September 30, 2005
Mail Stop 4561
Frank C. Spencer
Chief Executive Officer
Cogdell Spencer Inc.
4401 Barclay Downs Drive, Suite 300
Charlotte, NC 28209
Re: Cogdell Spencer Inc.
First Amendment to Registration Statement on Form S-11
Filed September 16, 2005
File No. 333-127396
Dear Mr. Spencer:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
All page numbers refer to the marked courtesy copy that you
provided to us.
Summary
Overview, page 1
1. Please provide us with objective support for the assertion on
page
2 that you have experienced "strong" growth over the last 10
years.
Our Wholly Owned Properties, page 5
2. Where relevant, please discuss briefly your consulting and
finance
activities.
Formation Transactions, page 8
3. We note from page 9 that the value of cash, shares and
operating
partnership units to be issued to property holders comes to $144.4
million based on the anticipated mid-point of the price range of
this
offering. Please disclose here the value of the property to be
contributed to you as determined prior to the filing of this
registration statement, using the valuation analysis described on
page 110.
4. On page 9, please define "net tangible book value," explain why
this information is useful to investors in assessing the relative
value of the formation transactions, and explain the significance
of
a negative book value.
5. We note that you refer to different book values here and in
your
pro forma consolidated balance sheet. We also note that you
refer,
here and in your discussion of dilution on page 48, to different
numbers of shares and operating partnership units to be issued in
your consolidation transaction. Please confirm that references to
historical net tangible book value and aggregate shares to be
issued
in the consolidation transaction are consistent throughout.
Line of Credit, page 13
6. Please disclose that you may also use your line of credit to
fund
your initial distribution.
7. We note that affiliates of the underwriters will be lenders
under
your secured line of credit. Please include a section in your
summary and in the risk factors covering conflicts of interest
with
your underwriters. Identify the underwriters involved, disclose
the
fees to be received and discuss the potential impact on the
underwriters` due diligence obligations.
Distribution Policy, page 13
8. Please disclose what part of the initial distribution you
expect
to represent a return of capital. Describe the sources of cash
you
will use to fund your initial distribution in excess of cash
available for distribution. Also, please revise to state the
payout
ratio if the underwriters exercise the over-allotment option in
full.
Risk Factors, page 19
9. We note your response to prior comment 37, regarding disclosure
of
potential liability under the tax protection agreements. We do
not
agree with your analysis that liability under these agreements is
too
remote to warrant analysis or too complex to calculate. It
appears
to us that there are many ways such obligations could be triggered
despite your contrary intentions, including foreclosure. Please
include a risk factor covering your total potential liability
under
these agreements. From page 111, this liability would appear to
be
the difference between the tax basis and the fair market value of
the
properties contributed to you on the date of contribution. Please
disclose these figures as well.
Risks Related to Our Properties and Operations, page 19
The long-term effects of Hurricane Katrina..., page 20
10. Please disclose the percentage of revenue attributable to East
Jefferson Medical Specialty Building. Regardless of whether it
was
damaged during the storm, the risks based on the pace of recovery
in
the area appear to be the same.
Distribution Policy, page 43
11. We note your response to comment 26. Despite your historical
renewal rates, the lease renewals assumed in the table on page 45
are
not based upon contractual agreements and it is therefore not
permissible to include them in your projection of cash available
for
distribution. Please revise the distribution table as necessary.
12. It appears that you have added pro forma income before
minority
interests for the six months ended June 30, 2004, rather than
subtracting it, to arrive at pro forma loss before minority
interests
for the twelve months ended June 30, 2005. Please revise as
necessary. Also, revise your disclosure to show how you derived
pro
forma income before minority interests for the six months ended
June
30, 2004.
13. Please revise the narrative to explain why you do not expect
the
tax protection agreements to have a significant impact on our debt
or
required cash payments.
14. Please tell us why you list scheduled debt repayments as both
an
investing and a financing activity. Also, please confirm that you
have correctly calculated the sum appearing on the line for
estimated
cash flows from investing activities.
Dilution, page 48
15. You disclose on page 48 that as of June 30, 2005, the pro
forma
net tangible book value of the Company was $(49.2) million after
giving effect to the formation transactions, but before giving
effect
to the sale of shares in this offering. However, the table on
page
49 presents a $41.9 million pro forma net tangible book value of
assets contributed to the operating partnership, giving effect to
the
formation transactions, but not to the effects of this offering.
Please explain this discrepancy to us and clarify in your next
amendment.
Management`s Discussion and Analysis, page 53
Trends Which May Influence Results of Operations, page 54
16. For each period, please quantify the impact of non-recurring
development fees and hedging instruments on net income and please
quantify and discuss the anticipated impact of revenue SFAS No.
133
on net income going forward.
Cash Flows, page 59
17. Please revise your discussion of cash flows to discuss the
underlying drivers of these activities. For instance:
* for the six months ended June 30, 2004 and 2005, please discuss
why
you believe you engaged in fewer development projects (and
experienced reduced development and management fees) this year and
what this could mean to future results; and
* for the full years 2004 and 2005, please explain why a change in
operating assets and liabilities impacted cash flow.
Liquidity and Capital Resources, page 60
18. Please disclose how long you believe you will be able to meet
your liquidity needs based on your cash position at the close of
this
offering and anticipated expenditures over the next 12 months,
including your initial distribution. Please explain the basis of
your belief.
19. We note your disclosure on page 60 indicating that the
predecessor`s debt agreements contain minimum debt service
coverage
ratios. To the extent you will assume these loans, please revise
the
disclosure to quantify these ratios.
Short-Term Liquidity Needs, page 60
20. We note your response to prior comment 38. It appears to us
that, on an annualized basis, capital expenditures in 2005 will be
significantly less than actual expenditures in 2004 and
anticipated
expenditures in 2006. Please explain why.
Off-Balance Sheet Arrangements, page 62
21. Please revise the last sentence under this heading to explain
why
you do not expect your guarantees to have a material impact on
your
financial statements in the future.
Indebtedness Outstanding Upon Completion of the Offering, page 63
22. Refer to the pro forma table at the bottom of page 64. Please
revise to state the total amount of the debt balance column.
Also,
please explain what is represented by the $16.89 amount as a
"total"
for rent per leased square foot. Provide conforming disclosure in
the table on page 78.
Unsecured Credit Facility, page 65
23. Please file the commitment letter as an exhibit to this
registration statement and disclose, if true, that it does not
represent a legally binding obligation. Also, please discuss how
you
would meet your specified liquidity needs over the next 12 months
in
the event that your credit facility falls through.
Industry Background/Market Opportunity, page 68
24. Please discuss countervailing factors evident from the
supporting
material provided to us. For instance, in "Health Care REITs
Enjoy a
Smoother Ride" (a May/June 2005 article published by NAREIT) the
author states that the favorable reimbursement rates that have
characterized the industry in recent years may change in light of
current federal and state budget concerns. In addition, there is
fierce competition for assets and the fortune of assets located
near
hospital systems will be closely tied to the health of the system
itself.
Business and Properties, page 72
Overview, page 72
25. We note your reliance on a building survey as support for your
belief that you enjoy a high level of satisfaction among your
tenants. The survey reports overall satisfaction ratings between
2.71 (slightly less than neutral) and 3.46 (slightly more than
neutral) on a scale of one to five. This does not appear to
support
your assertion. Please provide additional support or revise your
disclosure.
Joint Venture Properties, page 78
26. Please disclose the percentage of lease revenue subject to
termination or renewal in 2005, 2006 and 2007.
Development Opportunities, page 78
27. Please provide tabular disclosure showing the location of each
development property, anticipated rentable square feet, ownership
interest, phase number and, if known, anticipated date of
completion.
If any equity holders in these properties are affiliated with you,
please identify them.
Management, page 88
Executive Compensation, page 93
28. Please provide footnote disclosure of the fact that the named
executives received additional compensation as a result of their
equity interests in the properties.
Employment Agreements, page 94
29. It appears from page 96 that the confidentiality and non-
solicitation provisions do not apply unless the executive agrees
to
accept severance from you. Please explain why. In the event that
your officers are not currently bound by any confidentiality or
non-
solicitation provisions, please include a risk factor addressing
this.
Certain Relationships and Related Transactions, page 101
30. We note your response to prior comment 65 and reissue the
comment. Cost and depreciation information is required by
instruction 5 to Item 404(a) of Regulation S-K and Item 23 of Form
S-
11. Unlike the net tangible book value provided in your summary
section, cost and depreciation information provides investors with
a
picture of the profit flowing to related parties as opposed to the
relative value of those properties from an investment perspective.
Structure and Formation of Our Company, page 109
31. We note your response to prior comment 72. Please file all
formation-related agreements as exhibits to your next amendment or
tell us why you are not yet able to file them.
Underwriting, page 152
32. Your response to prior comment 79 indicates that you attached
an
exhibit containing directed share program materials. We were
unable
to locate this exhibit. Please attach it to your next response.
Unaudited Pro Forma Financial Information, page F-2
33. Please revise your pro forma financial statements to present
the
adjustments for the formation transactions before the offering
adjustments. In addition, revise to present a subtotal column
before
the offering adjustments column so that investors can clearly see
the
operating results of the combined entity for which they will be
investing.
Information Not Required in Prospectus
Recent Sales of Unregistered Securities
34. We note from page 62 that you intend to issue 58,100 shares of
restricted stock to your employees upon the close of this
transaction. Please tell us why this transaction does not need to
be
discussed in your recent sales section and, in any event, please
tell
us the exemption from registration upon which you intend to rely.
As appropriate, please amend your registration statement in
response to our comments. You may wish to provide us with marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendments that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Kristina Beshears at 202-551-3429 or Daniel
Gordon, Accounting Branch Chief, at 202-551-3486 if you have
questions regarding comments on the financial statements and
related
matters. Please contact Geoffrey Ossias at 202-551-3404 or me at
202-551-3780 with any other questions.
Sincerely,
Karen J. Garnett
Assistant Director
cc: Andrew S. Epstein (via facsimile)
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Frank C. Spencer
Cogdell Spencer Inc.
September 30, 2005
Page 8