<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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:
65,202,967 shares of Common Stock, $0.0001 par value as of May 8, 2000.
Page 1 of 20
Exhibit Index is located on Page 19.
<PAGE> 2
SPIEKER PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 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 March 31, 2000 and December 31, 1999 ......................... 4
Consolidated Statements of Operations for the Three months ended
March 31, 2000 and 1999 ................................................................... 6
Consolidated Statement of Stockholders' Equity for the Three months ended
March 31, 2000 ............................................................................ 7
Consolidated Statements of Cash Flows for the Three months ended
March 31, 2000 and 1999 ................................................................... 8
Notes to Consolidated Financial Statements ..................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..................................... 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................................................... 19
Signatures .................................................................................................... 20
</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 March 31, 2000, and December
31, 1999
(ii) Consolidated Statements of Operations for the Three months ended
March 31, 2000 and 1999
(iii) Consolidated Statement of Stockholders' Equity for the Three
months ended March 31, 2000
(iv) Consolidated Statements of Cash Flows for the Three months ended
March 31, 2000 and 1999
(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, 1999.
3
<PAGE> 4
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests $ 811,220 $ 816,136
Buildings and improvements 3,239,633 3,174,430
Construction in progress 195,493 180,407
----------- -----------
4,246,346 4,170,973
Less - Accumulated depreciation (331,114) (316,240)
----------- -----------
3,915,232 3,854,733
----------- -----------
Land held for investment 129,224 125,356
Investments in mortgages 16,104 18,725
Properties held for disposition, net 112,803 89,220
----------- -----------
Net investments in real estate 4,173,363 4,088,034
CASH AND CASH EQUIVALENTS 11,575 17,114
ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts of $2,023 as of
March 31, 2000 and $2,139 as of December 31, 1999 7,489 4,846
DEFERRED RENT RECEIVABLE 25,331 22,911
RECEIVABLE FROM AFFILIATES 156 144
DEFERRED FINANCING AND LEASING COSTS, net of accumulated amortization of $23,027
as of March 31, 2000 and $20,901 as of December 31, 1999 62,778 59,655
FURNITURE, FIXTURES AND EQUIPMENT, net 5,165 5,107
PREPAID EXPENSES, DEPOSITS ON PROPERTIES AND OTHER ASSETS 17,416 50,091
INVESTMENT IN AFFILIATES 20,559 20,583
----------- -----------
$ 4,323,832 $ 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 MARCH 31, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
DEBT
Unsecured notes $ 1,836,500 $ 1,836,500
Unsecured short-term borrowings 73,000 63,012
Mortgage loans 93,289 97,331
----------- -----------
Total debt 2,002,789 1,996,843
----------- -----------
ASSESSMENT BONDS PAYABLE 9,679 10,172
ACCOUNTS PAYABLE 11,250 13,548
ACCRUED REAL ESTATE TAXES 13,931 2,628
ACCRUED INTEREST 36,988 28,634
UNEARNED RENTAL INCOME 36,315 33,244
DIVIDENDS AND DISTRIBUTIONS PAYABLE 54,636 46,977
OTHER ACCRUED EXPENSES AND LIABILITIES 72,245 76,192
----------- -----------
Total liabilities 2,237,833 2,208,238
----------- -----------
MINORITY INTERESTS 273,512 266,802
----------- -----------
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, 65,128,517 and
64,961,052 shares issued and outstanding as of March 31, 2000, and December 31,
1999, respectively 6 6
Excess Stock: $.0001 par value per share, 330,000,000
shares authorized, no shares issued or outstanding -- --
Additional paid-in capital 1,410,834 1,400,550
Deferred compensation (8,366) (6,347)
Retained earnings 41,640 30,863
----------- -----------
Total stockholders' equity 1,812,487 1,793,445
----------- -----------
$ 4,323,832 $ 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 ENDED MARCH 31, 2000 AND 1999
(unaudited, dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
REVENUES:
Rental income $ 167,413 $ 149,214
Interest and other income 2,099 1,434
--------- ---------
169,512 150,648
--------- ---------
OPERATING EXPENSES:
Rental expenses 35,510 31,641
Real estate taxes 12,497 11,554
Interest expense, including amortization of finance costs 31,263 28,805
Depreciation and amortization 30,416 25,404
General and administrative expenses 6,569 5,650
--------- ---------
116,255 103,054
--------- ---------
Income from operations before disposition of
real estate and minority interests 53,257 47,594
--------- ---------
GAIN ON DISPOSITION OF REAL ESTATE 22,209 5,166
--------- ---------
Income from operations before minority interests 75,466 52,760
--------- ---------
MINORITY INTERESTS' SHARE OF NET INCOME (9,342) (7,717)
--------- ---------
Net income 66,124 45,043
--------- ---------
PREFERRED DIVIDENDS:
Series A Preferred Stock (854) (744)
Series B Preferred Stock (2,510) (2,510)
Series C Preferred Stock (2,953) (2,953)
Series E Preferred Stock (2,000) (2,000)
--------- ---------
Net income available to Common Stockholders $ 57,807 $ 36,836
========= =========
INCOME PER SHARE OF COMMON STOCK:
Net income - basic $ 0.89 $ 0.58
========= =========
Net income - diluted $ 0.87 $ 0.58
========= =========
DIVIDENDS PER SHARE:
Series A Preferred Stock $ 0.85 $ 0.74
========= =========
Series B Preferred Stock $ 0.59 $ 0.59
========= =========
Series C Preferred Stock $ 0.49 $ 0.49
========= =========
Series E Preferred Stock $ 0.50 $ 0.50
========= =========
Common Stock, including Class C $ 0.70 $ 0.61
========= =========
</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 THREE MONTHS ENDED MARCH 31, 2000
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Series A, B, Common Common Additional
C 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 -- 12,500 -- 274 -- -- 274
Allocation to
Minority Interests -- -- -- 4,690 -- -- 4,690
Restricted Stock Grant -- 80,386 -- 2,929 (2,929) -- --
Exercise of Stock options -- 74,579 -- 2,391 -- -- 2,391
Deferred Compensation
amortization -- -- -- -- 910 -- 910
Dividends Declared (8,317) -- -- -- -- (47,030) (55,347)
Net Income 8,317 -- -- -- -- 57,807 66,124
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
MARCH 31, 2000 $ 368,373 65,128,517 $ 6 $ 1,410,834 $ (8,366) $ 41,640 $ 1,812,487
=========== =========== =========== =========== =========== =========== ===========
</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 THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 66,124 $ 45,043
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 30,416 25,404
Amortization of discount and deferred financing costs 544 599
Loss from affiliate 24 89
Non-cash compensation 910 246
Minority interests' share of net income 9,342 7,717
Gain on disposition of real estate (22,209) (5,166)
(Increase) decrease in accounts receivable and other assets (4,168) 807
Increase in receivable from related parties (13) (1)
Decrease in assessment bonds payable (214) (226)
Decrease in accounts payable and other accrued expenses and liabilities (4,084) (10,775)
Increase in accrued real estate taxes 11,303 10,512
Increase in accrued interest 8,354 7,209
--------- ---------
Net cash provided by operating activities 96,329 81,458
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (128,543) (106,943)
Reductions (additions) to deposits on properties, net 31,573 (175)
Reductions in investment in mortgages 2,621 --
Additions to leasing costs (6,408) (4,269)
Proceeds from disposition of real estate 44,584 41,268
Distributions from affiliates -- 295
--------- ---------
Net cash used for investing activities (56,173) (69,824)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 30,000 65,000
Payments on debt (24,091) (10,527)
Payments of dividends and distributions (53,995) (51,714)
Proceeds from stock options exercised 2,391 319
--------- ---------
Net cash (used for) provided by financing activities (45,695) 3,078
--------- ---------
Net increase (decrease) in cash and cash equivalents (5,539) 14,712
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,114 4,916
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,575 $ 19,628
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 27,739 $ 26,003
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 9
SPIEKER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(unaudited, dollars in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
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 on November 18, 1993. The
Company qualifies as a real estate investment trust, REIT, under the
Internal Revenue Code of 1986, as amended. As of March 31, 2000, the
Company owned an approximate 87.8 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 March 31, 2000, and December 31, 1999, and its consolidated results
of operations and cash flows for the three months ended March 31, 2000
and 1999. 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 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 months
ended March 31, 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, the Company believes that adequate disclosures
have been made.
The interim results for the three months ended March 31, 2000 and 1999,
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,
1999.
Land Held for Investment
The Company has incurred costs related to land parcels that are either
held for investment or are in a design and approval process. As of March
31, 2000, approximately $26.2 million of construction in progress is
associated with these land parcels.
Minority Interests
Minority interests in the Company consists of the limited partners'
interest in the Operating Partnership of approximately 12.2% at March
31, 2000 and 12.0% at December 31, 1999.
9
<PAGE> 10
Net Income Per Share of Common Stock
Per share amounts for the Company 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 effect of stock options and Series A
Preferred Stock. The basic and diluted weighted average common shares
outstanding for the three months ended March 31, 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:
March 31, 2000 65,071,321 67,247,908
March 31, 1999(1) 63,223,217 65,048,670
</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.
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
The Company acquired the following properties (the "2000 Acquisitions")
during the three months ended March 31, 2000:
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Region-Location Type(1) Square Feet Initial Cost(2)
------------ --------------- --------- --------------- ----------------
<S> <C> <C> <C> <C>
Larkspur Landing Peninsula/NorthBay-Larkspur, CA O 189,040 $42,083
Quadrant Plaza Pacific Northwest-Bellevue, WA O 145,585 33,447
------- -------
334,625 $75,530
======= =======
</TABLE>
(1) "O" indicates office property.
(2) Represents the initial acquisition costs of the
properties excluding any additional repositioning costs.
During the quarter, the Company also acquired an asset to be redeveloped
in Southern California at an initial cost of $11.5 million.
During the three months ended March 31, 1999, the Company acquired two
office properties totaling 393,739 square feet at an initial cost was
$58,901.
10
<PAGE> 11
Dispositions
The Company disposed of the following properties (the "2000
Dispositions") during the three months ended March 31, 2000.
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Region- Location Type(1) Square Feet
------------ ---------------- -------- --------------
<S> <C> <C> <C>
City Commerce Park Pacific Northwest-Seattle, WA I 179,413
Commerce Park West III East-Bay/Sacramento-Sacramento, CA L --(2)
Front Street East-Bay/Sacramento-Sacramento, CA I 47,322
Vasco Landing East-Bay/Sacramento-Livermore, CA L --(3)
Woodinville Corporate Center I Pacific Northwest-Woodinville, WA I 170,793
Woodinville Corporate Center III Pacific Northwest-Woodinville, WA I 250,502
</TABLE>
(1) I- Industrial; L- Land.
(2) Represents sale of approximately 4.7 acres.
(3) Represents sale of approximately 0.8 acres.
The gross proceeds for land and property dispositions were $45,819 for
the three months ended March 31, 2000. Cash proceeds, net of closing
costs, received from the dispositions were $44,584. These proceeds were
used to fund the Company's recent acquisitions. Gain recognized on
disposition of real estate for the three months ended March 31, 2000 was
$22,209.
During the three months ended March 31, 1999, the aggregated disposition
proceeds for the land and property were $42,420. Included in the
proceeds were $5,170 recognized for a condemnation gain. Cash proceeds,
net of closing costs, received from the disposition of the property and
land were $5,166.
4. TRANSACTIONS WITH AFFILIATES
Revenues and Expenses
The Company received $313 for the three months ended March 31, 2000 and
$337 for the three months ended March 31, 1999, for management services
provided to certain properties that are controlled and operated by
either Spieker Northwest, Inc., Spieker Griffin/W9 Associates, LLC or
Spieker Partners. Certain officers of the Company are partners in
Spieker Partners.
Receivable From Affiliates
The $156 receivable from affiliates at March 31, 2000, and the $144 at
December 31, 1999, 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 of $16,104 at March 31, 2000 and
$18,725 at December 31, 1999 are loans to Spieker Northwest, Inc., or
SNI. The loans are secured by deeds of trust on real property, bear
interest at 8.5%, and mature in 2012. Interest income on the notes of
$342 is included in interest and other income for the three months ended
March 31, 2000 and $342 for 1999.
Investment in Affiliates
The investment in affiliates represents an investment in SNI. The
Company owns 95% of the non-voting Preferred Stock of SNI. Certain
senior officers and one former officer of the Company own 100% of the
voting stock of SNI. At March 31, 2000, SNI owned 225,815 square feet of
office and industrial property located in California. In addition, SNI
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 represents the 12.5% common
interest and 37.5% preferred interest in Spieker Griffin/W9 Associates,
LLC. Spieker Griffin/W9, LLC Associates owns a 535,000 square foot
office complex, located in Orange County, California, which is managed
by the Company.
11
<PAGE> 12
5. PROPERTIES HELD FOR DISPOSITION
The Company continues to review its portfolio and its long-term strategy
for properties. The Company will dispose of, over time, assets that do
not have a strategic fit within the portfolio. Included in properties
held for disposition of $112,803 at March 31, 2000, are twelve
properties and two land parcels. Three industrial properties are located
in the Pacific Northwest. Three industrial properties, one office
property, and one land parcel are located in Southern California. Four
industrial properties, one office property and one land parcel are
located in Northern California.
The following summarizes the condensed results of operations of the
properties held for disposition at March 31, 2000 for the three months
ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Revenues $ 4,772 $ 4,473
Property Operating Expenses(1) (1,087) (1,033)
------- -------
Net Operating Income $ 3,685 $ 3,440
======= =======
</TABLE>
(1) Property Operating Expenses includes property related
rental expenses and real estate taxes.
6. DEBT
<TABLE>
<CAPTION>
MARCH 31,
2000
----------
<S> <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
Unsecured short-term borrowings (see "Facility" below), due 2001 73,000
Mortgage loans, fixed interest rates varying from 7.00% to 9.88%,
due 2001 to 2013(1) 93,289
----------
$2,002,789
==========
</TABLE>
(1) Mortgage loans generally require monthly principal and
interest payments.
The Company has a $250,000 Unsecured Line of Credit Facility, Facility,
which matures in August 2001. The Facility carries interest at the
London Interbank Offering Rate plus 0.80%. The one-month LIBOR at March
31, 2000 was 6.13%. The Facility also includes an annual administrative
fee of $50 and an annual Facility fee of 0.20%. The Facility is subject
to financial covenants concerning leverage, interest coverage and
certain other ratios. The Company is currently in compliance with all of
the covenants of the Facility concerning its indebtedness.
The Company's unsecured investment grade notes are subject to financial
covenants concerning leverage, interest coverage and certain other
ratios. The Company is currently in compliance with all of the covenants
in the unsecured note agreements governing its indebtedness.
The Company capitalized interest of $5,389 for the three months ended
March 31, 2000 and $5,022 for the same period in 1999.
12
<PAGE> 13
7. DIVIDENDS AND DISTRIBUTIONS PAYABLE
The dividends and distributions payable at March 31, 2000, and December
31, 1999, 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 are as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Shares of:
Common Stock 65,128,517 64,961,052
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 4,000,000
Units of:
Minority Interest Holders 9,033,303 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 common
stock of the Company 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 March 31, 2000, a
total of 283,095 restricted shares have been issued.
9. SEGMENT INFORMATION
The Company has five reportable segments: Pacific Northwest; East
Bay/Sacramento, California; Peninsula/NorthBay, 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 reportable segment includes both office and
industrial properties which are leased to tenants engaged in various
types of businesses. The accounting policies of the five regions are the
same as those described in the summary of significant accounting
policies. The Company evaluates performance based upon the combined net
operating income of the properties in each segment. 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
is not comparable, given the differing mixes of properties within the
regions.
During the first quarter of 2000, the Company split the North-East
Bay/Sacramento region into two regions. The two new regions are now
called East Bay/Sacramento and Peninsula/NorthBay. The 1999 rental
income and net operating income disclosure below has been restated to
reflect these new regions. Significant information used by the Company
in the reportable segments for the three months ended March 31, 2000 and
1999 is as follows:
<TABLE>
<CAPTION>
Pacific East Bay/ Peninsula/ Silicon Southern
Northwest Sacramento(1) NorthBay(1) Valley California Total
--------- --------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
2000 Rental Income $ 33,134 $ 28,281 $ 19,525 $ 39,247 $ 47,226 $ 167,413
1999 Rental Income 32,158 22,121 16,936 34,627 43,372 149,214
2000 Net Operating Income(2) 23,345 20,687 13,293 31,156 30,925 119,406
1999 Net Operating Income(2) 23,095 15,067 11,829 27,332 28,696 106,019
2000 Additions to Properties(3) 33,447 -- -- -- 33,447
2000 Reductions to Properties(3) (19,600) (2,176) -- -- -- (21,776)
</TABLE>
(1) The basis of the assets transferred from the split of the
North-East Bay/Sacramento region was $803,710 to the East
Bay/Sacramento region and $477,242 to the Peninsula/North Bay
region
(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
13
<PAGE> 14
10. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
------ ------
<S> <C> <C>
Increase to land and assessment bonds payable $ 34 $ 82
Write-off of fully depreciated property 7,027 1,362
Write-off of fully depreciated furniture, fixtures and equipment 204 89
Write-off of fully amortized deferred financing and leasing costs 921 281
Restricted Stock grants, net of amortization 2,019 --
Capital recorded in relation to properties acquired with Operating Partnership Units 8,638 --
</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 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 month period ended March 31, 2000, as compared to the
corresponding period ended March 31, 1999 (amounts in tables are
presented in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------
Rental Revenues CHANGE
--------------- --------------------------
2000 1999 $ %
------ ------ ------ ------
<S> <C> <C> <C> <C>
1999 Core Portfolio $155.3 $141.8 $ 13.5 9.5%
1999 Acquisitions 4.1 0.6 3.5 583.3
2000 Acquisitions 0.8 -- 0.8 --
Developments 6.9 0.8 6.1 762.5
Dispositions 0.3 6.0 (5.7) (95.0)
------ ------ ------ ------
$167.4 $149.2 $ 18.2 12.2%
====== ====== ====== ======
</TABLE>
For the quarter ended March 31, 2000 rental revenues increased by $18.2 million.
$13.5 million of the rental revenue increase is generated by the "1999 Core
Portfolio", defined as properties owned at January 1, 1999 and still owned at
March 31, 2000. The increase in the 1999 Core Portfolio revenue was attributable
to higher rental rates realized on the renewal and re-leasing of the Company's
rentable space.
During the quarter, the Company completed 348 lease transactions for the renewal
and re-lease of 2.1 million square feet of second generation space. Rollover
effective rent growth on these leases was on average, 60.2% 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.
The Developments contributed $6.1 million to the rental revenue increase for the
quarter. This increase in income is due to the growing occupancy levels of the
completed developments. The Developments include both properties completed and
added to the Company's portfolio of stabilized properties, as well as properties
currently in the development pipeline. The Company considers properties
"stabilized" at the earlier of eighteen months after shell completion or when a
95.0% occupancy rate has been reached. The Company's development pipeline at
March 31, 2000 consists of seventeen properties totaling 2.7 million square feet
and representing an estimated cost of $471.7 million. These developments were
81.4% preleased at March 31, 2000.
14
<PAGE> 15
The 1999 Acquisitions contributed $3.5 million to the rental revenue increase
for the quarter. During 1999, the Company 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 March 31, 2000.
The 2000 Acquisitions contributed $0.8 million of the increase in rental
revenues for the quarter ended March 31, 2000. The 2000 Acquisitions include two
office properties totaling 334,625 square feet for a total investment of $79.5
million. These properties were acquired on various dates throughout the quarter
and, as such, a full quarter's revenues and expenses were 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 increases in rental revenues are partially offset by a decrease of $5.7
million attributable to properties which the Company disposed of during the
three months ended March 31, 2000. The 2000 Dispositions took place at various
dates during the quarter, therefore a full quarter's worth of revenues and
expenses may not be reflected in the 2000 rental revenues. During the quarter
the Company disposed of four properties totaling 648,030 square feet and two
land parcels. Three properties totaling 600,708 square feet represent the
continuing disposition of approximately 3.6 million square feet of the Seattle
industrial portfolio. To date, 2.8 million square feet of this portfolio has
been disposed.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------
CHANGE
-----------------------
2000 1999 $ %
------ ------ ------ ----
<S> <C> <C> <C> <C>
Interest and Other Income $ 2.1 $ 1.4 $ 0.7 50.0%
</TABLE>
Interest and other income increased due to additional management fees collected
from outside parties, and from interest income on deposits held in escrow from
sold properties. Average cash balances for the three month period ended March
31, 2000 were $20.9 million and for 1999 were $21.9.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------
CHANGE
-----------------------
Property Operating Expenses 2000 1999 $ %
--------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Rental Expenses $35.5 $31.6 $ 3.9 12.3%
Real Estate Taxes 12.5 11.6 0.9 7.8
===== ===== ===== =====
$48.0 $43.2 $ 4.8 11.1%
===== ===== ===== =====
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
CHANGE
------------------------
Property Operating Expenses 2000 1999 $ %
--------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1999 Core Portfolio $44.4 $41.2 $ 3.2 7.8%
1999 Acquisitions 1.3 0.2 1.1 550.0
2000 Acquisitions 0.2 -- 0.2 --
Developments 2.0 0.7 1.3 185.7
Dispositions 0.1 1.1 (1.0) (90.9)
----- ----- ----- -----
$48.0 $43.2 $ 4.8 11.1%
===== ===== ===== =====
Property Operating Expenses
as % of Rental Revenues 28.7% 29.0%
===== =====
</TABLE>
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 the Company's portfolio
of office properties, as well as higher compensation costs included in
the Company's 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," is presented in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
CHANGE
----------------------------
Net Operating Income 2000 1999 $ %
-------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 Core Portfolio $ 110.9 $ 100.6 $ 10.3 10.2%
1999 Acquisitions 2.8 0.4 2.4 600.0
2000 Acquisitions 0.6 -- 0.6 --
Developments 4.9 0.1 4.8 4,800.0
Dispositions 0.2 4.9 (4.7) (95.9)
------- ------- ------- -------
$ 119.4 $ 106.0 $ 13.4 12.6%
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
CHANGE
------------------------
Other Expenses 2000 1999 $ CHANGE %
-------------- ------- ------- -------- -----
<S> <C> <C> <C> <C>
Interest Expense, including
Amortization of Finance Costs $ 31.3 $ 28.8 $ 2.5 8.7%
Depreciation and Amortization Expense 30.4 25.4 5.0 19.7
G & A Expenses 6.6 5.6 1.0 17.9
G & A Expenses as % of
Rental Revenues 3.9% 3.8%
Capitalized Interest $ 5.4 $ 5.0
</TABLE>
Interest expense increased due to a higher total average outstanding
debt balance in the first quarter of 2000. This increase is the net
effect of additions to interest expense from additional note offerings,
which occurred during the second quarter of 1999, offset by lower
balances in the Company's unsecured short-term borrowings and a slight
increase in interest capitalized in relation to the Developments that
the Company had in process. The average outstanding debt for the three
months was $2.0 billion in 2000 compared to $1.9 billion in 1999.
16
<PAGE> 17
Depreciation and amortization expense increased by $5.0 million for the
three month period ended March 31, 2000, compared with the same period
in 1999, due primarily to the 1999 Acquisitions and the Developments.
General and administrative expenses increased by $1.0 million for the
three month period ended March 31, 2000 as compared with the same period
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 consistent with 1999 levels
on a percentage of revenue basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------
CHANGE
-----------------------
2000 1999 $ CHANGE %
------- ------- -------- ----
<S> <C> <C> <C> <C>
Income from Operations before
Disposition of Real Estate
and Minority Interests $ 53.3 $ 47.6 $ 5.7 12.0%
</TABLE>
The increase in income from operations before disposition of real estate
and minority interests of $5.7 million for the three month period ended
March 31, 2000 is principally due to rent increases in the 1999 Core
Portfolio, 1999 Acquisitions and the Developments.
During the first quarter of 2000, the Company recorded gains on the
dispositions of two land parcels and four industrial properties totaling
$22.2 million (see Note 3 to the consolidated statements).
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 31, 2000, the Company generated $96.3
million in cash flows from operating activities. These cash flows were
primarily generated by net income provided by its operating properties.
The cash flows from investing activities of ($56.2) million was the net
effect of the additions of real estate assets offset by proceeds from
the disposition of assets. The cash flows from financing activities of
($45.7) million can be attributed to the payments of dividends and
distributions. During the first three months of 2000, net cash provided
by financing activities consisted of net borrowings of approximately
$10.0 million under its Facility and principal payments of $4.0 million
on mortgage loans. Payments of dividends and distributions increased by
$2.3 million due to a 14.8% increase in common share and operating
partnership unit distribution rate to $.70 per share and unit for 2000
from $.61 per share in 1999, as well as a higher number of common and
preferred shares outstanding.
The principal sources of funding for acquisitions, development,
expansion and renovation of the properties and debt maturities are the
Company's unsecured 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. The Company believes that its
liquidity and its 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 March 31, 2000, 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 Facility provide
sufficient sources of liquidity to fund capital expenditure costs
associated with the renewal or re-leasing of space.
As of March 31, 2000, the Operating Partnership had $1.8 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. The Company is currently
in compliance with all of the covenants in the unsecured note
agreements.
The Company has a $250.0 million Unsecured Line of Credit Facility, or
Facility, bearing interest at the London Interbank Offering Rate plus
.80%. The Facility matures in August 2001 and has a competitive bid
option that allows the Company to request bids from the lenders for
advances up to $150.0 million. At March 31, 2000, the Company had $73.0
million outstanding under the Facility. The Facility is subject to
financial covenants concerning leverage, interest coverage and certain
other ratios. The Company is currently in compliance with all of the
covenants in the Facility.
17
<PAGE> 18
In addition to the unsecured debt securities and the Facility, the
Company has $93.3 million of secured indebtedness (the "Mortgages") at
March 31, 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
a first or second deed of trust on the related properties and generally
require monthly principal and interest payments. The Company also has
$9.7 million of assessment bonds outstanding as of March 31, 2000.
The Company has 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
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, or 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
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-line
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.
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.
STATEMENT OF FUNDS FROM OPERATIONS
(amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Income from operations before disposition of real estate
and minority interests: $ 53,257 $ 47,594
Dividends on Series B Preferred Stock (2,510) (2,510)
Dividends on Series C Preferred Stock (2,953) (2,953)
Dividends on Series E Preferred Stock (2,000) (2,000)
Distributions on Preferred Operating Partnership Units (1,441) (2,527)
-------- --------
Income from Operations after Series B, C and E dividends,
and Preferred Operating Partnership Unit distributions 44,353 37,604
-------- --------
Add:
Depreciation and Amortization 30,064 25,102
Other, net 422 38
-------- --------
Funds from Operations before Straight-line rent 74,839 62,744
-------- --------
Straight-line rent (2,420) (2,548)
-------- --------
Funds from Operations $ 72,419 $ 60,196
======== ========
Weighted average diluted share equivalents outstanding 76,141 73,919
======== ========
</TABLE>
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses fixed and variable rate debt to finance its operations.
The information below summarizes the Company's market risks associated
with debt outstanding as of March 31, 2000. The following table presents
principal cash flows and related weighted average interest rates by year
of maturity.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
(in millions)
2000 2001 2002 2003 2004 THEREAFTER TOTAL
--------- --------- --------- ---- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt(1) $ 100.0 $ 151.3 $ 110.0 -- $ 300.0 $ 1,268.5 $ 1,929.8
Average Interest Rate 6.65% 7.22% 6.95% -- 6.83% 7.29% 7.16%
Variable Rate Debt(2) -- $ 73.0 -- -- -- -- $ 73.0
Average Interest Rate -- 6.77% -- -- -- -- 6.77%
</TABLE>
(1) Represents 96.4% of all debt outstanding.
(2) Represents 3.6% of all debt outstanding.
The carrying amount of the Company's debt approximates fair value. The
Company's fixed and variable rate debt is described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." At March 31, 2000, the Company had no interest rate caps or
swaps.
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
27.1 Financial Data Schedule (EDGAR Filing Only)
(B) Reports on Form 8-K
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Spieker Properties, Inc.
(Registrant)
Dated: May 12, 2000 /s/ Elke Strunka
----------------------------------
Elke Strunka
Vice President and
Principal Accounting Officer
20
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 11,575 19,628
<SECURITIES> 0 0
<RECEIVABLES> 9,512 6,693
<ALLOWANCES> 2,023 1,220
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 4,488,373 4,223,677
<DEPRECIATION> 331,114 262,581
<TOTAL-ASSETS> 4,323,832 4,119,224
<CURRENT-LIABILITIES> 0 0
<BONDS> 2,002,789 1,901,671
0 0
368,373 368,373
<COMMON> 6 6
<OTHER-SE> 1,444,108 1,355,466
<TOTAL-LIABILITY-AND-EQUITY> 4,323,832 4,119,224
<SALES> 0 0
<TOTAL-REVENUES> 169,512 150,648
<CGS> 0 0
<TOTAL-COSTS> 48,007 43,195
<OTHER-EXPENSES> 36,985 31,054
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 31,263 28,805
<INCOME-PRETAX> 53,257 47,594
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 66,124 45,043
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 57,807 36,836
<EPS-BASIC> 0.89 0.58
<EPS-DILUTED> 0.87 0.58
</TABLE>
