<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 JUNE 30, 1998
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:
61,103,188 shares of Common Stock, $0.0001 par value as of July 10, 1998.
2,000,000 shares of Class B Common Stock, $0.0001 par value as of July 10, 1998.
1,176,470 shares of Class C Common Stock, $0.0001 par value as of July 10, 1998.
Page 1 of 23
Exhibit Index is located on Page 22.
<PAGE> 2
SPIEKER PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C>
Item 1. Financial Statements (unaudited)............................................................... 3
Consolidated Balance Sheets as of June 30, 1998, and December 31, 1997......................... 4
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1998 and 1997................................................................ 6
Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1998.......... 7
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997.......... 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 unaudited financial statements of Spieker
Properties, Inc. (the "Company"):
(i) Consolidated Balance Sheets as of June 30, 1998, and December 31,
1997
(ii) Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1998 and 1997
(iii) Consolidated Statement of Stockholders' Equity for the Six Months
Ended June 30, 1998
(iv) Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997
(v) Notes to Consolidated Financial Statements
The financial statements referred to above should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
3
<PAGE> 4
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998, AND DECEMBER 31, 1997
(unaudited, dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 902,325 $ 694,621
Buildings and improvements 2,887,391 2,159,581
Construction in progress 149,153 89,509
----------- -----------
3,938,869 2,943,711
Less - Accumulated depreciation (201,788) (169,051)
----------- -----------
3,737,081 2,774,660
Investments in mortgages 123,101 271,675
Property held for disposition, net 7,663 37,186
----------- -----------
Net investments in real estate 3,867,845 3,083,521
CASH AND CASH EQUIVALENTS 28,649 22,628
ACCOUNTS RECEIVABLE, net of allowance for doubtful
accounts of $382 and $260 as of June 30, 1998, and
December 31, 1997, respectively 6,350 8,661
DEFERRED RENT RECEIVABLE 8,406 5,276
RECEIVABLE FROM AFFILIATES 1,476 294
DEFERRED FINANCING AND LEASING COSTS, net of accumulated
amortization of $11,730 and $10,036 as of June 30,
1998, and December 31, 1997, respectively 38,250 30,983
FURNITURE, FIXTURES AND EQUIPMENT, net 4,066 3,375
PREPAID EXPENSES AND OTHER ASSETS 19,664 50,892
INVESTMENT IN AFFILIATE 37,304 37,304
----------- -----------
$ 4,012,011 $ 3,242,934
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998, AND DECEMBER 31, 1997
(unaudited, dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------- -----------------
<S> <C> <C>
DEBT
Unsecured notes $ 1,436,500 $ 1,135,000
Unsecured short-term borrowings 275,000 200,000
Mortgage loans 112,803 96,502
----------- -----------
Total debt 1,824,303 1,431,502
----------- -----------
ASSESSMENT BONDS PAYABLE 16,351 12,672
ACCOUNTS PAYABLE 22,150 9,519
ACCRUED REAL ESTATE TAXES 2,418 1,003
ACCRUED INTEREST 29,916 21,541
UNEARNED RENTAL INCOME 17,288 13,712
DIVIDENDS AND DISTRIBUTIONS PAYABLE 45,265 41,110
OTHER ACCRUED EXPENSES AND LIABILITIES 42,499 32,034
----------- -----------
Total liabilities 2,000,190 1,563,093
----------- -----------
MINORITY INTERESTS 290,417 186,013
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series A Preferred Stock: convertible, cumulative, $.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
Series C Preferred Stock: cumulative, redeemable, $.0001 par value, 6,000,000
shares authorized, issued and outstanding, $150,000 liquidation preference 145,959 145,959
Series E Preferred Stock: cumulative, redeemable, $.0001 par value, 4,000,000
shares authorized, issued and outstanding, $100,000 liquidation preference 96,401 --
Common Stock: $.0001 par value, 660,500,000 shares authorized, 59,103,041 and
55,772,632 shares issued and outstanding as of June 30, 1998, and December
31, 1997, respectively 6 5
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 1,354,361 1,223,229
Deferred compensation (1,336) (1,378)
Retained earnings -- --
----------- -----------
Total stockholders' equity 1,721,404 1,493,828
----------- -----------
$ 4,012,011 $ 3,242,934
=========== ===========
</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 SIX MONTHS ENDED JUNE 30, 1998 and 1997
(dollars in thousands, except share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------- -------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 132,443 $ 74,459 $ 250,080 $ 138,921
Interest and other income 6,173 1,419 13,844 3,374
----------- ----------- ----------- -----------
138,616 75,878 263,924 142,295
----------- ----------- ----------- -----------
OPERATING EXPENSES
Rental expenses 29,086 15,411 53,476 27,083
Real estate taxes 10,350 5,785 19,650 11,039
Interest expense, including amortization of finance 30,931 12,687 60,198 24,700
costs
Depreciation and amortization 22,646 12,416 42,231 23,015
General and administrative and other expenses 4,973 3,468 9,795 6,535
----------- ----------- ----------- -----------
97,986 49,767 185,350 92,372
----------- ----------- ----------- -----------
Income from operations before disposition of property
and minority interests 40,630 26,111 78,574 49,923
----------- ----------- ----------- -----------
GAIN ON DISPOSITION OF PROPERTIES 6,689 12,691 15,715 14,180
----------- ----------- ----------- -----------
Income from operations before minority interests 47,319 38,802 94,289 64,103
----------- ----------- ----------- -----------
MINORITY INTERESTS' SHARE IN NET INCOME (6,772) (4,722) (12,514) (7,819)
------------ ----------- ------------ -----------
Net income 40,547 34,080 81,775 56,284
----------- ----------- ----------- -----------
PREFERRED DIVIDENDS
Series A Preferred Stock (695) (573) (1,390) (1,146)
Series B Preferred Stock (2,510) (2,510) (5,020) (5,020)
Series C Preferred Stock (2,953) - (5,906) -
Series E Preferred Stock (600) - (600) -
--------------- ----------- ------------ -----------
Net income available to Common Stockholders $ 33,789 $ 30,997 $ 68,859 $ 50,118
=========== =========== =========== ===========
INCOME PER SHARE OF COMMON STOCK
Net income - basic $ .54 $ .66 $ 1.13 $ 1.10
=========== =========== =========== ===========
Net income - diluted $ .53 $ .65 $ 1.11 $ 1.09
=========== =========== =========== ===========
DIVIDENDS PER SHARE
Series A Preferred Stock $ .70 $ .57 $ 1.40 $ 1.14
=========== =========== =========== ===========
Series B Preferred Stock $ .59 $ .59 $ 1.18 $ 1.18
=========== =========== =========== ===========
Series C Preferred Stock $ .49 $ - $ .98 $ -
=========== =========== =========== ===========
Series E Preferred Stock $ .15 $ - $ .15 $ -
=========== =========== =========== ===========
Common Stock, including Class B and Class C $ .57 $ .47 $ 1.14 $ .94
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Series A, Series B
Series C and Common Class B Class C Common Additional
Series E Stock Common Common Stock Par Paid-in
Preferred Stock Shares Stock Shares Stock Shares Value Capital
--------------- ------ ------------ ------------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $271,972 55,772,632 2,000,000 1,176,470 $ 5 $ 1,223,229
Common Stock Offering - 2,485,804 - - 1 96,038
Preferred Stock Offering 96,401 - - - - -
Common Stock Issued for Property - 165,985 - - - 6,900
Conversion of Operating Partnership
Units to Common Stock
- 317,194 - - - 11,067
Stock Options Exercised - 275,025 - - - 5,748
Restricted Stock Grant - 86,401 - - - -
Amortization of Deferred Compensation - - - - - -
Allocation from minority interests - - - - - 13,127
Dividends - - - - - (1,748)
Net Income - - - - - -
------- ---------- -------- -------- -------- --------
BALANCE AT JUNE 30, 1998 $368,373 59,103,041 2,000,000 1,176,470 $ 6 $ 1,354,361
======== ========== ========= ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Retained
Deferred Earnings
Compensation (Deficit) Total
------------ --------- -----
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ (1,378) $ - $ 1,493,828
Common Stock Offering - - 96,039
Preferred Stock Offering - - 96,401
Common Stock Issued for Property - - 6,900
Conversion of Operating Partnership
Units to Common Stock
- - 11,067
Stock Options Exercised - - 5,748
Restricted Stock Grant - - -
Amortization of Deferred Compensation 42 - 42
Allocation from minority interests - - 13,127
Dividends - (81,775) (83,523)
Net Income - 81,775 81,775
-------- -------- --------
BALANCE AT JUNE 30, 1998 $ (1,336) $ - $ 1,721,404
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 81,775 $ 56,284
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 42,231 23,015
Amortization of prepaid interest and deferred financing costs 1,165 532
Non-cash compensation 42 398
Minority interests' share of net income 12,514 7,819
Gain on disposition of property (15,715) (14,180)
Increase in deferred rent receivable (3,130) (471)
Decrease in accounts receivable 2,311 51
Increase in receivable from affiliates (1,182) (2,933)
Decrease in prepaid expenses and other assets 1,016 6,611
Decrease in assessment bonds payable (517) (486)
Increase in accounts payable 12,633 7,066
Increase in accrued real estate taxes 1,415 97
Increase in accrued interest 8,375 683
Increase in other accrued expenses and liabilities 5,789 6,072
Increase in unearned rental income 3,576 3,402
--------- ---------
Net cash provided by operating activities 152,298 93,960
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (923,209) (529,445)
Reductions to deposits on properties, net 29,018 --
Additions to investment in mortgages (11,610) --
Additions to leasing costs (7,561) (3,200)
Proceeds from investment in mortgages 160,184 --
Proceeds from disposition of property 56,436 76,862
--------- ---------
Net cash used for investing activities (696,742) (455,783)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 981,500 127,000
Payments on debt (607,326) (112,104)
Payments of financing fees (3,192) (146)
Payment of dividends/distributions (91,830) (49,745)
Proceeds from sale of Common Stock, net of issuance costs 96,039 374,835
Proceeds from stock options exercised 5,748 1,871
Proceeds from sale of Preferred Stock, net of issuance costs 96,401 --
Proceeds from sale of Preferred Operating Partnership Units 73,125 --
Proceeds from sale of Operating Partnership Units -- 25
--------- ---------
Net cash provided by financing activities 550,465 341,736
--------- ---------
Net increase (decrease) in cash and cash equivalents 6,021 (20,087)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,628 29,336
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,649 $ 9,249
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 50,734 $ 26,014
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Liabilities assumed in relation to property acquisitions 23,252 51,852
Increase to land and assessment bonds payable 4,196 1,049
Capital recorded in relation to properties acquired with Operating
Partnership Units 55,420 26,072
Write-off of fully depreciated property 4,660 3,103
Write-off of fully amortized deferred financing and leasing costs -- 1,170
Restricted Stock Grants 6,900 491
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
SPIEKER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1997
(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 June 30,
1998, the Company owned an approximate 88.2 percent general and limited
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
June 30, 1998, and December 31, 1997, and its consolidated results of
operations for the three and six months ended June 30, 1998 and 1997 and
its consolidated cash flows for the six months ended June 30, 1998 and
1997. The Company's investment in Spieker Northwest, Inc. (an
unconsolidated Preferred Stock subsidiary of the Company) and its
investment in Spieker Griffin/W9 Associates, LLC is accounted for under
the equity method. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
Interim Financial Information
The consolidated financial statements 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 six months ended June 30, 1998 and
1997, 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, 1997.
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>
9
<PAGE> 10
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.
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 June 30, 1998, and December 31, 1997,
none of the carrying values of the properties exceeded their estimated fair
values. As of June 30, 1998, and December 31, 1997, 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 mortgage loans that are secured by real estate. Certain of
the loans are with an affiliate of the Company (see note 4). The Company
assesses possible impairment of these loans by reviewing the fair value of
the underlying real estate. As of June 30, 1998, the estimated 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.
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. Unamortized financing and leasing costs are charged to expense upon
the early termination of the lease or upon the early payment of financing.
Fair Value of Financial Instruments
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, and overnight
repurchase agreements with financial institutions. The carrying amount of
cash and cash equivalents approximates fair value.
Minority Interest
Minority interest in the Company consists of the limited partners' interest
in the Operating Partnership of approximately 11.8 percent and 12.9 percent
at June 30, 1998 and December 31, 1997, respectively.
10
<PAGE> 11
Preferred Operating Partnership Units
In November, 1997, the Company issued limited partner's interest of
2,007,495 Preferred Operating Partnership Units. Preferred Operating
Partnership Units are convertible into 1,824,994 Operating Partnership
Units at the discretion of the holder subsequent to May 3, 1998, or they
may be redeemable for cash at the discretion of the Company subsequent to
December 3, 2002. Preferred Operating Partnership Units are paid
distributions quarterly in the amount of $.63 per share. During the quarter
ended June 30, 1998, 285,664 Preferred Operating Partnership Units were
converted into 259,694 Common Shares.
In April 1998, the Operating Partnership sold 1,500,000 Series D Preferred
Units to an institutional investor for $50.00 per unit. The net proceeds of
$73.1 million for the Series D Preferred Units were used to pay down the
line of credit and to fund future growth of the Company.
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 Per Share of Common Stock
Per share amounts for the Company are computed using the weighted average
common shares outstanding (including Class B Common Stock and Class C
Common Stock) during the period. The diluted weighted average common shares
outstanding include the dilutive effect of stock options. The basic and
diluted weighted average common shares outstanding for the three and six
months ended June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Basic Weighted Average Diluted Weighted Average
Common Shares Outstanding Common Shares Outstanding
<S> <C> <C>
Three months ended:
June 30, 1998 62,350,563 63,296,234
June 30, 1997 47,241,038 47,919,448
Six months ended:
June 30, 1998 61,183,106 62,120,620
June 30, 1997 45,426,759 46,120,388
</TABLE>
Earnings used in the calculation are reduced by dividends owed to preferred
stockholders.
Reclassifications
Certain items in the 1997 financial statements have been reclassified to
conform to the 1998 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. ACQUISITIONS AND DISPOSITIONS
The Company acquired the following properties (the "1998 Acquisitions")
during the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Location Type (1) Square Feet Initial Cost (2)
------------ -------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
The Concourse San Jose, CA O 540,224 $172,421(4)
Koll Bellefield Center Bellevue, WA O 65,946 10,324
Santa Monica Business Park (3) Santa Monica, CA O 960,081 105,649
Marina Business Center (3) Marina Del Rey, CA O 261,966 21,613
The City Office Portfolio Orange, CA O 409,492 97,306(5)
Skyport Plaza San Jose, CA O 359,600 56,873(6)
Hayward Business Park Hayward, CA I 630,944 33,610
Enterprise Business Park II Sacramento, CA I 579,945 26,202(7)
Brea Park Center - Building C Brea, CA O 26,856 2,297
Allegiance Center Ontario, CA O 73,778 5,191
Ontario Corporate Center Ontario, CA O 97,703 10,479
2600 Michelson (3) Irvine, CA O 391,166 64,287
Cerritos Towne Center (3) Cerritos, CA O 332,608 41,531
Metro Center (3) San Mateo, CA O 711,584 131,058
Biltmore Commerce Center (3) Phoenix, AZ O 262,875 41,786
Benjamin Franklin Plaza Portland, OR O 273,239 50,047
</TABLE>
(1) "O" indicates office property; "I" indicates industrial property.
(2) Represents the initial acquisition costs of the properties excluding
any additional repositioning costs.
(3) Previously identified as a part of the TDC Portfolio.
(4) Includes approximately $22.1 million allocated to 6.6 acres of land
held for future development.
(5) Includes approximately $3.5 million allocated to 10.5 acres of land
held for future development and $27.6 million allocated to a property
currently under redevelopment.
(6) Includes approximately $23.1 million allocated to 20.0 acres of land
held for future development.
(7) Includes approximately $2.0 million allocated to 11.5 acres of land
held for future development.
The Company disposed of the following properties (the "1998
Dispositions") during the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Location Type Square Feet Sales Price
<S> <C> <C> <C> <C>
Rose Pavilion Pleasanton, CA Retail 292,902 $40,928
Camino West Business Park Carlsbad, CA Office 44,574 2,750
Fresno Warehouse II Fresno, CA Industrial 122,000 3,934
Fresno Warehouse III Fresno, CA Industrial 100,200 3,653
Fresno Associates I Fresno, CA Industrial 175,900 6,463
</TABLE>
During the six months ended June 30, 1998, the Company acquired nine
parcels of land for development which were purchased in addition to the
1998 Acquisitions land parcels listed above. The total initial cost of
these nine parcels was $34,658.
12
<PAGE> 13
4. TRANSACTIONS WITH AFFILIATES
Revenues and Expenses
The Company received $1,856 and $17 for six months ended June 30, 1998, and
1997, respectively, for management services provided to certain properties
that are controlled and operating by Spieker Northwest, Inc., Spieker
Griffin/W9 Associates, LLC and Spieker Partners related entities
(collectively, "Spieker Partners"). Certain officers of Spieker Properties,
Inc. are partners in Spieker Partners.
Receivable From Affiliates
The receivable from affiliates at June 30, 1998, and December 31, 1997,
represents management fees and reimbursements due from Spieker Northwest,
Inc., Spieker Griffin/W9 Associates, LLC and Spieker Partners.
Investments in Mortgages
Included in Investments in Mortgages are $108,720 of loans to Spieker
Northwest, Inc. The loans are secured by deeds of trust on real property,
bear interest at 8.5%, and mature in 2012. Interest income of $9,209 is
included in interest and other income for the six months ended June 30,
1998.
Investment in Affiliate
The investment in affiliate represents an investment in Spieker Northwest,
Inc. ("SNI"). The Company owns 95% of the Preferred Stock of SNI. Certain
Senior Officers of the Company own 100% of the voting stock of SNI. SNI
owns 1.1 million square feet of office and industrial property located in
various states. In addition, SNI owns three parcels of land totaling 30.2
acres. The entire portfolio of property is held for sale at June 30, 1998.
In addition to property ownership, SNI provides property management
services to certain properties owned by Spieker Partners.
Additionally, investment in affiliates represents the 12.5% interest in
Spieker Griffin/W9 Associates, LLC. Spieker Griffin/W9 Associates purchased
in April 1998 a 535,000 square foot office complex, which is managed by the
Company, located in Orange County, California for an initial cost of
$100,000.
5. PROPERTY HELD FOR DISPOSITION
The Company has determined to focus exclusively on properties that meet its
long-term strategic objectives. The Company has therefore decided to divest
itself of certain properties. Included in property held for disposition of
$7,663 at June 30, 1998, is one industrial property located in Southern
California, and one industrial property located in Washington. The
divestiture of these properties is subject to identification of a
purchaser, negotiation of acceptable terms and other customary conditions.
6. DEBT
Unsecured Notes
As of June 30, 1998, the Company has outstanding $1,436,500 in investment
grade rated unsecured debt securities with interest rates ranging from
6.65% to 8.00% payable semi-annually. The debt securities mature on various
dates from 2000 to 2027.
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<PAGE> 14
On April 30, 1998, the Company sold $25,000 of unsecured investment grade
rated notes bearing interest at 6.88% and due April 30, 2007. Net proceeds
of $23,400 were used principally to fund the TDC acquisition
Unsecured Short-Term Borrowings
The Company has an Unsecured Line of Credit facility. The maximum amount
available under the facility is $250,000. The facility carries interest at
LIBOR (London Interbank Offered Rates) plus 0.80%, matures in August 2001,
includes an annual administrative fee of $50 and an annual facility fee of
.20%. As of June 30, 1998, the amount drawn on the facility was $75,000. In
addition, the Company has a $200,000 short-term bank facility. This
short-term facility carries interest at LIBOR plus .65% and matures
November 1998 with an option to extend for one more year.
Mortgage Loans
Mortgage loans of $ 112,803 as of June 30, 1998, are secured by deeds of
trust on related properties. The mortgage loans carry interest rates
ranging from 7.37% to 9.88%, require monthly principal and interest
payments, and mature on various dates from 1998 to 2013.
7. DIVIDENDS AND DISTRIBUTIONS PAYABLE
The dividends and distributions payable at June 30, 1998, and December 31,
1997, represent amounts payable to stockholders of record and distributions
payable to minority interest holders as of the same dates. The stockholders
of record and minority interests holders as of June 30, 1998, and December
31, 1997, are as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Shares of:
Common Stock 59,103,041 55,772,632
Class B Common Stock 2,000,000 2,000,000
Class C Common Stock 1,176,000 1,176,470
Series A Preferred Stock 1,000,000 1,000,000
Series B Preferred Stock 4,250,000 4,250,000
Series C Preferred Stock 6,000,000 6,000,000
Series E Preferred Stock 4,000,000 --
Units of:
Minority Interest Holders 8,697,269 7,322,126
Minority Interest Holders -
Series D Preferred Units 1,721,831 2,007,495
</TABLE>
8. STOCKHOLDERS' EQUITY
Equity Offerings
The Company placed 1,166,144 shares of Common Stock at $39.88 per share on
April 23, 1998, in a Registered Unit Investment Trust. Net proceeds of
$44,059 was used to repay borrowings on the Unsecured Line of Credit and to
fund the ongoing acquisition and development of properties.
In June 1998, the Company sold 4,000,000 shares of Series E Cumulative
Redeemable Preferred Stock for $25.00 per share through an underwritten
public offering. The aggregate net proceeds of $96,800 were used primarily
to repay short-term borrowings.
9. COMMITMENTS AND CONTINGENCIES
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
14
<PAGE> 15
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.
10. GAIN ON DISPOSITION OF PROPERTIES
Gain on disposition of property for the six months ended June 30, 1998,
represents the gain on dispositions of one retail property located in
Pleasanton, California, one office property located in Carlsbad, California
and three industrial buildings located in Fresno, California.
11. SUBSEQUENT EVENTS
On various dates subsequent to June 30, 1998, through July 10, 1998, the
Company acquired one property totaling approximately 63,000 square feet at
a total initial acquisition cost of $16,000 and land parcels for an
initial acquisition cost of $19,430. These acquisitions were funded by
proceeds from Common Stock offerings, borrowings from short-term unsecured
bank facilities, and issuances of Operating Partnership Units.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements contained in this Item 2, "Management's Discussion and Analysis
of Financial Conditions and Results of Operations," and elsewhere in this
Quarterly Report on Form 10-Q which are not historical facts may be
forward-looking statements. Such statements are subject to certain risks
and uncertainties which could cause actual results to differ materially
from those projected, including, but not limited to, those risks and
special considerations set forth in the 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 six month periods ended June 30, 1998, as compared to the
corresponding period ended June 30, 1997.
Rental revenues for the second quarter of 1998 increased by $57.9 million
or 77.7% to $132.4 million, as compared with $74.5 million for the quarter
ended June 30, 1997. Of this increase, $21.6 million was generated by
properties acquired during the first six months of 1998 (the "1998
Acquisitions"). In the second quarter of 1998 the Company acquired
properties totaling 2.0 million square feet for a total investment of
$339.5 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 second 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.
$32.9 million of the rental revenue increase in the second quarter of 1998
was generated by properties acquired during 1997. During 1997, the Company
invested $1.5 billion to acquire properties totaling 12.5 million square
feet (the "1997 Acquisitions").
$2.7 million of the increase in rental revenues is attributable to revenue
increases in properties owned at January 1, 1997, and still owned at June
30, 1998 (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 June 30, 1998, the Company completed 361 lease
transactions for the renewal or re-leasing of 2.6 million square feet of
second-generation space. On average for the quarter, the new effective
rates were 40.0% higher than the expiring coupon rent.
$4.2 million of the rental revenue increase in the second quarter of 1998
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 1997 and 1998, as well
as properties currently under development. During the six months ended June
30, 1998, two properties totaling 383,690 square feet were completed for an
estimated final cost of $26.0 million and were added to the Company's
portfolio of stabilized properties. Properties are considered stabilized
when a 95.0% occupancy rate has been achieved. The Company also has a
current development pipeline of 3.8 million square feet representing a
total projected cost of $432.6 million. Certain of the properties in the
development pipeline are shell complete and partially occupied but are not
considered stabilized.
The increases in rental revenue are partially offset by a decrease of $3.5
million attributable to the disposition of properties which were owned by
the Company during the quarter ended June 30, 1997 and sold subsequent to
the end of such quarter (the "Property Dispositions").
Rental revenues for the six month period ended June 30, 1998, increased by
$111.2 million or 80.1% to $250.1 million as compared to $138.9 million for
the same period ended June 30, 1997. $30.8 million and $75.4 million,
respectively, of this increase was attributable to the 1998 and 1997
Acquisitions, $5.4 million relates to
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<PAGE> 17
the Core Portfolio, $7.7 million is attributable to the Developments, with
the remainder attributable to a $8.1 million decrease from Property
Dispositions.
As a result of the 1998 Acquisitions, the 1997 Acquisitions, and the
Developments, the Company's rentable square footage increased by 16.3
million square feet or 67.6% to 40.4 million square feet on June 30, 1998,
from 24.1 million on June 30, 1997. At June 30, 1998, the portfolio of
stabilized properties was 95.6% occupied. By property type, the office
portfolio was 94.5% occupied and the industrial portfolio was 96.7%
occupied.
Interest and other income increased by $4.8 million and $10.4 million or
342.9% and 305.9% for the three and six month periods ended June 30, 1998,
over the same periods ended June 30, 1997. The net increase in interest and
other income is due to interest income from mortgage loans made to Spieker
Northwest, Inc. (SNI), an affiliate of Spieker Properties, Inc., in
relation to SNI's acquisition of non-core assets in the WCB Portfolio.
Refer to footnote (4) Transactions with Affiliates -- "Investment in
Affiliate" for further explanation.
Rental expenses increased by $13.7 million or 89.0% for the quarter ended
June 30, 1998, as compared with the same period in 1997. Real estate taxes
increased by $4.6 million or 79.3% in 1998, as compared to $5.8 million in
1997. 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 $18.3 million increase in property operating
expenses, $9.6 million is attributable to the 1997 Acquisitions, $8.2
million is attributable to the 1998 Acquisitions, $1.4 million is
attributable to the Developments, and $0.2 million is attributable to the
Core Portfolio offset by a $1.1 million decrease attributable to the
Property Dispositions. On a percentage basis, property operating expenses
were 29.8% and 28.5% of rental revenues for the quarter ended June 30,
1998, and June 30, 1997, 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 June 30, 1998, 66.2% of the Company's net operating
income (rental revenues less property operating expenses) was generated by
office properties as compared with 62.5% during the same period in 1997.
In relation to the Company's decision to divest itself of certain
properties, the following analysis is presented: Rental revenues net of
property operating expenses (referred to as "property operating income")
increased by $42.0 million or 82.8% to $92.7 million, as compared to $50.7
million for the quarter ended June 30, 1997. Of this increase, $23.3
million and $13.4 million relates to the 1997 and 1998 Acquisitions, $2.5
million is attributable to the Core Portfolio, and $2.8 million is
attributable to the Developments. For the six month period ended June 30,
1998, property operating income increased by $81.9 million or 87.4% from
$93.7 million to $175.6 million at June 30, 1997. $53.0 million and $19.0
million related to the 1997 and 1998 Acquisitions, $4.7 million is related
to the Core Portfolio, and $5.2 million is attributed to the Developments.
For the six month period ended June 30, 1998, rental expenses increased by
$26.4 million from $27.1 million for the six months ended September 30,
1997. This represents a 97.4% increase year over year. Real estate taxes
increased by $8.6 million or 78.2% to $19.6 million for the first two
quarters of 1998 as compared to $11.0 million for the same period in 1997.
Of the total $35.0 million increase in property operating expenses, $22.4
million is attributable to the 1997 Acquisitions, $11.8 million is for the
1998 Acquisitions, $2.5 million relates to the Developments, $0.7 million
is attributed to the Core Portfolio, and a $2.4 reduction attributable to
the Property Dispositions. On a percentage basis property operating
expenses were 29.2% and 27.4% of rental revenues for the six months ended
June 30, 1998, and 1997, respectively.
Interest expense increased by $18.2 million or 143.3% to $30.9 million for
the three months ended June 30, 1998, from $12.7 million for the same
period in 1997. For the six month period ended June 30, 1998, interest
expense increased by $35.5 million or 143.7% to $60.2 million from $24.7
million for the same period in 1997. 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 June 30, 1998, and 1997
was $1.9 billion and $0.8 billion respectively. The average balance
outstanding for the six months ended June 30, 1998, was $1.8 billion and
$0.7 billion for the same period in 1997. The increases in the average
outstanding debt balances are consistent with the increases in the size of
the Company's portfolio of properties.
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<PAGE> 18
Depreciation and amortization expenses increased by $10.2 million and $19.2
million or 82.3% and 83.5% for the three and six month periods ended June
30, 1998, respectively, as compared with the same periods in 1997, due to
the 1998 and 1997 Acquisitions and the completed Developments.
General and administrative expenses and other expenses increased by $1.5
million and $3.3 million for the three and six month periods ended June 30,
1998 as compared with the same period in 1997, primarily as a result of the
growth in the portfolio. On a percentage basis, general and administrative
expenses were 3.8% and 3.9% of rental revenues for the three and six month
periods ended June 30, 1998, respectively, as compared with 4.7% for the
same periods in 1997.
During the second quarter of 1998, the Company disposed of properties
resulting in a gain on disposition of $6.7 million. This brings the total
gain on disposition of property for the first two quarters of 1998 to $15.7
million on five properties.
Net income before minority interests and disposition of property increased
by $14.5 million or 55.6% to $40.6 million for the three month period ended
June 30, 1998, from $26.1 million for the same period in 1997. For the six
month period ended June 30, 1998, net income before minority interests and
disposition of property increased by $28.6 million or 57.2% to $78.6
million, from $50.0 million for the same period in 1997. The increase in
net income is principally due to the 1998 and 1997 Acquisitions and revenue
growth in the Company's Core Portfolio.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended June 30, 1998, cash provided by operating activities
increased by $58.3 million, or 62.0%, to $152.3 million, as compared to
$94.0 million for 1997. The increase is primarily due to the increase in
net income resulting from the 1997 and 1998 Acquisitions, the Developments,
increased property operating income generated by the Core Portfolio and is
partially offset by an increase in interest expense. Cash used for
investing activities increased by $240.9 million, or 52.9%, to $696.7
million for the first six months of 1998, as compared to $455.8 million for
the first six months of 1997. The increase is attributable to the Company's
ongoing acquisition and development of office and industrial properties
offset by proceeds from dispositions. Cash provided by financing activities
increased by $208.8 million, or 61.1%, to $550.5 million for the first six
months of 1998, as compared to $341.7 million for the same period in 1997.
During the first six months of 1998, cash provided by financing activities
consisted primarily of $265.6 million in net proceeds from the sale of
Common and Preferred Stock and Preferred Operating Partnership Units,
$299.1 million in proceeds from the issuance of unsecured notes (see
below), net borrowings of $75.0 million on the Facility (as defined below)
and an $19.3 million increase in mortgage loans due to loans assumed in
conjunction with property acquisitions. Additionally, payments of
distributions increased by $42.1 million to $91.8 million for the first six
months of 1998, as compared with $49.7 million for the same period in 1997.
The distribution payment increase is due to the greater number of shares
outstanding and a 21.3% increase in the distribution rate of $.94 per share
for the first six months of 1998 from $1.14 per share in 1997.
The principal sources of funding for acquisitions, development, expansion
and renovation of the properties are unsecured short-term borrowings,
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 its
ability to access capital are adequate to continue to meet liquidity
requirements for the foreseeable future.
At June 30, 1998, 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.
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
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<PAGE> 19
repay indebtedness. Also, in January 1997, the Company and the Operating
Partnership filed a 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 statement (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
which 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 7.875% of the liquidation preference of $150.0
million. Net proceeds of $146.0 million were used principally to repay
borrowings on the unsecured line of credit and to fund the 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 $425.0 million were used to repay
indebtedness and to purchase properties which were under contract at the
time of the offering.
In December 1997, the Company placed 573,134 shares of Common Stock in a
Registered Unit Investment Trust at $41.875 per share together with other
publicly traded REITs. The net proceeds of $22.8 million were used to repay
borrowings on the unsecured line of credit and to fund the ongoing
acquisition and development of properties.
In February, March and April 1998, the Company placed 710,832 shares,
608,828 shares and 1,166,144 shares, respectively, of Common Stock at
prices of $42.25, $41.06 and $39.88 in Registered Unit Investment Trusts
along with other publicly traded REITs. The net proceeds of $96.3 million
were used to paydown borrowings on the line of credit and to fund the
ongoing acquisition and development of properties.
In April 1998, the Operating Partnership sold 1,500,000 Series D Cumulative
Redeemable Preferred Units (the "Series D Preferred Units") to an
institutional investor for $50.00 per unit. Dividends are payable at an
annual rate of 7.6875%. The Series D Preferred Units may be called at par
on or after April 20, 2003, and have no stated maturity or mandatory
redemption. The Series D Preferred Units are exchangeable for the Series D
Cumulative Redeemable Preferred Stock of the Company on or after April 20,
2008. The net proceeds of $73.1 million for the Series D Preferred Units
were used to paydown the line of credit and fund future growth of the
Company.
In June 1998, the Company sold 4,000,000 shares of Series E Cumulative
Redeemable Preferred Stock for $25.00 per share. Dividends are payable at
an annual rate of 8.00% of the liquidation preference of $100.0 million.
Net proceeds of $96.8 million were used principally to repay borrowings on
the unsecured line of credit and to fund the ongoing acquisition and
development of property.
In 1997 the Operating Partnership issued $500.0 million of investment grade
rated debt in three tranches as follows: On July 14, 1997, the Operating
Partnership 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 Operating
Partnership 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. On December 8, 1997, the
Operating Partnership issued $200.0 million of 7.35% debentures, priced to
yield 7.37%, and mature on December 1, 2017. Net proceeds from the July
1997, September 1997 and December 1997 unsecured debt securities of $489.0
million were used to repay borrowings on the unsecured line of credit and
to fund the ongoing acquisition and development of properties.
During the first six months of 1998 the Operating Partnership issued $301.5
million of investment grade rated unsecured notes in four tranches as
follows: $150.0 million of 6.75% notes due January 15, 2008; $125.0 million
of 6.875% notes due February 1, 2005; $1.5 million of 7.0% notes due
February 2, 2007 and $25.0 million of 6.875% notes due April 30, 2007.
19
<PAGE> 20
As of June 30, 1998, the Operating Partnership had in total $1.4 billion of
investment grade rated unsecured debt securities outstanding. The debt
securities have interest rates which vary from 6.65% to 8.0%, and maturity
dates which range from 2000 to 2027. Through its issuance of debt the
Company has extended the average maturity for its unsecured debt from 6.4
years at June 30, 1997, to 9.7 years at June 30, 1998.
The Operating Partnership 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 facility has
a competitive bid option that allows the Operating Partnership to request
bids from the Lenders for advances up to $150.0 million. At June 30, 1998,
the Operating Partnership had $75.0 million outstanding under the Facility.
In addition, the Operating Partnership had $200.0 million outstanding under
a separate short-term bank facility at December 31, 1997. This short-term
facility carries interest at LIBOR plus 0.65% and matures in November 1998
with an option to extend for one more year.
In addition to the unsecured debt securities and the Facility, the
Operating Partnership has $112.8 million of secured indebtedness (the
"Mortgages") at June 30, 1998. The Mortgages have interest rates varying
from 10.0% to 7.4% and maturity dates from 1998 to 2013. The Mortgages are
secured by a first or second deed of trust on the related properties and
generally require monthly principal and interest payments. The Company also
has $16.4 million of assessment bonds outstanding as of June 30, 1998.
The Company and Operating Partnership filed a shelf registration statement
(the "May 1998 Shelf Registration Statement") with SEC which registered
$500.0 million of equity securities of the Company and $500.0 million of
debt securities of the Operating Partnership, which became effective in May
1998.
After completion of the equity and debt offerings, the Company has the
capacity pursuant to a shelf registration statement declared effective in
September 1997 (the "September 1997 Registration Statement") and the May
1998 Shelf Registration Statement to issue up to approximately $663.8
million in equity securities and the Operating Partnership has the capacity
pursuant to the September 1997 Registration Statement and the May 1998
Shelf Registration Statement to issue up to $813.5 million in debt
securities.
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, the Company
calculates Funds from Operations by adjusting net income before minority
interest, calculated in accordance with GAAP, for certain non-cash items,
principally the amortization and depreciation of real property and for
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 eliminates the effect of straight-lined rents, as defined under
GAAP, in its FFO calculation, as management believes this presents a more
meaningful picture of rental income over the reporting period.
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<PAGE> 21
Funds from Operations per share is calculated based on weighted average
share equivalents outstanding, assuming the conversion of all shares of
Series A Preferred Stock, Class B and, 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.
STATEMENT OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income before disposition
of property and minority $ 40,630 $ 26,111 $ 78,574 $ 49,923
interest
Adjustments:
Dividends on Series B (2,510) (2,510) (5,020) (5,020)
Preferred Stock
Dividends on Series C (2,953) -- (5,906) --
Preferred Stock
Dividends on Series E (600) -- (600) --
Preferred Stock
Distributions on Preferred
Operating Partnership Units (2,223) -- (3,488) --
Depreciation and Amortization 22,404 12,276 41,769 22,753
Other, net (14) 187 (28) 375
Straight-lined rent (1,508) (579) (3,488) (576)
--------- --------- --------- ---------
Funds from Operations $ 53,226 $ 35,485 $ 101,813 $ 67,455
========= ========= ========= =========
</TABLE>
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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
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 July 1, 1998,
which included certain audited historical and unaudited pro forma
financial information concerning the TDC Portfolio.
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<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: August 14, 1998 /s/ Elke Strunka
---------------------------- ------------------------------------
Elke Strunka
Vice President and
Principal Accounting Officer
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<PAGE> 24
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
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 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 Six Months Ended
--------------------- ----------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Earnings:
Income from operations before disposition of
property and minority interest $40,630 $26,111 $ 78,574 $49,923
Interest expense(1) 30,931 12,687 60,198 24,700
Amortization of capitalized interest 127 79 110 158
------- ------- -------- -------
Total earnings $71,688 $38,877 $138,882 $74,781
======= ======= ======== =======
Fixed charges:
Interest expense(1) $30,931 $12,687 $ 60,198 $24,700
Capitalized interest 3,613 1,407 6,585 2,641
Series A Preferred Dividends 695 573 1,390 1,146
Series B Preferred Dividends 2,510 2,510 5,020 5,020
Series C Preferred Dividends 2,953 -- 5,906 --
Series E Preferred Dividends 600 -- 600 --
------- ------- -------- -------
Total fixed charges and preferred dividends $41,302 $17,177 $ 79,699 $33,507
======= ======= ======== =======
Ratio of earnings to fixed charges
(excluding preferred dividends) 2.08 2.76 2.08 2.74
======= ======= ======== =======
Ratio of earnings to combined fixed charges
and preferred dividends 1.74 2.26 1.74 2.23
======= ======= ======== =======
Fixed charges in excess of earnings $ -- $ -- $ -- $ --
======= ======= ======== =======
</TABLE>
Notes:
(1) Includes amortization of debt discount and deferred financing fees.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 28,649 9,249
<SECURITIES> 0 0
<RECEIVABLES> 6,732 3,748
<ALLOWANCES> 382 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 3,946,531 1,975,891
<DEPRECIATION> 201,781 145,572
<TOTAL-ASSETS> 4,012,011 1,892,504
<CURRENT-LIABILITIES> 0 0
<BONDS> 1,824,303 786,745
0 0
271,972 126,013
<COMMON> 6 4
<OTHER-SE> 1,353,024 821,226
<TOTAL-LIABILITY-AND-EQUITY> 4,012,011 1,892,504
<SALES> 0 0
<TOTAL-REVENUES> 263,942 142,295
<CGS> 0 0
<TOTAL-COSTS> 73,126 38,122
<OTHER-EXPENSES> 52,026 29,550
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 60,198 24,700
<INCOME-PRETAX> 78,574 49,923
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 81,972 56,284
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 69,056 50,118
<EPS-PRIMARY> 1.13 1.10
<EPS-DILUTED> 1.11 1.09
</TABLE>
