convertible or exchangeable securities existing
on, or upon the conversion of convertible or exchangeable securities outstanding
as of, the date of this Prospectus Supplement, and (ii) shares of Common Stock
issuable upon the exchange of partnership units in the Operating Partnership or
for the issuance of partnership units in the Operating Partnership (which may be
exchangeable for Common Stock no earlier than 90 days after the date of this
Prospectus Supplement), without the prior written consent of the Underwriters.
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<PAGE> 38
Certain of the Underwriters have provided various investment banking
services to the Company and its affiliates from time to time, for which they
have received customary compensation.
The Company and the Operating Partnership have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Morrison & Foerster LLP, Palo Alto, California, and for
the Underwriters by Sullivan & Cromwell, Los Angeles, California. Morrison &
Foerster LLP and Sullivan & Cromwell will rely upon the opinion of Piper &
Marbury L.L.P., Baltimore, Maryland as to certain matters of Maryland law.
S-38
<PAGE> 39
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Spieker Properties, Inc. Pro Forma Financial Information (unaudited)
- Pro Forma condensed consolidated balance sheet as of September 30, 1996 with
accompanying notes and adjustments............................................. F-3
- Pro forma condensed consolidated statements of operations for the nine months
ended September 30, 1996 and for the year ended December 31, 1995 with
accompanying notes and adjustments............................................. F-5
The Three Property Transactions
- Report of independent public accountants......................................... F-9
- Combined statements of revenues and certain expenses for the nine months ended
September 30, 1996 (unaudited) and the year ended December 31, 1995............ F-10
- Notes to combined statements of revenues and certain expenses.................... F-11
</TABLE>
F-1
<PAGE> 40
SPIEKER PROPERTIES, INC.
PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma condensed consolidated balance sheet
has been prepared to reflect (i) the completion of the Pending Acquisitions and
the Property acquisitions in the fourth quarter of 1996, (ii) the issuance of
$125 million of unsecured Notes in December 1996, (iii) the sale of three retail
Properties in the fourth quarter of 1996 and (iv) the completion of the Offering
and the application of the net proceeds therefrom as described in "Use of
Proceeds," as if such transactions had all occurred on September 30, 1996. The
accompanying unaudited pro forma condensed consolidated statements of operations
for the nine months ended September 30, 1996 and the year ended December 31,
1995 have been prepared to reflect (i) the Pending Acquisitions and the
incremental effect of Properties and mortgages acquired in 1995 and 1996 and
development projects completed in 1996, (ii) the incremental effect of
Properties sold in 1996, (iii) an adjustment to interest expense based upon pro
forma debt and (iv) certain other adjustments, as if such transactions had all
occurred on January 1, 1995.
These pro forma condensed consolidated statements should be read in
conjunction with the respective consolidated financial statements and notes
thereto of the Company and certain of the Pending Acquisitions included or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus. In the opinion of management, the unaudited pro forma condensed
consolidated financial information provides all adjustments necessary to reflect
the effects of the transactions described herein.
The pro forma condensed consolidated information is unaudited and is not
necessarily indicative of the consolidated results which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or changes in cash flows for future periods.
F-2
<PAGE> 41
SPIEKER PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPLETED NOTES PROPERTY PENDING
HISTORICAL(1) ACQUISITIONS(2) ISSUANCE(3) SALES(4) OFFERING(5) ACQUISITIONS(6) PRO FORMA
------------- --------------- ------------ -------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in real
estate,
net.................... $ 1,214,936 $ 124,800 $ -- $(34,922) $ -- $ 332,500 $1,637,314
Cash and cash
equivalents............ 24,541 (13,200) -- 45,405 300,231 (286,500) 70,477
Financing and leasing
costs,
net.................... 16,686 -- 256 -- -- -- 16,942
Other Assets............. 13,727 -- -- -- -- -- 13,727
---------- -------- --------- -------- ------- --------- ----------
$ 1,269,890 $ 111,600 $ 256 $ 10,483 $ 300,231 $ 46,000 $1,738,460
========== ======== ========= ======== ======= ========= ==========
LIABILITIES
Mortgage loans, net...... $ 47,301 $ -- $ -- $ -- $ -- $ 21,000 $ 68,301
Unsecured line of
credit................. 39,000 111,600 (124,744) -- (25,856) -- --
Notes.................... 510,000 -- 125,000 -- -- -- 635,000
Other liabilities........ 70,454 -- -- -- -- -- 70,454
---------- -------- --------- -------- ------- --------- ----------
Total
Liabilities... 666,755 111,600 256 -- (25,856) 21,000 773,755
---------- -------- --------- -------- ------- --------- ----------
MINORITY INTEREST........ 44,768 -- -- -- -- 25,000 69,768
---------- -------- --------- -------- ------- --------- ----------
SHAREHOLDERS' EQUITY
Series A Preferred
Stock.................. 23,949 -- -- -- -- -- 23,949
Series B Preferred
Stock.................. 102,064 -- -- -- -- -- 102,064
Common shares............ 3 -- -- -- 1 -- 4
Additional paid-in
capital................ 432,912 -- -- -- 326,086 -- 758,998
Deferred compensation.... (561) -- -- -- -- -- (561)
Retained earnings........ -- -- -- 10,483 -- -- 10,483
---------- -------- --------- -------- ------- --------- ----------
Total Equity.... 558,367 -- -- 10,483 326,087 -- 894,937
---------- -------- --------- -------- ------- --------- ----------
$ 1,269,890 $ 111,600 $ 256 $ 10,483 $ 300,231 $ 46,000 $1,738,460
========== ======== ========= ======== ======= ========= ==========
</TABLE>
F-3
<PAGE> 42
SPIEKER PROPERTIES, INC.
NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
1. Reflects the historical consolidated balance sheet of the Company as of
September 30, 1996.
2. Reflects the acquisition of 10 Properties that were acquired by the Company
in the fourth quarter of 1996 at an aggregate total investment of
approximately $124,800. The acquisitions were funded with borrowings under
the Company's unsecured line of credit and net proceeds from property sales.
3. Reflects the issuance of $125,000 of unsecured notes in December 1996. The
net proceeds were used to repay borrowings on the Company's unsecured line of
credit. In connection with the issuance, the Company incurred costs of
approximately $256.
4. Reflects the sale of three of the Company's retail Properties in the fourth
quarter of 1996 for an aggregates sales price of approximately $45,405. The
Company recognized a gain of approximately $10,483 on the sale. This sale is
part of the Company's plan to sell 13 retail Properties which the Company
committed to in December 1996. The Company expects to sell the remaining 10
other retail Properties with an aggregate net book value of approximately
$117,096 during 1997 and 1998. The effects of the sale of 10 other retail
Properties have not been reflected in the accompanying pro forma financial
statements.
5. Reflects the estimated net proceeds from the Offering of approximately
$326,087. The Company expects that the net proceeds from the Offering will be
used to fund the Pending Acquisitions, to repay borrowings on the Company's
unsecured line of credit incurred in connection therewith and for general
corporate purposes. In connection with the Offering, the Company expects to
incur costs of approximately $18,913.
6. Reflects the completion of the Pending Acquisitions at an aggregate total
investment of approximately $332,500 consisting of $286,500 of cash,
assumption of a $21,000 mortgage loan and issuance of 733,676 units in the
Operating Partnership with an approximate value of $25,000. The assumed
mortgage loan bears a fixed interest rate of 8% and matures in 2005.
F-4
<PAGE> 43
SPIEKER PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED
ACQUISITIONS AND PROPERTY PRO FORMA DEBT PENDING OTHER
HISTORICAL(1) DEVELOPMENTS(2) SALES(3) ADJUSTMENTS(4) ACQUISITIONS(5) ADJUSTMENTS(6) PRO FORMA
------------- ---------------- -------- -------------- --------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental
income...... $ 142,131 $ 26,311 $(4,449) $ -- $34,388 $ -- $198,381
Interest and
other
income...... 3,026 90 -- -- -- -- 3,116
----------
-
----------- ------- ------- -------- ------- -------
Total
revenues... 145,157 26,401 (4,449) -- 34,388 -- 201,497
----------
-
----------- ------- ------- -------- ------- -------
OPERATING
EXPENSES
Rental
expenses.... 24,351 6,669 (419) -- 8,110 -- 38,711
Real estate
taxes....... 11,292 1,882 (450) -- 1,924 -- 14,648
Interest
expense..... 26,443 -- -- 11,650 -- -- 38,093
Depreciation
and
amortization... 27,373 3,987 (731) -- 4,988 -- 35,617
General and
administration
and other... 7,491 -- -- -- -- -- 7,491
----------
-
----------- ------- ------- -------- ------- -------
Total
operating
expenses... 96,950 12,538 (1,600) 11,650 15,022 -- 134,560
----------
-
----------- ------- ------- -------- ------- -------
INCOME FROM
OPERATIONS
BEFORE
DISPOSAL OF
REAL ESTATE
AND MINORITY
INTERESTS... 48,207 13,863 (2,849) (11,650) 19,366 -- 66,937
Loss on
disposal of
real
estate...... (1,483) -- 1,483 -- -- -- --
----------
-
----------- ------- ------- -------- ------- -------
INCOME FROM
OPERATIONS
BEFORE
MINORITY
INTERESTS... 46,724 13,863 (1,366) (11,650) 19,366 -- 66,937
Minority
interests... (6,121) -- -- -- -- (2,897) (9,018)
----------
-
----------- ------- ------- -------- ------- -------
NET INCOME.... 40,603 13,863 (1,366) (11,650) 19,366 (2,897) 57,919
Series A
Preferred
Stock
dividends... (1,573) -- -- -- -- -- (1,573)
Series B
Preferred
Stock
dividends... (7,530) -- -- -- -- -- (7,530)
----------
-
----------- ------- ------- -------- ------- -------
NET INCOME
AVAILABLE TO
COMMON
STOCKHOLDERS... $ 31,500 $ 13,863 $(1,366) $(11,650) $19,366 $ (2,897) $ 48,816
=========== ======= ======= ======== ======= ======= ===========
Net income per
share of
Common
Stock....... $ 0.92 $ 1.06
=========== ===========
Weighted
average
common
shares
outstanding... 34,280,115 45,899,087
</TABLE>
F-5
<PAGE> 44
SPIEKER PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED PRO FORMA
ACQUISITIONS AND PROPERTY DEBT PENDING OTHER
HISTORICAL(1) DEVELOPMENTS(2) SALES(3) ADJUSTMENTS(4) ACQUISITION(5) ADJUSTMENTS(6) PRO FORMA
------------- ---------------- --------- --------------- --------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental
income... $ 149,308 $ 64,556 $(5,545) $ -- $45,036 $ -- $253,355
Interest
and
other
income... 4,083 1,810 -- -- -- -- 5,893
----------
-
----------- ------- ------- -------- -------- -------
Total
revenues... 153,391 66,366 (5,545) -- 45,036 -- 259,248
----------
-
----------- ------- ------- -------- -------- -------
OPERATING
EXPENSES
Rental
expenses... 24,601 15,488 (581) -- 10,984 -- 50,492
Real
estate
taxes... 11,934 5,734 (548) -- 2,602 -- 19,722
Interest
expense... 46,386 -- -- 6,772 -- -- 53,158
Depreciation
and
amortization... 31,602 9,307 (976) -- 6,650 -- 46,583
General
and
administration
and
other... 8,533 -- -- -- -- -- 8,533
----------
-
----------- ------- ------- -------- -------- -------
Total
operating
expenses.. 123,056 30,529 (2,105) 6,772 20,236 -- 178,488
----------
-
----------- ------- ------- -------- -------- -------
INCOME
FROM
OPERATIONS
BEFORE
MINORITY
INTERESTS... 30,335 35,837 (3,440) (6,772) 24,800 -- 80,760
Minority
interests... (5,669) -- -- -- -- (5,199) (10,868)
----------
-
----------- ------- ------- -------- -------- -------
NET
INCOME... 24,666 35,837 (3,440) (6,772) 24,800 (5,199) 69,892
Series A
Preferred
Stock
dividends... (2,048) -- -- -- -- -- (2,048)
Series B
Preferred
Stock
dividends... (586) -- -- (9,455) -- -- (10,041)
----------
-
----------- ------- ------- -------- -------- -------
NET INCOME
AVAILABLE
TO
COMMON
STOCKHOLDERS... $ 22,032 $ 35,837 $(3,440) $ (16,227) $24,800 $ (5,199) $ 57,803
=========== ======= ======= ======== ======== ======= ===========
Net income
per
share of
Common
Stock... $ 0.84 $ 1.26
=========== ===========
Weighted
average
common
shares
outstanding... 26,140,488 45,899,087
------------ --------
------------ --------
</TABLE>
F-6
<PAGE> 45
SPIEKER PROPERTIES, INC.
NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLARS IN THOUSANDS)
1. Reflects the historical consolidated statement of operations of the Company
for nine months ended September 30, 1996 and the year ended December 31,
1995, excluding extraordinary items.
2. Reflects the incremental effect on the Company's revenues, rental expenses
and real estate taxes of (i) 17 Properties acquired during 1995, (ii) 25
Properties and two mortgages acquired during 1996, (iii) three development
projects completed during 1995 and (iv) four development projects completed
during 1996. Such amounts represent the operations of the acquired and
developed Properties and interest earned on the mortgages prior to
acquisition by the Company. Also reflects depreciation and amortization for
periods prior to acquisition. Estimated depreciation and amortization has
been based upon asset lives of 40 years.
3. Reflects the elimination of the operations of (i) three retail properties
sold in December 1996 and (ii) one industrial property sold in September 1996
included in the historical statements of operations and the elimination of
the loss on the sale of the one industrial property. In connection with the
sale of the three retail properties, the Company realized a gain of
approximately $10,483.
4. Reflects an adjustment to historical interest expense to reflect pro forma
interest expense based upon pro forma debt. The adjustment reflects the
incremental effect of (i) issuances of $635,000 of unsecured Notes at various
dates during 1995 and 1996, (ii) issuances of shares of Common Stock, Class B
Common Stock, Class C Common Stock, Series A Preferred Stock and Series B
Preferred Stock at various dates during 1995 and 1996, (iii) the refinancing
of certain mortgage loans and other debt in December 1995 and (iv) the
Offering. Pro forma interest expense is comprised of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Unsecured Notes, $635,000, weighted average interest rate of
7.162%........................................................ $34,109 $ 45,479
Mortgages, $47,301, weighted average interest rate of 7.8%...... 2,767 3,689
Assumed mortgage, $21,000, interest rate of 8%.................. 1,260 1,680
Unused facility fees, $150,000, average rate of 0.2%............ 225 300
Amortization of financing fees.................................. 1,036 2,305
------- -------
Total pro forma interest.............................. 39,397 53,453
Less capitalized interest....................................... (1,304) (295)
------- -------
Pro forma interest expense............................ $38,093 $ 53,158
======= =======
</TABLE>
Also reflects the incremental effect of dividends on the Series B Preferred
Stock dividends at a rate of 9.45%. The Company's unsecured line of credit is
subject to changes in LIBOR.
5. Reflects the revenues, rental expenses and real estate taxes of the Pending
Acquisitions. Also reflects estimated depreciation and amortization based
upon asset lives of 40 years.
F-7
<PAGE> 46
6. Reflects the minority interests' share of the pro forma adjustments to the
net income of the Operating Partnership.
7. The pro forma taxable income for the Company for the fiscal year ended
September 30, 1996 was approximately $105,000 which has been calculated as
pro forma net income from operations before minority interests of
approximately $87,000 plus GAAP depreciation and amortization of
approximately $47,000 less tax basis depreciation and amortization and other
tax differences of approximately $29,000.
8. Includes the Class B Common Stock and Class C Common Stock.
F-8
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Spieker Properties, Inc.:
We have audited the accompanying combined statement of revenues and certain
expenses of the Three Property Transactions, as defined in Note 1, for the year
ended December 31, 1995. This financial statement is the responsibility of
management of the Company. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and is not intended to be a complete
presentation of the combined revenues and expenses of the Three Property
Transactions.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the combined revenues and certain expenses of the
Three Property Transactions for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
December 20, 1996
F-9
<PAGE> 48
SPIEKER PROPERTIES, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE THREE PROPERTY TRANSACTIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
NINE MONTHS ENDED -----------------
SEPTEMBER 30,
1996
-----------------
(UNAUDITED)
<S> <C> <C>
Rental Revenues................................. $23,928 $31,530
Certain Expenses:
Rental Expenses............................... 5,713 7,928
Real Estate Taxes............................. 1,178 1,575
----------------- -----------------
6,891 9,503
----------------- -----------------
Revenues In Excess Of Certain
Expenses............................ $17,037 $22,027
=============== ===============
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-10
<PAGE> 49
SPIEKER PROPERTIES, INC.
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE THREE PROPERTY TRANSACTIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
1. Basis of Presentation and Summary of Significant Accounting Policies:
PROPERTIES ACQUIRED
The combined statements of revenues and certain expenses (see "Basis of
Presentation" below) include the operations of three properties (the
"Properties") to be acquired by the Company during the first quarter of
1997.
<TABLE>
<CAPTION>
PROPERTY NAME LOCATION
----------------------------------------------------------------- -----------------------
<S> <C>
Emeryville Portfolio............................................. Emeryville, California
Mission West Portfolio........................................... San Diego, California
Kodak Center..................................................... San Jose, California
</TABLE>
BASIS OF PRESENTATION
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Properties for the
periods presented. Certain expenses may not be comparable to the expenses
expected to be incurred by the Company in the proposed future operations of
the Properties; however, the Company is not aware of any material factors
relating to the Properties that would cause the reported financial
information not to be indicative of future operating results. Excluded
expenses consist primarily of property management fees, interest expense,
depreciation and amortization and other costs not directly related to the
future operations of the Properties.
The financial information presented for the nine months ended September 30,
1996 is unaudited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the combined statements of
revenues and certain expenses for the Properties.
The financial information for the Mission West Portfolio is for the nine
months ended August 31, 1996 (unaudited) and the year ended November 30,
1995. In the opinion of management, the fiscal year basis financial
information of the Mission West Portfolio is not materially different than
the calendar year basis financial information.
REVENUE RECOGNITION
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
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 revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
F-11
<PAGE> 50
SPIEKER PROPERTIES, INC.
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE THREE PROPERTY TRANSACTIONS -- CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
2. Leasing Activity:
The minimum future rental revenues due under noncancelable operating leases
in effect as of October 1, 1996, for the remainder of 1996 and annually
thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------------- -------
<S> <C>
1996 (three months)....................................... $ 6,293
1997...................................................... 21,136
1998...................................................... 16,007
1999...................................................... 9,473
2000...................................................... 4,831
2001...................................................... 217
Thereafter................................................ 7,784
-------
$65,741
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to
$418 for the nine months ended September 30, 1996, (unaudited) and $584 for
the year ended December 31, 1995. Certain leases contain options to renew.
F-12
<PAGE> 51
PROSPECTUS
$782,113,750
LOGO SPIEKER PROPERTIES, INC.
COMMON STOCK, PREFERRED STOCK,
DEPOSITARY SHARES, WARRANTS AND GUARANTEES
SPIEKER PROPERTIES, L.P.
DEBT SECURITIES
------------------------
Spieker Properties, Inc. (the "Company") may from time to time offer in one
or more series or classes (i) shares of its common stock, par value $0.0001 per
share (the "Common Stock"), (ii) shares or fractional shares of its preferred
stock, par value $0.0001 per share (the "Preferred Stock"), (iii) shares of
Preferred Stock represented by Depositary Shares (the "Depositary Shares"), (iv)
warrants to purchase Preferred Stock or Common Stock (the "Warrants"), and (v)
unconditional guarantees (the "Guarantees") of unsecured Debt Securities (as
defined below) issued by Spieker Properties, L.P. (the "Operating Partnership")
in amounts, at prices and on terms to be determined at the time of offering,
with an aggregate public offering price of up to $392,113,750 (or its equivalent
in another currency based on the exchange rate at the time of sale) in amounts,
at prices and on terms to be determined at the time of offering. The Operating
Partnership may from time to time offer in one or more series unsecured
non-convertible investment grade debt securities, which may be either senior
debt securities ("Senior Securities") or subordinated debt securities
("Subordinated Securities," and together with the Senior Securities, the "Debt
Securities"), with an aggregate public offering price of up to $390,000,000 (or
its equivalent in another currency based on the exchange rate at the time of
sale) in amounts, at prices and on terms to be determined at the time of
offering. The Debt Securities may be guaranteed by Guarantees of the Company as
to payment of principal, premium, if any, and interest. The Common Stock,
Preferred Stock, Depositary Shares, Warrants, and Debt Securities (collectively,
the "Offered Securities") may be offered, separately or together, in separate
series in amounts, at prices and on terms to be set forth in one or more
supplements to the Prospectus (each a "Prospectus Supplement").
The specific terms of the Offered Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Common Stock,
the specific title and stated value and any initial public offering price; (ii)
in the case of Preferred Stock, the specific title and stated value, any
dividend, liquidation, redemption, conversion, voting and other rights, and any
initial public offering price; (iii) in the case of Depositary Shares, the
fractional share of Preferred Stock represented by each such Depositary Share;
(iv) in the case of Warrants, the duration, offering price, exercise price and
detachability; and (v) in the case of Debt Securities the specific title,
aggregate principal amount, currency, form (which may be registered or bearer,
or certificated or global), authorized denominations, maturity, rate (or manner
of calculation thereof) and time of payment of interest, terms for redemption at
the option of the Operating Partnership or repayment at the option of the
holder, terms for sinking fund payments, covenants, applicability of any
Guarantees and any initial public offering price. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth, in the
applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Offered
Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
THE DATE OF THIS PROSPECTUS IS JUNE 20, 1996.
<PAGE> 52
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith the Company and the Operating Partnership
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed can be inspected and copied at the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C., 20549, and at the
following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Company's Common Stock and
Series B Preferred Stock are listed on the New York Stock Exchange and similar
information concerning the Company can be inspected and copied at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company and the Operating Partnership have filed with the Commission
registration statements on Form S-3 (the "Registration Statements") (of which
this Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus does
not contain all of the information set forth in the Registration Statements,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other documents are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statements, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company, the Operating
Partnership and the Offered Securities, reference is hereby made to the
Registration Statements and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and the Company's Annual Report on Form 10-K/A
(Amendment No. 1) filed with the Commission on June 20, 1996;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
c. The Company's Current Report on Form 8-K dated June 19, 1996;
d. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-12528); and
e. The description of the Company's Series B Preferred Stock contained
in the Company's Registration Statement on Form 8-A (File No. 1-12528).
The documents listed below have been filed by the Operating Partnership
under the Exchange Act with the Commission and are incorporated by reference
herein.
a. The Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 1995, and the Operating Partnership's Annual Report on
Form 10-K/A (Amendment No. 1) filed with the Commission on June 20, 1996;
b. The Operating Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996; and
c. The Operating Partnership's Current Report on Form 8-K dated June
19, 1996.
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Each document filed by the Company or the Operating Partnership pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of all Offered
Securities to which this Prospectus relates shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the date of filing
such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to the Investor Relations Coordinator, Spieker Properties, Inc., 2180
Sand Hill Road, Menlo Park, California 94025, telephone number: (415) 854-5600.
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THE COMPANY AND THE OPERATING PARTNERSHIP
Spieker Properties, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") that was formed in
1993 to continue and to expand the business of owning, operating, managing,
leasing, acquiring, developing and redeveloping commercial property previously
conducted by Spieker Partners. As of March 31, 1996, the Company owned and
operated 134 income-producing properties (the "Properties"), aggregating
approximately 18.0 million rentable square feet and comprised of 74 industrial
Properties, 44 office Properties and 16 retail Properties. All of the Properties
are located in California, and in Washington, Oregon and Idaho (the "Pacific
Northwest").
The Company conducts substantially all of its activities through Spieker
Properties, L.P. (the "Operating Partnership") in which it owns an approximate
84.9% general partnership interest. An approximate 15.1% limited partnership
interest in the Operating Partnership is owned by senior members of the
Company's management and certain outside investors. As the sole general partner
of the Operating Partnership, the Company has control over the management of the
Operating Partnership and over each of the Properties.
The Company's Common Stock is listed on the New York Stock Exchange under
the Symbol "SPK." The Company is a Maryland corporation and the Operating
Partnership is a California limited partnership. The Operating Partnership was
formed in 1993 in connection with the formation of the Company. The Company's
and the Operating Partnership's executive offices are located at 2180 Sand Hill
Road, Menlo Park, California 94025 and telephone number is (415) 854-5600.
USE OF PROCEEDS
The Company intends to invest the net proceeds of any sale of Common Stock,
Preferred Stock, Depositary Shares or Warrants in the Operating Partnership.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Operating Partnership intends to use such net proceeds and the net proceeds from
the sale of any Debt Securities for general corporate purposes including,
without limitation, the acquisition and development of industrial, office and
retail properties and the repayment of debt. Net proceeds from the sale of the
Offered Securities initially may be temporarily invested in short-term
securities.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's and the Operating Partnership's ratio of earnings to fixed
charges for the three months ended March 31, 1996 was 2.52x and for the years
ended December 31, 1994 and December 31, 1995 was 1.29x and 1.61x, respectively.
The Company's ratio of earnings to combined fixed charges and preferred stock
dividends for the three months ended March 31, 1996 was 1.90x and for the years
ended December 31, 1994 and December 31, 1995 was 1.26x and 1.53x, respectively.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) from
operations, before extraordinary items. Fixed charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense, and
amortization of debt discounts and deferred financing fees, whether expensed or
capitalized.
Prior to the completion of the Company's initial public offering ("IPO") in
November 1993, the Company's predecessors (collectively, "SPP") operated in a
manner as to minimize net taxable income to the owners. As a result, although
the Company's properties historically have generally positive net cash flow, SPP
had net losses for the years ended December 31, 1991 through 1993. Consequently,
the computation of the ratio of earnings to fixed charges indicates that
earnings were inadequate to cover fixed charges by approximately $17.0 million,
$9.4 million and $13.5 million for 1991, 1992 and 1993 (which includes the
Company's results of operations for the period of
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November 19, 1993 through December 31, 1993, during which the Company had no
outstanding preferred stock), respectively.
The Company's IPO and the other transactions undertaken concurrently with
the IPO permitted the Company to significantly deleverage properties, resulting
in a significantly improved ratio of earnings to fixed charges.
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SPECIAL CONSIDERATIONS
Prospective investors should carefully consider the following information
in conjunction with the other information contained in this Prospectus and the
applicable Prospectus Supplement before purchasing Offered Securities.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to varying degrees of risk. The
yields available from investments in real estate depend on the amount of income
and capital appreciation generated by the related properties. If the Properties
do not generate sufficient income to meet operating expenses, including debt
service, ground lease payments, tenant improvements, third-party leasing
commissions and other capital expenditures, the Company's income and ability to
make distributions to its stockholders and the Operating Partnership's ability
to make payments of any interest and principal on any Debt Securities will be
adversely affected. The performance of the economy in each of the regions in
which the Properties are located affects occupancy, market rental rates and
expenses and, consequently, has an impact on the income from the Properties and
their underlying values. The financial results of major local employers also may
have an impact on the cash flow and value of certain Properties. In terms of
rentable square feet, over 45% of the Properties as of March 31, 1996, were
located in the San Francisco Bay Area. As a result of this geographic
concentration, the performance of the San Francisco Bay Area commercial real
estate market will affect the value of the Properties in that area and, in turn,
the value of the Company.
Income from the Properties may be further adversely affected by the general
economic climate, local economic conditions in which the Properties are located,
such as oversupply of space or a reduction in demand for rental space, the
attractiveness of the Properties to tenants, competition from other available
space, the ability of the Company to provide for adequate maintenance and
insurance and increased operating expenses. There is also the risk that as
leases on the Properties expire, tenants will enter into new leases on terms
that are less favorable to the Company. Income and real estate values may also
be adversely affected by such factors as applicable laws (e.g., ADA and tax
laws), interest rate levels and the availability of financing. In addition, real
estate investments are relatively illiquid and, therefore, will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions.
COMPETITION
Numerous industrial, office and retail properties compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer, better located or better capitalized than the Company's
Properties. The number of competitive commercial properties in a particular area
could have a material effect on the Company's ability to lease space in the
Properties or at newly developed or acquired properties and on the rents
charged.
ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to acquire existing commercial properties to the extent
that they can be acquired on advantageous terms and meet the Company's
investment criteria. Acquisitions of commercial properties entail general
investment risks associated with any real estate investment, including the risk
that investments will fail to perform as expected or that estimates of the cost
of improvements to bring an acquired property up to standards established for
the intended market position may prove inaccurate.
The Company intends to pursue commercial property development projects and
to develop certain landholdings as to which it has certain options. Such
projects generally require various governmental and other approvals, the receipt
of which cannot be assured. The Company's development activities will entail
certain risks, including the expenditure of funds on and devotion of
management's time to projects which may not come to fruition; the risk that
construction costs of a
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project may exceed original estimates, possibly making the project uneconomic;
the risk that occupancy rates and rents at a completed project will be less than
anticipated; and the risk that expenses at a completed development will be
higher than anticipated. These risks may result in a reduction in the funds
available for distribution.
DEBT FINANCING
The Company will be subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, the risk that existing
indebtedness on the Properties cannot be refinanced or that the terms of such
refinancing will not be as favorable as the terms of existing indebtedness.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws impose
liability for release of asbestos-containing materials into the air, and third
parties may seek recovery from owners or operators of real properties for
personal injuries associated with asbestos-containing materials. In connection
with the ownership (direct or indirect), operation, management and development
of real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may be potentially liable for removal or
remediation costs, as well as certain other costs, including governmental fines
and injuries to persons and property.
The Company is not aware of any environmental liability with respect to the
Properties that would have a material adverse effect on the Company's business,
assets or results of operations. There can be no assurance that such a material
environmental liability does not exist. The existence of any such material
environmental liability would have an adverse effect on the Company's results of
operations and cash flow.
GENERAL UNINSURED LOSSES/SEISMIC ACTIVITY
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with policy specifications, limits and deductibles
customarily carried for similar properties. There are, however, certain types of
extraordinary losses which may be either uninsurable, or not economically
insurable. Further, a substantial number of the Properties are located in areas
that are subject to earthquake activity. Although the Company has obtained
certain limited earthquake insurance policies, should a Property sustain damage
as a result of an earthquake, the Company may incur substantial losses due to
insurance deductibles, co-payments on insured losses or uninsured losses.
Additionally, earthquake insurance may not be available for certain of the
Company's Properties, or if available, may not be available on terms acceptable
to the Company. Should an uninsured loss occur, the Company could lose its
investment in, and anticipated profits and cash flows from, a number of
Properties.
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DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the Debt Securities are to be issued. The particular terms
of the Debt Securities will be set forth in a Prospectus Supplement relating to
such Debt Securities.
The Debt Securities are to be issued under an Indenture dated December 6,
1995, as amended or supplemented from time to time (the "Indenture"), among the
Operating Partnership, the Company and State Street Bank and Trust Company
chosen by the Operating Partnership and the Company and qualified to act as
trustee under the Trust Indenture Act of 1939, as amended (the "TIA") (together
with any other trustee(s) appointed in a supplemental indenture with respect to
a particular series, the "Trustee"). The Indenture is available for inspection
at the corporate trust office of the Trustee, or as described above under
"Available Information." The Indenture is subject to, and governed by, the TIA.
The Operating Partnership and the Company will execute the Indenture if and when
the Operating Partnership issues the Debt Securities. The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
hereunder are summaries of certain provisions thereof and do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. Except for any series of Debt Securities which is specifically
subordinated to other indebtedness of the Operating Partnership, the Debt
Securities will rank pari passu with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. Under the Indenture, the Debt
Securities may be issued without limit as to aggregate principal amount, in one
or more series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of the Company as
sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Debt Securities may be unconditionally guaranteed by the Company as to
payment of principal, premium, if any, and interest. (Section 1601).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee will be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by the
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
Indenture.
TERMS
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities, whether such Debt Securities
are Senior Securities or Subordinated Securities and whether such Debt
Securities are guaranteed by a Guarantee;
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(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the Interest Payment Dates
on which any such interest will be payable, the Regular Record Dates for
such Interest Payment Dates, or the method by which such Dates shall be
determined, the Person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(7) the place or places where (i) the principal of (and premium, if
any) and interest, if any, on such Debt Securities will be payable, (ii)
such Debt Securities may be surrendered for registration of transfer,
exchange or conversion and (iii) notices or demands to or upon the
Operating Partnership in respect of such Debt Securities, any applicable
Guarantees and the Indenture may be served;
(8) the period or periods within which, or the date or dates on which,
the price or prices at which and the terms and conditions upon which such
Debt Securities may be redeemed, as a whole or in part, at the option of
the Operating Partnership, if the Operating Partnership is to have such an
option;
(9) the obligation, if any, of the Operating Partnership to redeem,
repay or repurchase such Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof, and the period
or periods within which, or the date or dates on which, the price or prices
at which and the terms and conditions upon which such Debt Securities are
required to be redeemed, repaid or purchased, as a whole or in part,
pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and/or payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(12) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants or
other provisions set forth in the Indenture;
(13) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(14) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant
defeasance provisions of Article XIV of the Indenture, or any modification
thereof;
(16) the terms and conditions, if any, upon which such Debt Securities
may be subordinated to other indebtedness of the Operating Partnership;
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(17) whether and under what circumstances the Operating Partnership
will pay Additional Amounts as contemplated in the Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge and, if
so, whether the Operating Partnership will have the option to redeem such
Debt Securities in lieu of making such payment; and
(18) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to the Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
The Indenture does not contain any provisions that would limit the ability
of the Operating Partnership to incur indebtedness or that would afford Holders
of Debt Securities protection in the event of a highly leveraged or similar
transaction involving the Operating Partnership. However, restrictions on
ownership and transfers of the Company's common stock and preferred stock,
designed to preserve the Company's status as a REIT, may prevent or hinder a
change of control. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Operating Partnership that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
GUARANTEES
The Debt Securities may be unconditionally and irrevocably guaranteed by
Guarantees of the Company, on a senior or subordinated basis, which will
guarantee the due and punctual payment of principal of, premium, if any, and
interest on such Debt Securities, and the due and punctual payment of any
sinking fund payments thereon, when and as the same shall become due and payable
whether at a maturity date, by declaration of acceleration, call for redemption
or otherwise. The applicability and terms of any such Guarantee relating to a
series of Debt Securities will be set forth in the Prospectus Supplement
relating to such Debt Securities. (Section 1601).
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Holder, payment of interest may be made by check mailed to the
address of the Person entitled thereto as it appears in the Security Register or
by wire transfer of funds to such Person at an account maintained within the
United States (Sections 301, 305, 307 and 1002).
All amounts paid by the Operating Partnership to a paying agent or a
Trustee for the payment of the principal of or any premium or interest on any
Debt Security which remain unclaimed at the end of two years after the
principal, premium or interest has become due and payable will be repaid to the
Operating Partnership, and the holder of the Debt Security thereafter may look
only to the Operating Partnership for payment thereof. (Section 1003).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may
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be paid at any time in any other lawful manner, all as more completely described
in the Indenture (Sections 101 and 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series, of a like aggregate principal amount
and tenor, of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or registration
of transfer thereof at the corporate trust office of the Trustee referred to
above. Every Debt Security surrendered for conversion, redemption, registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any Debt Securities, but the Operating Partnership may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Operating
Partnership will be required to maintain a transfer agent in each Place of
Payment for such series. The Operating Partnership may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
Neither the Operating Partnership nor the Trustee shall be required to (i)
issue, register the transfer of or exchange Debt Securities of any series during
a period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business of the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except that portion, if any, of such Debt Security which is not to be so repaid
(Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
person, provided (a) either the Operating Partnership shall be the continuing
person, or the successor (if other than the Operating Partnership) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal of (and
premium, if any) and interest on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in the Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Operating Partnership or any Subsidiary as a result thereof as having been
incurred by the Operating Partnership or such Subsidiary at the time of such
transaction, no Event of Default under the Indenture, and no event which, after
notice or the lapse of time, or both, would become such an Event of Default,
shall have occurred and be continuing; and (c) an officers' certificate of the
Company as General Partner of the Operating Partnership and an opinion of
counsel covering such conditions shall be delivered to the Trustee (Sections 801
and 803).
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Indenture requires each of the Operating Partnership and the Company (if the
Company has guaranteed any Debt Securities) to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(partnership and statutory) and franchises; provided, however, that each of the
Operating Partnership and the Company shall not be required to preserve any
right or
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franchise if the Board of Directors of the Company determines that the
preservation thereof is no longer desirable in the conduct of the business of
the Operating Partnership and that the loss thereof is not disadvantageous in
any material respect to the Holders of the Debt Securities (Section 1004).
Maintenance of Properties. The Indenture requires each of the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
to cause all of its material properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that the Operating Partnership or the Company, as the case may be, and
its Subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business. (Section 1006).
Insurance. The Indenture requires the Operating Partnership and each of its
Subsidiaries to keep its insurable Properties insured against loss or damage
with commercially reasonable amounts and types of insurance provided by insurers
of recognized responsibility. (Section 1007).
Payment of Taxes and Other Claims. The Indenture requires each of the
Operating Partnership and the Company (if the Company has guaranteed any Debt
Securities) to pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all taxes, assessments and governmental
charges levied or imposed upon it or any Subsidiary or upon its income, profits
or property or that of any Subsidiary and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any Subsidiary; provided, however, that
the Operating Partnership or the Company shall not be required to pay or
discharge or cause to be paid or discharged any tax, assessment, charge or claim
whose amount or applicability is being contested in good faith. (Section 1008).
Provision of Financial Information. The Operating Partnership will file
with the Trustee copies of annual reports, quarterly reports and other documents
(the "Financial Reports") which the Operating Partnership files with the
Commission or would be required to file with the Commission pursuant to Sections
13 or 15(d) of the Exchange Act if the Operating Partnership were subject to
such Sections; provided, however, that if the Operating Partnership is not
subject to such Sections, it may, in lieu of filing Financial Reports of the
Operating Partnership with the Trustee, file Financial Reports of the Company if
they would be materially the same as those that would have been filed by the
Operating Partnership with the Commission pursuant to Sections 13 or 15(d) of
the Exchange Act.
Additional Covenants. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the Prospectus Supplement, the Indenture
provides that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any interest on any Debt Security of such series; (b) default in the
payment of any principal of (or premium, if any, on) any Debt Security of such
series when due; (c) default in making any sinking fund payment as required for
any Debt Security of such series; (d) default in the performance of any other
covenant or warranty of the Operating Partnership or the Company contained in
the Indenture with respect to any Debt Security of such series, continued for 60
days after written notice as provided in the Indenture; (e) default in the
payment of an aggregate principal amount exceeding $10,000,000 of any evidence
of indebtedness of the Operating Partnership or the Company (if the Company or
any subsidiary of the Company has guaranteed any indebtedness of the Operating
Partnership) or any mortgage,
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indenture, note, bond, capitalized lease or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having continued after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled; (f) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities),
or any Significant Subsidiary or all or substantially all of any of their
respective property; and (g) any other Event of Default provided with respect to
a particular series of Debt Securities (Section 501). The term "Significant
Subsidiary" means each significant Subsidiary (as defined in Regulation S-X
promulgated under the Securities Act) of the Operating Partnership or the
Company, as the case may be. (Section 101).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of all of the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Company (if the Company has guaranteed any Debt Securities under such Indenture)
and the Operating Partnership (and to the Trustee if given by the Holders).
However, any time after such a declaration of acceleration with respect to Debt
Securities of such series has been made, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the Holders of not
less then a majority in principal amount of Outstanding Debt Securities of such
series may rescind and annul such declaration and its consequences if (a) the
Operating Partnership shall have paid or deposited with the Trustee all required
payments of the principal of (and premium, if any) and interest on the Debt
Securities of such series plus certain fees, expenses, disbursements and
advances of the Trustee and (b) all Events of Default, other than the nonpayment
of accelerated principal or interest with respect to Debt Securities of such
series have been cured or waived as provided in the Indenture (Section 502). The
Indenture also provides that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest on any
Debt Security of such series or (y) in respect of a covenant or provision
contained in the Indenture that cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if the Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of that series, as well
as an offer of reasonable indemnity (Section 507). This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest on
such Debt Securities at the respective due date thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or
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direction of any Holders of Debt Securities of any series then Outstanding under
the Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity (Section 602). The Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or of exercising any trust or power conferred
upon the Trustee. However, the Trustee may refuse to follow any direction which
is in conflict with any law or the Indenture, which may involve the Trustee in
personal liability or which may be unduly prejudicial to the Holders of Debt
Securities of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
must deliver to the Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the Indenture and, if so, specifying each such default and the
nature and status thereof (Section 1005).
MODIFICATION OF THE INDENTURE
Modifications and amendments of provisions of the Indenture applicable to
any series may be made only with consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the Stated Maturity of the principal
of, or any installment of principal of or interest (or premium, if any) on, any
such Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium payable on redemption of, any such Debt Security, or
reduce the amount of principal of an Original Issue Discount Security that would
be due and payable upon declaration of acceleration of the maturity thereof or
would be provable in bankruptcy, or adversely affect any right of repayment of
the Holder of any such Debt Security; (c) change the Place of Payment, or the
coin or currency, for payment of principal of, premium, if any, or interest on
any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security on or
after the Stated Maturity thereof; (e) reduce the above-stated percentage of
Outstanding Debt Securities of any series necessary to modify or amend the
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of a particular series have the right to waive compliance by the
Operating Partnership or the Company with certain covenants in the Indenture
relating to such series (Section 1010).
Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
and the Trustee without the consent of any Holder of Debt Securities for any of
the following purposes: (i) to evidence the succession of another Person to the
Operating Partnership as obligor under the Indenture or succession of another
Person as Guarantor; (ii) to add to the covenants of the Operating Partnership
and the Company (if the Company has guaranteed any Debt Securities) for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon the Operating Partnership or the Company in
the Indenture; (iii) to add Events of Default for the benefit of the Holders of
all or any series of Debt Securities; (iv) to add or change any provisions of
the Indenture to facilitate the issuance of Debt Securities in bearer form, or
to permit or facilitate the issuance of Debt Securities in uncertificated form,
provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect; (v) to
change or eliminate any provisions of the Indenture, provided that any such
change
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or elimination shall become effective only when there are not Debt Securities
Outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the Debt Securities or Guarantees;
(vii) to establish the form or terms of Debt Securities of any series and any
related Guarantees; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trust under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; and (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
of such Debt Securities, provided that such action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 301 of the Indenture, and (iv) Debt Securities owned by the Operating
Partnership or any other obligor upon the Debt Securities or any Affiliate of
the Operating Partnership or of such other obligor shall be disregarded (Section
101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Operating Partnership or the
Holders of at least 25% in principal amount of the Outstanding Debt Securities
of such series, in any such case upon notice given as provided in the Indenture
(Section 1502). Except for any consent that must be given by the Holder of each
Debt Security affected by certain modifications and amendments of the Indenture,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the Holders
of a majority in principal amount of the Outstanding Debt Securities of that
series; provided, however, that, except as referred to above, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such specified percentage in principal amount of the Outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
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Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Operating
Partnership or the Company (if the Company has guaranteed any Debt Securities
under such Indenture) may discharge certain obligations to Holders of any series
of Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or are scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium, if
any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be (Section 401).
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, if the provisions of Article Fourteen are made applicable to the
Debt Securities of any series pursuant to Section 301 of the Indenture, the
Operating Partnership may elect either (a) to decease and be discharged from any
and all obligations with respect to such Debt Securities (except for the
obligation to pay Additional Amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on
such Debt Securities and the obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities to compensate the Trustee and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under Sections 1006 through 1008, inclusive, of
the Indenture (being the restrictions described under "Certain Covenants") or,
if provided pursuant to Section 301 of the Indenture, its obligations with
respect to any other covenant, and any omission to comply with such obligations
shall not constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance") (Section 1403), in either case upon the
irrevocable deposit by the Operating Partnership or the Company, as the case may
be, with the Trustee, in trust, of any amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at Stated Maturity, or Government Obligations (as defined
below), or both applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal
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Revenue Service or a change in applicable United States federal income tax law
occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company, as the case may be, has deposited
funds and/or Government Obligations to effect defeasance or covenant defeasance
with respect to Debt Securities of any series, (a) the Holder of a Debt Security
of such series is entitled to, and does, elect pursuant to Section 301 of the
Indenture or the terms of such Debt Security to receive payment in a currency,
currency unit or composite currency other than that in which such deposit has
been made in respect of such Debt Security, or (b) a Conversion Event (as
defined below) occurs in respect of the currency, currency unit or composite
currency in which such deposit has been made, the indebtedness represented by
such Debt Security shall be deemed to have been, and will be, fully discharged
and satisfied through the payment of the principal of (and premium, if any) and
interest on such Debt Security as the same becomes due out of the proceeds
yielded by converting the amount so deposited in respect of such Debt Security
into the currency, currency unit or composite currency in which such Debt
Security becomes payable as a result of such election or such cessation of usage
based on the applicable market exchange rate (Section 1405). "Conversion Event"
means the cessation of use of (i) a currency, currency unit or composite
currency either by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions or within the international banking community, (ii) the ECU either
within the European Monetary System or for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. (Section 101.) Unless otherwise provided in the applicable
Prospectus Supplement, all payments of principal of (and premium, if any) and
interest on any Debt Security that is payable in a Foreign Currency that cease
to be used by its government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership or the Company, as the case may be,
effects covenant defeasance with respect to any Debt Securities and such Debt
Securities are declared due and payable because of the occurrence of any Event
of Default other than the Event of Default described in clause (d) under "Events
of Default, Notice and Waiver" with respect to Section 1006 through 1008 of the
Indenture (which Sections would no longer be applicable to such Debt Securities)
or described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the
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time of the acceleration resulting from such Event of Default. However, the
Operating Partnership and the Company (if the Company has guaranteed any Debt
Securities) would remain liable to make payment of such amounts due at the time
of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Operating Partnership will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include a description of the indebtedness ranking senior to the Debt Securities,
the restrictions on payments to the Holders of such Debt Securities while a
default with respect to such senior indebtedness in continuing, the
restrictions, if any, on payments to the Holders of such Debt Securities
following an Event of Default, and provisions requiring Holders of such Debt
Securities to remit certain payments to holders of senior indebtedness.
DESCRIPTION OF COMMON STOCK
GENERAL
As of March 31, 1996, the total number of shares of all classes of capital
stock that the Company had authority to issue was 1,000,000,000 shares,
consisting of (i) 660,500,000 shares of Common Stock, par value $0.0001 per
share, (ii) 1,000,000 shares of Series A Preferred Stock, par value $0.0001 per
share, (iii) 5,000,000 shares of Series B Cumulative Redeemable Preferred Stock
("Series B Preferred Stock"), par value $0.0001 per share, (iv) 2,000,000 shares
of Class B Common Stock, par value $0.0001 per share, (v) 1,500,000 shares of
Class C Common Stock, par value $0.0001 per share and (vi) 330,000,000 shares of
excess stock (the "Excess Stock").
As of March 31, 1996, there were (i) 31,773,361 shares of Common Stock
issued and outstanding, (ii) 1,000,000 shares of Series A Preferred Stock issued
and outstanding, (iii) 4,250,000 shares of Series B Preferred Stock, issued and
outstanding (iv) 2,000,000 shares of Class B Common Stock issued and outstanding
and (v) 1,176,470 shares of Class C Common Stock issued and outstanding. At any
given time, there are reserved for issuance under the Spieker Properties, Inc.
1993 Stock Incentive Plan (the "Plan") shares of the Company's Common Stock
equal to 9.9% of the number of shares of the Company's stock outstanding
(including shares of Common Stock issuable upon conversion of partnership units
in the Operating Partnership, Series A Preferred Stock, Class B Common Stock and
Class C Common Stock, and all classes of convertible securities of the Company
that may be issued in the future) 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 May 22,
1996, the Company had reserved for issuance under the Plan 3,450,000 shares of
the Company s Common Stock and 150,000 shares of Common Stock was reserved for
issuance under the Spieker Properties, Inc. 1993 Directors Stock Option Plan. In
addition, 1,219,512 shares of Common Stock have been reserved for issuance upon
the conversion of the Series A Preferred Stock, 2,531,646 shares of Common Stock
have been reserved for issuance upon the conversion of Class B Common Stock and
1,176,470 shares of Common Stock have been reserved for issuance upon the
conversion of Class C Common Stock. Further, 6,549,819 shares of Common Stock
have been reserved for issuance upon the conversion of limited partnership units
in the Operating Partnership.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock or
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Depositary Shares or upon the exercise of Warrants issued by the Company. This
description is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation and Articles Supplementary (collectively, the "Charter") and its
Bylaws. The Common Stock is listed on the New York Stock Exchange under the
symbol "SPK." The Bank of New York is the Company's transfer agent.
The holders of the outstanding Common Stock are entitled to one vote per
share on all matters voted on by stockholders, including elections of directors.
The Charter does not provide for cumulative voting in the election of directors.
The shares of Common Stock offered hereby will, when issued, be fully paid
and nonassessable and will not be subject to preemptive or similar rights.
Subject to the preferential rights of the Series A Preferred Stock, Series B
Preferred Stock and any preferential rights of any other outstanding series of
capital stock, the holders of Common Stock are entitled to such distributions as
may be declared from time to time by the Board of Directors from funds available
for distribution to such holders. The Company currently pays regular quarterly
dividends to holders of Common Stock.
In the event of a liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive ratably the assets remaining
after satisfaction of all liabilities and payment of liquidation preferences and
accrued dividends, if any, on Series A Preferred Stock, Series B Preferred
Stock, Class B Common Stock and Class C Common Stock and any other series of
capital stock that has a liquidation preference. The rights of holders of Common
Stock are subject to the rights and preferences established by the Board of
Directors for any capital stock that may subsequently be issued by the Company.
Subject to limitations prescribed by Maryland law and the Company's
Charter, the Board of Directors is authorized to reclassify any unissued portion
of the authorized shares of capital stock to provide for the issuance of shares
in other classes or series, including other classes or series of Common Stock,
to establish the number of shares in each class or series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such class or series. The rights, preferences,
privileges and restrictions of such class or series will be fixed by the
articles supplementary relating to such class or series. A Prospectus Supplement
will specify the terms of such class or series.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code) during the last half of a taxable year, the stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year and
certain percentages of the Company's gross income must be from particular
activities (see "Federal Income Tax Considerations -- Requirements for
Qualification -- Gross Income Tests"). To enable the Company to continue to
qualify as a REIT, the Charter restricts the acquisition of shares of common
stock and preferred stock.
The Charter provides that, subject to certain exceptions specified in the
Charter, no stockholder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.9% of the value of the
outstanding common stock and preferred stock (the "Ownership Limit"). The Board
of Directors may waive the Ownership Limit in certain limited situations if
evidence satisfactory to the Board of Directors and the Company's tax counsel is
presented that such ownership will not jeopardize the Company's status as a
REIT. As a condition to such waiver, the Board of Directors may require opinions
of counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving the REIT status of the Company. The Ownership Limit will
not apply if the Board of Directors and the stockholders of the Company
determine that it is no longer in
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the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT. If shares of common stock or preferred stock in excess of
the Ownership Limit, or shares which would cause the Company to be beneficially
owned by fewer than 100 persons or cause the Company to become "closely held"
under Section 856(h) of the Code, are issued or transferred to any person, such
issuance or transfer shall be null and void and the intended transferee will
acquire no rights to such shares.
The Charter also provides that shares involved in a transfer or change in
capital structure that results in a person owning in excess of the Ownership
Limit or would cause the Company to become "closely held" within the meaning of
Section 856(h) of the Code will automatically be exchanged for Excess Stock. All
Excess Stock will be transferred, without action by the stockholder, to the
Company as trustee of a trust for the exclusive benefit of the transferee or
transferees to whom the Excess Stock is ultimately transferred. While the Excess
Stock is held in trust, it will not be entitled to vote, it will not be
considered for purposes of any stockholder vote or the determination of a quorum
for such vote and it will not be entitled to participate in any distributions
made by the Company, except upon liquidation. The Company would have the right,
for a period of 90 days during the time the Excess Stock is held by the Company
in trust, to purchase all or any portion of the Excess Stock from the intended
transferee at the lesser of the price paid for the stock by the intended
transferee and the closing market price for the stock on the date the Company
exercises its option to purchase.
The Ownership Limit provision of the Charter will not be automatically
removed even if the real estate investment trust provisions of the Code are
changed so as to no longer contain any ownership concentration limitation or if
the ownership concentration limitation is increased. Except as otherwise
described above, any change in the Ownership Limit would require an amendment to
the Charter. Such amendments to the Charter require the affirmative vote of
holders owning a majority of the total number of shares of all classes of stock
outstanding and entitled to vote thereon. In addition to preserving the
Company's status as a real estate investment trust, the Ownership Limit may have
the effect of precluding an acquisition of control of the Company.
All certificates representing shares of common stock and preferred stock
will bear a legend referring to the restrictions described above.
All persons who own of record, more than 5% of the outstanding common stock
and preferred stock (or 1% if there are more than 200 but fewer than 2,000
stockholders or one-half of 1% if there are 200 or less stockholders of record)
must file an affidavit with the Company containing the information specified in
the Charter within 30 days after January 1 of each year. In addition, each
stockholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of shares as the Board of Directors deems necessary to determine the Company's
status as a real estate investment trust and to ensure compliance with the
Ownership Limit.
The articles supplementary, if applicable, for the Offered Securities may
also contain provisions that further restrict the ownership and transfer of the
Offered Securities. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to the Offered Securities.
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DESCRIPTION OF CLASS B COMMON STOCK, CLASS C COMMON STOCK,
SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
CLASS B COMMON STOCK
The following description of the Company's Class B Common Stock is in all
respects subject to and qualified in its entirety by reference to the applicable
provisions of the Company's Charter, including the Articles Supplementary
applicable to the Class B Common Stock, and Bylaws. The Company has issued
2,000,000 shares of Class B Common Stock, par value $0.0001 per share, all of
which were outstanding as of September 30, 1995.
The Class B Common Stock ranks on a parity with the Company's Common Stock
with respect to dividends. The Class B Common Stock was sold in May 1995 to an
institutional investor at a price per share of $25.00. The initial per share
dividend of the Class B Common Stock was set at $2.19, which was at a rate that
was equal to the dividend yield on shares of Common Stock sold concurrently with
the Class B Common Stock plus 0.25 percent. The dividend per share on the Class
B Common stock is increased or decreased by the same dollar amount as any
increase or decrease in the dividend distributions made to the holders of Common
Stock. The Company currently pays regular dividends to holders of Class B Common
Stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class B Common Stock are entitled to receive, on a parity with
the holders of Class C Common Stock and prior and in preference to the 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. The Class
B Common Stock has not been registered under the Securities Act. The
institutional investor who purchased the shares of Class B Common Stock has
certain demand registration rights for eight years following the May 1995 sale
of such shares to register in each instance Common Stock having a market value
of $1.0 million or more. Subject to certain limitations, the Class B Common
Stock may be converted into Common Stock three years after the May 1995 sale or
earlier upon the occurrence of certain events including a change in management.
The holder of Class B Common Stock is not entitled to vote on matters voted on
by stockholders of the Company.
CLASS C COMMON STOCK
The following description of the Company's Class C Common Stock is in all
respects subject to and qualified in its entirety by reference to the applicable
provisions of the Company's Charter, including the Articles Supplementary
applicable to the Class C Common Stock, and Bylaws. The Company has issued
1,176,470 shares of Class C Common Stock, par value $0.0001 per share, all of
which were outstanding as of March 31, 1996.
The Class C Common Stock ranks on a parity with the Company's Common Stock
and Class B Common Stock with respect to dividends. The Class C Common Stock was
sold in March 1996 to an institutional investor at a price per share of $25.50.
The initial per share dividend of the Class C Common Stock was set at $1.73. The
dividend per share on the Class C Common Stock is increased or decreased by the
same dollar amount as any increase or decrease in the dividend distributions
made to the holders of Common Stock. The Company currently pays regular
dividends to the holder of Class C Common Stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class C Common Stock are entitled to receive, on a parity with
the holders of Class B Common Stock and prior 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. The Class
C Common Stock has not been registered under the Securities Act. The
institutional investor who purchased the shares of Class C Common Stock has
certain demand registration rights for eight years following the March 1996 sale
of such shares to register in each instance Common Stock having a market value
of $1.0 million or more. Subject to certain limitations, the Class C
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Common Stock may be converted into Common Stock three years after the March 1996
sale or earlier upon the occurrence of certain events including a change in
management. The holders of Class C Common Stock are not entitled to vote on
matters voted on by stockholders of the Company.
SERIES A PREFERRED STOCK
The following description of the Company's Series A Preferred Stock is in
all respects subject to and qualified in its entirety by reference to the
applicable provisions of the Company's Charter, including the Articles
Supplementary applicable to the Series A Preferred Stock, and Bylaws. The
Company is authorized to issue 1,000,000 shares of Series A Preferred Stock, all
of which were issued and outstanding as of March 31, 1996 and held of record by
one private investor. The Series A Preferred Stock ranks senior to the Company's
Common Stock, Class B Common Stock and Class C Common Stock as to dividends and
liquidation amounts. The dividend per share on the Series A Preferred Stock is
equal to the dividend per share on the Common Stock as multiplied by the number
of shares of Common Stock into which each share of Series A Preferred Stock is
convertible, provided that the dividend rate on the Series A Preferred Stock may
not be less than the initial dividend rate thereof. The dividends on the Series
A Preferred Stock are cumulative. The Company currently pays regular dividends
to holders of Series A Preferred Stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A Preferred Stock are entitled to receive on a parity with
the holders of Series B Preferred Stock, prior and in preference to any
distribution to the holders of Common Stock, Class B Common Stock and Class C
Common Stock, an amount per share of Series A Preferred Stock equal to the sum
of $25.00 and any accrued but unpaid dividends with respect thereto. The Company
may redeem, subject to certain exceptions, from any source of funds legally
available therefor, on or at any time after May 13, 1999, any or all outstanding
shares of Series A Preferred Stock at the option of the Company by paying in
cash therefor an amount per share equal to the sum of $25.00 and any accrued but
unpaid dividends with respect thereto.
Each share of Series A Preferred Stock is convertible, at the option of the
holder thereof at any time prior to a redemption date, into shares of Common
Stock based on a certain formula. Under such formula, the 1,000,000 outstanding
shares of Series A Preferred Stock are convertible into 1,219,512 shares of
Common Stock. The holder of each share of Series A Preferred Stock has the right
to one vote for each share of Common Stock into which such Series A Preferred
Stock can be converted, and with respect to such vote, such holder has the
voting rights and powers of the holders of each share of Common Stock, and is
entitled to notice of any shareholders' meeting in accordance with the bylaws of
the Company, and is entitled to vote, together with holders of Common Stock,
with respect to any question upon which holders of Common Stock have the right
to vote.
SERIES B PREFERRED STOCK
The following description of the Company s Series B Preferred Stock is in
all respects subject to and qualified in its entirety by reference to the
applicable provisions of the Charter, including the Company s Articles
Supplementary applicable to the Series B Preferred Stock, and Bylaws. The
Company is authorized to issue 5,000,000 shares of Series B Preferred Stock, of
which 4,250,000 shares were issued and outstanding as of March 31, 1996. The
holders of the Series B Preferred Stock are entitled to receive cumulative,
preferential cash dividends, when and as declared by the Board of Directors, of
$2.3625 per share. The Company currently pays regular dividends to holders of
Series B Preferred Stock.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series B Preferred Stock are entitled to receive on a parity with
the holders of Series A Preferred Stock, prior and in preference to any
distribution to the holders of Common Stock, Class B Common Stock
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and Class C Common Stock, an amount per share of Series B Preferred Stock equal
to the sum of $25.00 and any accrued but unpaid dividends with respect thereto.
The Company may redeem, subject to certain exceptions, from any source of funds
legally available therefor, on or at any time after December 11, 2000, any or
all outstanding shares of Series B Preferred Stock at the option of the Company
by paying in cash therefor an amount per share equal to the sum of $25.00 and
any accrued but unpaid dividends with respect thereto, without interest.
The Series B Preferred Stock is not convertible into or exchangeable for
any other property or securities of the Company at the option of the holder.
However, in order to preserve the Company s status as a REIT as defined in the
1986 Internal Revenue Code, as amended (the "Code"), the Series B Preferred
Stock may be exchanged for Excess Stock. See "Description of Common
Stock -- General." The holders of shares of Series B Preferred Stock have no
voting rights with respect to matters voted upon by the holders of shares of
Common Stock.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Subject to limitations prescribed by Maryland law and the Company's
Charter, the Board of Directors is authorized to issue, from the authorized but
unissued shares of capital stock of the Company, Preferred Stock in such classes
or series as the Board of Directors may determine and to establish from time to
time the number of shares of Preferred Stock to be included in any such class or
series and to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of any such class or
series, and such other subjects or matters as may be fixed by resolution of the
Board of Directors. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of Preferred Stock will be described in the
Prospectus Supplement relating to that class or series, including a Prospectus
Supplement providing that Preferred Stock may be issuable upon the exercise of
Warrants issued by the Company. The description of Preferred Stock set forth
below and the description of the terms of a particular class or series of
Preferred Stock set forth in a Prospectus Supplement do not purport to be
complete and are qualified in their entirety by reference to the articles
supplementary relating to that class or series.
The preferences and other terms of the Preferred Stock of each class or
series will be fixed by the articles supplementary relating to such class or
series. A Prospectus Supplement, relating to each class or series, will specify
the terms of the Preferred Stock as follows:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) Whether such Preferred Stock is cumulative or not and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) The provision for a sinking fund, if any, for such Preferred
Stock;
(6) The provision for redemption, if applicable, of such Preferred
Stock;
(7) Any listing of such Preferred Stock on any securities exchange;
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(8) The terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(9) A discussion of any material Federal income tax considerations
applicable to such Preferred Stock;
(10) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT;
(11) The relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(12) Any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such class or series of
Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(13) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
(14) Any voting rights of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of common stock and excess stock of the Company, and to all equity
securities ranking junior to such Preferred Stock with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the Company;
(ii) on a parity with all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to dividends rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank senior to the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any shares of any class or
series of Preferred Stock are convertible into Common Stock will be set forth in
the applicable Prospectus Supplement relating thereto. Such terms will include
the number of shares of Common Stock into which the shares of Preferred Stock
are convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of such class or series of Preferred Stock or the Company, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such class or series of Preferred
Stock.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code) during the last half of a taxable
year, the stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months or during a proportionate part of
a shorter taxable year and certain percentages of the Company's gross income
must be from particular activities (see "Federal Income Tax
Considerations -- Requirements for Qualification -- Gross Income Tests"). To
enable the Company to continue to qualify as a REIT, the Charter restricts the
acquisition of shares of common stock and preferred stock. The Charter provides
that, subject to certain exceptions specified in the Charter, no stockholder may
own, or be deemed to
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own by virtue of the attribution provisions of the Code, more than 9.9% of the
value of the outstanding common stock and preferred stock of the Company. See
"Description of Common Stock -- Restrictions on Transfer." The applicable
Prospectus Supplement will also specify any additional ownership limitation
relating to a series of Preferred Stock.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue Depositary Shares, each of which will represent a
fractional interest of a share of a particular class or series of Preferred
Stock, as specified in the applicable Prospectus Supplement. Shares of a class
or series of Preferred Stock represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (the "Preferred Stock Depositary") and the
holders from time to time of the depositary receipts issued by the Preferred
Stock Depositary which will evidence the Depositary Shares ("Depositary
Receipts"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular class or series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the class or series of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipt to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the such Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless such Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock converted into
Excess Stock or otherwise converted or exchanged.
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WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted or converted into Excess
Stock or otherwise), the holders thereof will be entitled to delivery at such
office, to or upon each such holder's order, of the number of whole or
fractional shares of the class or series of Preferred Stock and any money or
other property represented by the Depositary Shares evidenced by such Depositary
Receipts. Holders of Depositary Receipts will be entitled to receive whole or
fractional shares of the related class or series of Preferred Stock on the basis
of the proportion of Preferred Stock represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such shares of
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of shares of Preferred Stock to be withdrawn, the Preferred Stock
Depositary will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of the Depositary Shares representing shares of
such class or series of Preferred Stock so redeemed, provided the Company shall
have paid in full to the Preferred Stock Depositary the redemption price of the
Preferred Stock to be redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The redemption price per
Depositary Share will be equal to the corresponding proportion of the redemption
price and any other amounts per share payable with respect to such class or
series of Preferred Stock. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that will not result in
the issuance of any Excess Stock.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class of series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will no longer
be deemed to be outstanding and all rights of the holders of the Depositary
Receipts evidencing the Depositary Shares so called for redemption will cease,
except the right to receive any moneys payable upon such redemption and any
money or other property to which the holders of such Depositary Receipts were
entitled upon such redemption upon surrender thereof to the Preferred Stock
Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of Preferred
Stock represented by such Depositary
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Shares to the extent it does not receive specific instructions from the holders
of Depositary Receipts evidencing such Depositary Shares. The Preferred Stock
Depositary will not be responsible for any failure to carry out any instruction
to vote, or for the manner or effect of any such vote made, as long as any such
action or non-action is in good faith and does not result from negligence or
willful misconduct of the Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company, except in connection with
certain exchanges in connection with the preservation of the Company's status as
a REIT. See "Description of Common Stock -- Restrictions on Transfer."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the applicable Preferred Stock Depositary with written
instructions to the Preferred Stock Depositary to instruct the Company to cause
conversion of a class or series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipts into whole shares of Common Stock,
other shares of a class or series of Preferred Stock (including Excess Stock) of
the Company or other shares of stock, and the Company has agreed that upon
receipt of such instructions and any amounts payable in respect thereof, it will
cause the conversion thereof utilizing the same procedures as those provided for
delivery of Preferred Stock to effect such conversion. If the Depositary Shares
evidenced by a Depositary Receipt are to be converted in part only, a Depositary
Receipt or Receipts will be issued for any Depositary Shares not to be
converted. No fractional shares of Common Stock will be issued upon conversion,
and if such conversion will result in a fractional share being issued, an amount
will be paid in cash by the Company equal to the value of the fractional
interest based upon the closing price of the Common Stock on the last business
day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing Depositary Shares which represent
the Preferred Stock and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Preferred Stock Depositary.
However, any amendment that materially and adversely alters the rights of the
holders of Depositary Receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related Preferred
Stock will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the applicable Depositary Shares
evidenced by the applicable Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the Deposit
Agreements, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related class or series
of Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of an outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series class or of Preferred Stock subject to such Deposit
Agreement consents to such termination, whereupon the Preferred Stock Depositary
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will deliver or make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, such number of whole
or fractional shares of each Preferred Stock as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by preferred Stock Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
preserve the Company's status as a REIT, then the Company will use its best
efforts to list each class or series of Preferred Stock issued upon surrender of
the related Depositary Shares. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of each
class or series of Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of the Depositary Receipts evidencing the Depositary
Shares representing such class or series of Preferred Stock or (iii) each share
of the related Preferred Stock shall have been converted into stock of the
Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Stock
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of a class or
series of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
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In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under
the Company's employee stock option plan). The Company may issue Warrants for
the purchase of Preferred Stock or Common Stock. Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (1) the title of such Warrants; (2) the
aggregate number of such Warrants; (3) the price or prices at which such
Warrants will be issued; (4) the designation, terms and number of shares of
Preferred Stock or Common Stock purchasable upon exercise of such Warrants; (5)
the designation and terms of the Offered Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
Offered Security; (6) the date, if any, on and after which such Warrants and the
related Preferred Stock or Common Stock will be separately transferable; (7) the
price at which each share of Preferred Stock or Common Stock purchasable upon
exercise of such Warrants may be purchased; (8) the date on which the right to
exercise such Warrants shall commence and the date on which such right shall
expire; (9) the minimum or maximum amount of such Warrants which may be
exercised at any one time; (10) information with respect to book-entry
procedures, if any; (11) a discussion of certain Federal income tax
considerations; and (12) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
Certain provisions of the Company's Charter and Bylaws might discourage
certain types of transactions that involve an actual or threatened change of
control of the Company. The Ownership Limit may delay or impede a transaction or
a change in control of the Company that might involve a premium price for the
Company's capital stock or otherwise be in the best interest of the
stockholders. See "Description of Common Stock -- Restrictions on Transfer."
Pursuant to the Company's Charter and Bylaws, the Company's Board of Directors
is divided into three classes of directors, each class serving staggered
three-year terms. The staggered terms of directors may reduce the possibility of
a tender offer or an attempt to change control of the Company. The issuance of
Preferred Stock by the Board of Directors may also have the effect of delaying,
deferring or preventing a change in control of the Company. See "Description of
Preferred Stock -- General."
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material Federal income tax considerations is
based on current law and does not purport to deal with all aspects of taxation
that may be relevant to particular stockholders in light of their personal
investment or tax circumstances, or to certain types of stockholders (including
insurance companies, financial institutions and broker-dealers) subject to
special treatment under the Federal income tax laws. Certain Federal Income Tax
Considerations relevant to holders of the Offered Securities will be provided in
the applicable Prospectus Supplement relating thereto.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES.
GENERAL
The Company believes that since its formation it has operated in a manner
that permits it to satisfy the requirements for taxation as a REIT under the
applicable provisions of the Code. The Company intends to continue to operate to
satisfy such requirement. No assurance can be given, however, that such
requirements will be met.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the Federal income tax treatment of a REIT and
its stockholders. This summary is qualified in its entirety by the applicable
Code provisions, rules and regulations thereunder, and administrative and
judicial interpretations thereof. Morrison & Foerster has acted as tax counsel
to the Company in connection with the Company's election to be taxed as a REIT.
In the opinion of Morrison & Foerster, commencing with the Company's
taxable year ended December 31, 1993, the Company has been organized in
conformity with the requirements for qualification as a REIT, and its method of
operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Morrison &
Foerster. Accordingly, no assurance can be given that the actual results of the
Company's operations for any particular taxable year will satisfy such
requirements. See " -- Failure to Qualify."
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to stockholders. This treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and stockholder levels) that generally results from the use of
corporate investment vehicles.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution to
its stockholders could be reduced.
TAXATION OF THE COMPANY
In any year in which the Company qualifies as a REIT, in general it will
not be subject to Federal income tax on that portion of its net income that it
distributes to stockholders. This treatment
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substantially eliminates the "double taxation" on income at the corporate and
stockholder levels that generally results from investment in a corporation.
However, the REIT will be subject to federal income tax as follows: First, the
REIT will be taxed at regular corporate rates on any undistributed real estate
investment trust taxable income, including undistributed net capital gains.
Second, under certain circumstances, the REIT may be subject to the "alternative
minimum tax" on its items of tax preference. Third, if the REIT has (i) net
income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other nonqualifying income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income. Fourth, if the REIT has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if the REIT should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), and has nonetheless
maintained its qualification as a real estate investment trust because certain
other requirements have been met, it will be subject to a 100% tax on the net
income attributable to the greater of the amount by which the REIT fails the 75%
or 95% test. Sixth, if the REIT should fail to distribute during each calendar
year at least the sum of (i) 85% of its real estate investment trust ordinary
income for such year, (ii) 95% of its real estate investment trust capital gain
net income for such year, and (iii) any undistributed taxable income from prior
periods, the REIT would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if the
REIT acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
asset in the REIT's hands is determined by reference to the basis of the asset
(or any other property) in the hands of the C corporation, and the REIT
recognizes gain on the disposition of such asset during the 10 year period
beginning on the date on which such asset was acquired by the REIT, then, to the
extent of any built-in gain at the time of acquisition, such gain will be
subject to tax at the highest regular corporate rate, assuming the REIT will
make an election pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a real estate investment trust as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year; and (7) which
meets certain other tests, described below, regarding the nature of income and
assets. The Code provides that conditions (1) to (4), inclusive, must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made by the Company
to be taxed as a REIT.
In order to ensure compliance with the ownership tests described above, the
Company has placed certain restrictions on the transfer of the common stock and
preferred stock to prevent further concentration of stock ownership. Moreover,
to evidence compliance with these requirements, the Company must maintain
records which disclose the actual ownership of its outstanding common stock and
preferred stock. In fulfilling its obligations to maintain records, the Company
must and will demand written statements each year from the record holders of
designated percentages of its common stock and preferred stock disclosing the
actual owners of such common stock and preferred stock. A list of those persons
failing or refusing to comply with such demand must be maintained as part of the
Company's records. A stockholder failing or refusing to comply with the
Company's written demand must submit with his tax returns a similar statement
disclosing
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the actual ownership of common stock and preferred stock and certain other
information. In addition, the Company's Charter provides restrictions regarding
the transfer of its shares that are intended to assist the Company in continuing
to satisfy the share ownership requirements. See "Description of Common
Stock -- Restrictions on Transfer."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests, described below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described below.
ASSET TESTS
At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items and government securities (as well as certain temporary
investments in stock or debt instruments purchased with the proceeds of new
capital raised by the Company). Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed either (i) 5% of the value of the Company's total
assets as to any one nongovernment issuer, or (ii) 10% of the outstanding voting
securities of any one issuer. The Company's investment in the Properties through
its interest in the Operating Partnership constitutes qualified assets for
purposes of the 75% asset test. In addition, the Company may own 100% of
"qualified REIT subsidiaries" as defined in the Code. All assets, liabilities,
and items of income, deduction, and credit of such a qualified REIT subsidiary
will be treated as owned and realized directly by the Company. The Company's
investment in Spieker Northwest, Inc. is not a qualifying asset for purposes of
the 75% test. The Company expects, however, that such investment will continue
to represent less than 5% of the Company's total assets and, together with any
other nonqualifying assets, will continue to represent less than 25% of the
Company's total assets.
GROSS INCOME TESTS
There are three separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For
purposes of these tests, where the Company invests in a partnership, the Company
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the partnership.
See "-- Tax Aspects of the Company's Investment in the Operating
Partnerships -- General."
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i) rents
from real property (except as modified below); (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gains from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); and (vii) commitment fees received for agreeing to
make loans collateralized by mortgages on real property or to purchase or lease
real property.
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Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "related party tenant"). In
addition, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as rents from real property. Moreover, an amount received or accrued
generally will not qualify as rents from real property (or as interest income)
for purposes of the 75% and 95% gross income tests if it is based in whole or in
part on the income or profits of any person. Rent or interest will not be
disqualified, however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, and are not otherwise
considered "rendered to the occupant."
The Company, through the Operating Partnership (which will not be an
independent contractor), will provide certain services with respect to the
Properties and any newly acquired Properties. The Company believes that the
services provided by the Operating Partnership are usually or customarily
rendered in connection with the rental of space of occupancy only, and therefore
that the provision of such services will not cause the rents received with
respect to the Properties to fail to qualify as rents from real property for
purposes of the 75% and 95% gross income tests. The Company does not intend to
rent to related party tenants or to charge rents that would not qualify as rents
from real property because the rents are based on the income or profits of any
person (other than rents that are based on a fixed percentage or percentages of
receipts or sales).
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. For purposes of
determining whether the Company complies with the 75% and 95% income tests,
gross income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain property held by
the Company for at least four years and foreclosure property. See "-- Taxation
of the Company" and "-- Tax Aspects of the Company's Investment in the Operating
Partnership -- Sale of the Properties."
The Company believes that it and the Operating Partnership has held and
managed the Properties in a manner that has given rise to rental income
qualifying under the 75% and 95% gross income tests. Gains on sales of the
Properties will generally qualify under the 75% and 95% gross income tests.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the 75% and 95%
gross income tests on a schedule attached to its tax return; and (iii) any
incorrect information on this schedule is not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. If these
relief provisions apply, the Company will, however, still be subject to a
special tax upon the greater of the amount by which it fails either the 75% or
95% gross income test for that year.
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The 30% Test. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. The Company does not anticipate that it
will have any substantial difficulty in complying with this test.
ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its stockholders each year in
an amount at least equal to (A) the sum of (i) 95% of the Company's REIT taxable
income (computed without regard to the dividends paid deduction and the REIT's
net capital gain) and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
REIT taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular capital gains or ordinary corporate tax rates, as the case may
be. Furthermore, if the REIT should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the REIT would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed.
The Company believes that it has made timely distributions sufficient to
satisfy the annual distribution requirements. In this regard, the partnership
agreement of the Operating Partnership authorizes the Company, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand. Further, as described below, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. To avoid any problem with the
95% distribution requirement, the Company will closely monitor the relationship
between its REIT taxable income and cash flow and, if necessary, will borrow
funds (or cause the Operating Partnership or other affiliates to borrow funds)
in order to satisfy the distribution requirement. The Company (through the
Operating Partnership) may be required to borrow funds at times when market
conditions are not favorable.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event, to the extent of the Company's current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from
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taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether the Company would be
entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
The following discussion summarizes certain Federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
Federal tax laws other than income tax laws.
GENERAL
The Company holds a direct ownership interest in the Operating Partnership.
In general, partnerships are "pass-through" entities which are not subject to
Federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company includes its
proportionate share of the foregoing Operating Partnership items for purposes of
the various REIT income tests and in the computation of its REIT taxable income.
See "-- Taxation of the Company" and "-- Requirements for Qualification -- Gross
Income Tests." Any resultant increase in the Company's REIT taxable income
increases its distribution requirements (see "-- Requirements for
Qualification -- Annual Distribution Requirements"), but is not subject to
Federal income tax in the hands of the Company provided that such income is
distributed by the Company to its stockholders. Moreover, for purposes of the
REIT asset tests (see "-- Requirements for Qualification -- Asset Tests"), the
Company includes its proportionate share of assets held by the Operating
Partnership.
ENTITY CLASSIFICATION
The Company's interest in the Operating Partnership involves special tax
considerations, including the possibility of a challenge by the Internal Revenue
Service (the "Service") of the status of the Operating Partnership as a
partnership (as opposed to an association taxable as a corporation) for Federal
income tax purposes. If the Operating Partnership were to be treated as an
association, it would be taxable as a corporation. In such a situation, the
Operating Partnership would be required to pay income tax at corporate rates on
its net income, and distributions to its partners would constitute dividends
that would not be deductible in computing net income. In addition, the character
of the Company's assets and items of gross income would change, which would
preclude the Company from satisfying the asset test and possibly the income
tests (see "-- Requirements for Qualification -- Asset Tests" and "-- Gross
Income Tests"), and in turn would prevent the Company from qualifying as a REIT.
See "-- Requirements for Qualification -- Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership (such as certain of
the Properties), must be allocated in a manner such that the contributing
partner is charged with, or benefits from, respectively, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of contributed property at the time of
contribution, and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property (including certain of the
Properties). Consequently, the partnership agreement of the
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Operating Partnership requires such allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets (including certain of the Properties). This will tend to
eliminate the Book-Tax Difference over the life of the Operating Partnership.
However, the special allocation rules under Section 704(c) do not always
entirely rectify the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership may cause the
company to be allocated lower depreciation and other deductions, and possibly
greater amounts of taxable income in the event of a sale of such contributed
assets in excess of the economic or book income allocated to it as a result of
such sale. This may cause the Company to recognize taxable income in excess of
cash proceeds, which might adversely affect the Company's ability to comply with
the REIT distribution requirements. See "-- Requirements for
Qualification -- Annual Distribution Requirements." In addition, the application
of Section 704(c) to the Operating Partnership is not entirely clear and may be
affected by authority that may be promulgated in the future.
SALE OF THE PROPERTIES
Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. The Company's share of any gain
realized by the Operating Partnership on the sale of any dealer property
generally will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "Taxation of the Company" and "--
Requirements for Qualification -- Gross Income Tests -- The 95% Test." Under
existing law, whether property is dealer property is a question of fact that
depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership intends to hold the Properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating the Properties, and to make such
occasional sales of the Properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general the Properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income. Stockholders that are corporations will not
be entitled to a dividends received deduction. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholders tax basis taxable as capital gains (if the Common Stock is
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during
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January of the following calendar year. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of the
Company.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and to the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such stockholder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
OTHER TAX CONSIDERATIONS
DIVIDEND REINVESTMENT PROGRAM
Under the Company's dividend reinvestment program, stockholders
participating in the program will be deemed to have received the gross amount of
any cash distributions which would have been paid by the Company to such
stockholders had they not elected to participate. These deemed distributions
will be treated as actual distributions from the Company to the participating
stockholders and will retain the character and tax effect applicable to
distributions from the Company generally. See "Federal Income Tax
Considerations -- Taxation of Stockholders." Participants in the dividend
reinvestment program are subject to Federal income tax on the amount of the
deemed distributions to the extent that such distributions represent dividends
or gains, even though they receive no cash. Shares of Common Stock received
under the program will have a holding period beginning with the day after
purchase, and a tax basis equal to their cost (which is the gross amount of the
deemed distribution).
STATE AND LOCAL TAXES
The Company and its stockholders may be subject to state or local taxation
in various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its stockholders
may not conform to the Federal income tax consequences discussed above.
Consequently, prospective stockholders should consult their own tax advisers
regarding the effect of state and local tax laws on an investment in the Common
Stock of the Company.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Offered Securities
to one or more underwriters for public offering and sale by them or may sell the
Offered Securities to investors directly or through agents, which agents may be
affiliated with the Company or the Operating Partnership. Any such underwriter
or agent involved in the offer and sale of the Offered Securities will be named
in the applicable Prospectus Supplement.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions at a
fixed price or prices which may be
37
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changed, at prices related to the prevailing market prices at the time of sale,
or at negotiated prices. The Company and the Operating Partnership also may,
from time to time, authorize underwriters acting as the Company's agents to
offer and sell the Offered Securities upon the terms and conditions as set forth
in the applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company or from the Operating Partnership in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of Offered
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Offered Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Offered Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company and the Operating
Partnership, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. Any such
indemnification agreements will be described in the applicable Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Offered Securities will be a new issue with no established trading
market, other than the Common Stock and Series B Preferred Stock which are
listed on the New York Stock Exchange. Any shares of Common Stock and Series B
Preferred Stock sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. The Company or the Operating
Partnership may elect to list any other series of Preferred Stock and any series
of Debt Securities, Depositary Shares or Warrants on any exchange, but neither
is obligated to do so. It is possible that one or more underwriters may make a
market in a series of Offered Securities, but will not be obligated to do so and
may discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the Offered
Securities.
If so indicated in the applicable Prospectus Supplement, the Company or the
Operating Partnership, as the case may be, may authorize dealers acting as the
Company's or the Operating Partnership's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company or the Operating
Partnership at the public offering price set forth in such Prospectus Supplement
pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate principal amount
of Offered Securities sold pursuant to Contracts shall be not less nor more
than, the respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company or the Operating
Partnership, as the case may be. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company or
the Operating Partnership, as the case may be, shall have sold to such
underwriters the total principal amount of the Offered Securities less the
principal amount thereof covered by Contracts.
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<PAGE> 89
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for, the Company or the
Operating Partnership in the ordinary course of business.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and the Operating Partnership included in the Company's
and the Operating Partnership's respective Annual Reports on Form 10-K for the
year ended December 31, 1995, and Amendment No. 1 to the Operating Partnership's
Annual Report on Form 10-K/A filed with the Commission on June 20, 1996,
incorporated by reference herein, have been audited by Arthur Andersen LLP,
independent public accountants, to the extent and for the periods indicated in
their reports and have been incorporated herein in reliance on such reports
given on the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
and the Operating Partnership by Morrison & Foerster, Palo Alto, California. In
addition, the description of the Company's qualification and taxation as a REIT
under the Code contained in this Prospectus under the caption entitled "Federal
Income Tax Considerations -- General" is based upon the opinion of Morrison &
Foerster.
39
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<PAGE> 91
APPENDIX
(DESCRIPTION OF GRAPHICS)
INSIDE FRONT COVER:
Map of the Western United States encompassing Washington, Oregon, Idaho and
California highlighting Seattle, Portland, Boise, Sacramento, the San Francisco
Bay Area, Orange County and San Diego.
PHOTOGRAPH: Photograph of Watergate Office Towers.
CAPTION: WATERGATE OFFICE TOWERS, EMERYVILLE, CA, EMERYVILLE
PORTFOLIO, PENDING ACQUISITION
PHOTOGRAPH: Photograph of One Lakeshore Centre.
CAPTION: ONE LAKESHORE CENTRE, ONTARIO, CA
PHOTOGRAPH: Photograph of Central Park Plaza.
CAPTION: CENTRAL PARK PLAZA, SANTA CLARA, CA
PHOTOGRAPH: Photograph of Quadrant Corporate Center.
CAPTION: QUADRANT CORPORATE CENTER, BOTHELL, WA, PENDING ACQUISITION
PHOTOGRAPH: Photograph of Kodak Center.
CAPTION:KODAK CENTER, SAN JOSE, CA, PENDING ACQUISITION
PHOTOGRAPH: Photograph of Carmel Valley Centre.
CAPTION: CARMEL VALLEY CENTRE, DEL MAR, CA
PHOTOGRAPH: Photograph of Fountaingrove Office Complex.
CAPTION: FOUNTAINGROVE OFFICE COMPLEX, SANTA ROSA, CA, PENDING ACQUISITION
PHOTOGRAPH: Photograph of Centerpark Plaza Two.
CAPTION: CENTERPARK PLAZA TWO, SAN DIEGO, CA, MISSION WEST PORTFOLIO,
PENDING ACQUISITION
PHOTOGRAPH: Photograph of 555 Twin Dolphin Drive.
CAPTION: 555 TWIN DOLPHIN, REDWOOD SHORES, CA, PENDING ACQUISITION
INSIDE BACK COVER:
PHOTOGRAPH: Photograph of The City.
CAPTION: THE CITY, ORANGE, CA
PHOTOGRAPH: Photograph of MacArthur Park.
CAPTION: MacARTHUR PARK, SANTA ANA, CA
PHOTOGRAPH: Photograph of Fairchild Corporate Center.
CAPTION: FAIRCHILD CORPORATE CENTER, IRVINE, CA
PHOTOGRAPH: Photograph of Stadium Plaza.
CAPTION: STADIUM PLAZA, ANAHEIM, CA
PHOTOGRAPH: Photograph of Dove Street.
CAPTION: DOVE STREET, NEWPORT BEACH, CA
<PAGE> 92
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Supplement Summary.......... S-3
The Company............................ S-16
Price Range of Common Stock and
Dividends............................ S-23
Use of Proceeds........................ S-25
Capitalization......................... S-26
Selected Financial and Other Data...... S-27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... S-29
Management............................. S-35
Underwriting........................... S-37
Validity of Common Stock............... S-38
Index to Financial Information......... F-1
PROSPECTUS
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
The Company and the Operating
Partnership.......................... 4
Use of Proceeds........................ 4
Ratio of Earnings to Fixed Charges..... 4
Special Considerations................. 6
Description of Debt Securities......... 8
Description of Common Stock............ 18
Description of Class B Common Stock,
Class C Common Stock, Series A
Preferred Stock and Series B
Preferred Stock...................... 21
Description of Preferred Stock......... 23
Description of Depositary Shares....... 25
Description of Warrants................ 29
Certain Provisions of the Company's
Charter and Bylaws................... 29
Federal Income Tax Considerations...... 30
Plan of Distribution................... 37
Experts................................ 39
Legal Matters.......................... 39
</TABLE>
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LOGO
10,000,000 SHARES
SPIEKER PROPERTIES, INC.
COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
REPRESENTATIVES OF THE UNDERWRITERS
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