<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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:
65,650,299 shares of Common Stock, $0.0001 par value as of November 6, 2000.
Page 1 of 24
Exhibit Index is located on Page 22.
<PAGE> 2
SPIEKER PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) ............................................................. 3
Consolidated Balance Sheets as of September 30, 2000, and December 31, 1999 .................. 4
Consolidated Statements of Operations for the Three months and Nine months
ended September 30, 2000 and 1999 ......................................................... 6
Consolidated Statement of Stockholders' Equity for the Nine months ended
September 30, 2000 ........................................................................ 7
Consolidated Statements of Cash Flows for the Nine months ended September 30, 2000
and 1999 .................................................................................. 8
Notes to Consolidated Financial Statements.................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk ................................... 22
PART II. OTHER INFORMATION
Item 5. Other Information ............................................................................ 22
Item 6. Exhibits and Reports on Form 8-K ............................................................. 22
Signatures ............................................................................................ 24
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached are the following unaudited consolidated financial statements of
Spieker Properties, Inc.:
(i) Consolidated Balance Sheets as of September 30, 2000, and December
31, 1999
(ii) Consolidated Statements of Operations for the Three months and Nine
months ended September 30, 2000 and 1999
(iii) Consolidated Statement of Stockholders' Equity for the Nine months
ended September 30, 2000
(iv) Consolidated Statements of Cash Flows for the Nine months ended
September 30, 2000 and 1999
(v) Notes to Consolidated Financial Statements
The financial statements referred to above should be read together with the
Annual Report on Form 10-K for the year ended December 31, 1999, and Forms 10-Q
for the three month period ended March 31, 2000, and for the six month period
ended June 30, 2000.
3
<PAGE> 4
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 846,678 $ 816,136
Buildings and improvements 3,225,297 3,174,430
Construction in progress 253,106 180,407
----------- -----------
4,325,081 4,170,973
Less -- Accumulated depreciation (345,447) (316,240)
----------- -----------
3,979,634 3,854,733
----------- -----------
Land held for investment 74,222 125,356
Investments in mortgages 9,357 18,725
Properties held for disposition, net 240,528 89,220
----------- -----------
Net investments in real estate 4,303,741 4,088,034
CASH AND CASH EQUIVALENTS 41,404 17,114
ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts of $1,655 as of
September 30, 2000, and $2,139 as of December 31, 1999 3,991 4,846
DEFERRED RENT RECEIVABLE 32,062 22,911
RECEIVABLE FROM AFFILIATES 297 144
DEFERRED FINANCING AND LEASING COSTS, net of accumulated amortization
of $27,114 as of September 30, 2000, and $20,901 as of
December 31, 1999 67,677 59,655
FURNITURE, FIXTURES AND EQUIPMENT, net 5,646 5,107
PREPAID EXPENSES, DEPOSITS ON PROPERTIES AND OTHER ASSETS 28,767 50,091
INVESTMENT IN AFFILIATES 17,900 20,583
----------- -----------
$ 4,501,485 $ 4,268,485
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
DEBT
Unsecured notes $ 1,836,500 $ 1,836,500
Short-term borrowings 141,055 63,012
Mortgage loans 84,988 97,331
----------- -----------
Total debt 2,062,543 1,996,843
----------- -----------
ASSESSMENT BONDS PAYABLE 7,448 10,172
ACCOUNTS PAYABLE 6,420 13,548
ACCRUED REAL ESTATE TAXES 15,225 2,628
ACCRUED INTEREST 43,078 28,634
UNEARNED RENTAL INCOME 30,260 33,244
DIVIDENDS AND DISTRIBUTIONS PAYABLE 60,896 46,977
OTHER ACCRUED EXPENSES AND LIABILITIES 98,086 76,192
----------- -----------
Total liabilities 2,323,956 2,208,238
----------- -----------
MINORITY INTERESTS 279,573 266,802
----------- -----------
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 96,401
Common Stock: $.0001 par value, 660,500,000 shares authorized, 65,610,799 and
64,961,052 shares issued and outstanding as of September 30, 2000, and
December 31, 1999, respectively 6 6
Excess Stock: $.0001 par value, 330,000,000 shares authorized, no shares issued
or outstanding -- --
Additional paid-in capital 1,425,072 1,400,550
Deferred compensation (7,376) (6,347)
Retained earnings 111,881 30,863
----------- -----------
Total stockholders' equity 1,897,956 1,793,445
----------- -----------
$ 4,501,485 $ 4,268,485
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(unaudited, dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 191,693 $ 163,005 $ 541,203 $ 469,114
Interest and other income 2,363 1,595 6,394 4,867
--------- --------- --------- ---------
194,056 164,600 547,597 473,981
--------- --------- --------- ---------
OPERATING EXPENSES:
Rental expenses 42,249 37,937 115,661 105,350
Real estate taxes 12,913 12,798 38,368 35,846
Interest expense, including amortization of deferred
financing costs 34,244 30,678 98,930 89,388
Depreciation and amortization 33,393 29,327 95,213 81,832
General and administrative expenses 7,294 5,906 20,869 17,301
--------- --------- --------- ---------
130,093 116,646 369,041 329,717
--------- --------- --------- ---------
Income from operations before disposition of real estate
and minority interests 63,963 47,954 178,556 144,264
--------- --------- --------- ---------
GAIN ON DISPOSITION OF REAL ESTATE 61,013 6,159 98,690 15,990
--------- --------- --------- ---------
Income from operations before minority interests 124,976 54,113 277,246 160,254
--------- --------- --------- ---------
MINORITY INTERESTS (15,150) (6,902) (33,985) (22,285)
--------- --------- --------- ---------
Net income 109,826 47,211 243,261 137,969
--------- --------- --------- ---------
PREFERRED DIVIDENDS:
Series A Preferred Stock (854) (744) (2,561) (2,232)
Series B Preferred Stock (2,510) (2,510) (7,530) (7,530)
Series C Preferred Stock (2,953) (2,953) (8,859) (8,859)
Series E Preferred Stock (2,000) (2,000) (6,000) (6,000)
--------- --------- --------- ---------
Net income available to Common Stockholders $ 101,509 $ 39,004 $ 218,311 $ 113,348
========= ========= ========= =========
INCOME PER SHARE OF COMMON STOCK:
Net income - basic $ 1.55 $ .60 $ 3.34 $ 1.78
========= ========= ========= =========
Net income - diluted $ 1.49 $ .60 $ 3.25 $ 1.76
========= ========= ========= =========
DIVIDENDS PER SHARE:
Series A Preferred Stock $ .85 $ .74 $ 2.56 $ 2.22
========= ========= ========= =========
Series B Preferred Stock $ .59 $ .59 $ 1.77 $ 1.77
========= ========= ========= =========
Series C Preferred Stock $ .49 $ .49 $ 1.47 $ 1.47
========= ========= ========= =========
Series E Preferred Stock $ .50 $ .50 $ 1.50 $ 1.50
========= ========= ========= =========
Common Stock, including Class C $ .70 $ .61 $ 2.10 $ 1.83
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 7
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Series A, B, C Common Common Additional
and E Stock Stock Par Paid-in Deferred Retained
Preferred Stock Shares Value Capital Compensation Earnings Total
--------------- ---------- -------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 $ 368,373 64,961,052 $ 6 $1,400,550 $(6,347) $ 30,863 $ 1,793,445
Conversion of Operating
Partnership Units -- 196,406 -- 7,810 -- -- 7,810
Allocation of Minority
Interests -- -- -- 2,458 -- -- 2,458
Restricted Stock Grant -- 100,497 -- 3,859 (3,859) -- --
Exercise of Stock options -- 352,844 -- 10,395 -- -- 10,395
Deferred Compensation
amortization -- -- -- -- 2,830 -- 2,830
Dividends Declared (24,950) -- -- -- -- (137,293) (162,243)
Net Income 24,950 -- -- -- -- 218,311 243,261
--------- ---------- --- ---------- ------- --------- -----------
BALANCE AT SEPTEMBER 30, 2000 $ 368,373 65,610,799 $ 6 $1,425,072 $(7,376) $ 111,881 $ 1,897,956
========= ========== === ========== ======= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 8
SPIEKER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 243,261 $ 137,969
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 95,213 81,832
Amortization of deferred financing costs 1,631 1,747
Loss from affiliate 183 192
Non-cash compensation 2,830 736
Minority interests' share of net income 33,985 22,285
Gain on disposition of real estate (98,690) (15,990)
Increase in accounts receivable and other assets (5,880) (2,075)
Increase in receivable from affiliates (153) (220)
Decrease in assessment bonds payable (646) (728)
Increase (decrease) in accounts payable and other accrued expenses and
liabilities 9,696 (735)
Increase in accrued real estate taxes 12,608 13,274
Increase in accrued interest 14,444 16,250
---------- ----------
Net cash provided by operating activities 308,482 254,537
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (466,632) (245,002)
Proceeds from disposition of properties 264,438 88,618
Reductions of deposits on properties, net 28,008 3,123
Additions to investments in mortgages and other (8,935) --
Proceeds from investments in mortgages 12,065 --
Additions to leasing costs (19,524) (11,669)
Distributions from affiliates 2,500 --
---------- ----------
Net cash used for investing activities (188,080) (164,930)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 153,055 570,000
Payments on debt (87,460) (480,930)
Payments of financing fees, net of hedging proceeds (750) (1,311)
Payments of dividends and distributions (171,352) (164,199)
Proceeds from stock options exercised 10,395 2,083
---------- ----------
Net cash used for financing activities (96,112) (74,357)
---------- ----------
Net increase in cash and cash equivalents 24,290 15,250
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,114 4,916
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,404 $ 20,166
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 82,809 $ 71,342
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 9
SPIEKER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(unaudited, dollars in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
As used herein, the terms "we", "us", "our", or the "Company" refer
collectively to Spieker Properties, Inc., Spieker Properties, L.P. (the
"Operating Partnership"), and consolidated entities. We were organized in the
state of Maryland on August 20, 1993, and commenced operations effective with
the completion of our initial public offering on November 18, 1993. We qualify
as a real estate investment trust, or REIT, under the Internal Revenue Code of
1986, as amended. As of September 30, 2000, Spieker Properties, Inc. owned an
approximate 88.1% general and limited partnership interest in the Operating
Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
Our consolidated financial statements include the consolidated financial
position of the Operating Partnership and its subsidiaries as of September 30,
2000, and December 31, 1999, and its consolidated results of operations and cash
flows for the three and nine months ended September 30, 2000 and 1999. Our
investment in Spieker Northwest, Inc., an unconsolidated Preferred Stock
subsidiary, and our investment in Spieker Griffin/W9 Associates, LLC, are
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 as of, and for the three and nine months
ended September 30, 2000 and 1999, have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission 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 accounting
principles generally accepted in the United States, have been condensed or
omitted pursuant to SEC rules or regulations; however, we believe that adequate
disclosures have been made.
The interim results for the three and nine months ended September 30, 2000 and
1999, are not necessarily indicative of results for the full year. We suggest
that these financial statements be read together with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 1999, and Forms 10-Q for the three month period ended
March 31, 2000, and for the six month period ended June 30, 2000.
Land Held for Investment
Construction in progress costs related to land parcels that are either held for
investment or are in the design and approval process as of September 30, 2000,
were approximately $18.8 million.
Minority Interests
Our minority interests include the limited partners' interest in the Operating
Partnership of approximately 11.9% at September 30, 2000, and 12.0% at December
31, 1999. Minority interests also include $75,000 of Preferred Series D units as
of September 30, 2000, and December 31, 1999.
9
<PAGE> 10
Net Income Per Share of Common Stock
Per share amounts are computed using the weighted average common shares
outstanding during the period. Additionally, earnings used in the calculation
are reduced by dividends owed to preferred stockholders. The diluted weighted
average common shares outstanding include the dilutive effects of outstanding
stock options, using the Treasury Stock method, and Series A Preferred Stock.
Series A Preferred Stock was dilutive in the three and nine months ended
September 30, 2000, and antidilutive in the three and nine months ended
September 30,1999. The basic and diluted weighted average common shares
outstanding for the three and nine months ended September 30, 2000 and 1999, are
as follows:
<TABLE>
<CAPTION>
Basic Weighted Average Diluted Weighted Average
Common Shares Outstanding Common Shares Outstanding
------------------------- -------------------------
<S> <C> <C>
Three Months Ended:
September 30, 2000 65,527,038 68,678,646
September 30, 1999 64,473,256 65,243,805
Nine Months Ended:
September 30, 2000 65,301,209 67,968,942
September 30, 1999(1) 63,677,475 64,410,356
</TABLE>
(1) Includes the weighted average effect of Class C Common Stock. The Class C
Common Stock was converted into Common Stock during the first quarter of
1999.
Reclassifications
Certain items in the 1999 financial statements have been reclassified to conform
to the 2000 presentation with no effect on results of operations.
Use of Estimates
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. ACQUISITIONS AND DISPOSITIONS
Acquisitions
We acquired the following properties, referred to as the "2000 Acquisitions",
during the nine months ended September 30, 2000.
<TABLE>
<CAPTION>
Property Month Total Rentable Initial
Project Name Region - Location Type(1) Acquired Square Feet Cost(2)
------------ ------------------ -------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Larkspur Landing Peninsula/North Bay - Larkspur, CA O February 189,040 $ 42,180
Quadrant Plaza Pacific Northwest - Bellevue, WA O February 145,585 33,467
I-90 Bellevue I&II Pacific Northwest - Bellevue, WA O May 134,235 27,766
Drake's Landing Peninsula/North Bay - Greenbrae, CA O August 121,470 37,454
Lincoln Center Pacific Northwest - Portland, OR O September 725,961 118,937
--------- --------
1,316,291 $259,804
========= ========
</TABLE>
(1) "O" indicates office property.
(2) Represents the initial acquisition costs of the properties excluding any
additional repositioning costs.
10
<PAGE> 11
In addition to the projects listed above, we acquired an asset to be redeveloped
in Southern California at an initial cost of $11,500 during the first quarter of
2000. In addition, during the first nine months of 2000, we acquired two parcels
of land for development at an initial cost of $19,174.
During the nine months ended September 30, 1999, we acquired four office
properties totaling 526,341 square feet at an initial cost of $75,885. In
addition, we acquired four parcels of land for development at an initial cost of
$46,633.
Dispositions
We disposed of the following projects referred to as the "Dispositions", during
the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
Property Month Total Rentable
Project Name Region - Location Type(1) Of Sale Square Feet
----------------------------------- ------------------------------------ -------- --------- --------------
<S> <C> <C> <C>
City Commerce Park Pacific Northwest - Seattle, WA I January 179,413
Vasco Landing East Bay/Sacramento - Livermore, CA L January --(2)
Front Street East Bay/Sacramento - Sacramento, CA I February 47,322
Woodinville Corporate Center I Pacific Northwest - Woodinville, WA I February 170,793
Woodinville Corporate Center III Pacific Northwest - Woodinville, WA I February 250,502
Commerce Park West III East Bay/Sacramento - Sacramento, CA L March --(3)
12 Upper Ragsdale Silicon Valley - Monterey, CA I May 17,592
Cascade Commerce Park Pacific Northwest - Seattle, WA I May 340,125
Sea Tac Industrial Park Pacific Northwest - Seattle, WA I May 186,259
Commerce Park West East Bay/Sacramento - Sacramento, CA I June 75,000
11999 San Vicente Southern California - Los Angeles, CA O August 55,673
Riverside Business Center East Bay/Sacramento - Sacramento, CA I August 174,624
Seaport East Bay/Sacramento - Sacramento, CA I August 199,553
South Center West Business Park Pacific Northwest - Tukwila, WA I August 286,921
Stadium Business Park Southern California - Anaheim, CA I Aug/Sept 807,911
Western Metal Lath Southern California - Riverside, CA I August 161,588
21 Lower Ragsdale Silicon Valley - Monterey, CA I September 22,912
531 Getty Court East Bay/Sacramento - Benicia, CA I September 66,816
535 Getty Court East Bay/Sacramento - Benicia, CA I September 68,544
380 Industrial Court East Bay/Sacramento - Benicia, CA L September --(4)
500-518 Stone Road East Bay/Sacramento - Benicia, CA I September 51,297
521-531 Stone Road East Bay/Sacramento - Benicia, CA I September 149,760
524 Stone Road East Bay/Sacramento - Benicia, CA I September 67,392
533-537 Stone Road East Bay/Sacramento - Benicia, CA I September 156,624
539 Stone Road East Bay/Sacramento - Benicia, CA I September 122,000
601 Stone Road East Bay/Sacramento - Benicia, CA I September 64,238
Benicia Commerce Center II East Bay/Sacramento - Benicia, CA I September 220,549
Overland Court II East Bay/Sacramento - Benicia, CA I September 161,941
Sorrento Vista Southern California - Sorrento Mesa, CA I September 228,000
</TABLE>
(1) I- Industrial; L- Land; O- Office
(2) Represents sale of approximately 0.8 acres.
(3) Represents sale of approximately 4.7 acres.
(4) Represents sale of approximately 6.2 acres.
The gross proceeds for land and property dispositions were $186,344 for the
three months ended September 30, 2000, and $268,993 for the nine months ended
September 30, 2000. Cash proceeds, net of closing costs, received from the
dispositions were $184,044 for the three months ended September 30, 2000, and
$264,438 for the nine months ended September 30, 2000. These proceeds were used
to fund our recent acquisitions and our existing development pipeline. Gain
recognized on disposition of real estate was $61,013 for the three months ended
September 30, 2000, and $98,690 for the nine months ended September 30, 2000.
11
<PAGE> 12
The gross proceeds for the land and property dispositions were $20,256 for the
three months ended September 30, 1999, and $91,099 for the nine months ended
September 30, 1999. Included in the proceeds were $5,170 recognized in the first
quarter of 1999 for a condemnation gain. Cash proceeds, net of closing costs,
received from the disposition of the properties and land were $19,987 for the
three months ended September 30, 1999, and $88,618 for the nine months ended
September 30, 1999.
4. TRANSACTIONS WITH AFFILIATES
Revenues and Expenses
We received $433 for the three months and $878 for the nine months ended
September 30, 2000, and $276 for the three months and $876 for the nine months
ended September 30, 1999, for management services provided to certain properties
that are controlled and operated by either Spieker Northwest, Inc., or SNI,
Spieker Griffin/W9 Associates, LLC, or Spieker Partners. Certain of our officers
are partners in Spieker Partners.
Receivable From Affiliates
The $297 receivable from affiliates at September 30, 2000, and the $144 at
December 31, 1999, represent management fees and reimbursements due from SNI,
Spieker Griffin/W9 Associates, LLC, and Spieker Partners.
Investments in Mortgages
Investments in mortgages of $9,357 at September 30, 2000, and $18,725 at
December 31, 1999, are loans to SNI. The loans are secured by deeds of trust on
real property, bear interest at 8.5% to 9.5%, and mature in 2012. Interest
income on the notes of $231 for the three months ended and $915 for the nine
months ended September 30, 2000, are included in interest and other income.
Investment in Affiliates
The investment in affiliates includes an investment in SNI. We own 95% of the
non-voting Preferred Stock of SNI. Certain senior officers and one former
officer of ours own 100% of the voting stock of SNI. At September 30, 2000, SNI
owned 85,114 square feet of office and industrial property located in
California. SNI also owns 1 parcel of land totaling 3.4 acres. In addition to
property ownership, SNI provides property management services to certain
properties owned by Spieker Partners.
Additionally, investment in affiliates includes the 50.0% common interest in
Spieker Griffin/W9 Associates, LLC. During the second quarter of 2000, our 37.5%
preferred interest in Spieker Griffin/W9 Associates, LLC was converted to common
interest. Spieker Griffin/W9 Associates, LLC owns a 535,000 square foot office
complex, located in Orange County, California, which we manage.
5. PROPERTIES HELD FOR DISPOSITION
We continue to review our portfolio and our long-term strategy for properties.
Over time we will dispose of assets that do not have a strategic fit within the
portfolio. Included in properties held for disposition of $240,528 at September
30, 2000, are thirty-six properties representing 6,415,478 square feet of
industrial property and 383,120 square feet of office property, and three land
parcels representing 23.7 acres. Thirteen industrial properties and one office
property are located in the Pacific Northwest. Twenty industrial properties, two
office properties, and two land parcels are located in Northern California. One
land parcel is located in Southern California.
12
<PAGE> 13
The following summarizes the condensed results of operations for the properties
held for disposition at September 30, 2000, for the nine months ended September
30, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Revenues $ 30,645 $ 27,755
Property Operating Expenses(1) (6,239) (5,819)
-------- --------
Net Operating Income $ 24,406 $ 21,936
======== ========
</TABLE>
(1) Property Operating Expenses consist of property related rental expenses
and real estate taxes.
6. DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Unsecured investment grade notes, fixed interest rates varying from 6.65% to
8.00%, payable semi-annually, due from 2000 to 2027 $1,836,500 $1,836,500
Short-term borrowings, variable interest rates ranging from LIBOR plus 0.80% to
LIBOR plus 1.25%, due 2001 to 2003 141,055 63,012
Mortgage loans, fixed interest rates varying from 7.00% to 9.88%, due 2001 to
2013(1) 84,988 97,331
---------- ----------
$2,062,543 $1,996,843
========== ==========
</TABLE>
(1) Mortgage loans generally require monthly principal and interest payments.
Short-term borrowings include a $250,000 unsecured credit facility which matures
in August 2001. The credit facility carries interest at the London Interbank
Offering Rate, referred to as LIBOR, plus 0.80%. The one-month LIBOR at
September 30, 2000, was 6.62%. The credit facility also includes an annual
administrative fee of $50 and an annual facility fee of 0.20%. As of September
30, 2000, the amount drawn on the credit facility was $103,000.
As of September 30, 2000, the short-term borrowings also include a $100,000
secured development facility which matures in May 2003. The development facility
carries interest at LIBOR plus 1.25%, including an annual administrative fee of
$35 and an unused facility fee of 0.25%. As of September 30, 2000, the amount
drawn on the development facility was $38,055.
Both the credit facility and the development facility are subject to financial
covenants concerning leverage, interest coverage and certain other ratios. We
are currently in compliance with all of the covenants on both the facilities.
Our unsecured investment grade notes are subject to financial covenants
concerning leverage, interest coverage and certain other ratios. We are
currently in compliance with all of the covenants in the unsecured note
agreements governing this indebtedness.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Capitalized Interest $4,168 $5,311 $13,701 $15,986
</TABLE>
13
<PAGE> 14
7. DIVIDENDS AND DISTRIBUTIONS PAYABLE
The dividends and distributions payable at September 30, 2000, and December 31,
1999, represent amounts payable to the stockholders of record and distributions
payable to minority interest holders as of the same dates. The stockholders of
record and minority interest holders are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Shares of:
Common Stock 65,610,799 64,961,052
Series A Preferred 1,000,000 1,000,000
Series B Preferred 4,250,000 4,250,000
Series C Preferred 6,000,000 6,000,000
Series E Preferred 4,000,000 4,000,000
Units of:
Minority Interest Holders 8,849,553 8,822,915
Minority Interest Holders - Preferred 1,500,000 1,500,000
</TABLE>
8. RESTRICTED STOCK
Effective June 9, 1999, the Board of Directors passed a resolution authorizing
the issuance of up to 3,164,935 restricted shares of our common stock pursuant
to restricted stock agreements, and immediately issued 201,610 of the newly
authorized shares in exchange for previously outstanding unvested restricted
shares granted in 1997, 1998 and 1999 under the Stock Incentive Plan. As of
September 30, 2000, a total of 303,206 restricted shares have been issued.
9. SEGMENT INFORMATION
We have five reportable segments or "regions": Pacific Northwest; East
Bay/Sacramento, California; Peninsula/North Bay, California; Silicon Valley,
California; and Southern California. Each region has a Regional President who is
directly responsible for managing all phases of the region's operations
including acquisition, development, leasing and property management. Each region
includes both office and industrial properties which are leased to tenants
engaged in various types of business activities. The accounting policies for the
five regions are the same as those described in the summary of significant
accounting policies. We evaluate performance based upon the combined net
operating income of the properties in each region. Each of the five operating
regions consists of differing mixes of office and industrial properties. The
rental income and net operating income for the regions are not comparable, given
the differing mixes of properties within the regions.
Effective January 1, 2000, the North-East Bay/Sacramento region was split into
two regions. The two new regions are now called East Bay/Sacramento and
Peninsula/North Bay. The 1999 rental income and net operating income disclosure
below has been restated to reflect these new regions. Significant information
for the reportable segments for the nine months ended September 30, 2000, and
1999 is as follows:
<TABLE>
<CAPTION>
PACIFIC EAST BAY/ PENINSULA/ SILICON SOUTHERN
NORTHWEST SACRAMENTO(1) NORTH BAY(1) VALLEY CALIFORNIA TOTAL
-------- ------------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
2000 Rental Income $103,805 $90,979 $66,755 $130,307 $149,357 $541,203
1999 Rental Income 100,581 71,360 53,276 108,569 135,328 469,114
2000 Net Operating Income(2) 73,440 65,529 47,303 103,478 97,424 387,174
1999 Net Operating Income(2) 72,078 49,430 36,365 84,345 85,700 327,918
2000 Additions to Properties(3)(4) 180,170 -- 79,634 -- -- 259,804
2000 Reductions to Properties(3) 40,470 56,553 -- 2,008 65,801 164,832
</TABLE>
(1) The basis of the assets re-allocated from the split of the North-East
Bay/Sacramento region was approximately $803,710 to the East
Bay/Sacramento region and $477,242 to the Peninsula/North Bay Region.
14
<PAGE> 15
(2) Net operating income for the properties is calculated by subtracting
property related rental expenses and real estate taxes from rental income
on the accompanying consolidated statements of operations.
(3) See Note 3 to the consolidated financial statements for the related square
footage by region of the additions and reductions to properties.
(4) Represents the initial acquisition costs of the properties excluding any
additional repositioning costs.
10. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Increase to land and assessment bonds payable $ 102 $ 206
Write-off of fully depreciated property 11,422 3,686
Write-off of fully depreciated furniture, fixtures and equipment 727 328
Write-off of fully amortized deferred financing and leasing costs 4,533 1,246
Restricted Stock grants, net of amortization 1,029 2,750
Minority Interest Capital recorded for property acquisitions 8,644 --
Debt assumed in property acquisitions -- 29,475
Operating Partnership unit conversion to Common Stock step up 3,438 --
Operating Partnership unit conversion to Common Stock step down -- 1,468
Other non-cash deposits 1,138 --
</TABLE>
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 our
other SEC filings. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. We undertake
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 our consolidated operations for the three and
nine month periods ended September 30, 2000, as compared to the corresponding
periods ended September 30, 1999 (amounts in tables are presented in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
CHANGE
-----------------
2000 1999 $ %
Rental Revenues ------ ------ ----- -----
<S> <C> <C> <C> <C>
1999 Core Portfolio $166.0 $147.8 $18.2 12.3%
1999 Acquisitions 4.7 2.3 2.4 104.3
2000 Acquisitions 4.1 -- 4.1 --
Developments 14.3 2.9 11.4 393.1
Dispositions 2.6 10.0 (7.4) (74.0)
------ ------ ----- -----
$191.7 $163.0 $28.7 17.6%
====== ====== ===== =====
Occupancy Rate at Quarter End 97.7% 96.7%
====== ======
</TABLE>
15
<PAGE> 16
For the quarter ended September 30, 2000, rental revenues increased by $28.7
million over the same period last year. $18.2 million, or 63.4%, of the rental
revenue increase was generated by the "1999 Core Portfolio", defined as
properties owned at January 1, 1999, and still owned at September 30, 2000. The
increase in the 1999 Core Portfolio revenue was attributable to higher rollover
rental rates realized on the renewal and re-leasing of our rentable space and
increases in occupancies. Also included in rental revenue for the three months
ended September 30, 2000, is $1.4 million of termination fees, up from $.5
million for the same period in 1999. During the quarter, we completed 321 lease
transactions for the renewal and re-lease of approximately 1.9 million square
feet of second generation space. Rollover effective rent growth on these leases
was, on average, 83.4% higher than the previous rents received on those same
spaces. This rent growth is the measurement of the difference between effective
(average) rents on new and renewed leases as compared to the expiring coupon
rent on those same spaces. Lease terms on leases signed during the quarter were
67.0 months on a weighted average basis.
The Developments contributed $11.4 million, or 39.7%, to the rental revenue
increase over the same period last year. The Developments include both
properties completed and added to our portfolio of stabilized properties, as
well as properties currently in the development pipeline. We consider properties
"stabilized" at the earlier of eighteen months after shell completion or when a
95.0% occupancy rate has been reached. During the three months ended September
30, 2000 we stabilized four properties consisting of approximately 683,000
square feet at estimated final costs of $116.9 million. Our development pipeline
at September 30, 2000, consists of eight properties totaling approximately 1.8
million square feet and represents an estimated total cost of $457.5 million.
The Developments were 59.1% preleased at September 30, 2000. Although certain
properties in the development pipeline are shell complete and are partially
occupied, they are not yet considered stabilized.
The 2000 Acquisitions contributed $4.1 million, or 14.3%, to the rental revenue
increase over the same period as last year. During the three months ended
September 30, 2000, we acquired two office properties totaling 847,431 square
feet for a total investment of $158.5 million. These properties were acquired
during the quarter and, as such, a full quarter's worth of revenue and expense
was not recognized during the period. As used herein, the term "total
investment" represents the initial purchase price of acquisitions, plus
projected costs of certain repositioning and rehab capital expenditures
anticipated at the time of purchase.
The 1999 Acquisitions contributed $2.4 million, or 8.4%, to the rental revenue
increase over the same period as last year. During 1999, we acquired five office
properties totaling 807,037 square feet for a total investment of $134.3
million. The properties were acquired at various dates throughout the year,
therefore a full quarter's worth of revenue and expense may not be reflected in
the three months ended September 30, 1999.
The increases in rental revenues are partially offset by a decrease of $7.4
million attributable to properties which we disposed of during the nine months
ended September 30, 2000. The Dispositions took place at various dates during
the year, therefore a full quarter's worth of revenues and expenses may not be
reflected in the 2000 rental revenues. During the quarter we disposed of
nineteen properties totaling 3,066,343 square feet (see Note 3 to the
consolidated financial statements). One property totaling 286,921 square feet
represented the final disposition of approximately 3.6 million square feet of
the Seattle industrial portfolio.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------
CHANGE
------------------
2000 1999 $ %
Rental Revenues ------ ------ ----- -----
<S> <C> <C> <C> <C>
1999 Core Portfolio $472.3 $425.8 $ 46.5 10.9%
1999 Acquisitions 13.1 4.9 8.2 167.3
2000 Acquisitions 7.7 -- 7.7 --
Developments 33.4 6.1 27.3 447.5
Dispositions 14.7 32.3 (17.6) (54.5)
------ ------ ------ -----
$541.2 $469.1 $ 72.1 15.4%
====== ====== ====== =====
Occupancy Rate at Quarter End 97.7% 96.7%
====== ======
</TABLE>
16
<PAGE> 17
Rental revenues for the nine months ended September 30, 2000, increased by $72.1
million. $46.5 million, or 64.5%, of the rental revenue increase was due to
revenues generated by the 1999 Core Portfolio. The increase in the 1999 Core
Portfolio revenue during the last nine months was attributed to higher rollover
rental rates realized on the renewal and re-leasing of second generation space
and increases in occupancies. Also included in rental revenue for the nine
months ended September 30, 2000, is $4.8 million of termination fees, up from
$1.7 million for the same period in 1999. During the nine months ended September
30, 2000, we completed 1,083 lease transactions for the renewal and re-lease of
6.5 million square feet of second generation space. On average, year-to-date,
the new effective rates were 69.4% higher than the expiring coupon rent.
The Developments contributed $27.3 million, or 37.9%, to the rental revenue
increase for the nine months ended September 30, 2000. The 1999 Acquisitions
contributed $8.2 million to the rental revenue increase, and the 2000
Acquisitions contributed $7.7 million. During the nine months ended September
30, 2000, we acquired five office properties totaling 1,316,291 square feet for
a total investment of $266.7 million. These increases in rental revenues are
partially offset by a decrease of $17.6 million attributable to the
Dispositions. During the nine months ended September 30, 2000, we disposed of
twenty-nine properties totaling 4,333,349 square feet (see Note 3 to the
consolidated financial statements).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ---------------------------------
CHANGE CHANGE
--------------- -------------
2000 1999 $ % 2000 1999 $ %
---- ---- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and Other Income $2.4 $1.6 $0.8 50.0% $6.4 $4.9 $1.5 30.6%
</TABLE>
Interest and other income during the comparable nine month periods increased due
to additional management fees and salary reimbursements collected from outside
parties, and from interest income on deposits held in escrow from disposed
properties. Average cash balances for the three month and nine month periods
ended September 30, 2000, were $41.5 million and $30.9 million, and for 1999
were $33.9 million and $27.8 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -----------------------------------
CHANGE CHANGE
------------- -------------
2000 1999 $ % 2000 1999 $ %
----- ----- ---- ---- ------ ------ ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property Operating Expenses
Rental Expenses $42.3 $37.9 $4.4 11.6% $115.7 $105.4 $10.3 9.8%
Real Estate Taxes 12.9 12.8 0.1 0.8 38.3 35.8 2.5 7.0
----- ----- ---- ---- ------ ------ ----- ---
$55.2 $50.7 $4.5 8.9% $154.0 $141.2 $12.8 9.1%
===== ===== ==== ==== ====== ====== ===== ===
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -----------------------------------
CHANGE CHANGE
-------------- --------------
2000 1999 $ % 2000 1999 $ %
----- ----- ----- ---- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property Operating Expenses
1999 Core Portfolio $48.1 $46.5 $1.6 3.4% $135.5 $130.0 $5.5 4.2%
1999 Acquisitions 1.4 0.8 0.6 75.0 4.0 1.5 2.5 166.7
2000 Acquisitions 1.1 -- 1.1 -- 2.2 -- 2.2 --
Developments 3.7 1.4 2.3 164.3 8.9 3.3 5.6 169.7
Dispositions 0.9 2.0 (1.1) (55.0) 3.4 6.4 (3.0) (46.9)
----- ----- ----- ---- ------ ------ ----- -----
$55.2 $50.7 $ 4.5 8.9% $154.0 $141.2 $12.8 9.1%
===== ===== ===== ==== ====== ====== ===== =====
Property Operating Expenses
as % of Rental Revenues 28.8% 31.1% 28.5% 30.1%
===== ===== ===== ======
</TABLE>
17
<PAGE> 18
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 square footage of our portfolio of office properties, as well as
higher compensation costs included in rental expenses. These increases are
consistent with the increases in rental revenue.
Rental revenues net of property operating expenses, referred to as "net
operating income," are presented in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- -------------------------------------------
CHANGE CHANGE
------------------- -------------------
2000 1999 $ % 2000 1999 $ %
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Income
1999 Core Portfolio $117.9 $101.3 $ 16.6 16.4% $336.8 $295.8 $ 41.0 13.9%
1999 Acquisitions 3.3 1.5 1.8 120.0 9.1 3.4 5.7 167.6
2000 Acquisitions 3.0 -- 3.0 -- 5.5 -- 5.5 --
Developments 10.6 1.5 9.1 606.7 24.5 2.8 21.7 775.0
Dispositions 1.7 8.0 (6.3) (78.8) 11.3 25.9 (14.6) (56.4)
------ ------ ------ ------ ------ ------ ------ ------
$136.5 $112.3 $ 24.2 21.5% $387.2 $327.9 $ 59.3 18.1%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
CHANGE CHANGE
------------ -------------
2000 1999 $ % 2000 1999 $ %
----- ----- ---- ---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses
Interest Expense, including
Amortization of Deferred
Financing Costs $34.2 $30.7 $3.5 11.4% $98.9 $89.4 $ 9.5 10.6%
Depreciation and Amortization
Expense 33.4 29.3 4.1 14.0 95.2 81.8 13.4 16.4
G & A Expenses 7.3 5.9 1.4 23.7 20.9 17.3 3.6 20.8
G & A Expenses as %
of Rental Revenues 3.8% 3.6% 3.9% 3.7%
Capitalized Interest $ 4.2 $ 5.3 $13.7 $16.0
</TABLE>
Interest expense increased due to the net effect of interest expense incurred
from additional note offerings during the second quarter of 1999, increased
borrowings under our development facility, and a slight decrease in interest
capitalized in relation to the Developments we had in process during the three
and nine months ended September 30, 2000, offset by lower balances on our
mortgage loans. The average outstanding debt for the three and nine months ended
September 30, 2000, was $2.1 billion and $2.0 billion, and the average
outstanding debt for the three and nine months ended September 30, 1999, was
$2.0 billion and $1.9 billion.
Depreciation and amortization expense increased by $4.1 million for the three
month period and $13.4 million for the nine month period ended September 30,
2000, compared with the same periods in 1999, due primarily to the 1999
Acquisitions, the 2000 Acquisitions and the Developments.
General and administrative expenses increased by $1.4 million for the three
month period and $3.6 million for the nine month period ended September 30,
2000, compared with the same periods in 1999, primarily as a result of increases
in salaries given current wage pressures experienced on the West Coast. General
and administrative expenses during 2000 have, however, remained relatively
consistent with 1999 levels on a percentage of revenue basis.
18
<PAGE> 19
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- --------------------------------
CHANGE CHANGE
-------------- ------------
2000 1999 $ % 2000 1999 $ %
------ ------ ----- ------ ------ ------ ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from Operations before
Disposition of Real Estate
and Minority Interests $64.0 $48.0 $16.0 33.3% $178.6 $144.3 $34.3 23.8%
</TABLE>
The increase in income from operations before disposition of real estate and
minority interests of $16.0 million for the three month period and $34.3 million
for the nine month period ended September 30, 2000, is principally due to rent
increases in the 1999 Core Portfolio, the 1999 Acquisitions, the 2000
Acquisitions and the Developments.
During the first nine months of 2000, we recorded gains on the dispositions of
three land parcels, one office property and twenty-five industrial properties
totaling $98.7 million (see Note 3 to the consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2000, we generated $302.2 million in
cash flows from operating activities. These cash flows were primarily generated
by income provided by our operating properties. The cash flows from investing
activities of ($181.8) million were the net effect of the cost of additions of
real estate assets offset by proceeds from the disposition of assets. The cash
flows from financing activities of ($96.1) million can be attributed to the
payments of dividends and distributions and debt service, offset by additional
borrowings. During the first nine months of 2000, net cash used by financing
activities included net borrowings of approximately $40.0 million under our
facility, $38.1 million under our development facility and principal payments of
$12.4 million on mortgage loans. Payments of dividends and distributions
increased by $7.2 million due to a 14.8% increase in the dividend rate paid on
common stock and distributions paid on Operating Partnership units to $2.10 per
share and unit for the first nine months in 2000 from $1.83 per share and unit
in 1999, as well as a higher number of common shares outstanding.
Our principal sources of funding for acquisitions, development, expansion and
renovation of the properties and for debt maturities are unsecured and secured
short-term borrowings, public and privately placed equity financing, public
unsecured debt financing, the issuance of partnership units in the Operating
Partnership, proceeds from dispositions, the assumption of secured debt on
properties acquired and cash flow provided by operations. We believe that our
liquidity and our ability to access capital and proceeds from disposition of
non-strategic assets are adequate to continue to meet liquidity requirements for
the foreseeable future.
At September 30, 2000, we had no material commitments for capital expenditures
related to the renewal or re-leasing of space. We believe that the cash provided
by operations and our facilities provide sufficient sources of liquidity to fund
capital expenditure costs associated with the renewal or re-leasing of space.
As of September 30, 2000, the Operating Partnership had $1.8 billion of
investment grade rated, unsecured debt securities outstanding. The debt
securities have fixed interest rates which vary from 6.65% to 8.00%, and
maturity dates which range from 2000 to 2027. We are currently in compliance
with all of the covenants in the unsecured note agreements.
In December 2000, $100.0 million of the unsecured notes are scheduled to mature.
We expect to fund this maturity either through additional note offerings,
drawings on our credit facility, or proceeds from future property dispositions.
We have a $250.0 million unsecured credit facility bearing interest at the
London Interbank Offering Rate plus 0.80%. The facility matures in August 2001
and has a competitive bid option that allows us to request bids from the lenders
for advances up to $150.0 million. At September 30, 2000, we had $103.0 million
outstanding under the credit facility.
We have a $100.0 million secured development facility which carries interest at
the London Interbank Offering Rate plus 1.25% and matures in May 2003. At
September 30, 2000, the amount drawn on the development facility was $38.1
million.
19
<PAGE> 20
The credit facility and the development facility are subject to financial
covenants concerning leverage, interest coverage and certain other ratios. We
are currently in compliance with all of the covenants of the facilities.
In addition to the unsecured debt securities and the facilities, we have $85.0
million of secured indebtedness, or mortgages, outstanding at September 30,
2000. The mortgages have interest rates varying from 7.00% to 9.88% and maturity
dates from 2001 to 2013. The mortgages are secured by first or second deeds of
trust on the related properties and generally require monthly principal and
interest payments. We also have $7.4 million of assessment bonds payable as of
September 30, 2000.
We have the capacity pursuant to shelf registration statements to issue up to
approximately $663.8 million in equity securities, and the Operating Partnership
has the capacity to issue up to $413.5 million in debt securities.
FUNDS FROM OPERATIONS
We consider 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, or GAAP, and Funds from
Operations should not be considered as an alternative to net income as an
indicator of our 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 our 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 our calculation of Funds from Operations, as described
below.
Pursuant to the National Association of Real Estate Investment Trust's revised
definition of Funds from Operations, the Operating Partnership calculates Funds
from Operations by adjusting income from operations before disposition of real
estate, calculated in accordance with GAAP, for real estate related depreciation
and amortization, dividends and distributions on shares, other equity interests
that are not convertible into shares of Common Stock, and certain other non-cash
items. We do 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, we eliminate the effect of straight-line rents, as
defined under GAAP, in our Funds from Operations calculation, 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
outstanding, assuming the conversion of all shares of dilutive Series A
Preferred Stock and all Operating Partnership units outstanding into shares of
Common Stock, and including the dilutive effect of stock option equivalents
computed using the Treasury Stock method.
20
<PAGE> 21
STATEMENT OF FUNDS FROM OPERATIONS
(amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income from operations before disposition of real
estate and minority interests: $ 63,963 $ 47,954 $ 178,556 $ 144,264
Dividends on Series B Preferred Stock (2,510) (2,510) (7,530) (7,530)
Dividends on Series C Preferred Stock (2,953) (2,953) (8,859) (8,859)
Dividends on Series E Preferred Stock (2,000) (2,000) (6,000) (6,000)
Distributions on Preferred Operating Partnership Units (1,441) (1,538) (4,324) (6,463)
-------- -------- --------- ---------
Income from Operations after preferred dividends
and distributions 55,059 38,953 151,843 115,412
-------- -------- --------- ---------
Add:
Depreciation and Amortization 33,003 28,981 94,130 80,811
Other, net 531 153 1,561 481
-------- -------- --------- ---------
Funds from Operations before Straight-line rent 88,593 68,087 247,534 196,704
-------- -------- --------- ---------
Straight-line rent (3,317) (2,345) (9,224) (7,568)
-------- -------- --------- ---------
Funds from Operations $ 85,276 $ 65,742 $ 238,310 $ 189,136
======== ======== ========= =========
Weighted average diluted share equivalents outstanding 77,528 75,329 76,854 74,499
======== ======== ========= =========
</TABLE>
OTHER PROPERTY INFORMATION
The table below outlines our top 20 tenants as a % of total net rents, as of
September 30, 2000, along with square footage occupied:
<TABLE>
<CAPTION>
Square % of
Feet Total
Tenant Name(1) Occupied Net Rents
-------------- -------- ---------
<S> <C> <C>
Brocade Communications Systems, Inc. 249,720 1.4%
Sony Computer Entertainment America, Inc. 193,073 1.0%
Verizon Wireless 394,759 1.0%
Xerox Corporation 219,275 1.0%
Franklin Templeton Investments 276,324 0.9%
Applied Materials, Inc. 443,468 0.9%
Countrywide Credit Industries, Inc. 266,490 0.8%
Gilead Sciences, Inc. 202,437 0.8%
The Capital Group Companies, Inc. 287,647 0.7%
County of Santa Clara 172,573 0.7%
Mentor Graphics Corporation 208,433 0.6%
TIBCO Software, Inc. 96,675 0.6%
The Boeing Company 242,948 0.6%
Broadcom Corporation 88,047 0.5%
Affymax Research Institute 53,830 0.5%
Headlands Mortgage Company 112,341 0.5%
Corio, Inc. 76,544 0.5%
Experian Information Solutions, Inc. 335,317 0.5%
Knowledge Universe, Inc. 78,022 0.4%
The Prudential Insurance Company of America 130,483 0.4%
--------- ----
4,128,406 14.3%
========= ====
</TABLE>
(1) Our top 50 tenants represent approximately 24.3% of our total net rents
and occupy approximately 7.5 million square feet.
21
<PAGE> 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information below summarizes our market risks associated with our fixed and
variable rate debt outstanding as of September 30, 2000. The following table
presents debt balances outstanding and related weighted average interest rates
by year of maturity.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(in millions)
----------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------ ------ ------ ------ ------- ---------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt(1) $100.0 $143.7 $110.0 -- $ 300.0 $1,267.8 $1,921.5
Average Interest Rate 6.65% 7.23% 6.95% -- 6.83% 7.29% 7.16%
Variable Rate Debt(2) -- $103.0 -- $ 38.1 -- -- $ 141.1
Average Interest Rate -- 7.59% -- 8.12% -- -- 7.73%
</TABLE>
(1) Represents 93.2% of all debt outstanding.
(2) Represents 6.8% of all debt outstanding.
The carrying amount of our debt approximates fair value. Our fixed and variable
rate debt is described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." At September 30, 2000, we had no interest
rate caps or swaps.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ENVIRONMENTAL MATTERS
Compliance with laws and regulations relating to the protection of the
environment, including those regarding the discharge of materials into the
environment, has not had any material effect upon our financial condition or
results of operations. Refer to our Annual Report on Form 10-K for the year
ended December 31, 1999 for a complete discussion of environmental matters to
date at our properties. As of September 30, 2000, there have been no
developments on these cases with the exception of the discussion below.
Site assessments undertaken by the purchaser of our Benicia Industrial Park
property in Benicia, California have revealed soil and groundwater contamination
on portions of the property. The source(s) and extent of contamination have not
been defined and the purchaser's site assessment process is continuing. Based on
the information available to us to date, we believe that potential liabilities
and clean-up costs associated with this contamination, if any, will be covered
by our pollution insurance policy, except to the extent of the deductible under
such policy, which is immaterial to our overall financial position.
Although the environmental investigations conducted to date have not revealed
any environmental liability that we believe would have a material adverse effect
on our business, assets or results of operations, and we are not aware of any
such liability, it is possible that these investigations did not reveal all
environmental liabilities or that there are material environmental liabilities
of which we are unaware. No assurances can be given that (1) future laws,
ordinances, or regulations will not impose any material environmental liability,
or (2) the current environmental condition of our properties has not been, or
will not be affected by tenants and occupants of our properties, by the
condition of properties in the vicinity of our properties, or by third parties
unrelated to us.
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.
22
<PAGE> 23
Exhibit Number
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
(B) Reports on Form 8-K
None.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Spieker Properties, Inc.
(Registrant)
Dated: November 14, 2000 /s/ Cary D. Anderson
-----------------------------------------
Cary D. Anderson
Vice President and
Principal Accounting Officer
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
