<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 (I.R.S. 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:
65,450,216 shares of Common Stock, $0.0001 par value as of August 7, 2000.
Page 1 of 22
Exhibit Index is located on page 22.
<PAGE> 2
SPIEKER PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
Item 1. Financial Statements (unaudited) .............................................. 3
Consolidated Balance Sheets as of June 30, 2000, and December 31, 1999 ........ 4
Consolidated Statements of Operations for the Three months and
Six months ended June 30, 2000 and 1999 ..................................... 6
Consolidated Statement of Stockholders' Equity for the Six months ended
June 30, 2000 ............................................................... 7
Consolidated Statements of Cash Flows for the Six months ended
June 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 .................................................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk .................... 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................................. 21
Signatures ............................................................................ 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached are the following unaudited consolidated financial statements of
Spieker Properties, Inc. (the "Company"):
(i) Consolidated Balance Sheets as of June 30, 2000, and December
31, 1999
(ii) Consolidated Statements of Operations for the Three months and
Six months ended June 30, 2000 and 1999
(iii) Consolidated Statement of Stockholders' Equity for the Six
months ended June 30, 2000
(iv) Consolidated Statements of Cash Flows for the Six months ended
June 30, 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,
and report on Form 10-Q for the quarterly period ended March 31, 2000.
3
<PAGE> 4
SPIEKER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land, land improvements and leasehold interests .................. $ 829,464 $ 816,136
Buildings and improvements ....................................... 3,286,873 3,174,430
Construction in progress ......................................... 192,974 180,407
----------- -----------
4,309,311 4,170,973
Less - Accumulated depreciation .................................. (353,110) (316,240)
----------- -----------
3,956,201 3,854,733
----------- -----------
Land held for investment ......................................... 109,664 125,356
Investments in mortgages ......................................... 11,154 18,725
Properties held for disposition, net ............................. 132,148 89,220
----------- -----------
Net investments in real estate ................................ 4,209,167 4,088,034
CASH AND CASH EQUIVALENTS .......................................... 52,820 17,114
ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts of
$1,998 as of June 30, 2000 and $2,139 as of December 31, 1999 .... 5,392 4,846
DEFERRED RENT RECEIVABLE ........................................... 28,753 22,911
RECEIVABLE FROM AFFILIATES ......................................... 31 144
DEFERRED FINANCING AND LEASING COSTS, net of accumulated
amortization of $25,339 as of June 30, 2000 and $20,901 as
of December 31, 1999 ............................................. 64,294 59,655
FURNITURE, FIXTURES AND EQUIPMENT, net ............................. 5,572 5,107
PREPAID EXPENSES, DEPOSITS ON PROPERTIES AND OTHER ASSETS .......... 22,791 50,091
INVESTMENT IN AFFILIATES ........................................... 20,506 20,583
----------- -----------
$ 4,409,326 $ 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 JUNE 30, 2000, AND DECEMBER 31, 1999
(unaudited, dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
DEBT
Unsecured notes $ 1,836,500 $ 1,836,500
Short-term borrowings 145,494 63,012
Mortgage loans 89,175 97,331
----------- -----------
Total debt 2,071,169 1,996,843
----------- -----------
ASSESSMENT BONDS PAYABLE 8,754 10,172
ACCOUNTS PAYABLE 16,382 13,548
ACCRUED REAL ESTATE TAXES 2,824 2,628
ACCRUED INTEREST 34,418 28,634
UNEARNED RENTAL INCOME 35,411 33,244
DIVIDENDS AND DISTRIBUTIONS PAYABLE 54,797 46,977
OTHER ACCRUED EXPENSES AND LIABILITIES 78,062 76,192
----------- -----------
Total liabilities 2,301,817 2,208,238
----------- -----------
MINORITY INTERESTS 272,073 266,802
----------- -----------
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,
65,387,491 and 64,961,052 shares issued and outstanding
as of June 30, 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 1,418,444 1,400,550
Deferred compensation (7,690) (6,347)
Retained earnings 56,303 30,863
----------- -----------
Total stockholders' equity 1,835,436 1,793,445
----------- -----------
$ 4,409,326 $ 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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(unaudited, dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $182,097 $156,895 $349,511 $306,109
Interest and other income 1,932 1,838 4,031 3,272
-------- -------- -------- --------
184,029 158,733 353,542 309,381
-------- -------- -------- --------
OPERATING EXPENSES:
Rental expenses 37,902 35,773 73,412 67,414
Real estate taxes 12,958 11,493 25,455 23,047
Interest expense, including amortization of
deferred financing costs 33,423 29,905 64,687 58,710
Depreciation and amortization 31,404 27,100 61,820 52,504
General and administrative expenses 7,006 5,746 13,575 11,396
-------- -------- -------- --------
122,693 110,017 238,949 213,071
-------- -------- -------- --------
Income from operations before disposition of
real estate and minority interests 61,336 48,716 114,593 96,310
-------- -------- -------- --------
GAIN ON DISPOSITION OF REAL ESTATE 15,468 4,665 37,677 9,831
-------- -------- -------- --------
Income from operations before minority interests 76,804 53,381 152,270 106,141
-------- -------- -------- --------
MINORITY INTERESTS' SHARE OF NET INCOME (9,493) (7,665) (18,834) (15,382)
-------- -------- -------- --------
Net income 67,311 45,716 133,436 90,759
-------- -------- -------- --------
PREFERRED DIVIDENDS:
Series A Preferred Stock (853) (744) (1,707) (1,488)
Series B Preferred Stock (2,510) (2,510) (5,020) (5,020)
Series C Preferred Stock (2,953) (2,953) (5,906) (5,906)
Series E Preferred Stock (2,000) (2,000) (4,000) (4,000)
-------- -------- -------- --------
Net income available to Common Stockholders $ 58,995 $ 37,509 $116,803 $ 74,345
======== ======== ======== ========
INCOME PER SHARE OF COMMON STOCK:
Net income - basic $ .90 $ .59 $ 1.79 $ 1.17
======== ======== ======== ========
Net income - diluted $ .88 $ .59 $ 1.76 $ 1.16
======== ======== ======== ========
DIVIDENDS PER SHARE:
Series A Preferred Stock $ .85 $ .74 $ 1.71 $ 1.48
======== ======== ======== ========
Series B Preferred Stock $ .59 $ .59 $ 1.18 $ 1.18
======== ======== ======== ========
Series C Preferred Stock $ .49 $ .49 $ .98 $ .98
======== ======== ======== ========
Series E Preferred Stock $ .50 $ .50 $ 1.00 $ 1.00
======== ======== ======== ========
Common Stock, including Class C $ .70 $ .61 $ 1.40 $ 1.22
======== ======== ======== ========
</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 SIX MONTHS ENDED JUNE 30, 2000
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Series A, B,
C and E Common Common Additional
Preferred Stock Stock Par Paid-in Deferred Retained
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 -- 184,406 -- 7,533 -- -- 7,533
Allocation to Minority Interests -- -- -- 2,716 -- -- 2,716
Restricted Stock Grant -- 86,004 -- 3,179 (3,179) -- --
Exercise of Stock options -- 156,029 -- 4,466 -- -- 4,466
Deferred Compensation amortization -- -- -- -- 1,836 -- 1,836
Dividends Declared (16,633) -- -- -- -- (91,363) (107,996)
Net Income 16,633 -- -- -- -- 116,803 133,436
--------- ---------- ---- ---------- -------- -------- ----------
BALANCE AT JUNE 30, 2000 $ 368,373 65,387,491 $ 6 $1,418,444 $ (7,690) $ 56,303 $1,835,436
========= ========== ==== ========== ======== ======== ==========
</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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 133,436 $ 90,759
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 61,820 52,504
Amortization of deferred financing costs 1,087 1,204
Loss from affiliate 77 99
Non-cash compensation 1,836 492
Minority interests' share of net income 18,834 15,382
Gain on disposition of real estate (37,677) (9,831)
(Increase) decrease in accounts receivable and other assets (5,337) 14
Decrease (increase) in receivable from affiliates 112 (45)
Decrease in assessment bonds payable (506) (472)
Increase (decrease) in accounts payable and other accrued
expenses and liabilities 5,872 (12,648)
Increase in accrued real estate taxes 196 348
Increase in accrued interest 5,784 7,856
--------- ---------
Net cash provided by operating activities 185,534 145,662
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties (217,747) (168,396)
Reductions (additions) to deposits on properties, net 28,596 (14,142)
Proceeds from investments in mortgages 7,571 --
Additions to leasing costs (11,792) (6,718)
Proceeds from disposition of real estate 80,394 63,615
Distributions from affiliates -- 134
--------- ---------
Net cash used for investing activities (112,978) (125,507)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 102,493 535,000
Payments of financing fees, net of hedging proceeds -- (1,279)
Payments on debt (28,242) (430,859)
Payments of dividends and distributions (115,567) (109,548)
Proceeds from stock options exercised 4,466 2,069
--------- ---------
Net cash used for financing activities (36,850) (4,617)
--------- ---------
Net increase in cash and cash equivalents 35,706 15,538
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,114 4,916
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,820 $ 20,454
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 67,788 $ 49,617
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 9
SPIEKER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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" refers to
collectively Spieker Properties, Inc., 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 June
30, 2000, Spieker Properties, Inc. owned an approximate 88.1% general and
limited partnership interest in Spieker Properties, L.P., referred to as 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 June 30, 2000,
and December 31, 1999, and its consolidated results of operations and cash flows
for the three and six months ended June 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 six months
ended June 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 six months ended June 30, 2000 and 1999,
are not necessarily indicative of results for the full year. We suggest that
these financial statements be read in conjunction 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 Form 10-Q for the three month
period ended March 31, 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 June 30, 2000, were
approximately $22.6 million.
Minority Interests
Minority interests in the Company includes the limited partners' interest in the
Operating Partnership of approximately 11.9% at June 30, 2000 and 12.0% at
December 31, 1999. Minority interest also includes Preferred Series D units of
$75,000 as of June 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 effect of stock options
and Series A Preferred Stock. Series A Preferred Stock was dilutive all periods
except for the six month period ended June 30, 1999 when it was antidilutive.
The basic and diluted weighted average common shares outstanding for the three
and six months ended June 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:
June 30, 2000 65,302,786 67,977,790
June 30, 1999 63,322,217 65,363,882
Six Months Ended:
June 30, 2000 65,187,053 67,612,848
June 30, 1999 (1) 63,272,990 65,206,549
</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 six months ended June 30, 2000.
<TABLE>
<CAPTION>
Property Total Rentable Initial
Project Name Region - Location Type(1) Square Feet Cost(2)
------------------- --------------------- -------- -------------- --------
<S> <C> <C> <C> <C>
Larkspur Landing Peninsula/North Bay - O 189,040 $ 42,173
Larkspur, CA
Quadrant Plaza Pacific Northwest - O 145,585 33,465
Bellevue, WA
I-90 Bellevue I&II Pacific Northwest - O 134,235 27,745
Bellevue, WA ------- --------
468,860 $103,383
======= ========
</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 the second quarter of 2000 we acquired one parcel of land for
development in the East Bay at an initial cost of $2,952.
During the six months ended June 30, 1999, we acquired three office properties
totaling 445,935 square feet at an initial cost of $67,164. In addition, we
acquired one parcel of land for development at an initial cost of $35,565.
Dispositions
We disposed of the following properties, referred to as the "Dispositions",
during the six months ended June 30, 2000.
<TABLE>
<CAPTION>
Property Total Rentable
Project Name Region - Location Type(1) Square Feet
----------------------------- ------------------------------------ -------- --------------
<S> <C> <C> <C>
12 Upper Ragsdale Silicon Valley - Monterey, CA I 17,592
Cascade Commerce Park Pacific Northwest - Seattle, WA I 340,125
City Commerce Park Pacific Northwest - Seattle, WA I 179,413
Commerce Park West East Bay/Sacramento - Sacramento, CA I 75,000
Commerce Park West III East Bay/Sacramento - Sacramento, CA L -(2)
Front Street East Bay/Sacramento - Sacramento, CA I 47,322
Sea Tac Industrial Park Pacific Northwest - Seattle, WA I 186,259
Vasco Landing East Bay/Sacramento - Livermore, CA L -(3)
Woodinville Corporate Pacific Northwest - Woodinville, WA I 170,793
Center I
Woodinville Corporate Pacific Northwest - Woodinville, WA I 250,502
Center III
</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 $36,831 for the three
months ended June 30, 2000, and $82,649 for the six months ended June 30, 2000.
Cash proceeds, net of closing costs, received from the dispositions were $35,810
for the three months ended June 30, 2000 and $80,394 for the six months ended
June 30, 2000. These proceeds were used to fund our recent acquisitions. Gain
recognized on disposition of real estate was $15,468 for the three months ended
June 30, 2000, and $37,677 for the six months ended June 30, 2000.
During the three months ended June 30, 1999, the gross proceeds for the land and
property dispositions were $28,423 and $70,843 for the six months ended June 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 $22,347 for the three months
ended June 30, 1999 and $63,615 for the six months ended June 30, 1999.
4. TRANSACTIONS WITH AFFILIATES
Revenues and Expenses
We received $132 for the three months and $445 for the six months ended June 30,
2000, and $263 for the three months and $600 for the six months ended June 30,
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 $31 receivable from affiliates at June 30, 2000, and the $144 at December
31, 1999, represent management fees and reimbursements due from Spieker
Northwest, Inc., Spieker Griffin/W9 Associates, LLC, and Spieker Partners.
11
<PAGE> 12
Investments in Mortgages
Investments in Mortgages of $11,154 at June 30, 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 for the three months ended and $684 for the
six months ended June 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 the Company own 100% of the voting stock of SNI. At June 30, 2000,
SNI owned 153,209 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. This conversion brings our total common interest in Spieker
Griffin/W9 Associates, LLC. to 50%. 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 $132,148 at June 30,
2000, are fourteen properties and three land parcels. One industrial property is
located in the Pacific Northwest. Three industrial properties, one office
property, and one land parcel are located in Southern California. Nine
industrial properties and two land parcels are located in Northern California.
The following summarizes the condensed results of operations for the properties
held for disposition at June 30, 2000, for the six months ended June 30, 2000
and 1999.
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Revenues $10,021 $ 9,282
Property Operating Expenses(1) 2,190 2,212
------- -------
Net Operating Income $ 7,831 $ 7,070
======= =======
</TABLE>
----------
(1) Property Operating Expenses includes property related rental expenses
and real estate taxes.
6. DEBT
<TABLE>
<CAPTION>
JUNE 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 145,494 63,012
Mortgage loans, fixed interest rates varying from 7.00% to 9.88%, 89,175 97,331
due 2001 to 2013(1) ---------- ----------
$2,071,169 $1,996,843
========== ==========
</TABLE>
----------
(1) Mortgage loans generally require monthly principal and interest
payments.
Short-term borrowings include a $250,000 unsecured Line of Credit, or the
Facility, which matures in August 2001. The Facility carries interest at the
London Interbank Offering Rate referred to as LIBOR plus 0.80%. The one-
12
<PAGE> 13
month LIBOR at June 30, 2000, was 6.65%. The Facility also includes an annual
administrative fee of $50 and an annual Facility fee of 0.20%. As of June 30,
2000 the amount drawn on the Facility was $133,000.
As of June 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 the London Interbank Offering Rate plus 1.25%. The Development
Facility includes an annual administrative fee of $35 and an unused Facility fee
of 0.25%. As of June 30, 2000, the amount drawn on the Development Facility was
$12,494.
Both the 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 1999 2000 1999
------ ------- ------ -------
<S> <C> <C> <C> <C>
Capitalized Interest $4,055 $ 5,652 $9,444 $10,674
</TABLE>
7. DIVIDENDS AND DISTRIBUTIONS PAYABLE
The dividends and distributions payable at June 30, 2000, and December 31, 1999,
represent amounts payable to the stockholders of record and distributions
payable to the minority interest holders as of the same dates. The stockholders
of record and minority interest holders are as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Shares of:
Common Stock 65,387,491 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 8,861,397 8,822,915
Minority Interest Holders - 1,500,000 1,500,000
Preferred
</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 June 30, 2000, a total of 288,713 restricted shares have been issued.
9. SEGMENT INFORMATION
We have 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 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 segment. Each of the five operating
regions consists of differing
13
<PAGE> 14
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.
During the first quarter of 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 six months ended June 30, 2000, and 1999 is
as follows:
<TABLE>
<CAPTION>
EAST BAY/ PENINSULA/
PACIFIC SACRAMENTO NORTH BAY SILICON SOUTHERN
NORTHWEST (1) (1) VALLEY CALIFORNIA TOTAL
--------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
2000 Rental Income $67,521 $58,768 $42,490 $82,528 $98,204 $349,511
1999 Rental Income 65,964 45,919 34,700 71,356 88,170 306,109
2000 Net Operating Income(2) 47,673 42,014 30,335 65,533 65,089 250,644
1999 Net Operating Income(2) 47,050 31,758 24,163 55,707 56,970 215,648
2000 Additions to Properties(3)(4) 61,210 -- 42,173 -- -- 103,383
2000 Reductions to Properties(3) (34,257) (6,869) -- (864) -- (41,990)
</TABLE>
------------
(1) The basis of the assets transferred 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/NorthBay 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.
(4) Represents the initial acquisition costs of the properties excluding any
additional repositioning costs.
10. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
2000 1999
------ -------
<S> <C> <C>
Increase to land and assessment bonds payable $ 34 $ 82
Write-off of fully depreciated property 9,376 3,476
Write-off of fully depreciated furniture, fixtures and equipment 487 191
Write-off of fully amortized deferred financing and leasing costs 1,576 767
Restricted Stock grants, net of amortization 1,343 3,473
Minority Interest reordered in relation to property acquisitions 8,638 --
Debt assumed in relation to property acquisitions -- 29,475
Operating Partnership unit conversion to Common Stock 7,533 --
</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.
14
<PAGE> 15
RESULTS OF OPERATIONS
The following comparison is of our consolidated operations for the three and six
month periods ended June 30, 2000, as compared to the corresponding periods
ended June 30, 1999 (amounts in tables are presented in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------
CHANGE
-----------------
Rental Revenues 2000 1999 $ %
---------------- --------- --------- ------- -----
<S> <C> <C> <C> <C>
1999 Core Portfolio $ 162.3 $ 146.7 $ 15.6 10.6%
1999 Acquisitions 4.3 1.8 2.5 138.9
2000 Acquisitions 2.7 -- 2.7
Developments 12.1 2.4 9.7 404.2
Dispositions 0.7 6.0 (5.3) (88.3)
--------- --------- ------- -----
$ 182.1 $ 156.9 $ 25.2 16.1%
========= ========= ======= =====
Average Occupancy Rate 96.9% 96.1%
========= =========
</TABLE>
For the quarter ended June 30, 2000, rental revenues increased by $25.2 million.
$15.6 million, or 61.9%, of the rental revenue increase is generated by the
"1999 Core Portfolio", defined as properties owned at January 1, 1999, and still
owned at June 30, 2000. The increase in the 1999 Core Portfolio revenue was
attributable to higher rental rates realized on the renewal and re-leasing of
our rentable space and a slight increase in occupancies. During the quarter, we
completed 414 lease transactions for the renewal and re-lease of approximately
2.5 million square feet of second generation space. Rollover effective rent
growth on these leases was, on average, 68.1% 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 69.1 months on a weighted average basis.
The Developments contributed $9.7 million, or 38.5%, 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 June 30,
2000 we stabilized eight properties consisting of approximately 1.2 million
square feet at estimated final costs of $197.5 million. Three of these
properties stabilized earlier than planned and contributed to the increase in
revenues. Our development pipeline at June 30, 2000, consists of eleven
properties totaling approximately 2.1 million square feet and represents an
estimated total cost of $461.2 million. The Developments were 73.0% preleased at
June 30, 2000. Although certain properties in the development pipeline are shell
complete and partially occupied, they are not considered stabilized.
The 2000 Acquisitions contributed $2.7 million of the increase in rental
revenues over the same period as last year. For the three months ended June 30,
2000, the Company acquired one office property totaling 134,235 square feet for
a total investment of $28.7 million. The property was acquired during the
quarter and, as such, a full quarters 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 $2.5 million 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 June 30, 1999.
15
<PAGE> 16
The increases in rental revenues are partially offset by a decrease of $5.3
million attributable to properties which we disposed of during the three months
ended June 30, 2000. The 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 we disposed of four
properties totaling 618,976 square feet (See Note 3 to the consolidated
statements). Two properties totaling 526,384 square feet represent the
continuing disposition of approximately 3.6 million square feet of the Seattle
industrial portfolio. To date, 3.3 million square feet of this portfolio have
been disposed.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------
CHANGE
-----------------
Rental Revenues 2000 1999 $ %
---------------- --------- --------- ------- -----
<S> <C> <C> <C> <C>
1999 Core Portfolio $ 316.3 $ 288.1 $ 28.2 9.8%
1999 Acquisitions 8.4 2.4 6.0 250.0
2000 Acquisitions 3.6 - 3.6 -
Developments 19.1 2.3 16.8 730.4
Dispositions 2.1 13.3 (11.2) (84.2)
-------- -------- ------- -----
$ 349.5 $306.1 $ 43.4 14.2%
======== ======== ======= =====
Average Occupancy Rate 96.9% 96.1%
======== ========
</TABLE>
Rental revenues for the six months ended June 30, 2000, increased by $43.4
million. $28.2 million, or 65.0%, of the rental revenue increase is due to
revenues generated by the 1999 Core Portfolio. The increase in the 1999 Core
Portfolio revenue during the last six months was attributed to higher rollover
rental rates realized on the renewal and re-leasing of second generation space
and increases in occupancies. During the six months ended June 30, 2000 we
completed 762 lease transactions for the renewal and re-lease of 4.7 million
square feet of second generation space. On average, year-to-date, the new
effective rates were 64.5% higher than the expiring coupon rent.
The Developments contributed $16.8 million, or 38.7%, to the rental revenue
increase for the six months ended June 30, 2000. The 1999 Acquisitions
contributed $6.0 million to the rental revenue increase, and the 2000
Acquisitions contributed $3.6 million. During the six months ended June 30,
2000, we have acquired three office properties totaling 468,860 square feet for
a total investment of $108.2 million. These increases in rental revenues are
partially offset by a decrease of $11.2 million attributable to the
Dispositions.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
CHANGE CHANGE
----------- ------------
2000 1999 $ % 2000 1999 $ %
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and other Income $1.9 $1.8 $0.1 5.6% $4.0 $3.3 $0.7 21.2%
</TABLE>
Interest and other income during the comparable six month periods increased due
to additional management fees collected from outside parties, and from interest
income on deposits held in escrow from disposed properties. Average cash
balances for the three month and six month periods ended June 30, 2000, were
$30.2 million and $25.7 million, and for 1999 were $27.6 million and $24.8
million.
16
<PAGE> 17
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
CHANGE CHANGE
----------- ------------
Property Operating Expenses 2000 1999 $ % 2000 1999 $ %
--------------------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Expenses $37.9 $35.8 $2.1 5.9% $73.4 $67.4 $6.0 8.9%
Real Estate Taxes 13.0 11.5 1.5 13.0 25.5 23.1 2.4 10.4
----- ----- ---- ---- ----- ----- ---- ----
$50.9 $47.3 $3.6 7.6% $98.9 $90.5 $8.4 9.3%
===== ===== ==== ==== ===== ===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
CHANGE CHANGE
----------- ------------
Property Operating Expenses 2000 1999 $ % 2000 1999 $ %
--------------------------- ----- ----- ---- ----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 Core Portfolio $45.7 $44.5 $1.2 2.7% $89.6 $85.5 $4.1 4.8%
1999 Acquisitions 1.3 0.6 0.7 116.7 2.6 0.7 1.9 271.4
2000 Acquisitions 0.7 - 0.7 - 1.1 - 1.1 -
Developments 3.0 1.0 2.0 200.0 5.1 1.7 3.4 200.0
Dispositions 0.2 1.2 (1.0) (83.3) 0.5 2.6 (2.1) (80.8)
----- ----- ---- ----- ----- ----- ---- -----
$50.9 $47.3 $3.6 7.6% $98.9 $90.5 $8.4 9.3%
===== ===== ==== ===== ===== ===== ==== =====
Property Operating Expenses
as % Of Rental Revenues 28.0% 30.1% 28.3% 29.6%
===== ===== ===== =====
</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 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- --------------------------------
CHANGE CHANGE
-------------- ---------------
Net Operating Income 2000 1999 $ % 2000 1999 $ %
-------------------- ------ ------ ----- ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 Core Portfolio $116.6 $102.2 $14.4 14.1% $226.7 $202.6 $24.1 11.9%
1999 Acquisitions 3.0 1.2 1.8 150.0 5.8 1.7 4.1 241.2
2000 Acquisitions 2.0 - 2.0 - 2.5 - 2.5 -
Developments 9.1 1.4 7.7 550.0 14.0 0.6 13.4 2233.3
Dispositions 0.5 4.8 (4.3) (89.6) 1.6 10.7 (9.1) (85.0)
------ ------ ----- ----- ------ ------ ----- ------
$131.2 $109.6 $21.6 19.7% $250.6 $215.6 $35.0 16.2%
====== ====== ===== ===== ====== ====== ===== ======
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- --------------------------------
CHANGE CHANGE
-------------- ---------------
Other Expenses 2000 1999 $ % 2000 1999 $ %
-------------- ------ ------ ----- ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Expense, including
Amortization of Deferred
Financing Costs $33.4 $29.9 $3.5 11.7% $64.6 $58.7 $5.9 10.1%
Depreciation and
Amortization Expense 31.4 27.1 4.3 15.9 61.8 52.5 9.3 17.7
G&A Expenses 7.0 5.7 1.3 22.8 13.6 11.4 2.2 19.3
G&A Expenses as %
of Rental Revenues 3.8% 3.6% 3.9% 3.7%
Capitalized Interest $4.1 $5.7 $9.4 $10.7
</TABLE>
Interest expense increased due to 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 our unsecured short-term borrowings and a
slight decrease in interest capitalized in relation to the Developments we had
in process. The average outstanding debt for the three and six months ended June
30, 2000, was $2.0 billion and $2.0 billion, which was comparative to the three
months in 1999 while for the six months ended June 30, 1999, the average
outstanding debt was $1.9 billion.
Depreciation and amortization expense increased by $4.3 million for the three
month period and $9.3 million for the six month period ended June 30, 2000,
compared with the same periods in 1999, due primarily to the 1999 Acquisitions
and the Developments.
General and administrative expenses increased by $1.3 million for the three
month period and $2.2 million for the six month period ended June 30, 2000 as
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 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 $61.3 $48.7 $12.6 25.9% $114.6 $96.3 $18.3 19.0%
</TABLE>
The increase in income from operations before disposition of real estate and
minority interests of $12.6 million for the three month period and $18.3 million
for the six month period ended June 30, 2000 is principally due to rent
increases in the 1999 Core Portfolio, 1999 Acquisitions and the Developments.
During the first six months of 2000, we recorded gains on the dispositions of
two land parcels and eight industrial properties totaling $37.7 million (see
Note 3 to the consolidated statements).
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000, we generated $185.5 million in cash
flows from operating activities. These cash flows were primarily generated by
net income provided by our operating properties. The cash flows from investing
activities of ($112.9) million was 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 ($36.9) million can be attributed to the
payments of dividends and distributions offset by additional borrowings. During
the first six months of 2000, net cash used by financing activities included net
borrowings of approximately $70.0 million under our Facility, $12.5 million
under our Development Facility and principal payments of $8.2 million on
mortgage loans. Payments
18
<PAGE> 19
of dividends and distributions increased by $6.0 million due to a 14.8% increase
in common share dividends and Operating Partnership unit distributions to $1.40
per share and unit for the first six months in 2000 from $1.22 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 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 June 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 June 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.
We have a $250.0 million Unsecured Line of Credit Facility, or the 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 June 30,
2000, we had $133.0 million outstanding under the Facility.
During the quarter ended June 30, 2000, the Company obtained additional
short-term borrowings of $100.0 million in the form of a secured Development
Facility. The Development Facility carries interest at the London Interbank
Offering Rate plus 1.25% and matures in May 2003. At June 30, 2000, the amount
drawn on the Development Facility was $12.5 million.
The 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 $89.2
million of secured indebtedness (the "Mortgages") outstanding at June 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 a first or second deed of trust
on the related properties and generally require monthly principal and interest
payments. We also have $8.8 million of assessment bonds payable as of June 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.
19
<PAGE> 20
Pursuant to the National Association of Real Estate Investment Trust's revised
definition of Funds from Operations, the Company calculates Funds from
Operations by adjusting income from operations before disposition of real estate
and minority interests, 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. 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.
STATEMENT OF FUNDS FROM OPERATIONS
(amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Income from operations before disposition of
real estate and minority interests: $114,593 $96,310
Dividends on Series B Preferred Stock (5,020) (5,020)
Dividends on Series C Preferred Stock (5,906) (5,906)
Dividends on Series E Preferred Stock (4,000) (4,000)
Distributions on Preferred Operating Partnership Units (2,883) (4,924)
-------- --------
Income from Operations after preferred
dividends and distributions 96,784 76,460
-------- --------
Add:
Depreciation and Amortization 61,127 51,830
Other, net 1,030 328
-------- --------
Funds from Operations before Straight-line rent 158,941 128,618
-------- --------
Straight-line rent (5,907) (5,223)
-------- --------
Funds from Operations $153,034 $123,395
======== ========
Weighted average diluted share equivalents outstanding 76,515 74,077
======== ========
</TABLE>
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 June 30, 2000. The following table presents
principal cash flows and related weighted average interest rates by year of
maturity.
EXPECTED MATURITY DATE
(in millions)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------ ------ ------ ----- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt(1) $100.0 $147.6 $110.0 - $300.0 $1,268.1 $1,925.7
Average Interest Rate 6.65% 7.22% 6.95% - 6.83% 7.29% 7.16%
Variable Rate Debt(2) - $133.0 - $12.5 - - $ 145.5
Average Interest Rate - 7.21% - 8.06% - - 7.28%
</TABLE>
------------
(1) Represents 93.0% of all debt outstanding.
(2) Represents 7.0% of all debt outstanding.
20
<PAGE> 21
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 June 30, 2000, we 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.
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C>
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
(B) Reports on Form 8-K
None.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Spieker Properties, Inc.
(Registrant)
Dated: August 14, 2000 /s/ CARY ANDERSON
-------------------------------------
Cary Anderson
Vice President and
Principal Accounting Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C>
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
23
