<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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)
(415) 854-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
43,481,423 shares of Common Stock, $0.0001 par value as of May 12, 1997.
2,000,000 shares of Class B Common Stock, $0.0001 par value as of May 12, 1997.
1,176,470 shares of Class C Common Stock, $0.0001 par value as of May 12, 1997.
Page 1 of 21
Exhibit Index is located on Page 20.
<PAGE> 2
SPIEKER PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements........................................................................... 3
Consolidated Balance Sheets as of March 31, 1997, and December 31, 1996........................ 4
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996............................................................... 6
Consolidated Statement of Stockholders' Equity for the Three Months
Ended March 31, 1997........................................................................ 7
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996............................................................... 8
Notes to Consolidated Financial Statements..................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities.......................................................................... 20
Item 6. Exhibits and Reports on Form 8-K............................................................... 20
Signatures.............................................................................................. 21
</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 March 31, 1997, and December
31, 1996
(ii) Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996
(iii) Consolidated Statement of Stockholders' Equity for the Three
Months Ended March 31, 1997
(iv) Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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 MARCH 31, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(unaudited)
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 430,024 $ 338,445
Buildings and improvements 1,265,330 944,646
Construction in progress 37,722 31,969
----------- ------------
1,733,076 1,315,060
Less - Accumulated depreciation (135,732) (127,701)
----------- ------------
1,597,344 1,187,359
Investments in mortgages 14,381 14,381
Property held for disposition, net 115,787 117,732
----------- ------------
Net investments in real estate 1,727,512 1,319,472
CASH AND CASH EQUIVALENTS 52,825 29,336
ACCOUNTS RECEIVABLE 5,086 3,799
DEFERRED RENT RECEIVABLE 3,207 3,242
RECEIVABLE FROM AFFILIATES 3,650 117
DEFERRED FINANCING AND LEASING COSTS, net of
accumulated amortization of $8,062
and $7,682 as of March 31, 1997,
and December 31, 1996, respectively 16,676 15,860
FURNITURE, FIXTURES AND EQUIPMENT, net 2,472 2,386
PREPAID EXPENSES AND OTHER ASSETS 7,221 16,102
----------- ------------
$ 1,818,649 $ 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 MARCH 31, 1997, AND DECEMBER 31, 1996
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(unaudited)
<S> <C> <C>
DEBT
Unsecured notes $ 635,000 $ 635,000
Unsecured line of credit - 39,000
Mortgage loans 89,979 45,997
----------- ------------
Total debt 724,979 719,997
----------- ------------
ASSESSMENT BONDS PAYABLE 4,860 4,758
ACCOUNTS PAYABLE 6,951 3,258
ACCRUED REAL ESTATE TAXES 5,715 731
ACCRUED INTEREST 12,651 10,471
UNEARNED RENTAL INCOME 9,769 6,345
DIVIDENDS AND DISTRIBUTIONS PAYABLE 26,047 18,660
OTHER ACCRUED EXPENSES AND LIABILITIES 19,752 16,406
----------- ------------
Total liabilities 810,724 780,626
----------- ------------
MINORITY INTERESTS 71,112 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, 43,461,423
and 31,821,861 shares issued and outstanding as of March 31, 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 811,680 438,376
Deferred compensation (884) (464)
Retained earnings - -
----------- ------------
Total stockholders' equity 936,813 563,928
----------- ------------
$ 1,818,649 $ 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 MONTHS ENDED MARCH 31, 1997 and 1996
(dollars in thousands, except share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Rental income $ 64,461 $ 44,345
Interest and other income 1,956 973
----------- -----------
66,417 45,318
----------- -----------
OPERATING EXPENSES
Rental expenses 11,672 7,236
Real estate taxes 5,254 3,446
Interest expense, including amortization of finance costs 12,013 8,837
Depreciation and amortization 10,599 8,538
General and administrative and other expenses 3,067 2,282
----------- -----------
42,605 30,339
----------- -----------
Income from operations before disposition of property and
minority interests 23,812 14,979
----------- -----------
GAIN ON DISPOSITION OF PROPERTY 1,489 -
----------- -----------
Income from operations before minority interests 25,301 14,979
----------- -----------
MINORITY INTERESTS' SHARE IN NET INCOME (3,097) (2,086)
----------- -----------
Net income 22,204 12,893
----------- -----------
PREFERRED DIVIDENDS
Series A Preferred Stock (573) (524)
Series B Preferred Stock (2,510) (2,510)
----------- -----------
Net income available to Common Stockholders $ 19,121 $ 9,859
=========== ===========
INCOME PER SHARE OF COMMON STOCK
Net income $ .43 $ .31
=========== ===========
DIVIDENDS PER SHARE
Series A Preferred Stock $ .57 $ .52
=========== ===========
Series B Preferred Stock $ .59 $ .59
=========== ===========
Common Stock, including Class B and Class C $ .51 $ .49
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Series B Common Class B Class C Common Additional
Preferred Preferred Stock Common Common Stock Par Paid-in
Stock Stock Shares Stock Shares Stock Shares Value Capital
--------- --------- ---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $23,949 $102,064 31,821,861 2,000,000 1,176,470 $3 $ 438,376
Common Stock Offering - - 11,500,000 - - 1 374,834
Conversion of Operating Partnership
Units to Common Stock - - 78,790 - - - -
Stock Options Exercised - - 19,875 - - - 405
Restricted Stock Grant - - 25,913 - - - 491
Non-cash Compensation Merit Fund - - - - - - 59
Conversion of Operating Partnership
Units - Employee Stock Incentive - - 14,984 - - - 524
Pool
Amortization of Deferred Compensation - - - - - - 60
Dividends Declared - - - - - - (3,069)
Net Income - - - - - - -
------- -------- ---------- --------- --------- -- ---------
BALANCE AT MARCH 31, 1997 $23,949 $102,064 43,461,423 2,000,000 1,176,470 $4 $ 811,680
======= ======== ========== ========= ========= == =========
</TABLE>
<TABLE>
<CAPTION>
Retained
Deferred Earnings
Compensation (Deficit) Total
------------ --------- ---------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $(464) $ - $ 563,928
Common Stock Offering - - 374,835
Conversion of Operating Partnership
Units to Common Stock - - -
Stock Options Exercised - - 405
Restricted Stock Grant (491) - -
Non-cash Compensation Merit Fund - - 59
Conversion of Operating Partnership
Units - Employee Stock Incentive - - 524
Pool
Amortization of Deferred Compensation 71 - 131
Dividends Declared - (22,204) (25,273)
Net Income - 22,204 22,204
----- -------- ---------
BALANCE AT MARCH 31, 1997 $(884) $ - $ 936,813
===== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 and 1996
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 22,204 $ 12,893
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 10,599 8,538
Amortization of prepaid interest and deferred financing costs 268 377
Non-cash compensation 199 128
Minority share of net income 3,097 2,086
Gain on disposition of property (1,489) -
Decrease (increase) in deferred rent receivable 35 (70)
Increase in accounts receivable (1,287) (237)
(Increase) decrease in receivable from affiliates (3,533) 116
Decrease in prepaid expenses and other assets 8,633 1,318
Decrease in assessment bonds payable (235) (232)
Increase (decrease) in accounts payable 3,693 (581)
Increase in accrued real estate taxes 4,984 3,416
Increase in accrued interest 2,180 4,745
Increase (decrease) in other accrued expenses and liabilities 3,346 (207)
Increase (decrease) in unearned rental income 3,424 (2,033)
----------- -----------
Net cash provided by operating activities 56,118 30,257
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (347,009) (72,664)
Additions to leasing costs (1,829) (1,532)
Additions to investment in mortgages - (14,333)
Proceeds from disposal of property 3,969 -
----------- -----------
Net cash used for investing activities (344,869) (88,529)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt - 100,000
Payments on debt (41,666) (164,706)
Payment of financing fees (146) (1,029)
Payment of dividends/distributions (21,188) (18,120)
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 405 56
----------- -----------
Net cash provided by financing activities 312,240 67,532
----------- -----------
Net increase in cash and cash equivalents 23,489 9,260
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,336 7,573
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,825 $ 16,833
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest 10,800 4,294
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Debt assumed in relation to property acquisitions 46,648 -
Increase to land and assessment bonds payable 204 581
Minority interest capital recorded in relation to property acquisitions 26,072 -
Write-off of fully depreciated property 1,596 6,059
Write-off of fully amortized deferred financing and leasing costs 839 1,388
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 -
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
SPIEKER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31,
1997, the Company owned an approximate 86.4 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
March 31, 1997, and December 31, 1996, and its consolidated results of
operations and consolidated cash flows for the three months ended March
31, 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 months ended March 31, 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 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 March 31,
1997 and December 31, 1996, none of the carrying values of the properties
exceeded their estimated fair values. As of March 31, 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 two mortgage loans that are secured by real estate. The
Company assesses possible impairment of these loans by reviewing the fair
value of the underlying real estate. As of March 31, 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).
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 23 years. Unamortized financing and
leasing costs are charged to expense upon the early termination of the
lease or upon early payment of financing.
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.
10
<PAGE> 11
Minority Interest
Minority interest in the Company represents (i) the individual Spieker
Partners' limited partnership as well as other limited partners' interest
in the Operating Partnership of approximately 13.6 percent and 15.1
percent at March 31, 1997 and 1996, respectively, and (ii) a 10.0 percent
interest in one property and a 7.5 percent interest in another property
held by outside interests.
Revenues
All leases are classified as operating leases. Rental income is recognized
on the straight-line basis over the terms of the leases. Deferred rent
receivable represents the excess of rental revenue recognized on a
straight-line basis over cash received under the applicable lease
provisions.
Interest and Other Income
Interest and other income includes interest income on cash, cash
equivalents, 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 months ended March 31, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
Weighted Average
Common Shares Outstanding
-------------------------
<S> <C>
Three months ended:
March 31, 1997 44,301,170
March 31, 1996 31,336,085
</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 quarters
ended March 31, 1997 and 1996, the Company's basic earnings per share
would have been $.44 and $.32 per share, respectively, and its fully
diluted earnings per share would have been $.43 and $.31 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.
11
<PAGE> 12
3. TRANSACTIONS WITH AFFILIATES
Receivable From Affiliates
The receivable from affiliates at March 31, 1997, and December 31, 1996,
is summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Note receivable from Spieker Northwest,
Inc. secured by real property 3,533 -
Management fees and reimbursements due from
Spieker Partners related entities
(certain officers of Spieker Properties, 117 117
Inc., are partners in Spieker Partners)
</TABLE>
4. PROPERTY HELD FOR DISPOSITION
The Company has determined to focus exclusively on office and industrial
properties. The Company has therefore decided to divest itself of its
retail properties (thirteen properties at the time of the determined
divestiture) and to reinvest the proceeds from these properties in office
and industrial properties.
In December 1996, the Company entered into agreements to dispose of nine
retail properties located in California, Oregon, and Washington to a third
party for $106,500. Three of the nine properties closed on December 20,
1996. Of the remaining six properties, one closed on January 6, 1997,
resulting in a gain on disposition of $1,489; four properties closed
subsequent to quarter end, on April 9, 1997, resulting in a gain on
disposition of approximately $9,800; and the final property is scheduled
to close by December 31, 1997.
In addition, the Company is in the process of divesting itself of four
other retail properties. Two of the four other properties closed
subsequent to the quarter end, on April 9, 1997. The gain on disposition
of these two properties located in Fresno, California, was approximately
$3,050. The divestiture of the two remaining properties is subject to the
identification of a purchaser, negotiation of acceptable terms and other
customary conditions.
The net carrying amount of the nine remaining retail properties held for
disposition as of March 31, 1997, is $115,787.
5. DEBT
Unsecured Notes
As of March 31, 1997, the Company has outstanding $635,000 in investment
grade rated unsecured notes with varying interest rates from 6.65% to
8.00% payable semi-annually. The notes are due on various dates from 2000
to 2016.
Unsecured Line of Credit
The maximum amount available under the Company's unsecured line of credit
facility is $150,000. The facility carries interest at LIBOR plus 1.25%.
The line of credit matures in November 1997 and the Company has an option
to extend it for one year upon payment of a fee equal to 0.12% of the
total amount available. The facility also includes a fee on average unused
funds which varies between 0.125% and 0.20% based on the average
outstanding balance. As of March 31, 1997, the amount drawn on the
facility was $0.
12
<PAGE> 13
Mortgage Loans
Mortgage loans of $89,979 as of March 31, 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 March 31, 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 March 31,
1997, and December 31, 1996, are as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Shares of:
Common Stock 43,461,423 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 7,212,900 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.
13
<PAGE> 14
8. ACQUISITIONS
The Company acquired the following properties during the three months
ended March 31, 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 818,836 44,800
Emeryville Portfolio (3) Emeryville, CA O 946,835 125,400
Brea Park Centre Brea, CA O 141,837 10,800
555 Twin Dolphin Drive Redwood Shores, CA O 198,941 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 414,737 73,900
1740 Technology (5) San Jose, CA O 196,444 31,300
Fountaingrove Santa Rosa, CA O 160,808 16,100
</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. DEVELOPMENTS
During the three months ended March 31, 1997, the Company acquired four
parcels of land for development. The total initial cost of these four
parcels was $11,418.
14
<PAGE> 15
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 months ended March 31, 1997, as compared to the corresponding period ended
March 31, 1996.
Rental revenues for the first quarter of 1997 increased by $20.2 million or
45.6% to $64.5 million, as compared with $44.3 million for the quarter ended
March 31, 1996. Of this increase, $10.4 million was generated by properties
acquired during 1996 (the "1996 Acquisitions"). During 1996, the Company
invested $329.3 million to acquire properties totaling 4.7 million square feet.
As used herein, the terms "invested" and "total investment" represent the
initial purchase price of acquisitions, plus the projected cost of certain
repositioning and rehab capital expenditures anticipated at the time of
purchase.
$7.6 million of the rental revenue increase in the first quarter of 1997 was
generated by properties acquired during the three months ended March 31, 1997.
During the first quarter of 1997, the Company acquired properties totaling 3.3
million square feet (the "1997 Acquisitions"). The Company estimates the total
investment in the 1997 Acquisitions will be $407.9 million. The Company closed
the 1997 Acquisitions on various dates during the first quarter and, as such, a
full quarter's revenue and expenses was not recognized during the first quarter
of 1997.
$1.8 million of the rental revenue increase in the first 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, as well as properties currently under
development. During the three months ended March 31, 1997, two properties
totaling 0.2 million square feet have been completed and added to the Company's
portfolio of stabilized properties. The total cost of such properties, including
the estimated cost to complete initial tenant improvements, is $11.8 million.
The Company also has a current development pipeline consisting of seventeen
properties representing a total projected cost of $145.4 million and 2.9 million
square feet. Certain of the properties in the development pipeline are shell
complete and partially occupied.
$2.0 million of the increase in rental revenues is attributable to revenue
increases in properties owned at January 1, 1996, and still owned at March 31,
1997 (the "Core Portfolio"). $1.7 million of the revenue 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 first three months of 1997, the Company completed 178 lease
transactions for the renewal or re-leasing of 1.2 million square feet of
second-generation space. On average, the new effective rates were 9.6% higher
than the expiring coupon rent. $0.3 million of the increase is attributable to
the realization of a full quarter's revenue on the Walsh @ Lafayette project, a
property developed by the Company and added to the Core Portfolio during the
first quarter of 1996. A decrease of $1.6 million in rental revenues, quarter
over quarter, can be attributed to the subsequent disposition of assets which
were owned by the Company as of March 31, 1996 (the "Asset Dispositions").
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
15
<PAGE> 16
increased by $15.0 million or 51.7% to $44.0 million, as compared to $29.0
million for the quarter ended March 31, 1996. Of this increase, $5.3 million and
$7.3 million relates to the 1997 and 1996 Acquisitions, $1.4 million is
attributable to the Developments, and $1.0 million is attributable to the Core
Portfolio.
As a result of the 1996 Acquisitions, 1997 Acquisitions, and the Developments,
the Company's rentable square footage, netted with the disposition of property,
increased by 6.9 million square feet or 38.3% to 24.9 million square feet on
March 31, 1997, from 18.0 million on March 31, 1996. At March 31, 1997, the
portfolio of stabilized properties was 96.0% occupied. By property type, the
office portfolio was 94.2% occupied, the industrial portfolio was 97.0% occupied
and the retail portfolio was 95.6% occupied.
Interest and other income for the three months ended March 31, 1997, increased
by $1.0 million or 100.0% to $2.0 million, as compared to the same period in
1996. The net increase in interest and other income during the three months
ended March 31, 1997, was primarily due to higher average cash balances related
to a follow-on equity offering completed in January 1997. The average cash
balance during the first quarter of 1997 was $85.9 million as compared with $9.9
million during the first quarter of 1996.
Rental expenses increased by $4.4 million or 60.3% for the three months ended
March 31, 1997, as compared with the same period in 1996. Real estate taxes
increased by $1.8 million or 52.9% for the three months ended March 31, 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. On a percentage basis, property operating
expenses were 26.2% and 24.2% of rental revenues for the quarters ended March
31, 1997, and March 31, 1996, respectively. The total increase in property
operating expenses is due to a $3.1 million increase attributable to the 1996
Acquisitions, a $2.3 million increase attributable to the 1997 Acquisitions, a
$0.4 million increase attributable to the Developments, a $0.7 million increase
attributable to the Core Portfolio, and a $0.3 million decrease attributable to
the Asset Dispositions. The increase in the property operating expenses for the
Core Portfolio is principally due to an increase in real estate taxes.
Interest expense increased by $3.2 million or 36.4% to $12.0 million for the
three months ended March 31, 1997, from $8.8 million for the same period in
1996. The increase in interest expense is due to the increase in average debt
outstanding.
Depreciation and amortization expenses increased by $2.1 million or 24.7% for
the three months ended March 31, 1997, as compared with the same period in 1996,
due to the 1996 and 1997 Acquisitions and the Developments.
General and administrative expenses and other expenses increased by $0.8 million
for the three months ended March 31, 1997, as compared with the same period in
1996, primarily as a result of the increased number of employees. On a
percentage basis, general and administrative expenses were 4.8% of rental
revenues for the three months ended March 31, 1997, as compared with 5.2% for
the same period in 1996.
A gain on disposition of property of $1.5 million was recognized in the first
quarter due to the sale of one retail property.
Net income before minority interests and disposition of property increased by
$8.8 million or 58.7% to $23.8 million for the three months ended March 31,
1997, from $15.0 million for the same period in 1996. The increase in net income
is principally due to the increase in income from the 1996 and 1997
Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, cash provided by operating activities
increased by $25.8 million or 85.2% to $56.1 million, as compared to $30.3
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, a decrease
in prepaid expenses and other assets, and an increase in unearned rental income.
Cash used for investing activities increased by $256.4 million or 289.7% to
$344.9 million for the first three months of 1997, as compared to $88.5 million
for the same period in 1996. The increase is attributable to the Company's
ongoing acquisition and development
16
<PAGE> 17
of suburban office and industrial properties. Cash provided by financing
activities increased by $244.7 million or 362.5% to $312.2 million for the first
three months of 1997, as compared to $67.5 million for the same period in 1996.
During the first three months of 1997, cash provided by financing activities
consisted, primarily, of $374.8 million in net proceeds from the sale of Common
Stock, which was offset by net payments of $39.0 million on the line of credit
and net payments of $2.7 million on mortgage loans. Additionally, payments of
distributions increased by $3.1 million to $21.2 million for the first three
months of 1997, as compared with $18.1 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, permanent secured
debt financings, public and privately placed equity financing, public unsecured
debt financing, the issuance of partnership units in the Operating Partnership,
and cash flow provided by operations. The Company believes that its liquidity
and capital resources are adequate to continue to meet liquidity requirements
for the foreseeable future.
At March 31, 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 credit provide sufficient
sources of liquidity to fund capital expenditure costs associated with the
renewal or re-leasing of space.
The Company has a $150.0 million unsecured line of credit facility (the
"Facility") with interest at London Interbank Offered Rates ("LIBOR") plus
1.25%. The Facility matures in November 1997 and the Company has an option to
extend the Facility for one year upon payment of a fee equal to 0.12% of the
total Facility. The Facility also includes a fee on average unused funds, which
varies between 0.125% and 0.20% based on the average outstanding balance. At
March 31, 1997, the Company had $0 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. As of
March 31, 1997, $50.0 million of debt securities remained available for issuance
under the medium-term note program.
As of March 31, 1997, the Company had $635 million of investment grade rated
unsecured notes outstanding. The notes have interest rates which vary from 6.65%
to 8.00%, and various maturity dates which range from 2000 to 2016.
In addition to the Unsecured Notes and the Facility, the Company has $90.0
million of secured indebtedness (the "Mortgages") at March 31, 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 $4.9 million of assessment bonds outstanding as
of March 31, 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
17
<PAGE> 18
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 May 1996, the Company and the Operating Partnership filed a shelf
registration statement (the "May 1996 Shelf Registration Statement") with the
SEC which registered $250.0 million of equity securities of the Company and
$250.0 million of debt securities of the Operating Partnership. The May 1996
Shelf Registration Statement was declared effective by the SEC on June 20, 1996.
After completion of the January 1997 equity offering, the Company has the
capacity pursuant to the January 1997 Shelf Registration Statement to issue up
to approximately $500.0 million in equity securities and the Operating
Partnership has the capacity pursuant to the May 1996 Shelf Registration
Statement and the January 1997 Shelf Registration Statement to issue up to
$615.0 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 months ended March 31, 1997 and 1996,
are 52,558,468 and 39,105,416, respectively.
18
<PAGE> 19
STATEMENT OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net income before minority interest and gain on
disposition of property $ 23,812 $ 14,979 (1)
Add:
Depreciation and Amortization 10,478 8,475
Dividends on Series B Preferred Stock (2,510) (2,510)
Other, net 187 (35)(1)
Straight-lined rent 3 (70)
-------- --------
Funds from Operations $ 31,970 $ 20,839
======== ========
</TABLE>
(1) Includes reclassification of extraordinary gain realized on the early
extinguishment of debt of $150.
19
<PAGE> 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities
In connection with the acquisition of the Emeryville Portfolio in January
1997, the Operating Partnership issued 756,855 units to the seller of such
properties with an aggregate value of $26.0 million, based on the average
stock price of Spieker Properties, Inc. Common Stock during a specified
period of time prior to closing. Such units were issued in a private
negotiated transaction to four partnerships and a trust, pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act.
Such units are convertible on a one for one basis into shares of Common
Stock of the Company after January 1998.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The exhibits listed below are filed or incorporated by reference as part
of this quarterly report on Form 10-Q.
<TABLE>
<CAPTION>
Exhibit Number Page Number
-------------- -----------
<S> <C> <C>
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)
</TABLE>
(B) Reports on Form 8-K
None
20
<PAGE> 21
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: May 13, 1997 /s/ Elke Strunka
--------------------------------
Elke Strunka,
Vice President
Principal Accounting Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
12.1 Statement of Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred Dividends
27.1 Financial Data Schedule (Edgar Filing Only)
</TABLE>
<PAGE> 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
------------------------
March 31, March 31,
1997 1996
------------------------
<S> <C> <C>
Earnings:
Income from operations before disposition
of property minority interest $23,812 $14,829
Interest expense(1) 12,013 8,837
Amortization of capitalized interest 72 55
-----------------------
Total earnings $35,897 $23,721
=======================
Fixed charges:
Interest expense(1) $12,013 $ 8,837
Capitalized interest 1,235 581
Series A Preferred Dividends 573 524
Series B Preferred Dividends 2,510 2,510
-----------------------
Total fixed charges and
preferred dividends $16,331 $12,452
=======================
Ratio of earnings to fixed charges
(excluding preferred dividends) 2.71 2.52
=======================
Ratio of earnings to combined fixed
charges and preferred dividends 2.20 1.90
=======================
Fixed charges in excess of earnings $ - $ -
=======================
</TABLE>
Notes:
(1) Includes amortization of debt discount and deferred financing fees.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 52,825
<SECURITIES> 0
<RECEIVABLES> 5,086
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,733,076
<DEPRECIATION> 135,732
<TOTAL-ASSETS> 1,818,649
<CURRENT-LIABILITIES> 0
<BONDS> 724,979
0
126,013
<COMMON> 4
<OTHER-SE> 810,796
<TOTAL-LIABILITY-AND-EQUITY> 1,818,649
<SALES> 0
<TOTAL-REVENUES> 66,417
<CGS> 0
<TOTAL-COSTS> 16,926
<OTHER-EXPENSES> 13,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,013
<INCOME-PRETAX> 23,812
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,204
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
