##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-32649
 COGDELL SPENCER INC.
  Maryland
    
    20-3126457(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)4401 Barclay Downs Drive, Suite 300Charlotte, North Carolina
    
    28209(Address of principal executive offices)
    
    (Zip code)
 (704) 940-2900
 
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I
    
    FINANCIAL INFORMATIONItem 1
    
    Condensed Consolidated and Combined Financial Statements (Unaudited)
    
    
    1Item 2
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4
    
    Controls and Procedures
    
    
    22PART II
    
    Other InformationItem 1
    
    Legal Proceedings
    
    
    23Item 1A
    
    Risk Factors
    
    
    23Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3
    
    Defaults Upon Senior Securities
    
    
    23Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 5
    
    Other Information
    
    
    23Item 6
    
    Exhibits
    
    
    24




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##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 COGDELL SPENCER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 As of
    
    
    As ofSeptember 30, 2006
    
    
    December 31, 2005AssetsReal estate properties:Land
    
    $
    22,734
    
    
    $
    16,798Buildings and improvements
    
    
    336,101
    
    
    
    241,946Construction in progress
    
    
    6,234
    
    
    
    1,099Less: Accumulated depreciation
    
    
    (17,759
    )
    
    
    (2,699
    )Total operating real estate properties, net
    
    
    347,310
    
    
    
    257,144Real estate properties, net  held for sale
    
    
    
    
    
    
    1,379Total real estate properties, net
    
    
    347,310
    
    
    
    258,523Cash and cash equivalents
    
    
    2,383
    
    
    
    9,571Restricted cash
    
    
    1,056
    
    
    
    779Investment in capital lease
    
    
    6,270
    
    
    
    6,499Acquired above market leases, net of accumulated
amortization of $208 in 2006 and $25 in 2005
    
    
    1,048
    
    
    
    852Acquired in place lease value and deferred leasing
costs, net of accumulated amortization of $8,655 in
2006 and $1,399 in 2005
    
    
    20,688
    
    
    
    21,220Acquired ground leases, net of accumulated
amortization of $55 in 2006 and $15 in 2005
    
    
    2,889
    
    
    
    2,768Deferred financing costs, net of accumulated
amortization of $239 in 2006 and $31 in 2005
    
    
    966
    
    
    
    913Goodwill
    
    
    5,112
    
    
    
    2,875Other assets
    
    
    5,179
    
    
    
    4,331Other assets  held for sale
    
    
    
    
    
    
    151Total assets
    
    $
    392,901
    
    
    $
    308,482Liabilities and stockholders equityNotes payable under line of credit
    
    $
    97,850
    
    
    $
    19,600Mortgage loans
    
    
    155,472
    
    
    
    139,374Accounts payable and accrued liabilities
    
    
    8,160
    
    
    
    4,857Accrued dividends and distributions
    
    
    4,326
    
    
    
    Acquired below market leases, net of accumulated
amortization of $1,042 in 2006 and $164 in 2005
    
    
    3,434
    
    
    
    2,893Other liabilities  held for sale
    
    
    
    
    
    
    1,272Total liabilities
    
    
    269,242
    
    
    
    167,996Commitments and contingenciesMinority interests
    
    
    60,298
    
    
    
    62,018Stockholders equity:Preferred stock, $0.01 par value; 50,000 shares
authorized, none issued or outstanding
    
    
    
    
    
    
    Common Stock; $0.01 par value; 200,000 shares
authorized, 7,996 shares issued and
outstanding in 2006
and 8,000 shares issued and outstanding in 2005
    
    
    80
    
    
    
    80Additional paid-in capital
    
    
    85,121
    
    
    
    85,855Accumulated deficit
    
    
    (21,840
    )
    
    
    (7,467
    )Total stockholders equity
    
    
    63,361
    
    
    
    78,468Total liabilities and stockholders equity
    
    $
    392,901
    
    
    $
    308,482
  1




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##### 



COGDELL SPENCER INC. AND COGDELL SPENCER INC. PREDECESSOR
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
 Company
    
    
    Predecessor
    
    
    Company
    
    
    PredecessorThree Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Rental
    
    $
    13,394
    
    
    $
    4,116
    
    
    $
    38,492
    
    
    $
    12,513Rental  related party
    
    
    
    
    
    
    6,550
    
    
    
    
    
    
    
    19,501Fee revenue
    
    
    212
    
    
    
    451
    
    
    
    881
    
    
    
    1,299Expense reimbursements
    
    
    88
    
    
    
    146
    
    
    
    398
    
    
    
    475Interest and other income
    
    
    198
    
    
    
    235
    
    
    
    711
    
    
    
    700Total revenues
    
    
    13,892
    
    
    
    11,498
    
    
    
    40,482
    
    
    
    34,488Expenses:Property operating
    
    
    5,050
    
    
    
    4,063
    
    
    
    14,139
    
    
    
    11,759General and administrative
    
    
    1,387
    
    
    
    1,717
    
    
    
    4,822
    
    
    
    4,425Depreciation
    
    
    5,120
    
    
    
    2,535
    
    
    
    14,288
    
    
    
    7,561Amortization
    
    
    2,617
    
    
    
    15
    
    
    
    7,375
    
    
    
    54Interest
    
    
    4,195
    
    
    
    2,330
    
    
    
    9,979
    
    
    
    7,421Prepayment penalty on early extinguishment of debt
    
    
    37
    
    
    
    
    
    
    
    37
    
    
    
    Total expenses
    
    
    18,406
    
    
    
    10,660
    
    
    
    50,640
    
    
    
    31,220Income (loss) from continuing operations before equity
in earnings (loss) of unconsolidated real estate
partnerships, minority interest in real estate
partnership, minority interests in operating
partnership and discontinued operations
    
    
    (4,514
    )
    
    
    838
    
    
    
    (10,158
    )
    
    
    3,268Equity in earnings (loss) of unconsolidated real
estate partnerships
    
    
    2
    
    
    
    (5
    )
    
    
    7
    
    
    
    (45
    )Gain from sale of real estate partnership interests
    
    
    484
    
    
    
    
    
    
    
    484
    
    
    
    Minority interests in real estate partnership
    
    
    (24
    )
    
    
    
    
    
    
    (77
    )
    
    
    Minority interests in operating partnership
    
    
    1,430
    
    
    
    
    
    
    
    3,438
    
    
    
    Income (loss) from continuing operations
    
    
    (2,622
    )
    
    
    833
    
    
    
    (6,306
    )
    
    
    3,223Discontinued operations:Income (loss) from discontinued operations
    
    
    2
    
    
    
    9
    
    
    
    (9
    )
    
    
    40Gain from sale of real estate property
    
    
    435
    
    
    
    
    
    
    
    435
    
    
    
    Minority interests in operating partnership
    
    
    (154
    )
    
    
    
    
    
    
    (150
    )
    
    
    Total discontinued operations
    
    
    283
    
    
    
    9
    
    
    
    276
    
    
    
    40Net income (loss)
    
    $
    (2,339
    )
    
    $
    842
    
    
    $
    (6,030
    )
    
    $
    3,263Per share data  basic and dilutedLoss from continuing operations  basic and diluted
    
    $
    (0.33
    )
    
    
    
    
    
    $
    (0.79
    )Income from discontinued operations  basic and
diluted
    
    
    0.04
    
    
    
    
    
    
    
    0.03Net loss  basic and discontinued
    
    $
    (0.29
    )
    
    
    
    
    
    $
    (0.76
    )Weighted average common shares  basic and diluted
    
    
    7,976
    
    
    
    
    
    
    
    7,975
  2




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##### 



COGDELL SPENCER INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 Number of
    
    
    
    
    
    
    AdditionalCommon
    
    
    Common
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance at December 31, 2005
    
    
    8,000
    
    
    $
    80
    
    
    $
    85,855
    
    
    $
    (7,467
    )
    
    $
    78,468Cumulative effect adjustment
associated with the
implementation of EITF 04-5
    
    
    
    
    
    
    
    
    
    
    (785
    )
    
    
    53
    
    
    
    (732
    )Forfeiture of restricted shares
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted
stock compensation, net of
minority interests
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    51Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,396
    )
    
    
    (8,396
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,030
    )
    
    
    (6,030
    )Balance at September 30, 2006
    
    
    7,996
    
    
    $
    80
    
    
    $
    85,121
    
    
    $
    (21,840
    )
    
    $
    63,361
  3




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##### 



COGDELL SPENCER INC. AND COGDELL SPENCER INC. PREDECESSOR
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 Company
    
    
    PredecessorNine Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005Operating activities:Net income (loss)
    
    $
    (6,030
    )
    
    $
    3,263Adjustments to reconcile net income (loss) to cash
provided by operating activities:Minority interests in operating partnership
    
    
    (3,288
    )
    
    
    Minority interests in real estate partnership
    
    
    77
    
    
    
    Gain from sale of real estate partnership interests
    
    
    (484
    )
    
    
    Gain from sale of property  discontinued operations
    
    
    (435
    )Depreciation of real estate properties
    
    
    14,247
    
    
    
    7,911Corporate depreciation and amortization
    
    
    128
    
    
    
    75Amortization of acquired ground leases, acquired in place lease
value and deferred leasing costs
    
    
    7,311
    
    
    
    72Amortization of acquired above market leases and acquired below
market leases, net
    
    
    (696
    )
    
    
    Amortization of debt premium
    
    
    (150
    )
    
    
    (9
    )Amortization of deferred finance costs
    
    
    208Amortization of restricted stock compensation
    
    
    79
    
    
    
    Equity in (earnings) loss of unconsolidated real estate partnerships
    
    
    (7
    )
    
    
    45Prepayment penalty for early extinguishment of debt
    
    
    37
    
    
    
    Change in fair value of interest rate swap agreements
    
    
    (59
    )
    
    
    (2,129
    )Changes in operating assets and liabilities:Other assets
    
    
    (210
    )
    
    
    (1,410
    )Accounts payable and accrued expenses
    
    
    2,015
    
    
    
    1,883Net cash provided by operating activities
    
    
    12,743
    
    
    
    9,701Investing activities:Investment in real estate properties and businesses
    
    
    (97,194
    )
    
    
    (5,062
    )Proceeds from sale of real estate property and capital lease
    
    
    2,143
    
    
    
    54Proceeds from sale of real estate partnership interests
    
    
    546
    
    
    
    Advances to unconsolidated real estate joint ventures
    
    
    
    
    
    
    (82
    )Distributions received from real estate partnerships
    
    
    2
    
    
    
    (Increase) decrease in restricted cash
    
    
    (277
    )
    
    
    65Net cash used in investing activities
    
    
    (94,780
    )
    
    
    (5,025
    )Financing activities:Proceeds from mortgage notes payable
    
    
    13,270
    
    
    
    1,938Repayments of mortgage notes payable
    
    
    (7,799
    )
    
    
    (3,751
    )Proceeds from line of credit
    
    
    82,750
    
    
    
    2,797Repayments to line of credit
    
    
    (4,500
    )
    
    
    Prepayment penalty for early extinguishment of debt
    
    
    (37
    )
    
    
    Equity contributions
    
    
    
    
    
    
    142Dividends and distributions
    
    
    (8,653
    )
    
    
    (7,026
    )Distributions to minority interests in real estate partnership
    
    
    (134
    )
    
    
    Payment of deferred financing costs
    
    
    (261
    )
    
    
    (49
    )Net cash provided by (used in) financing activities
    
    
    74,636
    
    
    
    (5,949
    )Decrease in cash and cash equivalents
    
    
    (7,401
    )
    
    
    (1,273
    )Balance at beginning of period
    
    
    9,571
    
    
    
    13,459Cumulative effect adjustment associated with the implementation of
EITF 04-5
    
    
    213
    
    
    
    Balance at end of period
    
    $
    2,383
    
    
    $
    12,186Supplemental disclosure of cash flow information:Cash paid for interest, net of capitalized interest
    
    $
    9,673
    
    
    $
    9,324Supplemental cash flow information  noncash
investing and financing activities:Debt assumed with purchase of property
    
    
    5,178
    
    
    
    Accrued dividends and distributions
    
    
    4,326
    
    
    
    Issuance of operating partnership units as consideration for
investments in real estate properties and businesses
    
    
    6,018
    
    
    
    
  4




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##### 



COGDELL SPENCER INC. AND COGDELL SPENCER INC. PREDECESSOR
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 1. Organization and Ownership
   2. Summary of Significant Accounting Policies
 Basis of Presentation
  Interim Financial Information
  5




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##### 



Use of Estimates in Financial Statements
  Adoption of Recent Accounting Pronouncement
   AssetsReal estate property:Land
    
    $
    229Buildings and improvements
    
    
    4,992Less: Accumulated depreciation
    
    
    (856
    )Total real estate property, net
    
    
    4,365Cash and cash equivalents
    
    
    213Other assets
    
    
    8Total assets
    
    $
    4,586Liabilities and members equityMortgage loans
    
    
    4,340Accounts payable and accrued liabilities
    
    
    128Total liabilities
    
    
    4,468Members equity
    
    
    118Total liabilities and members equity
    
    $
    4,586
 Recent
Accounting Pronouncements
  6




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##### 



3. Property acquisitions and dispositions
  
    
    Methodist Professional Center One was acquired on February 15, 2006, for $39.9
million inclusive of credits from the seller in the amount of $0.5 million related
to potential future capital improvements, reducing the initial purchase price to
$39.4 million. The property has 171,755 square feet of medical office space, which
was 94.7% leased at the time of purchase, and an adjacent 951-space parking deck.
    
    On March 30, 2006, the Company acquired Hanover Medical Office Building One and
the 1808/1818 Verdugo Boulevard properties. The combined portfolio purchase price
was $36.2 million, inclusive of $0.8 million in credits from the seller relating to
potential future capital improvements, reducing the initial purchase price to $35.4
million. The properties have 163,403 square feet of medical office space and was
98.5% leased on the date of acquisition.
    
    Mary Black Westside MOB was acquired on August 4, 2006, for $5.2 million. The
Company received credits from the seller of $0.7 million related to potential future
capital improvements, which reduced the initial purchase price to $4.5 million. The
building has 37,455 square feet of medical office space and was 100.0% leased on the
date of acquisition.
    
    On September 28, 2006, the Company acquired Parkridge MOB for approximately $19.1
million. The Company received credits from the seller of $1.5 million related to
potential future capital improvements, which reduced the initial purchase price to
$17.6 million. The property has 89,451 square feet of medical office space and was
94.6% leased at the time of acquisition.
    
    On September 28, 2006, the Company acquired Consera Healthcare Real Estate, LLC,
a medical office building management company based in Columbia, SC. Consera manages
38 properties containing approximately 1.6 million square feet in South Carolina,
Kentucky, Virginia and Florida.
  Land
    
    $
    5,638Building and improvements
    
    
    84,847Acquired in place lease value and deferred leasing costs
    
    
    7,291Acquired ground leases, net
    
    
    41Acquired above market leases
    
    
    376Acquired below market leases
    
    
    (1,405
    )Other assets
    
    
    1,232Interest rate cap transaction agreement
    
    
    245Goodwill
    
    
    2,237Total purchase price allocated
    
    $
    100,502
  7




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##### 



Company
    
    
    Predecessor
    
    
    Company
    
    
    PredecessorThree Months Ended September 30,
    
    
    Nine Months Ended September 302006
    
    
    2005
    
    
    2006
    
    
    2005Total revenues
    
    $
    18,421
    
    
    $
    15,207
    
    
    $
    44,015
    
    
    $
    45,636Net loss
    
    $
    (1,742
    )
    
    $
    (607
    )
    
    $
    (3,563
    )
    
    $
    (1,759
    )Per share information:Basic and diluted loss per share
    
    $
    (0.22
    )
    
    
    
    
    
    $
    (0.45
    )
  Company
    
    
    Predecessor
    
    
    Company
    
    
    PredecessorThree Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Rental
    
    $
    8
    
    
    $
    59
    
    
    $
    129
    
    
    $
    176Total revenues
    
    
    8
    
    
    
    59
    
    
    
    129
    
    
    
    176Property operating expenses
    
    
    2
    
    
    
    19
    
    
    
    44
    
    
    
    57Depreciation and amortization
    
    
    
    
    
    
    12
    
    
    
    51
    
    
    
    32Interest expense
    
    
    4
    
    
    
    19
    
    
    
    43
    
    
    
    47Income from discontinued operations before gain from sale
of real estate property and minority interests in operating
partnership
    
    
    2
    
    
    
    9
    
    
    
    (9
    )
    
    
    40Gain on disposition of discontinued operations
    
    
    435
    
    
    
    
    
    
    
    435
    
    
    
    Income from discontinued operations before minority interest
    
    
    437
    
    
    
    9
    
    
    
    426
    
    
    
    40Minority interests in operating partnership
    
    
    (154
    )
    
    
    
    
    
    
    (150
    )
    
    
    Total discontinued operations
    
    $
    283
    
    
    $
    9
    
    
    $
    276
    
    
    $
    40
  4. Mortgages and Notes Payable Under Line of Credit
     8




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##### 



5. Derivative Financial Instruments  Interest Rate Swap Agreements
   NotionalAmount as ofSeptember 30,
    
    
    
    
    
    
    
    
    
    
    Effective
    
    
    Expiration
    
    
    September 30, 2006Entity
    
    2006
    
    
    Receive Rate
    
    
    Pay Rate

    
    Date
    
    
    Date
    
    
    Asset
    
    
    LiabilityBeaufort Medical Plaza, LLC
    
    $
    5,079
    
    
    1 Month LIBOR
    
    
    5.81
    %
    
    
    10/25/1999
    
    
    
    7/25/2008
    
    
    $
    
    
    
    $
    71Gaston MOB, LLC
    
    
    16,764
    
    
    1 Month LIBOR
    
    
    3.25
    %
    
    
    1/23/2003
    
    
    
    11/22/2007
    
    
    
    371
    
    
    
    Medical Investors I, LLC
    
    
    8,844
    
    
    1 Month LIBOR
    
    
    4.82
    %
    
    
    2/10/2003
    
    
    
    12/10/2007
    
    
    
    26
    
    
    
    River Hills Medical Associates, LLC
    
    
    3,093
    
    
    1 Month LIBOR
    
    
    3.63
    %
    
    
    3/10/2003
    
    
    
    12/15/2008
    
    
    
    87
    
    
    
    Roper MOB, LLC
    
    
    9,938
    
    
    1 Month LIBOR
    
    
    4.45
    %
    
    
    7/26/2004
    
    
    
    7/10/2009
    
    
    
    127
    
    
    
    $
    611
    
    
    $
    71
  NotionalAmount as ofNovember 2,
    
    
    
    
    
    
    
    
    
    
    Effective
    
    
    ExpirationEntity
    
    2006
    
    
    Receive Rate
    
    
    Pay Rate

    
    Date
    
    
    DateBeaufort Medical Plaza, LLC
    
    $
    5,069
    
    
    1 Month LIBOR
    
    
    5.01
    %
    
    
    11/2/2006
    
    
    
    7/25/2008Gaston MOB, LLC
    
    
    16,632
    
    
    1 Month LIBOR
    
    
    5.18
    %
    
    
    11/3/2006
    
    
    
    11/22/2007Medical Investors I, LLC
    
    
    8,831
    
    
    1 Month LIBOR
    
    
    5.15
    %
    
    
    11/2/2006
    
    
    
    12/10/2007River Hills Medical Associates, LLC
    
    
    3,084
    
    
    1 Month LIBOR
    
    
    4.97
    %
    
    
    11/2/2006
    
    
    
    12/15/2008Roper MOB, LLC
    
    
    9,910
    
    
    1 Month LIBOR
    
    
    4.95
    %
    
    
    11/2/2006
    
    
    
    7/10/2009Methodist Professional Center I
    
    
    30,000
    
    
    1 Month LIBOR
    
    
    4.95
    %
    
    
    11/2/2006
    
    
    
    10/31/2009
  9




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##### 



6. Investments in Real Estate Partnerships
  
    
    McLeod Medical Partners, LLC, a South Carolina limited liability company, founded in
1982, 1.1% owned by the Company, and owns three medical office buildings;
    
    Shannon Health/MOB Limited Partnership No. 1, a Delaware limited partnership, founded in
2001, 2.0% owned by the Company, and owns ten medical office buildings
    
    BSB Health/MOB Limited Partnership No. 2, a Delaware limited partnership, founded in
2002, 2.0% owned by the Company, and owns nine medical office buildings; and
    
    Rocky Mount MOB, LLC, a North Carolina limited liability company, founded in 2002, 34.5%
owned by the Company, and owns one medical office building.
    September 30, 2006Financial position:Total assets
    
    $
    4,515Total liabilities
    
    
    4,310Members equity
    
    
    205
 Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30, 2006
    
    September 30, 2006Results of operations:Revenues
    
    $
    234
    
    
    $
    650Operating and general and administrative expenses
    
    
    65
    
    
    
    198Net income
    
    
    82
    
    
    
    163
 10




---



##### 



September 30, 2006Financial position:Total assets
    
    $
    58,590Total liabilities
    
    
    51,633Members equity
    
    
    6,957
 Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30, 2006
    
    September 30, 2006Results of operations:Revenues
    
    $
    2,837
    
    
    $
    9,042Operating and general and administrative expenses
    
    
    1,360
    
    
    
    3,770Net income
    
    
    30
    
    
    
    934
   7. Dividends and Distributions
  8. Loss per Share
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2006
    
    
    September 30, 2006Net loss
    
    $
    (2,339
    )
    
    $
    (6,030
    )Weighted average shares outstanding  basic and diluted (1)
    
    
    7,976
    
    
    
    7,975Loss from continuing operations  basic and diluted (1)
    
    $
    (0.33
    )
    
    $
    (0.79
    )Income from discontinued operations  basic and diluted (1)
    
    
    0.04
    
    
    
    0.03Net loss per share  basic and diluted (1)
    
    $
    (0.29
    )
    
    $
    (0.76
    )
 
 (1)
    
    For the three and nine months ended September 30, 2006, 20 and 23 shares of
unvested restricted common stock, respectively, are anti-dilutive due to the net loss . 11




---



##### 



9. Minority Interests in Operating Partnership
   10. Segment Reporting
  Company
    
    
    Predecessor
    
    
    Company
    
    
    PredecessorThree Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005Property operations:Rental revenues
    
    $
    13,197
    
    
    $
    10,651
    
    
    $
    37,883
    
    
    $
    31,998Interest and other income
    
    
    124
    
    
    
    236
    
    
    
    501
    
    
    
    699Property operating expenses
    
    
    (5,004
    )
    
    
    (4,054
    )
    
    
    (13,998
    )
    
    
    (11,750
    )Intersegment expenses
    
    
    (881
    )
    
    
    (810
    )
    
    
    (2,563
    )
    
    
    (2,430
    )Net operating income
    
    $
    7,436
    
    
    $
    6,023
    
    
    $
    21,823
    
    
    $
    18,517Total segment assets, end of period
    
    $
    379,565
    
    
    $
    171,636
    
    
    $
    379,565
    
    
    $
    171,636Real estate services:Fee revenue
    
    $
    221
    
    
    $
    451
    
    
    $
    906
    
    
    $
    1,299Expense reimbursements
    
    
    96
    
    
    
    146
    
    
    
    421
    
    
    
    475Interest and other income
    
    
    37
    
    
    
    (1
    )
    
    
    169
    
    
    
    1Intersegment revenues
    
    
    881
    
    
    
    810
    
    
    
    2,563
    
    
    
    2,430Real estate operating expenses
    
    
    (797
    )
    
    
    (809
    )
    
    
    (2,565
    )
    
    
    (1,616
    )Net operating income
    
    $
    438
    
    
    $
    597
    
    
    $
    1,494
    
    
    $
    2,589Total segment assets, end of period
    
    $
    6,173
    
    
    $
    4,838
    
    
    $
    6,173
    
    
    $
    4,838Reconciliations:Total segment revenues
    
    $
    14,556
    
    
    $
    12,293
    
    
    $
    42,443
    
    
    $
    36,902Elimination of intersegment revenues
    
    
    (881
    )
    
    
    (810
    )
    
    
    (2,563
    )
    
    
    (2,430
    )Rocky Mount MOB and elimination of
related intersegment revenues
    
    
    217
    
    
    
    
    
    
    
    602
    
    
    
    Total revenues
    
    $
    13,892
    
    
    $
    11,483
    
    
    $
    40,482
    
    
    $
    34,472Total segment net operating income
    
    $
    7,874
    
    
    $
    6,620
    
    
    $
    23,317
    
    
    $
    21,106Corporate general and administrative
expenses
    
    
    (588
    )
    
    
    (908
    )
    
    
    (2,248
    )
    
    
    (2,808
    )Depreciation and amortization expense
    
    
    (7,717
    )
    
    
    (2,546
    )
    
    
    (21,577
    )
    
    
    (7,611
    )Interest expense
    
    
    (4,128
    )
    
    
    (2,349
    )
    
    
    (9,776
    )
    
    
    (7,468
    )Prepayment penalties on early
extinguishment of debt
    
    
    (37
    )
    
    
    
    
    
    
    (37
    )
    
    
    Equity in earnings (loss) of
unconsolidated real estate
partnerships
    
    
    2
    
    
    
    (5
    )
    
    
    7
    
    
    
    (45
    )Gain from sale of real estate
partnership interests
    
    
    484
    
    
    
    
    
    
    
    484
    
    
    
    Net income of Rocky Mount MOB, net
of minority interests
    
    
    58
    
    
    
    
    
    
    
    86
    
    
    
    Minority interests in operating
partnership
    
    
    1,430
    
    
    
    
    
    
    
    3,438
    
    
    
    Total discontinued operations
    
    
    283
    
    
    
    30
    
    
    
    276
    
    
    
    89Net income (loss)
    
    $
    (2,339
    )
    
    $
    842
    
    
    $
    (6,030
    )
    
    $
    3,263Total segment assets
    
    $
    385,738
    
    
    $
    176,474
    
    
    $
    385,738
    
    
    $
    176,474Corporate total assets
    
    
    2,648
    
    
    
    
    
    
    
    2,648
    
    
    
    Rocky Mount MOB total assets
    
    
    4,515
    
    
    
    
    
    
    
    4,515
    
    
    
    Total discontinued operations
    
    
    
    
    
    
    1,111
    
    
    
    
    
    
    
    1,111Total assets, end of period
    
    $
    392,901
    
    
    $
    177,585
    
    
    $
    392,901
    
    
    $
    177,585
 12




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 When used in this discussion and elsewhere in this Quarterly Report on Form 10-Q , the words
believes, anticipates, projects, should, estimates, expects, and similar expressions
are intended to identify forward-looking statements with the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and in Section 21F of the Securities and Exchange Act of
1934, as amended. Actual results may differ materially due to uncertainties including:
 
    
    the Companys business strategy;
    
    the Companys ability to obtain future financing arrangements;
    
    estimates relating to the Companys future distributions;
    
    the Companys understanding of the Companys competition;
    
    the Companys ability to renew the Companys ground leases;
    
    changes in the reimbursement available to the Companys tenants by government or private payors;
    
    the Companys tenants ability to make rent payments;
    
    defaults by tenants;
    
    market trends; and
    
    projected capital expenditures.
  Overview
   13




---



##### 




    
    50 wholly owned properties;
 
    
    four joint venture properties; and
 
    
    57 properties owned by third parties.
  Factors Which May Influence Future Results of Operations
    Critical Accounting Policies
  14




---



##### 



Investments in Real Estate
 Acquisition of real estate.
 Useful lives of assets.
 Asset impairment valuation.
 15




---



##### 



Revenue Recognition
   REIT Qualification Requirements
  Results of Operations
  16




---



##### 



Property Summary
  Company
    
    
    Predecessor2006
    
    
    2005Properties at January 1
    
    
    44
    
    
    
    44Consolidation of Rocky Mount MOB LLC
    
    
    1
    
    
    
    Acquisitions
    
    
    6
    
    
    
    Disposition
    
    
    (1
    )
    
    
    Development that began rental operations
    
    
    
    
    
    
    Properties at September 30
    
    
    50
    
    
    
    44
  Comparison of the three months ended September 30, 2006 and September 30, 2005
 Overview.
 Revenue.
  Property operating expenses.
 Interest expense.
  Depreciation and amortization expenses.
 17




---



##### 



General and administrative expenses.
 Comparison of the nine months ended September 30, 2006 and September 30, 2005
 Revenue.
   Property operating expenses.
 Interest expense.
  Depreciation and amortization expenses.
 General and administrative expenses.
 18




---



##### 



Cash Flows
 Comparison of the nine months ended September 30, 2006 and September 30, 2005
    Construction in Progress
  Estimated
    
    
    
    
    
    
    
    
    
    
    EstimatedCompletion
    
    
    Net Rentable
    
    
    Investment
    
    
    Total
    
    
    
    PercentageProperty
    
    Location
    
    Date
    
    
    Square Feet
    
    
    to Date
    
    
    Investment
    
    
    
    LeasedCarolina Forest Medical Plaza
    
    Horry County, SC
    
    2Q 2007
    
    
    
    39,000
    
    
    $
    2,664
    
    
    $
    7,425
    
    
    
    43.2
    %Lancaster Rehabilitation Hospital
    
    Lancaster, PA
    
    2Q 2007
    
    
    
    52,800
    
    
    
    1,870
    
    
    
    12,720
    
    
    
    100.0
    %Land and pre-construction developments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,700
    
    
    
    91,800
    
    
    $
    6,234
    
    
    $
    20,145
  Liquidity and Capital Resources
    19




---



##### 



Long-Term Liquidity Needs
   20




---



##### 



Contractual Obligations
  ThroughRemainderof 2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalObligation:Long-term debt principal payments and
maturities (1)
    
    $
    10,423
    
    
    $
    52,457
    
    
    $
    125,400
    
    
    $
    16,438
    
    
    $
    1,456
    
    
    $
    46,596
    
    
    $
    252,770Standby letters of credit (2)
    
    
    500
    
    
    
    2,352
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,852Interest payments (3)
    
    
    3,619
    
    
    
    12,671
    
    
    
    7,519
    
    
    
    3,639
    
    
    
    3,032
    
    
    
    7,685
    
    
    
    38,165Ground leases (4)
    
    
    49
    
    
    
    195
    
    
    
    195
    
    
    
    195
    
    
    
    195
    
    
    
    6,977
    
    
    
    7,806Operating leases (5)
    
    
    88
    
    
    
    334
    
    
    
    400
    
    
    
    406
    
    
    
    350
    
    
    
    384
    
    
    
    1,962Total
    
    $
    14,679
    
    
    $
    68,009
    
    
    $
    133,514
    
    
    $
    20,678
    
    
    $
    5,033
    
    
    $
    61,642
    
    
    $
    303,555
 
 (1)
    
    Includes notes payable under the Companys Credit Facility(2)
    
    As collateral for performance on a mortgage note payable, the Company is
contingently liable under a standby letter of credit, which also reduces the availability
under the Credit Facility(3)
    
    Assumes one-month LIBOR 5.32% and Prime Rate of 8.25%(4)
    
    Substantially all of the ground leases effectively limit our control over various
aspects of the operation of the applicable property, restrict our ability to transfer the
property and allow the lessor the right of first refusal to purchase the building and
improvements. All of the ground leases provide for the property to revert to the lessor for no
consideration upon the expiration or earlier termination of the ground lease.(5)
    
    Payments under operating lease agreements relate to various of our properties
equipment and office space leases. The future minimum lease commitments under these leases are
as indicated. Off-Balance Sheet Arrangements
   Real Estate Taxes
  Inflation
  Seasonality
  21




---



##### 



Recent Accounting Pronouncements
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
   22




---



##### 



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  
 ITEM 5. OTHER INFORMATION
  23




---



##### 



ITEM 6. EXHIBITS
 10.1
    
    Amendment No. 1 to Credit Agreement and Waiver, dated August 23, 2006 by and among Cogdell
Spencer LP,
Cogdell Spencer Inc., each subsidiary of Cogdell Spencer LP to the guaranty, several lenders
and Bank of
America, N.A., as the administrative agent for the Lenders, Swing Line Lender and L/C
Issuer.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002.32.1
    
    Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section
1350 as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 24




---



##### 



SIGNATURES
  COGDELL SPENCER INC.RegistrantDate: November 14, 2006
    
    /s/ Frank C. SpencerFrank C. SpencerPresident and Chief Executive OfficerDate: November 14, 2006
    
    /s/ Charles M. HandyCharles M. HandySenior Vice President and Chief Financial Officer
 25