<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12528
SPIEKER PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 94-3185802
------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2180 SAND HILL ROAD, MENLO PARK, CA 94025
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(650) 854-5600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
----- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
55,065,838 shares of Common Stock, $0.0001 par value as of November 7, 1997.
2,000,000 shares of Class B Common Stock, $0.0001 par value as of November 7,
1997. 1,176,470 shares of Class C Common Stock, $0.0001 par value as of November
7, 1997.
Page 1 of 23
Exhibit Index is located on Page 22.
<PAGE> 2
SPIEKER PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Financial Statements.............................................................................. 3
Consolidated Balance Sheets as of September 30, 1997, and December 31, 1996....................... 4
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996............................................................ 6
Consolidated Statement of Stockholders' Equity for the Nine Months
Ended September 30, 1997..................................................................... 7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996............................................................ 8
Notes to Consolidated Financial Statements........................................................ 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................. 22
Signatures .................................................................................................. 23
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached are the following financial statements of Spieker Properties, Inc. (the
"Company"):
(i) Consolidated Balance Sheets as of September 30, 1997, and December
31, 1996
(ii) Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1997 and 1996
(iii) Consolidated Statement of Stockholders' Equity for the Nine Months
Ended September 30, 1997
(iv) Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996
(v) Notes to Consolidated Financial Statements
The financial statements referred to above should be read in conjunction with
the Company's Annual Report on the Form 10-K for the year ended December 31,
1996.
3
<PAGE> 4
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 537,642 $ 338,445
Buildings and improvements 1,631,077 944,646
Construction in progress 78,313 31,969
----------- -----------
2,247,032 1,315,060
Less - Accumulated depreciation (152,676) (127,701)
----------- -----------
2,094,356 1,187,359
Investments in mortgages 31,454 14,381
Property held for disposition, net 49,239 117,732
----------- -----------
Net investments in real estate 2,175,049 1,319,472
CASH AND CASH EQUIVALENTS 38,786 29,336
ACCOUNTS RECEIVABLE 5,012 3,799
DEFERRED RENT RECEIVABLE 4,468 3,242
RECEIVABLE FROM AFFILIATES 41 117
DEFERRED FINANCING AND LEASING COSTS, net
of accumulated amortization of $9,102
and $7,682 as of September 30, 1997, and
December 31, 1996, respectively
26,453 15,860
FURNITURE, FIXTURES AND EQUIPMENT, net 2,968 2,386
PREPAID EXPENSES AND OTHER ASSETS 26,490 16,102
----------- -----------
$ 2,279,267 $ 1,390,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
DEBT
Unsecured notes $ 935,000 $ 635,000
Unsecured line of credit 138,000 39,000
Mortgage loans 84,863 45,997
----------- -----------
Total debt 1,157,863 719,997
----------- -----------
ASSESSMENT BONDS PAYABLE 6,778 4,758
ACCOUNTS PAYABLE 7,032 3,258
ACCRUED REAL ESTATE TAXES 6,614 731
ACCRUED INTEREST 16,388 10,471
UNEARNED RENTAL INCOME 10,263 6,345
DIVIDENDS AND DISTRIBUTIONS PAYABLE 26,195 18,660
OTHER ACCRUED EXPENSES AND LIABILITIES 25,590 16,406
----------- -----------
Total liabilities 1,256,723 780,626
----------- -----------
MINORITY INTERESTS 72,755 45,760
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series A Preferred Stock: cumulative, convertible, $.0001 par value,
1,000,000 shares authorized, issued and outstanding, $25,000
liquidation preference 23,949 23,949
Series B Preferred Stock: cumulative, redeemable, $.0001 par value,
5,000,000 shares authorized,
4,250,000 issued and outstanding, $106,250 liquidation preference 102,064 102,064
Common Stock: $.0001 par value, 660,500,000 shares authorized,
43,564,263 and 31,821,861 shares issued and outstanding as of
September 30, 1997, and December 31, 1996, respectively 4 3
Class B Common Stock: $.0001 par value, 2,000,000 shares authorized,
issued and outstanding -- --
Class C Common Stock: $.0001 par value, 1,500,000 shares authorized,
1,176,470 issued and outstanding -- --
Excess Stock: $.0001 par value per share, 330,000,000 shares authorized,
no shares issued or outstanding -- --
Additional paid-in capital 816,707 438,376
Deferred compensation (622) (464)
Retained earnings 7,687 --
----------- -----------
Total stockholders' equity 949,789 563,928
----------- -----------
$ 2,279,267 $ 1,390,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1996
(dollars in thousands, except share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 82,504 $ 51,079 $ 221,424 $ 142,131
Interest and other income 1,392 1,064 4,767 3,026
--------- --------- --------- ---------
83,896 52,143 226,191 145,157
--------- --------- --------- ---------
OPERATING EXPENSES
Rental expenses 17,431 9,578 44,514 24,351
Real estate taxes 6,038 3,989 17,077 11,292
Interest expense, including amortization of finance costs 16,214 9,761 40,914 26,443
Depreciation and amortization 13,442 10,033 36,457 27,373
General and administrative and other expenses 3,720 2,686 10,255 7,491
--------- --------- --------- ---------
56,845 36,047 149,217 96,950
--------- --------- --------- ---------
Income from operations before disposition of property
and minority interests 27,051 16,096 76,974 48,207
--------- --------- --------- ---------
GAIN (LOSS) ON DISPOSITION OF PROPERTY 3,937 (1,483) 18,117 (1,483)
--------- --------- --------- ---------
Income from operations before minority interests 30,988 14,613 95,091 46,724
--------- --------- --------- ---------
MINORITY INTERESTS' SHARE IN NET INCOME (3,685) (1,826) (11,504) (6,121)
--------- --------- --------- ---------
Net income 27,303 12,787 83,587 40,603
--------- --------- --------- ---------
PREFERRED DIVIDENDS
Series A Preferred Stock (573) (524) (1,720) (1,573)
Series B Preferred Stock (2,510) (2,510) (7,530) (7,530)
--------- --------- --------- ---------
Net income available to Common Stockholders $ 24,220 $ 9,753 $ 74,337 $ 31,500
========= ========= ========= =========
INCOME PER SHARE OF COMMON STOCK
Net income $ .50 $ .27 $ 1.59 $ .92
========= ========= ========= =========
DIVIDENDS PER SHARE
Series A Preferred Stock $ .57 $ .52 $ 1.72 $ 1.57
========= ========= ========= =========
Series B Preferred Stock $ .59 $ .59 $ 1.77 $ 1.77
========= ========= ========= =========
Common Stock, including Class B and Class C $ .47 $ .43 $ 1.45 $ 1.34
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Series B Common Class B Class C
Preferred Preferred Stock Common Common
Stock Stock Shares Stock Shares Stock Shares
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 23,949 $ 102,064 31,821,861 2,000,000 1,176,470
Common Stock Offering -- -- 11,500,000 -- --
Conversion of Operating Partnership Units to
Common Stock -- -- 91,880 -- --
Stock Options Exercised -- -- 109,625 -- --
Restricted Stock Grant -- -- 25,913 -- --
Non-cash Compensation Merit Fund -- -- -- -- --
Conversion of Operating Partnership Units -
Employee Stock Incentive Pool -- -- 14,984 -- --
Amortization of Deferred Compensation -- -- -- -- --
Dividends Declared -- -- -- -- --
Net Income -- -- -- -- --
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1997 $ 23,949 $ 102,064 43,564,263 2,000,000 1,176,470
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Common Additional Retained
Stock Par Paid-in Deferred Earnings
Value Capital Compensation (Deficit) Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 3 $ 438,376 $ (464) $ -- $ 563,928
Common Stock Offering 1 374,834 -- -- 374,835
Conversion of Operating Partnership Units to
Common Stock -- -- -- -- --
Stock Options Exercised -- 2,245 -- -- 2,245
Restricted Stock Grant -- 491 (491) -- --
Non-cash Compensation Merit Fund -- 177 -- -- 177
Conversion of Operating Partnership Units -
Employee Stock Incentive Pool -- 524 -- -- 524
Amortization of Deferred Compensation -- 60 333 -- 393
Dividends Declared -- -- -- (75,900) (75,900)
Net Income -- -- -- 83,587 83,587
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1997 $ 4 $ 816,707 $ (622) $ 7,687 $ 949,789
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1996
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 83,587 $ 40,603
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 36,457 27,373
Amortization of prepaid interest and deferred financing costs 848 956
Non-cash compensation 597 381
Minority share of net income 11,504 6,121
Gain on disposition of property (18,117) 1,483
(Increase) decrease in deferred rent receivable (1,406) 307
Increase in accounts receivable (1,213) (2)
Decrease in receivable from affiliates 76 277
(Increase) decrease in prepaid expenses and other assets (11,973) 1,239
Decrease in assessment bonds payable (624) (573)
Increase (decrease) in accounts payable 3,774 (185)
Increase in accrued real estate taxes 5,883 4,512
Increase in accrued interest 5,917 7,148
Increase in other accrued expenses and liabilities 9,184 2,520
Increase (decrease) in unearned rental income 3,918 (562)
--------- ---------
Net cash provided by operating activities 128,412 91,598
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (872,246) (253,374)
Additions to leasing costs (5,541) (4,288)
Additions to investment in mortgages (17,073) (14,342)
Proceeds from disposal of property 100,115 2,001
--------- ---------
Net cash used for investing activities (794,745) (270,003)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 708,000 513,050
Payments on debt (321,986) (407,151)
Payment of financing fees (8,862) (2,250)
Payment of dividends/distributions (78,474) (60,463)
Proceeds from sale of Common Stock, net of issuance costs 374,835 121,368
Proceeds from sale of Class C Common Stock, net of issuance costs -- 29,963
Proceeds from stock options exercised 2,245 856
Proceeds from the sale of Operating Partnership Units 25 --
--------- ---------
Net cash provided by financing activities 675,783 195,373
--------- ---------
Net (decrease) increase in cash and cash equivalents 9,450 16,968
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,336 7,573
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,786 $ 24,541
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest 38,416 20,181
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Debt assumed in relation to property acquisitions 51,852 --
Increase to land and assessment bonds payable 2,644 609
Minority interest capital recorded in relation to property acquisitions 26,072 --
Write-off of fully depreciated property 4,973 12,979
Write-off of fully amortized deferred financing and leasing costs 6,591 4,098
Conversion of operating partnership units into Common Stock with resulting
reduction in minority interest
and increase in additional paid-in-capital 524 386
Restricted Stock Grants 491 200
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
SPIEKER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 and 1996
(in thousands, except share data)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Spieker Properties, Inc.
Spieker Properties, Inc. (the "Company") was organized in the state of
Maryland on August 20, 1993, and commenced operations effective with the
completion of its initial public offering ("IPO") on November 18, 1993.
The Company qualifies as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986 (the "Code"), as amended. As of September
30, 1997, the Company owned an approximate 87.1 percent general
partnership interest in Spieker Properties, L.P. (the "Operating
Partnership"). The Company and the Operating Partnership are collectively
referred to as the "Company."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Company's consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries as of
September 30, 1997, and December 31, 1996, and its consolidated results of
operations for the three and nine months ended September 30, 1997 and 1996
and its consolidated cash flows for the nine months ended September 30,
1997 and 1996. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
Interim Financial Information
The consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC")
and, in management's opinion, include all adjustments necessary for a fair
presentation of results for such interim periods. Certain information and
note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules or regulations; however, the
Company believes that adequate disclosures have been made.
The interim results for the three and nine months ended September 30, 1997
and 1996, are not necessarily indicative of results for the full year. It
is suggested that these financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Properties
Properties are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the properties.
The estimated lives are as follows:
<TABLE>
<S> <C>
Land improvements and leasehold interests 18 to 40 years
Buildings and improvements 10 to 40 years
Tenant improvements Term of the related lease
</TABLE>
The cost of buildings and improvements includes the purchase price of the
property or interests in property, legal fees, acquisition costs and
interest, property taxes and other costs incurred during the period of
construction.
9
<PAGE> 10
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments which extend the economic
useful life of assets are capitalized.
Investments in real estate are stated at the lower of depreciated cost or
estimated fair value. Fair value for financial reporting purposes is
evaluated periodically by the Company on a property by property basis
using undiscounted cash flow. If a potential impairment is identified, it
is measured by the property's fair value based on either sales comparables
or the net cash expected to be generated by the property, less estimated
carrying costs (including interest) throughout the anticipated holding
period, plus the estimated cash proceeds from the ultimate disposition of
the property. To the extent that the carrying value exceeds the estimated
fair value, a provision for decrease in net realizable value is recorded.
Estimated fair value is not necessarily an indication of a property's
current value or the amount that will be realized upon the ultimate
disposition of the property. As of September 30, 1997, and December 31,
1996, none of the carrying values of the properties exceeded their
estimated fair values. As of September 30, 1997, and December 31, 1996,
the properties are located primarily in California, Oregon and Washington.
As a result of this geographic concentration, the operations of these
properties could be adversely affected by a recession or general economic
downturn in the areas where these properties are located.
The Company owns four mortgage loans that are secured by real estate. Two
of the four loans are with an affiliate of the Company (see note 3). The
Company assesses possible impairment of these loans by reviewing the fair
value of the underlying real estate. As of September 30, 1997, the fair
value of the underlying real estate was in excess of the Company's book
value of the mortgage loans.
Construction in Progress
Project costs clearly associated with the development and construction of
a real estate project are capitalized as construction in progress. In
addition, interest, real estate taxes and other costs are capitalized
during the period in which activities necessary to get the property ready
for its intended use are in progress.
Ground Leases
The land on which three of the Company's properties are located is owned
by Stanford University and is subject to ground leases. The ground leases
expire in 2039 or 2040 and, unless the leases are extended, the use of the
land, together with all improvements, will revert back to Stanford
University. The former owners of the three properties prepaid the ground
leases through 2011, 2012 and 2017; thereafter, the Company will be
responsible for the ground lease payments, as defined under the terms of
the leases. These ground lease payments have been segregated from the
total purchase price of the properties, capitalized as leasehold interests
in the accompanying consolidated balance sheet, and are being amortized
ratably over the terms of the related original prepayment periods (18 to
24 years).
In addition, the Company has entered into operating ground leases on
certain land parcels with periods ranging from 16 to 53 years, certain of
the operating ground leases contain purchase options.
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three months or
less when purchased are classified as cash equivalents.
Deferred Financing and Leasing Costs
Costs incurred in connection with financing or leasing are capitalized and
amortized on a straight-line basis over the term of the related loan or
lease for periods ranging from 1 to 30 years. Unamortized financing and
leasing costs are charged to expense upon the early termination of the
lease or upon early payment of financing.
10
<PAGE> 11
Fair Value of Financial Investments
Based on the borrowing rates currently available to the Company, the
carrying amount of debt approximates fair value. Cash and cash equivalents
consist of demand deposits, certificates of deposit, overnight repurchase
agreements, and investments in money market funds, with financial
institutions. The carrying amount of cash and cash equivalents
approximates fair value.
Minority Interest
Minority interest in the Company consists primarily of the individual
Spieker Partners' limited partnership as well as other limited partners'
interest in the Operating Partnership of approximately 12.9 percent and
15.1 percent at September 30, 1997 and 1996, respectively.
Revenues
All leases are classified as operating leases. Rental income is recognized
on the straight-line basis over the terms of the leases. Deferred rent
receivable represents the excess of rental revenue recognized on a
straight-line basis over cash received under the applicable lease
provisions.
Interest and Other Income
Interest and other income includes interest income on cash, cash
equivalents, investments in mortgages, and management fee income.
Net Income (Loss) Per Share of Common Stock
Per share amounts for the Company are computed using the weighted average
common shares outstanding (including convertible Class B Common Stock and
convertible Class C Common Stock) during the period, including the
dilutive effect of stock options. The weighted average common shares
outstanding for the three and nine months ended September 30, 1997 and
1996, are as follows:
<TABLE>
<CAPTION>
Weighted Average
Common Shares Outstanding
-------------------------
<S> <C>
Three months ended:
September 30, 1997 48,038,867
September 30, 1996 35,728,317
Nine months ended:
September 30, 1997 46,815,215
September 30, 1996 34,280,115
</TABLE>
Earnings used in the calculation are reduced by dividends owed to
preferred stockholders.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 ("SFAS No. 128"), Earnings Per
Share. SFAS No. 128 requires the disclosure of basic earnings per share
and modifies existing guidance for computing fully diluted earnings per
share. Under the new standard, basic earnings per share is computed as
earnings divided by weighted average shares, excluding the dilutive
effects of stock options and other potentially dilutive securities. The
effective date of SFAS No. 128 is December 15, 1997, and early adoption is
not permitted. The Company intends to adopt SFAS No. 128 during the
quarter and year ended December 31, 1997. Had the provisions of SFAS No.
128 been applied to the Company's results of operations for the three
months ended September 30, 1997 and 1996, the Company's basic earnings per
share would have been $.51 and $.27 per share, respectively, and its fully
diluted earnings per share would have been $.50 and $.27 per share,
respectively. Had the provisions of SFAS No. 128 been applied to the
Company's results of operations for the nine months ended September 30,
1997 and 1996, the
11
<PAGE> 12
Company's basic earnings per share would have been $1.61 and $.92 per
share, respectively, and its fully diluted earnings per share would have
been $1.59 and $.92 per share, respectively.
Reclassifications
Certain items in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. TRANSACTIONS WITH AFFILIATES
Receivable From Affiliates
The receivable from affiliates at September 30, 1997, and December 31,
1996, represents management fees and reimbursements due from Spieker
Partners related entities (certain officers of Spieker Properties, Inc.
are partners in Spieker Partners).
Investments in Mortgages
Included in Investments in Mortgages are $17,073 of loans to Spieker
Northwest, Inc. an unconsolidated Preferred Stock Subsidiary of the
Company. The loans are secured by deeds of trust on real property, bear
interest at 7.8%, and mature in 2012.
4. PROPERTY HELD FOR DISPOSITION
The Company has determined to focus exclusively on properties that meet
its continuing strategic objectives. The Company has therefore decided to
divest itself of its retail properties and certain other properties.
Included in property held for disposition at September 30, 1997, are two
retail and two office properties located in California. One of the retail
properties and the two office properties are in contract and are scheduled
to close by December 31, 1997. The divestiture of the remaining property
is subject to identification of a purchaser, negotiation of acceptable
terms and other customary conditions. The net carrying amount of property
held for disposition as of September 30, 1997, is $49,239.
5. DEBT
Unsecured Notes
As of September 30, 1997, the Company has outstanding $935,000 in
investment grade rated unsecured debt securities with varying interest
rates from 6.65% to 8.00% payable semi-annually. The debt securities are
due on various dates from 2000 to 2027.
12
<PAGE> 13
On July 14, 1997, the Company sold $150,000 of unsecured investment grade
rated notes bearing interest at 7.125% and due July 1, 2009. Net proceeds
of $146,112 were used principally to repay borrowings on the unsecured
line of credit and to fund the ongoing acquisition and development of
property.
On September 29, 1997, the Company sold $150,000 of unsecured investment
grade rated debentures bearing interest at 7.5% and due October 1, 2027.
Net proceeds of $146,088 were used primarily to repay borrowings on the
unsecured line of credit and to fund the ongoing acquisition and
development of property.
Unsecured Line of Credit
Effective August 8, 1997, the Company has amended its Unsecured Line of
Credit facility. The maximum amount available under the facility is
$250,000. The facility carries interest at LIBOR plus 0.80%, matures in
August 2001, includes an annual administrative fee of $50 and an annual
facility fee of .20%. As of September 30, 1997 the amount drawn on the
facility was $138,000.
Mortgage Loans
Mortgage loans of $84,863 as of September 30, 1997, are secured by deeds
of trust on related properties. The mortgage loans carry interest rates
ranging from 7.37% to 9.75%, require monthly principal and interest
payments, and mature on various dates from 1997 to 2012.
6. DIVIDENDS AND DISTRIBUTIONS PAYABLE
The dividends and distributions payable at September 30, 1997, and
December 31, 1996, represent amounts payable to stockholders of record and
distributions payable to minority interest holders as of the same dates.
The number of shares held by the stockholders of record and Operating
Partnership Units held by the minority interests holders as of September
30, 1997, and December 31, 1996, are as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Shares of:
Common Stock 43,564,263 31,821,861
Class B Common Stock 2,000,000 2,000,000
Class C Common Stock 1,176,470 1,176,470
Series A Preferred Stock 1,000,000 1,000,000
Series B Preferred Stock 4,250,000 4,250,000
Minority Interest Units 7,200,585 6,549,819
</TABLE>
7. STOCKHOLDERS' EQUITY
Equity Offerings
On January 21, 1997, the Company sold 11,500,000 shares of Common Stock at
$34.50 per share through an underwritten public offering, including the
underwriters' exercise of their over-allotment option. The aggregate net
proceeds of $374,835 were used primarily to acquire properties under
contract at the time of the offering.
8. GAIN ON DISPOSITION OF PROPERTY
Gain on disposition of property for the nine months ended September 30,
1997, represents the gain on disposition of eight retail properties, one
industrial property, and one office property. These properties were
located in California, Oregon, Washington and Idaho. The gain recognized
on disposition of retail, industrial and office property was $16,228,
$1,123 and $766, respectively.
13
<PAGE> 14
9. ACQUISITIONS
The Company acquired the following properties during the nine months ended
September 30, 1997:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Location Type (1) Square Feet Initial Cost
---------------------------------------- ----------------------- ---------- ---------------- -------------
<S> <C> <C> <C> <C>
Southcenter West Business Park (2) Tukwila, WA I 286,921 $ 6,300
Mission West Portfolio San Diego, CA O 619,935 44,800
Emeryville Portfolio (3) Emeryville, CA O 946,385 125,400
Brea Park Centre Brea, CA O 141,837 10,800
555 Twin Dolphin Drive Redwood Shores, CA O 198,494 41,000
North Creek Parkway Centre (4) Bothell, WA O 204,871 22,600
Riverside Centre Portland, OR O 98,434 9,300
Metro Plaza San Jose, CA O 411,288 73,900
1740 Technology (5) San Jose, CA O 194,538 31,300
Fountaingrove Santa Rosa, CA O 160,808 16,100
Pasadena Financial Pasadena, CA O 145,702 26,700
Century Square Pasadena, CA O 205,653 41,500
Point West Corporate Center Sacramento, CA O 145,184 17,200
Sierra Point Brisbane, CA O 99,150 10,300
Brea Corporate Plaza Brea, CA O 119,406 10,800
McKesson Building Pasadena, CA O 150,951 19,100
Coral Tree Commerce Center Vista, CA I 130,866 8,400
Progress Industrial Park Vista, CA I 123,275 7,500
Lafayette Terrace Lafayette, CA O 47,392 7,500
Parkway Industrial Portland, OR I 175,000 7,500
Brea Corporate Place Brea, CA O 490,000 61,700
Sepulveda Center Los Angeles, CA O 170,134 25,200
Kennedy Portfolio (6) Portland, OR I 1,265,000 110,900
790 E. Colorado Pasadena, CA O 130,000 19,300
Washington Park (7) Federal Way, WA O 50,000 6,100
Nobel Corporate Plaza San Diego, CA O 103,192 16,700
Kelley Point Distribution Center (8) Portland, OR I 500,000 16,400
Tower 17 Irvine, CA O 229,133 40,100
</TABLE>
(1) "O" indicates office property; "I" indicates industrial property.
(2) Previously identified as Andover Park in the January 1997 Equity Offering
Prospectus.
(3) The Company paid cash and issued Operating Partnership Units to the
sellers of this portfolio.
(4) Previously identified as Quadrant Corporate Center in the January 1997
Equity Offering Prospectus.
(5) Previously identified as Kodak Center in the January 1997 Equity Offering
Prospectus.
(6) Also includes properties located in Redmond, WA; Fremont, CA and Hayward,
CA.
(7) Includes land to be developed.
(8) Previously identified as Tyco Building in the September 22, 1997, Report
on Form 8-K
14
<PAGE> 15
10 DEVELOPMENTS
During the nine months ended September 30, 1997, the Company acquired
seven parcels of land for development. The total initial cost of these
seven parcels was $23,682.
11. SUBSEQUENT EVENTS
On October 10, 1997, the Company sold 6,000,000 shares of Series C
Cumulative Redeemable Preferred Stock for $25.00 per share. Dividends are
payable at an annual rate of 7.88% of the liquidation preference of
$150,000. Net proceeds of $146,135 were used principally to repay
borrowings on the unsecured line of credit and to fund the ongoing
acquisition and development of property.
On October 10, 1997, the Company deposited $36,250 towards the purchase of
a portfolio which consists of 44 properties in twelve states aggregating
6,354,450 square feet, as well as 124.5 acres of land.
On October 29, 1997, the Company sold 11,500,000 shares of Common Stock at
$38.875 per share through an underwritten public offering, including the
underwriters' exercise of their over-allotment option. The aggregate net
proceeds of $425,027 were used principally to repay borrowings on the
unsecured line of credit and to fund the ongoing acquisition and
development of property.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
Statements contained in this Item 2, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," and elsewhere in this Quarterly
Report on Form 10-Q which are not historical facts may be forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected, including,
but not limited to, those risks and special considerations set forth in the
Company's other SEC filings. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the date hereof. The
Company undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The following comparison is of the Company's consolidated operations for the
three and nine month periods ended September 30, 1997, as compared to the
corresponding periods ended September 30, 1996.
Rental revenues for the third quarter of 1997 increased by $31.4 million or
61.4% to $82.5 million, as compared with $51.1 million for the quarter ended
September 30, 1996. Of this increase, $24.9 million was generated by properties
acquired during the first nine months of 1997 (the "1997 Acquisitions"). In the
third quarter of 1997 the Company acquired properties totaling 3.1 million
square feet for a total investment of $311.0 million. During the first nine
months of 1997 the Company acquired properties totaling 7.5 million square feet
for a total investment of $871.6 million. As used herein, the terms "invested"
and "total investment" represent the initial purchase price of acquisitions,
plus projected cost of certain repositioning and rehab capital expenditures
anticipated at the time of purchase. The properties acquired in the third
quarter were acquired on various dates throughout the quarter and, as such, a
full quarter's revenue and expenses was not recognized during the quarter.
$6.1 million of the rental revenue increase in the third quarter of 1997 was
generated by properties acquired during 1996. During 1996, the Company invested
$329.3 million to acquire properties totaling 4.7 million square feet (the "1996
Acquisitions").
$2.4 million of the increase in rental revenues is attributable to revenue
increases in properties owned at January 1, 1996, and still owned at September
30, 1997 (the "Core Portfolio"). This increase in the Core Portfolio is due to
increased rental rates realized on the renewal and re-leasing of
second-generation space and contractual rent increases in existing leases.
During the quarter ended September 30, 1997, the Company completed 204 lease
transactions for the renewal or re-leasing of 1.2 million square feet of
second-generation space. On average for the quarter, the new effective rates
were 24.7% higher than the expiring coupon rent. This brings the total
second-generation activity for the first nine months of 1997 to 603 completed
lease transactions for 3.6 million square feet at a 22.5% increase in effective
rates, over expiring coupon rents.
$2.0 million of the rental revenue increase in the third quarter of 1997 was
generated by properties developed by the Company (the "Developments"). The
Developments include both properties completed and added to the Company's
portfolio of stabilized properties during 1996 and 1997, as well as properties
currently under development. During the nine months ended September 30, 1997,
seven properties totaling 1.6 million square feet have been completed and added
to the Company's portfolio of stabilized properties. The total cost of these
properties, including the estimated cost to complete initial tenant
improvements, is $59.2 million. The Company also has a current development
pipeline of 3.2 million square feet representing a total projected cost of
$287.0 million. Certain of the properties in the development pipeline are shell
complete and partially occupied.
The increases in rental revenue are partially offset by a decrease of $4.0
million attributable to the disposition of properties which were owned by the
Company during the quarter ended September 30, 1996 (the "Property
Dispositions").
16
<PAGE> 17
Rental revenues for the nine month period ended September 30, 1997, increased by
$79.3 million or 55.8% to $221.4 million as compared to $142.1 million for the
same period ended September 30, 1996. $50.2 million and $25.8 million,
respectively, of this increase was attributable to the 1997 and 1996
Acquisitions, $6.1 million relates to the Core Portfolio, $5.7 million is
attributable to the Developments, with the remainder attributable to a $8.5
million decrease from Property Dispositions.
As a result of the 1997 Acquisitions, the 1996 Acquisitions, and the
Developments, the Company's rentable square footage, not including retail
properties, increased by 11.0 million square feet or 60.8% to 29.1 million
square feet on September 30, 1997, from 18.1 million on September 30, 1996. At
September 30, 1997, the portfolio of stabilized properties was 95.1% occupied.
By property type, the office portfolio was 95.9% occupied and the industrial
portfolio was 94.5% occupied.
Interest and other income increased by $.3 million and $1.8 million or 27.3% and
60.0% for the three and nine month periods ended September 30, 1997, over the
same respective periods ended September 30, 1996. The net increase in interest
and other income is due to higher average cash balances of $30.7 million and
$49.2 million for the three and nine month periods ended September 30, 1997, as
compared to $14.7 million and $11.1 million for the corresponding periods in
1996.
Rental expenses increased by $7.8 million or 81.3% for the three months ended
September 30, 1997, as compared with the same period in 1996. Real estate taxes
increased by $2.0 million or 50.0% for the three months ended September 30,
1997, as compared with the same period in 1996. The overall increase in rental
expenses and real estate taxes (collectively referred to as "property operating
expenses") is primarily a result of the growth in the total square footage of
the Company's portfolio of properties. Of the total $9.8 million increase in
property operating expenses $8.0 million is attributable to the 1997
Acquisitions, $2.1 million is attributable to the 1996 Acquisitions, $0.4
million is attributable to the Developments, and a $0.7 million decrease
attributable to the Property Dispositions. The Core Portfolio remained
essentially unchanged for the comparable quarters. On a percentage basis,
property operating expenses were 28.4% and 26.6% of rental revenues for the
quarters ended September 30, 1997, and September 30, 1996, respectively. The
increase in property operating expenses as a percentage of rental revenues is
attributable to the increased percentage of office properties in the Company's
portfolio. For the quarter ended September 30, 1997, 62.0% of the Company's net
operating income (rental revenues less property operating expenses) was
generated by office properties as compared with 45.6% during the same period in
1996.
In December 1996, the Company announced the strategic decision to divest itself
of its retail properties and focus exclusively on office and industrial
properties. As such, the following analysis of the office and industrial
properties (i.e. non-retail properties) is presented: Rental revenues net of
property operating expenses (referred to as "property operating income")
increased by $24.9 million or 76.6% to $57.4 million, as compared to $32.5
million for the quarter ended September 30, 1996. Of this increase, $16.9
million and $4.0 million relates to the 1997 and 1996 Acquisitions $2.4 million
is attributable to the Core Portfolio, and $1.6 million is attributable to the
Developments. For the nine month period ended September 30, 1997, property
operating income increased by $60.5 million or 65.8% from $92.0 million to
$152.5 million at September 30, 1997. $33.7 million and $17.4 million related to
the 1997 and 1996 Acquisitions, $5.0 million is related to the Core Portfolio,
and $4.4 million is attributed to the Developments.
For the nine month period ended September 30, 1997, rental expenses increased by
$20.1 million from $24.4 million for the nine months ended September 30, 1996.
This represents a 82.4% increase year over year. Real estate taxes increased by
$5.8 million or 51.3% to $17.1 million for the first three quarters of 1997 as
compared to $11.3 million for the same period in 1996. The total increase in the
property operating expenses is attributable to a $16.5 million increase for the
1997 Acquisitions, a $8.4 million increase for the 1996 Acquisitions, a $1.3
million increase for the Developments, a $1.1 million increase in the Core
Portfolio, and a $1.4 reduction attributable to the Property Dispositions. On a
percentage basis property operating expenses were 27.8% and 25.1% of rental
revenues for the nine months ended September 30, 1997, and 1996, respectively.
17
<PAGE> 18
Interest expense increased by $6.4 million or 65.3% to $16.2 million for the
three months ended September 30, 1997, from $9.8 million for the same period in
1996. For the nine month period ended September 30, 1997, interest expense
increased by $14.5 million or 54.9% to $40.9 million from $26.4 million for the
same period in 1996. These increases in interest expense are due to increases in
the total average outstanding debt balances. The average outstanding debt for
the three months ended September 30, 1997, and 1996 was $981.3 million and
$557.3 million respectively. The average balance outstanding for the nine months
ended September 30, 1997, was $823.6 million and $520.5 million for the same
period in 1996. The increases in the average outstanding debt balances are
consistent with the increases in the size of the Company's portfolio of
properties.
Depreciation and amortization expenses increased by $3.4 million and $9.1
million or 34.0% and 33.2% for the three and nine month periods ended September
30, 1997, as compared with the same periods in 1996, due to the 1997 and 1996
Acquisitions and the completed Developments.
General and administrative expenses and other expenses increased by $1.0 million
and $2.8 million for the three and nine month periods ended September 30, 1997,
respectively, as compared with the same periods in 1996, primarily as a result
of the increased number of employees. On a percentage basis, general and
administrative expenses were 4.5% and 4.7% of rental revenues for the three and
nine month periods ended September 30, 1997, respectively, as compared with 5.3%
for both periods in 1996.
During the third quarter of 1997, the Company disposed of a retail property
resulting in a gain on disposition of $2.0 million. In addition, the Company
disposed of one industrial property and one parking lot resulting in a gain of
$1.9 million. This brings the total gain on disposition of property for the
first three quarters of 1997 to $18.1 million on ten properties.
Net income before minority interests and disposition of property increased by
$11.0 million or 68.3% to $27.1 million for the three month period ended
September 30, 1997, from $16.1 million for the same period in 1996. For the nine
month period ended September 30, 1997, net income before minority interests and
disposition of property increased by $28.8 million or 59.8% to $77.0 million,
from $48.2 million for the same period in 1996. The increase in net income is
principally due to the 1997 and 1996 Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
For the nine-month period ended September 30, 1997, cash provided by operating
activities increased by $36.8 million or 40.2% to $128.4 million, as compared to
$91.6 million for the same period in 1996. The increase is primarily due to the
increase in net income resulting from the 1996 and 1997 Acquisitions. Cash used
for investing activities increased by $524.7 million or 194.3% to $794.7 million
for the first nine months of 1997, as compared to $270.0 million for the same
period in 1996. The increase is attributable to the Company's ongoing
acquisition and development of suburban office and industrial properties. Cash
provided by financing activities increased by $480.4 million or 245.9% to $675.8
million for the first nine months of 1997, as compared to $195.4 million for the
same period in 1996. During the first nine months of 1997, cash provided by
financing activities consisted, primarily, of $374.8 million in net proceeds
from the sale of Common Stock, $292.2 million in net proceeds from the issuance
of unsecured investment grade notes, net borrowings of $99.0 million on the line
of credit and a net increase of $38.9 million in mortgage loans outstanding.
Additionally, payments of distributions increased by $18.0 million to $78.5
million for the first nine months of 1997, as compared with $60.5 million for
the same period in 1996. The increase is due to the greater number of shares
outstanding and a 9.3% increase in the distribution rate.
The principal sources of funding for acquisitions, development, expansion and
renovation of the properties are an unsecured line of credit, public and
privately placed equity financing, public unsecured debt financing, the issuance
of partnership units in the Operating Partnership, the assumption of secured
debt on properties acquired and cash flow provided by operations. The Company
believes that its liquidity and capital resources are adequate to continue to
meet liquidity requirements for the foreseeable future.
At September 30, 1997, the Company had no material commitments for capital
expenditures related to the renewal or re-leasing of space. The Company believes
that the cash provided by operations and its line of
18
<PAGE> 19
credit provide sufficient sources of liquidity to fund capital expenditure costs
associated with the renewal or re-leasing of space.
The Company has a $250.0 million unsecured line of credit facility (the
"Facility") with interest at London Interbank Offered Rates ("LIBOR") plus .80%.
The Facility matures in August 2001. This increased facility has a competitive
bid option that allows the Company to request bids from the Lenders for advances
up to $150.0 million. At September 30, 1997, the Company had $138.0 million
outstanding under the Facility.
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. In December 1996, the Company issued $100.0 million of
7.125% investment grade rated unsecured notes, priced to yield 7.14% and
maturing on December 1, 2006, and $25.0 million of 7.875% investment grade rated
unsecured notes, priced to yield 7.91% and maturing on December 1, 2016. The net
proceeds of $123.9 million were used to pay down borrowings on the line of
credit and to fund the ongoing acquisition and development of properties. On
July 14, 1997, the Company issued $150.0 million of investment grade rated
unsecured notes. The notes carry an interest rate of 7.125%, were priced to
yield 7.183%, and mature on July 1, 2009. On September 29, 1997, the Company
issued $150.0 million of investment grade rated unsecured debentures. The
debentures carry an interest rate of 7.5%, were priced to yield 7.57% and mature
on October 1, 2027. Net proceeds from the July 1997 and September 1997 unsecured
debt securities of $292.2 million were used to repay borrowings on the unsecured
line of credit and to fund the ongoing acquisition and development of
properties.
As of September 30, 1997, the Company had $935.0 million of investment grade
rated unsecured debt securities outstanding. The debt securities have interest
rates which vary from 6.65% to 8.00%, and various maturity dates which range
from 2000 to 2027. As of September 30, 1997, $50.0 million of debt securities
remained available for issuance under the medium-term note program.
In addition to the Unsecured Notes and the Facility, the Company has $84.9
million of secured indebtedness (the "Mortgages") at September 30, 1997. The
Mortgages have interest rates varying from 7.37% to 9.75% and maturity dates
from 1997 to 2012. The Mortgages are secured by a first or second deed of trust
on the related properties and generally require monthly principal and interest
payments. The Company also has $6.8 million of assessment bonds outstanding as
of September 30, 1997.
In January 1997, the Company sold 11,500,000 shares of Common Stock (including
1,500,000 shares sold to the underwriters in the exercise of their
over-allotment option in February 1997) through an underwritten public offering
at $34.50 per share. The net proceeds of $374.8 million were used to purchase
properties during the first quarter of 1997, many of which were under contract
or letter of intent at the time of the offering, and to repay indebtedness.
Also, in January 1997, the Company and the Operating Partnership filed a shelf
registration statement (the "January 1997 Shelf Registration Statement") with
the SEC which registered $500.0 million of equity securities of the Company and
$500.0 million of debt securities of the Operating Partnership and became
effective in January 1997.
In September 1997, the Company and the Operating Partnership filed a shelf
registration (the "September 1997 Shelf Registration Statement") with the SEC
which registered $500.0 million of equity securities of the Company and $500.0
million of debt securities of the Operating Partnership and became effective in
October 1997.
On October 10, 1997, the Company sold 6,000,000 shares of Series C Cumulative
Redeemable Preferred Stock for $25.00 per share. Dividends are payable at an
annual rate of 7.88% of the liquidation preference of
19
<PAGE> 20
$150,000. Net proceeds of $146,135 were used principally to repay borrowings on
the unsecured line of credit and to fund ongoing acquisition and development of
property.
In November 1997, the Company sold 11,500,000 shares of Common Stock (including
1,500,000 shares sold to the underwriters in the exercise of their
over-allotment option) through an underwritten public offering at $38.875 per
share. The net proceeds of $425,027 were used to repay indebtedness and to
purchase properties which were under contract at the time of the offering.
After completion of the equity and debt offerings, the Company has the capacity
pursuant to the September 1997 Registration Statement to issue up to
approximately $402.9 million in equity securities and the Operating Partnership
has the capacity pursuant to the January 1997 Shelf Registration Statement and
the September 1997 Registration Statement to issue up to $815.0 million in debt
securities (including the $50.0 million of medium-term notes available under the
Company's existing medium-term note program).
FUNDS FROM OPERATIONS
The Company considers Funds from Operations to be a useful financial measure of
the operating performance of an equity REIT because, together with net income
and cash flows, Funds from Operations provides investors with an additional
basis to evaluate the ability of a REIT to incur and service debt and to fund
acquisitions, developments, and other capital expenditures. Funds from
Operations does not represent net income or cash flows from operations as
defined by generally accepted accounting principles ("GAAP") and Funds from
Operations should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity. Funds from Operations does not measure whether
cash flow is sufficient to fund all of the Company's cash needs including
principal amortization, capital improvements, and distributions to stockholders.
Funds from Operations does not represent cash flows from operating, investing,
or financing activities as defined by GAAP. Further, Funds from Operations as
disclosed by other REITs may not be comparable to the Company's calculation of
Funds from Operations, as described below.
Pursuant to the National Association of Real Estate Investment Trusts ("NAREIT")
revised definition of Funds from Operations, beginning with the quarter ended
March 31, 1996, the Company calculated Funds from Operations by adjusting net
income before minority interest, calculated in accordance with GAAP, for certain
non-cash items, principally the amortization and depreciation of real property
and for dividends on shares and other equity interests that are not convertible
into shares of Common Stock. The Company does not add back the depreciation of
corporate items, such as computers or furniture and fixtures, or the
amortization of deferred financing costs or debt discount. However, the Company
includes an adjustment for the straight-lining of rent under GAAP, as management
believes this presents a more meaningful picture of rental income over the
reporting period.
Funds from Operations per share is calculated based on weighted average shares
equivalents outstanding, assuming the conversion of all shares of Series A
Preferred Stock, Class B Common Stock, Class C Common Stock and all partnership
units in the Operating Partnership into shares of Common Stock, and including
the dilutive effect of stock options. Assuming such conversion, the average
number of shares outstanding for the three and nine months ended September 30,
1997, are 56,458,964 and 55,186,005, respectively, and 43,497,648 and 42,049,446
for the same periods in 1996.
20
<PAGE> 21
STATEMENT OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income before disposition of property and
minority interest $ 27,051 $ 16,096 $ 76,974 $ 48,207
Add:
Depreciation and Amortization 13,282 9,938 36,036 27,135
Dividends on Series B Preferred Stock (2,510) (2,510) (7,530) (7,530)
Other, net 186 116 560 201
Straight-lined rent (624) 252 (1,200) 307
--------- --------- --------- ---------
Funds from Operations $ 37,385 $ 23,892 $ 104,840 $ 68,320
========= ========= ========= =========
</TABLE>
21
<PAGE> 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The exhibits listed below are filed as part of this quarterly report on
Form 10-Q.
Exhibit Number
3.1 Articles supplementary of Spieker Properties, Inc., for the Series C
Preferred Stock.
4.1 Ninth Supplemental Indenture relating to the 2027 Debentures.
12.1 Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
(B) Reports on Form 8-K
The Company filed a current report on Form 8-K dated September 22, 1997,
as amended by form 8-K/A dated October 10, 1997 relating to the
acquisition of the WCB Portfolio.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Spieker Properties, Inc.
(Registrant)
Dated: November 13, 1997 /s/ Elke Strunka
------------------------------ -----------------------------
Elke Strunka
Vice President and
Principal Accounting Officer
23
<PAGE> 24
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Articles supplementary of Spieker Properties, Inc., for the Series C
Preferred Stock.
4.1 Ninth Supplemental Indenture relating to the 2027 Debentures.
12.1 Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
<PAGE> 1
EXHIBIT 3.1
SPIEKER PROPERTIES, INC.
ARTICLES SUPPLEMENTARY
SPIEKER PROPERTIES, INC., a Maryland corporation, having its principal
office in the City of Baltimore, Maryland (the "Corporation"), hereby certifies
to the Maryland State Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by the Charter of the Corporation, the Board of Directors has
duly reclassified 6,000,000 shares of the Common Stock (par value $.0001 per
share) of the Corporation into 6,000,000 shares of a class designated as Series
C Cumulative Redeemable Preferred Stock (par value $.0001 per share) of the
Corporation ("Series C Preferred Stock") and has provided for the issuance of
such shares.
SECOND: The reclassification increases the number of shares classified
as Series C Preferred Stock from no shares immediately prior to the
reclassification to 6,000,000 shares immediately after the reclassification. The
reclassification decreases the number of shares classified as Common Stock (par
value $.0001 per share) from 660,500,000 shares immediately prior to the
reclassification to 654,500,000 shares immediately after the reclassification.
THIRD: Subject in all cases to the provisions of Article NINTH of the
Charter of the Corporation with respect to Excess Stock, the following is a
description of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of Series C Preferred Stock of the Corporation:
1. DESIGNATION AND AMOUNT.
The designation of Series C Preferred Stock described in
Article FIRST hereof shall be "Series C Cumulative Redeemable Preferred
Stock (par value $.0001 per share)." The number of shares of Series C
Preferred Stock to be authorized shall be 6,000,000. The Series A
Preferred Stock, par value $.0001 per share ("Series A Preferred Stock")
and the Series B Cumulative Redeemable Preferred Stock, par value $.0001
per share ("Series B Preferred Stock"), of the Corporation rank on a
parity as to dividends and amounts upon liquidation.
2. DIVIDENDS AND DIVIDEND PROVISIONS.
(a) Subject to the rights of series of Preferred Stock
which may from time to time come into existence, holders of Series C
Preferred Stock shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available for the payment
of dividends, cumulative preferential cash dividends at the rate of
$1.96875 per annum per share. Such dividends shall be cumulative from
the date of original issue and shall be payable quarterly in arrears on
the last day of January, April, July and October or, if not a business
day, the next succeeding business day (each, a "Dividend Payment Date").
The first dividend, which will be due on October 31, 1997, will be for
less than a full quarter. Such first dividend and any dividend payable
on Series C Preferred Stock for any partial dividend period will be
computed on the basis of a 360-day year consisting of twelve 30-day
months. Dividends will be payable to holders of record as they appear in
the records of the Corporation at the close of business on the
applicable record date, which shall be on such date designated by the
Board of Directors of the Corporation for the payment of dividends that
is not more than 50 nor less than 10 days prior to such Dividend Payment
Date (each, a "Dividend Record Date").
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(b) Dividends on Series C Preferred Stock will accrue
whether or not the Corporation has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or
not such dividends are declared. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or
payments on Series C Preferred Stock which may be in arrears. Holders of
the Series C Preferred Stock will not be entitled to dividends in excess
of the full cumulative dividends as described above.
(c) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the
Internal Revenue Code of 1986, as amended, or any successor revenue code
or section (the "Code")) any portion (the "Capital Gains Amount") of the
total distributions (as determined for federal income tax purposes) paid
or made available for the year to holders of all classes of capital
stock (the "Total Distributions"), then the portion of the Capital Gains
Amount that shall be allocable to holders of Series C Preferred Stock
shall be in the same portion that the Total Distributions paid or made
available to the holders of Series C Preferred Stock for the year bears
to the Total Distributions.
(d) If any shares of Series C Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for
payment on any shares of series of capital stock of the Corporation
ranking, as to dividends, on a parity with or junior to Series C
Preferred Stock for any period unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payments on shares
of Series C Preferred Stock for all past dividend periods and the then
current dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not set apart) upon the shares of
Series C Preferred Stock and the shares of any other series of capital
stock ranking on parity as to dividends with shares of Series C
Preferred Stock, all dividends declared upon shares of Series C
Preferred Stock and any other series of capital stock ranking on a
parity as to dividends with Series C Preferred Stock shall be declared
pro rata so that the amount of dividends declared per share on Series C
Preferred Stock and such other series of capital stock shall in all
cases bear to each other the same ratio that accrued dividends per share
on Series C Preferred Stock and such other series of capital stock bear
to each other.
(e) Except as provided in Section 2(d), unless full
cumulative dividends on shares of Series C Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no dividends (other than
in shares of Common Stock or other capital stock ranking junior to
Series C Preferred Stock as to dividends and amounts upon liquidation)
shall be declared or paid or set aside for payment or other dividend
shall be declared or made upon the shares of Common Stock, Class B
Common Stock, Class C Common Stock, Series A Preferred Stock, Series B
Preferred Stock or any other capital stock of the Corporation ranking
junior to or on a parity with Series C Preferred Stock as to dividends
or amounts upon liquidation, nor shall any shares of Common Stock, Class
B Common Stock, Class C Common Stock, Series A Preferred Stock, Series B
Preferred Stock or any other capital stock of the Corporation ranking
junior to or on a parity with Series C Preferred Stock as to dividends
or amounts upon liquidation be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any such capital stock) by the
Corporation (except by conversion into or exchange for other capital
stock of the Corporation ranking junior to Series C Preferred Stock as
to dividends and amounts upon liquidation).
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<PAGE> 3
(f) Any dividend payment made on shares of Series C
Preferred Stock shall first be credited against the earliest accrued but
unpaid dividend due with respect to shares of Series C Preferred Stock
which remains payable.
3. LIQUIDATION RIGHTS.
(a) Subject to the rights of series of Preferred Stock
which may from time to time come into existence, upon any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, before any distribution or payment shall be made to
the holders of any shares of Common Stock or any other class or series
of capital stock of the Corporation ranking junior to Series C Preferred
Stock in the distribution of assets upon any liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of shares of
Series C Preferred Stock shall be entitled to receive out of assets of
the Corporation legally available for distribution to stockholders,
liquidation distributions in the amount of the liquidation preference of
$25.00 per share, plus an amount equal to all dividends accrued and
unpaid thereon. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of shares of
Series C Preferred Stock will have no right or claim to any of the
remaining assets of the Corporation, including the Series A Preferred
Stock and the Series B Preferred Stock. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the available assets of the Corporation are
insufficient to pay the amount of the liquidation distributions on all
outstanding shares of Series C Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital
stock of the Corporation ranking on a parity with Series C Preferred
Stock in the distribution of assets upon any liquidation, dissolution or
winding up of the affairs of the Corporation ("Parity Stock"), then the
holders of shares of Series C Preferred Stock and Parity Stock shall
share ratably in any such distribution of assets in proportion to the
full liquidating distributions to which they would otherwise be
respectively entitled.
(b) A consolidation or merger of the Corporation with or
into any other entity or entities, or a sale, lease, conveyance or
disposition of all or substantially all of the assets of the Corporation
or the effectuation by the Corporation of a transaction or series of
related transactions in which more than 50% of the voting power of the
Corporation is disposed of, shall not be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation within the
meaning of this Section 3.
4. REDEMPTION.
(a) Shares of Series C Preferred Stock are not redeemable
prior to October 10, 2002. On and after October 10, 2002, the
Corporation at its option upon not less than 30 nor more than 90 days'
written notice may redeem outstanding shares of Series C Preferred
Stock, in whole or in part, at any time or from time to time, for cash
at a redemption price of $25.00 per share, plus an amount equal to all
dividends accrued and unpaid thereon to the date fixed for redemption,
without interest. The redemption price of shares of Series C Preferred
Stock (other than the portion thereof consisting of accrued and unpaid
dividends) is payable solely out of proceeds from the sale of other
capital stock of the Corporation, which may include Common Stock,
Preferred Stock, depositary shares, interests, participations or other
ownership interests in the Corporation however designated (other than
debt securities converted into or exchangeable for capital stock), and
any rights, warrants or options to purchase any thereof. Holders of
shares of Series C Preferred Stock to be redeemed shall surrender such
shares of Series C Preferred Stock at the place designated in such
notice and shall be entitled to the redemption price and any accrued and
unpaid dividends payable upon such redemption following such surrender.
If fewer than all of the
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outstanding shares of Series C Preferred Stock are to be redeemed, the
number of shares to be redeemed will be determined by the Corporation
and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares) or
by lot in a manner determined by the Corporation.
(b) Unless full cumulative dividends on all shares of
Series C Preferred Stock and Parity Stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no shares of Series C
Preferred Stock or Parity Stock shall be redeemed unless all outstanding
shares of Series C Preferred Stock and Parity Stock are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Series C Preferred Stock or Parity
Stock pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Series C Preferred Stock or Parity
Stock, as the case may be. Furthermore, unless full cumulative dividends
on all outstanding shares of Series C Preferred Stock and Parity Stock
have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all
past dividend periods and the then current dividend period, the
Corporation shall not purchase or otherwise acquire directly or
indirectly any shares of Series C Preferred Stock or Parity Stock
(except by conversion into or exchange for shares of capital stock of
the Corporation ranking junior to Series C Preferred Stock and Parity
Stock as to dividends and amounts upon liquidation).
(c) Notice of redemption will be mailed at least 30 days
but not more than 90 days before the redemption date to each holder of
record of shares of Series C Preferred Stock at the address shown on the
stock transfer books of the Corporation. Each notice shall state: (i)
the redemption date; (ii) the number of shares of Series C Preferred
Stock to be redeemed; (iii) the redemption price per share; (iv) the
place or places where certificates for shares of Series C Preferred
Stock are to be surrendered for payment of the redemption price; and (v)
that dividends on shares of Series C Preferred Stock will cease to
accrue on such redemption date. If fewer than all shares of Series C
Preferred Stock are to be redeemed, the notice mailed to each such
holder thereof shall also specify the number of shares of Series C
Preferred Stock to be redeemed from each such holder. If notice of
redemption of any shares of Series C Preferred Stock has been given and
if the funds necessary for such redemption have been set aside by the
Corporation in trust for the benefit of the holders of shares of Series
C Preferred Stock so called redemption, then from and after the
redemption date, dividends will cease to accrue on such shares of Series
C Preferred Stock, such shares of Series C Preferred Stock shall no
longer be deemed outstanding and all rights of the holders of such
shares will terminate, except the right to receive the redemption price.
(d) The holders of shares of Series C Preferred Stock at
the close of business on a Dividend Record Date will be entitled to
receive the dividend payable with respect to such shares of Series C
Preferred Stock on the corresponding Dividend Payment Date
notwithstanding the redemption thereof between such Dividend Record Date
and the corresponding Dividend Payment Date or the Corporation's default
in the payment of the dividend due. Except as provided above, the
Corporation will make no payment or allowance for unpaid dividends,
whether or not in arrears, on shares of Series C Preferred Stock which
have been called for redemption.
(e) Series C Preferred Stock will not be subject to any
sinking fund or mandatory redemption, except as provided in Article
NINTH of the Charter of the Corporation.
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<PAGE> 5
5. VOTING RIGHTS.
(a) Except as indicated in this Section 5, or except as
otherwise from time to time required by applicable law, the holders of
shares of Series C Preferred Stock will have no voting rights.
(b) If six quarterly dividends (whether or not
consecutive) payable on shares of Series C Preferred Stock or any Parity
Stock are in arrears, whether or not earned or declared, the number of
directors then constituting the Board of Directors of the Corporation
will be increased by two, and the holders of shares of Series C
Preferred Stock, voting together as a class with the holders of shares
of any other series of Parity Stock entitled to such voting rights (any
such other series, the "Voting Preferred Stock"), will have the right to
elect two additional directors to serve on the Corporation's Board of
Directors at any annual meeting of stockholders or a properly called
special meeting of the holders of Series C Preferred Stock and such
other Voting Preferred Stock until all such dividends have been declared
and paid or set aside for payment. The term of office of all directors
so elected will terminate with the termination of such voting rights.
(c) The approval of a majority of the outstanding Series C
Preferred Stock and all other series of Voting Preferred Stock similarly
affected, voting as a single class is required in order to (i) enter
into a share exchange that affects shares of Series C Preferred Stock or
the Voting Preferred Stock, or consolidate with or merge the Corporation
with or into any other corporation, unless in each such case each share
of Series C Preferred Stock and Voting Preferred Stock remains
outstanding without a material adverse change to its terms and rights or
is converted into or exchanged for preferred stock of the surviving
entity having preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption thereof identical to that of a share of Series
C Preferred Stock or the Voting Preferred Stock, or (ii) authorize,
reclassify, create, or increase the authorized amount of any class of
stock having rights senior to Series C Preferred Stock or the Voting
Preferred Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up of the affairs of the
Corporation. However, the Corporation may create additional classes of
Parity Stock and capital stock ranking junior to Series C Preferred
Stock as to dividends or amounts upon liquidation, dissolution or
winding up of the affairs of the Corporation ("Junior Stock"), increase
the authorized number of shares of Parity Stock and Junior Stock and
issue additional series of Parity Stock and Junior Stock without the
consent of any holder of Series C Preferred Stock.
(d) The approval of two-thirds of the outstanding Series C
Preferred Stock and all other series of Voting Preferred Stock similarly
affected, voting as a single class, is required in order to amend the
Corporation's Articles Supplementary or Charter to affect materially and
adversely the rights, preferences or voting power of the holders of
shares of Series C Preferred Stock or the Voting Preferred Stock.
(e) Except as provided above and as required by law, the
holders of Series C Preferred Stock are not entitled to vote on any
merger or consolidation involving the Corporation, on any share exchange
or on a sale of all or substantially all of the assets of the
Corporation.
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<PAGE> 6
6. CONVERSION.
The shares of Series C Preferred Stock are not convertible
into or exchangeable for any other property or securities of the
Corporation, except that each share of Series C Preferred Stock is
exchangeable into Excess Stock as provided in Article NINTH of the
Charter of the Corporation.
7. STATUS OF REDEEMED OF REACQUIRED STOCK.
In the event any shares of Series C Preferred Stock shall
be redeemed pursuant to Section 4 hereof or reacquired, the shares so
redeemed or reacquired shall revert to the status of authorized but
unissued shares of Series C Preferred Stock available for future
issuance and reclassification by the Corporation.
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<PAGE> 7
IN WITNESS WHEREOF, SPIEKER PROPERTIES, INC. has caused these presents
to be signed in its name and on its behalf by its Chief Financial Officer and
Executive Vice President and witnessed by its Secretary on October 8, 1997.
WITNESS: SPIEKER PROPERTIES, INC.
/s/ Sara H. Reynolds By: /s/ Craig G. Vought
- -------------------------------- --------------------------------
Sara H. Reynolds Craig G. Vought
Secretary Chief Financial Officer and
Executive Vice President
THE UNDERSIGNED, Chief Financial Officer and Executive Vice President of
SPIEKER PROPERTIES, INC., who executed on behalf of the Corporation the Articles
Supplementary of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Articles Supplementary
to be the corporate act of said Corporation and hereby certifies that the
matters and facts set forth herein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
/s/ Craig G. Vought
--------------------------------
Craig G. Vought
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<PAGE> 1
EXHIBIT 4.1
NINTH SUPPLEMENTAL INDENTURE
NINTH SUPPLEMENTAL INDENTURE, dated as of September 29, 1997 (this
"Ninth Supplemental Indenture"), among Spieker Properties, Inc., a corporation
organized under the laws of Maryland (the "General Partner"), Spieker
Properties, L.P., a limited partnership organized under the laws of California
(the "Issuer"), First Trust of California, National Association, as Trustee (the
"Trustee") and State Street Bank and Trust Company ("State Street.").
W I T N E S S E T H:
WHEREAS, the Issuer, the General Partner and State Street executed and
delivered an Indenture, dated as of December 6, 1995 (as supplemented hereby,
the "Indenture"), to provide for the issuance by the Issuer from time to time of
debt securities evidencing its unsecured indebtedness;
WHEREAS, pursuant to Section 609(b) of the Indenture, the Issuer and the
General Partner desire to appoint the Trustee as trustee with respect to the
series of securities established by this Supplemental Indenture and future
series of securities under the Indenture;
WHEREAS, the Issuer and the General Partner desire that State Street
remain trustee of all former series of securities issued under the Indenture;
WHEREAS, pursuant to Board Resolution, the Issuer has authorized the
issuance of $150,000,000 of its 7.50% Debentures Due October 1, 2027 (the
"Notes");
WHEREAS, the Issuer desires to establish the terms of the Notes in
accordance with Section 301 of the Indenture and to establish the form of the
Notes in accordance with Section 201 of the Indenture.
ARTICLE 1
APPOINTMENT OF SUCCESSOR TRUSTEE
SECTION 101. APPOINTMENT OF SUCCESSOR TRUSTEE. Pursuant to Section
609(b) of the Indenture, the Issuer and the General Partner hereby appoint the
Trustee as trustee, with all rights, powers, trusts and duties provided for in
the Indenture, for the series of securities established by this Supplemental
Indenture and, until the Issuer and the General Partner appoint another trustee
pursuant to the applicable provisions of the Indenture, for all future series of
securities issued under the Indenture, and the Trustee hereby accepts such
appointment.
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SECTION 102. OUTSTANDING SECURITIES. State Street shall remain trustee
for securities outstanding on the date hereof and not issued pursuant to this
Supplemental Indenture and shall retain all rights, powers, trusts and duties
with respect to such securities.
SECTION 103. NO CHANGES IN DUTIES OF TRUSTEE. Except as otherwise
provided in herein, there shall be no change, modification or amendment of the
powers, rights and duties of any trustee under the Indenture.
SECTION 104. DESIGNATION OF ADDITIONAL AGENCY FOR PAYMENT. Pursuant to
Section 1002 of the Indenture, the Issuer hereby appoints the corporate trust
office of the Trustee, which, as of the date hereof, is located in care of First
Trust National Association, 180 E. Fifth Street, St. Paul, Minnesota 55101 (the
"Corporate Trust Office"), as its agent to receive presentations and surrenders,
and the corporate trust office of the Trustee at One California Street, Suite
400, San Francisco, California 94111, as its agent to receive notices and
demands, of securities issued under the Indenture from the date hereof and
hereafter.
ARTICLE 2
TERMS
SECTION 201. TERMS OF NOTES. The following terms relating to the Notes
are hereby established:
(1) The Notes shall constitute a series of Securities having the
title "7.50% Debentures Due October 1, 2027."
(2) The aggregate principal amount of the Notes that may be
authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Sections 304, 305,
306, 906, 1107 or 1305 of the Indenture) shall be up to $150,000,000.
(3) The entire outstanding principal of the Notes shall be
payable on October 1, 2027 (the "Stated Maturity Date").
(4) The rate at which the Notes shall bear interest shall be
7.50%; the date from which interest shall accrue shall be September 29,
1997; the Interest Payment Dates for the Notes on which interest will be
payable shall be October 1 and April 1 in each year, beginning April 1,
1998; the Regular Record Dates for the interest payable on the Notes on
any Interest Payment Date shall be the 15th calendar day preceding the
applicable Interest Payment Date; and the basis upon which interest
shall be calculated shall be that of a 360-day year consisting of twelve
30-day months.
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(5) The Place of Payment where the principal of and interest on
the Notes shall be payable and Notes may be surrendered for the
registration of transfer or exchange shall be the Corporate Trust Office
of the Trustee in St. Paul, Minnesota. The place where notices or
demands to or upon the Issuer in respect of the Notes and the Indenture
may be served shall be the corporate trust office of the Trustee at One
California Street, Suite 400, San Francisco, California 94111.
(6) (A) The Notes may be redeemed at any time at the option of
the Issuer, in whole or from time to time in part, at a redemption price
equal to the sum of (i) the principal amount of the Notes (or portion
thereof) being redeemed plus accrued interest thereon to the redemption
date and (ii) the Make-Whole Amount (as defined below), if any, with
respect to such Notes (or portion thereof) (the "Redemption Price").
If notice has been given as provided in the Indenture and
funds for the redemption of any Notes (or any portion thereof) called
for redemption shall have been made available on the redemption date
referred to in such notice, such Notes (or any portion thereof) will
cease to bear interest on the date fixed for such redemption specified
in such notice and the only right of the Holders of the Notes will be to
receive payment of the Redemption Price, with respect to such Notes or
portion thereof so redeemed.
Notice of any optional redemption of any Notes (or any
portion thereof) will be given to Holders at their addresses, as shown
in the security register for the Notes, not more than 60 nor less than
30 days prior to the date fixed for redemption. The notice of redemption
will specify, among other items, the Redemption Price and the principal
amount of the Notes held by such Holder to be redeemed. On the third
Business Day preceding the date notice of redemption is given, the
Company will notify the Trustee of the Redemption Price and the Trustee
may rely and shall be fully protected in acting upon the determination
of the Company as to such Redemption Price.
The Issuer will notify the Trustee in writing at least 45
days prior to giving notice of redemption (or such shorter period as is
satisfactory to the Trustee in its sole discretion) of the aggregate
principal amount of Notes to be redeemed and their redemption date. If
less than all the Notes are to be redeemed at the option of the Issuer,
the Trustee shall select by lot, the Notes to be redeemed in whole or in
part.
In the event of redemption of the Notes in part only, a
new Note for the amount of the unredeemed portion thereof shall be
issued in the name of the Holder thereto, upon cancellation thereof.
(B) As used herein:
"Make-Whole Amount" means, in connection with any optional
redemption or accelerated payment of any Notes, the excess, if any, of
(i) the aggregate present value as of the date of such redemption or
accelerated payment of each dollar of
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principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment)
that would have been payable in respect of each such dollar if such
redemption or accelerated payment had not been made, determined by
discounting, on a semi-annual basis, such principal and interest at the
Reinvestment Rate (determined on the third Business Day preceding the
date such notice of redemption is given or declaration of acceleration
is made) from the respective dates on which such principal and interest
would have been payable if such redemption or accelerated payment had
not been made, over (ii) the aggregate principal amount of the Notes
being redeemed or paid.
"Reinvestment Rate" means 0.25% plus the arithmetic mean
of the yields under the respective heading "Week Ending" published in
the most recent Statistical Release under the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date
of the principal being redeemed or paid. If no maturity exactly
corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant
to the immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the
purpose of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" means the statistical release
designated "H.15(519)" or any successor publication which is published
weekly by the Federal Reserve System and which establishes yields on
actively traded United States government securities adjusted to constant
maturities, or, if such statistical release is not published at the time
of any determination under the Indenture, then such other reasonably
comparable index which shall be designated by the Issuer.
(7) The Notes shall not be redeemable at the option of any Holder
thereof, upon the occurrence of any particular circumstances or
otherwise. The Notes will not have the benefit of any sinking fund.
(8) The Notes shall be issuable in denominations of $1,000 and
any integral multiple thereof.
(9) The Trustee shall also be the Security Registrar and Paying
Agent for the Notes.
(10) The entire outstanding principal amount plus the Make-Whole
Amount of the Notes shall be payable upon declaration of acceleration of
the maturity thereof pursuant to Section 502 of the Indenture.
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(11) Payments of the principal of and interest on the Notes shall
be made in U.S. Dollars, and the Notes shall be denominated in U.S.
Dollars.
(12) The Notes will be payable on the Stated Maturity Date in an
amount equal to the principal amount thereof plus any unpaid interest
accrued to the Stated Maturity Date.
(13) The Holders of the Notes shall have no special rights in
addition to those provided in the Indenture upon the occurrence of any
particular events.
(14) (A) There shall be no deletions from, modifications of or
additions to the Events of Default with respect to the Notes set forth
in the Indenture.
(B) There shall be the following additions to the
covenants set forth in the Indenture with respect to the Notes, which
shall be effective only for so long as any of the Notes are Outstanding:
Limitations On Incurrence of Debt. The Issuer will not,
and will not permit any Subsidiary to, incur any Debt (as defined
below), other than inter-company debt representing Debt to which
the only parties are Spieker Properties, Inc., a Maryland
corporation (the "General Partner"), the Issuer and any of their
Subsidiaries (but only so long as such Debt is held solely by any
of the General Partner, the Issuer and any Subsidiary) that is
subordinate in right of payment to the Notes if, immediately
after giving effect to the incurrence of such additional Debt,
the aggregate principal amount of all outstanding Debt of the
Issuer and its Subsidiaries on a consolidated basis is greater
than 60% of the sum of (i) Total Assets (as defined below) as of
the end of the calendar quarter covered in the Issuer's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case
may be, most recently filed with the Trustee (or such reports of
the General Partner if filed by the Issuer with the Trustee in
lieu of filing its own reports) prior to the incurrence of such
additional Debt and (ii) the increase in Total Assets from the
end of such quarter including, without limitation, any increase
in Total Assets resulting from the incurrence of such additional
Debt (such increase, together with the Total Assets, is referred
to as "Adjusted Total Assets").
In addition to the foregoing limitation on the incurrence
of Debt, the Issuer will not, and will not permit any Subsidiary
to, incur any Debt if the ratio of Consolidated Income Available
for Debt Service to the Annual Service Charge (in each case as
defined below) for the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is
to be incurred shall have been less than 1.5 to 1, on a pro forma
basis after giving effect to the incurrence of such Debt and to
the application of the proceeds therefrom, and calculated on the
assumption that (i) such Debt and any other Debt incurred by the
Issuer or its Subsidiaries since the first day of such
four-quarter period and the application of
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<PAGE> 6
the proceeds therefrom, including to refinance other Debt, had
occurred at the beginning of such period, (ii) the repayment or
retirement of any other Debt by the Issuer or its Subsidiaries
since the first day of such four-quarter period had been
incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Debt
under any revolving credit facility shall be computed based upon
the average daily balance of such Debt during such period), (iii)
the income earned on any increase in Adjusted Total Assets since
the end of such four-quarter period had been earned, on an
annualized basis, during such period, and (iv) in the case of any
acquisition or disposition by the Issuer or any Subsidiary of any
asset or group of assets since the first day of such four-quarter
period, including, without limitation, by merger, stock purchase
or sale, or asset purchase or sale, such acquisition or
disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included in
such pro forma calculation.
In addition to the foregoing limitations on the incurrence
of Debt, the Issuer will not, and will not permit any Subsidiary
to, incur any Debt secured by any mortgage, lien, charge, pledge,
encumbrance or security interest of any kind upon any of the
property of the Issuer or any Subsidiary ("Secured Debt"),
whether owned at the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence
of such additional Secured Debt, the aggregate principal amount
of all outstanding Secured Debt is greater than 40% of Adjusted
Total Assets.
For purposes of the foregoing provisions regarding the
limitation on the incurrence of Debt, Debt shall be deemed to be
"incurred" by the Issuer or a Subsidiary whenever the Issuer and
its Subsidiary shall create, assume, guarantee or otherwise
become liable in respect thereof.
Maintenance of Total Unencumbered Assets. The Issuer is
required to maintain Total Unencumbered Assets of not less than
165% of the aggregate outstanding principal amount of all
outstanding Unsecured Debt.
As used herein:
"Annual Service Charge" as of any date means the amount
which is expensed in any 12-month period for interest on Debt of
the Issuer and its Subsidiaries.
"Consolidated Income Available For Debt Service" for any
period means Consolidated Net Income plus amounts which have been
deducted for (a) interest on Debt of the Issuer and its
Subsidiaries, (b) provision for taxes of the Issuer and its
Subsidiaries based on income, (c) amortization of Debt discount,
(d) provisions
-6-
<PAGE> 7
for gains and losses on properties, (e) depreciation and
amortization, (f) the effect of any noncash charge resulting from
a change in accounting principles in determining Consolidated Net
Income for such period and (g) amortization of deferred charges.
"Consolidated Net Income" for any period means the amount
of consolidated net income (or loss) of the Issuer and its
Subsidiaries for such period determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Debt" of the Issuer or any Subsidiary means any
indebtedness of the Issuer or such Subsidiary, as applicable,
whether or not contingent, in respect of (i) borrowed money
evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned
by the Issuer or such Subsidiary, (iii) the reimbursement
obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the
balance that constitutes an accrued expense or trade payable or
(iv) any lease of property by the Issuer or such Subsidiary as
lessee which is reflected in the Issuer's consolidated balance
sheet as a capitalized lease in accordance with generally
accepted accounting principles, in the case of items of
indebtedness under (i) through (iii) above to the extent that any
such items (other than letters of credit) would appear as a
liability on the Issuer's consolidated balance sheet in
accordance with generally accepted accounting principles, and
also includes, to the extent not otherwise included, any
obligation by the Issuer or such Subsidiary to be liable for, or
to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business),
indebtedness of another person (other than the Issuer or any
Subsidiary).
"Subsidiary" means a corporation, partnership or limited
liability company, a majority of the outstanding voting stock,
partnership interests or membership interests, as the case may
be, of which is owned or controlled, directly or indirectly, by
the Issuer or by one or more other Subsidiaries of the Issuer.
For the purposes of this definition, "voting stock" means stock
having the voting power for the election of directors, general
partners, managers or trustees, as the case may be, whether at
all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i)
Undepreciated Real Estate Assets and (ii) all other assets of the
Issuer and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles (but
excluding intangibles and accounts receivable).
-7-
<PAGE> 8
"Total Unencumbered Assets" as of any date means the sum
of (i) those Undepreciated Real Estate Assets which have not been
pledged, mortgaged or otherwise encumbered by the owner thereof
to secure Debt, excluding infrastructure assessment bonds, and
(ii) all other assets of the Issuer and its Subsidiaries
determined in accordance with generally accepted accounting
principles (but excluding intangibles and accounts receivable)
which have not been pledged, mortgaged or otherwise encumbered by
the owner thereof to secure Debt.
"Undepreciated Real Estate Assets" as of any date means
the cost (original cost plus capital improvements) of real estate
assets of the Issuer and its Subsidiaries on such date, before
depreciation and amortization, determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Unsecured Debt" as of any date means Debt which is not
secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of the properties of the
Issuer or any Subsidiary.
(C) The Trustee shall not be obligated to monitor or
confirm, on a continuing basis or otherwise, the Issuer's compliance
with the covenants contained in this subsection or with respect to
reports or other documents filed under the Indenture; provided, however,
that nothing herein shall relieve the Trustee of any obligations to
monitor the Issuer's timely delivery of all reports and certificates
required under Sections 703 and 1005 of the Indenture and to fulfill its
obligations under Article Six of the Indenture.
(15) The Notes shall be issuable only as Registered Securities in
permanent global form (without coupons). Beneficial owners of interests
in the permanent global Notes may exchange such interests for Notes of
like tenor or any authorized form and denomination only in the manner
provided in Section 305 of the Indenture. DTC shall be the depository
with respect to the permanent global Note.
(16) The Notes shall not be issuable as Bearer Securities.
(17) Interest on any Note shall be payable only to the Person in
whose name that Note (or one or more predecessor Notes thereof) is
registered at the close of business on the Regular Record Date for such
interest.
(18) Sections 1402 and 1403 of the Indenture shall be applicable
to the Notes.
(19) The Notes shall not be issuable in definitive form except
under the circumstances described in Section 305 of the Indenture.
-8-
<PAGE> 9
(20) Articles Sixteen and Seventeen of the Indenture shall not be
applicable to the Notes.
(21) The Issuer shall not pay Additional Amounts with respect to
the Notes as contemplated by Section 1009 of the Indenture.
(22) The Notes shall not be subordinated to any other debt of the
Issuer, and shall constitute senior unsecured obligations of the Issuer.
SECTION 202. FORM OF NOTE. The form of the Note is attached hereto as
Exhibit A.
ARTICLE III
MISCELLANEOUS
SECTION 301. DEFINITIONS. Capitalized terms used but not defined in this
Ninth Supplemental Indenture shall have the meanings ascribed thereto in the
Indenture.
SECTION 302. CONFIRMATION OF INDENTURE. The Indenture, as heretofore
supplemented and amended by this Ninth Supplemental Indenture, is in all
respects ratified and confirmed, and the Indenture, this Ninth Supplemental
Indenture and all indentures supplemental thereto shall be read, taken and
construed as one and the same instrument.
SECTION 303. CONCERNING THE TRUSTEE. The Trustee assumes no duties,
responsibilities or liabilities by reason of this Ninth Supplemental Indenture
other than as set forth in the Indenture and, in carrying out its
responsibilities hereunder, shall have all of the rights, protections and
immunities which it possesses under the Indenture.
SECTION 304. GOVERNING LAW. This Ninth Supplemental Indenture, the
Indenture and the Securities shall be governed by and construed in accordance
with the law of the State of New York.
SECTION 305. SEPARABILITY. In case any provision in this Ninth
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 306. COUNTERPARTS. This Ninth Supplemental Indenture may be
executed in any number of counterparts each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Ninth
Supplemental Indenture to be duly executed, and the corporate seal of the
General Partner to be hereunto affixed and attested, as of the day and year
first above written.
SPIEKER PROPERTIES, L.P.
By: Spieker Properties, Inc., as General Partner
By: /s/ Craig G. Vought
---------------------------------------------
Name: Craig G. Vought
Title: Executive Vice President
and Chief Financial Officer
(seal)
Attest:
By: /s/ Stuart A. Rothstein
----------------------------
Name: Stuart A. Rothstein
Title: Assistant Secretary
SPIEKER PROPERTIES, INC.
By: /s/ Craig G. Vought
---------------------------------------------
Name: Craig G. Vought
Title: Executive Vice President
and Chief Financial Officer
(seal)
Attest:
By: /s/ Stuart A. Rothstein
----------------------------
Name: Stuart A. Rothstein
Title: Assistant Secretary
-10-
<PAGE> 11
FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Jennifer Holder
--------------------------------
Name: Jennifer Holder
Title: Vice President
Attest:
By: /s/ Josephine Libunao
--------------------------------
Name: Josephine Libunao
Title: Assistant Vice President
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Ruth A. Smith
--------------------------------
Name: Ruth A. Smith
Title: Vice President
Attest:
By: /s/ Carolina D. Altomare
--------------------------------
Name: Carolina D. Altomare
Title: Assistant Vice President
-11-
<PAGE> 12
STATE OF California )
COUNTY OF San Mateo ) ss.:
On the 26th day of September, 1997, before me personally came Craig G.
Vought to me known, who, being by me duly sworn, did depose and say that he is
the EVP and CFO of Spieker Properties, Inc., one of the entities described in
and which executed the above instrument; that he knows the corporate seal of
said corporation; that the seal affixed to the said instrument is such corporate
seal; that it was so affixed by authority of the corporation, and that he signed
his name thereto by like authority.
/s/ Julie L. Bartlow
-------------------------------
[Seal]
-12-
<PAGE> 1
EXHIBIT 12.1
SPIEKER PROPERTIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Earnings:
Income from operations before disposition of
property and minority interest $27,051 $16,096 $ 76,974 $48,207
Interest expense(1) 16,214 9,761 40,914 26,443
Amortization of capitalized interest 87 61 260 182
------- ------- -------- -------
Total earnings $43,352 $25,918 $118,148 $74,832
======= ======= ======== =======
Fixed charges:
Interest expense(1) $16,214 $ 9,761 $ 40,914 $26,443
Capitalized interest 1,688 640 4,330 1,842
Series A Preferred Dividends 573 524 1,146 1,573
Series B Preferred Dividends 2,510 2,510 5,020 7,530
------- ------- ------- -------
Total fixed charges and preferred dividends $20,985 $13,435 $ 51,410 $37,388
======= ======= ======== =======
Ratio of earnings to fixed charges
(excluding preferred dividends) 2.42 2.49 2.61 2.65
======= ======= ======== =======
Ratio of earnings to combined fixed charges
and preferred dividends 2.07 1.93 2.30 2.00
======= ======= ======== =======
Fixed charges in excess of earnings $ -- $ -- $ -- $ --
======= ======= ======== =======
</TABLE>
Notes:
(1) Includes amortization of debt discount and deferred financing fees.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 38,786
<SECURITIES> 0
<RECEIVABLES> 5,012
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,296,271
<DEPRECIATION> 152,676
<TOTAL-ASSETS> 2,279,267
<CURRENT-LIABILITIES> 0
<BONDS> 1,157,863
0
126,013
<COMMON> 4
<OTHER-SE> 823,772
<TOTAL-LIABILITY-AND-EQUITY> 2,279,267
<SALES> 0
<TOTAL-REVENUES> 226,191
<CGS> 0
<TOTAL-COSTS> 61,591
<OTHER-EXPENSES> 46,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,457
<INCOME-PRETAX> 76,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 83,587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,337
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 0
</TABLE>
