SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14162
GLENBOROUGH PROPERTIES, L.P.
(Exact name of registrant as specified in its charter)
California 94-3231041
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real,
Suite 1100, San Mateo, California
(650) 343-9300 94402-1708
(Address of principal executive offices (Zip Code)
and telephone number)
Securities registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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___
1
<PAGE>
INDEX
GLENBOROUGH PROPERTIES, L.P.
Page No.
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of Glenborough Properties, L.P.
(Unaudited except for the Consolidated Balance Sheet at December
31, 1998):
Consolidated Balance Sheets at June 30, 1999 and December
31, 1998 3
Consolidated Statements of Operations for the six months
ended June 30, 1999 and 1998 4
Consolidated Statements of Operations for the three months
ended June 30, 1999 and 1998 5
Consolidated Statement of Partners' Equity for the six
months ended June 30, 1999 6
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 7-8
Notes to Consolidated Financial Statements 9-19
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 20-26
PART II OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
EXHIBIT INDEX 30
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
GLENBOROUGH PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit amounts)
June 30, December 31,
1999 1998
(Unaudited) (Audited)
---------------- -----------------
ASSETS
<S> <C> <C>
Rental property, net of accumulated depreciation of
$83,713 and $72,951 in 1999 and 1998, respectively $ 1,584,220 $ 1,720,579
Real estate held for sale 48,641 21,860
Investments in Development 39,293 35,131
Investments in Associated Companies 7,960 8,807
Mortgage loans receivable 43,982 42,420
Cash and cash equivalents 1,865 4,019
Other assets 62,926 45,437
---------------- -----------------
TOTAL ASSETS $ 1,788,887 $ 1,878,253
================ =================
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgage loans $ 692,384 $ 708,578
Unsecured Series A Senior Notes 132,890 150,000
Unsecured bank line 21,247 63,519
Other liabilities 28,309 28,921
---------------- -----------------
Total liabilities 874,830 951,018
---------------- -----------------
Commitments and contingencies -- --
Partners' Equity:
General partner, 357,776 and 359,090 units issued
and outstanding at June 30, 1999 and
December 31, 1998, respectively 8,822 9,066
Limited partners, 35,419,789 and 35,549,914 units issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively 905,235 918,169
---------------- -----------------
Total partners' equity 914,057 927,235
---------------- -----------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY $ 1,788,887 $ 1,878,253
================ =================
See accompanying notes to consolidated financial statements
</TABLE>
3
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<TABLE>
<CAPTION>
GLENBOROUGH PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended June 30, 1999 and 1998
(in thousands, except per unit amounts)
(Unaudited)
1999 1998
--------------- ---------------
REVENUE
<S> <C> <C>
Rental revenue $ 129,193 $ 97,582
Fees and reimbursements from affiliates 1,874 1,232
Interest and other income 3,437 553
Equity in earnings (loss) of Associated Companies (565) 1,061
Net gain on sales of real estate assets 7,093 2,139
--------------- ---------------
Total revenue 141,032 102,567
--------------- ---------------
EXPENSES
Property operating expenses, including $1,347
paid to the Company in 1998 43,861 31,936
General and administrative, including $1,815 paid to the
Company in 1998 4,760 4,468
Depreciation and amortization 29,312 20,918
Interest expense 32,958 18,852
--------------- ---------------
Total expenses 110,891 76,174
--------------- ---------------
Net income before extraordinary item 30,141 26,393
Extraordinary item:
Net loss on early extinguishment of debt (303) --
--------------- ---------------
Net income 29,838 26,393
Preferred partner interest distributions (11,140) (9,480)
--------------- ---------------
Net income available to general and limited partners $ 18,698 $ 16,913
=============== ===============
Per Partnership Unit Data:
Net income available to general and limited partners before
extraordinary item $ 0.53 $ 0.50
Extraordinary item (0.01) --
=============== ===============
Net income available to general and limited partners $ 0.52 $ 0.50
=============== ===============
Weighted average number of partnership units outstanding 35,911,963 34,038,659
=============== ===============
See accompanying notes to consolidated financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1999 and 1998
(in thousands, except per unit amounts)
(Unaudited)
1999 1998
--------------- ---------------
REVENUE
<S> <C> <C>
Rental revenue $ 64,552 $ 51,619
Fees and reimbursements from affiliates 743 759
Interest and other income 1,778 246
Equity in earnings (loss) of Associated Companies (874) 709
Net gain on sales of real estate assets 5,742 693
--------------- ---------------
Total revenue 71,941 54,026
--------------- ---------------
EXPENSES
Property operating expenses 21,860 16,265
General and administrative 2,545 2,602
Depreciation and amortization 14,220 10,934
Interest expense 16,418 9,707
--------------- ---------------
Total expenses 55,043 39,508
--------------- ---------------
Net income before extraordinary item 16,898 14,518
Extraordinary item:
Net gain on early extinguishment of debt 1,688 --
--------------- ---------------
Net income 18,586 14,518
Preferred partner interest distributions (5,570) (5,570)
--------------- ---------------
Net income available to general and limited partners $ 13,016 $ 8,948
=============== ===============
Per Partnership Unit Data:
Net income available to general and limited partners before
extraordinary item $ 0.31 $ 0.26
Extraordinary item 0.05 --
=============== ===============
Net income available to general and limited partners $ 0.36 $ 0.26
=============== ===============
Weighted average number of partnership units outstanding 35,875,015 34,370,381
=============== ===============
See accompanying notes to consolidated financial statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PROPERTIES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
For the six months ended June 30, 1999
(in thousands)
(Unaudited)
General Limited
Partner Partners Total
------------------- ------------------- ------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $ 9,066 $ 918,169 $ 927,235
Issuance of Operating Partnership units
and additional contributions 26 2,618 2,644
Distributions (414) (40,941) (41,355)
Redemption of units (43) (4,296) (4,339)
Unrealized gain on marketable securities -- 34 34
Net income 187 29,651 29,838
------------------- ------------------- ------------------
Balance at June 30, 1999 $ 8,822 $ 905,235 $ 914,057
=================== =================== ==================
See accompanying notes to consolidated financial statements
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(in thousands)
(Unaudited)
1999 1998
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 29,838 $ 26,393
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 29,312 20,918
Amortization of loan fees, included in
interest expense 993 592
Equity in (earnings) loss of Associated
Companies 565 (1,061)
Net gain on sales of real estate assets (7,093) (2,139)
Net loss on early extinguishment of debt 303 --
Changes in certain assets and liabilities, net (3,997) 1,555
--------------- ---------------
Net cash provided by operating activities 49,921 46,258
--------------- ---------------
Cash flows from investing activities:
Net proceeds from sales of real estate assets 111,027 37,804
Additions to rental properties (22,833) (570,536)
Investments in Development (4,162) (6,882)
Investment in Joint Ventures (3,176) --
Additions to mortgage loans receivable (1,562) (38,084)
Investments in marketable securities -- (26,006)
Principal receipts on mortgage loans receivable -- 507
Payments from affiliates 400 --
Distributions from Associated Companies 282 875
--------------- ---------------
Net cash provided by (used for) investing
activities 79,976 (602,322)
--------------- ---------------
continued
See accompanying notes to consolidated financial statements
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS -continued
For the six months ended June 30, 1999 and 1998
(in thousands)
(Unaudited)
1999 1998
--------------- --------------
Cash flows from financing activities:
<S> <C> <C>
Proceeds from borrowings $ 83,480 $ 530,321
Repayment of borrowings (156,046) (207,741)
Draws from (repayments into) lender impound accounts,
net 873 (7,137)
Retirement of Series A Senior Notes (15,282) --
Prepayment penalties on loan payoffs (2,026) --
Contributions 2,644 278,999
Distributions (41,355) (35,477)
Redemption of units (4,339) --
--------------- --------------
Net cash (used for) provided by financing
activities (132,051) 558,965
--------------- --------------
Net (decrease) increase in cash and cash equivalents (2,154) 2,901
Cash and cash equivalents at beginning of period 4,019 3,670
--------------- --------------
Cash and cash equivalents at end of period $ 1,865 $ 6,571
=============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of
$1,330 in 1999) $ 30,262 $ 12,165
=============== ==============
Supplemental disclosure of Non-Cash Investing and Financing
Activities:
Acquisition of real estate through assumption of first
trust deed notes payable $ 14,100 $ 317,527
=============== ==============
Acquisition of real estate through issuance of
Operating Partnership units $ -- $ 41,365
=============== ==============
See accompanying notes to consolidated financial statements
</TABLE>
8
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
Note 1. ORGANIZATION
Glenborough Properties, L.P., a California Limited Partnership (the "Operating
Partnership") was organized in the State of California on August 23, 1995. The
Operating Partnership is the primary operating subsidiary of Glenborough Realty
Trust Incorporated (the "Company"), a self-administered and self-managed real
estate investment trust ("REIT"). On December 31, 1995, the Company completed a
consolidation (the "Consolidation") in which eight public limited partnerships
(the "Partnerships," collectively with Glenborough Corporation (defined below),
the "GRT Predecessor Entities"), merged with and into the Company. The Company
(i) issued 5,753,709 shares (the "Shares") of $.001 par value Common Stock to
the Partnerships in exchange for 3,979,376 Operating Partnership units; and (ii)
merged with Glenborough Corporation, a California Corporation, with the Company
being the surviving entity. The Company then transferred certain real estate and
related assets to the Operating Partnership in exchange for a sole general
partner interest of 1% and a limited partnership interest of 85.37% (87.30%
limited partnership interest as of June 30, 1999). The Operating Partnership
also acquired interests in certain warehouse distribution facilities from GPA,
Ltd., a California limited partnership ("GPA"). The Operating Partnership
commenced operations on January 1, 1996.
The Operating Partnership, through subsidiary entities, is engaged primarily in
the ownership, operation, management, leasing, acquisition, expansion and
development of various types of income-producing properties. As of June 30,
1999, the Operating Partnership, directly and through the subsidiaries in which
it and the Company own 100% of the ownership interests, controls a total of 167
real estate projects.
Effective April 1, 1998, the Company contributed to the Operating Partnership
the majority of its assets, including 100% of its shares of the non-voting
preferred stock of Glenborough Corporation ("GC"), formerly known as Glenborough
Realty Corporation, as well as all of the Company's tangible personal property
including furniture and fixtures, all cash and investments, and a property
management contract. As part of that transaction, the Company also agreed to a
substantial reduction in the asset management fees paid by the Operating
Partnership to the Company. In return, the Operating Partnership canceled
certain obligations of the Company to the Operating Partnership, and issued
2,248,869 units of partnership interest to the Company.
Effective February 15, 1999, the Company contributed to the Operating
Partnership 100% of its shares of the non-voting preferred stock of Glenborough
Hotel Group ("GHG"). In return, the Operating Partnership issued 67,797 units of
partnership interest to the Company.
The contributions of 100% of the shares of non-voting preferred stock in GC and
GHG discussed above have been accounted for as a reorganization of entities
under common control, similar to a pooling of interests. All periods presented
have been restated to give effect to these transactions as if they occurred on
December 31, 1995. As a result of the above transactions, the only assets of the
Company that have not been contributed to the Operating Partnership are (i) its
shares of common stock in twelve qualified REIT subsidiaries, which produce
dividends that are not material to the Company, and (ii) a less than 5% limited
partnership interest in Glenborough Partners.
As of June 30, 1999, the Operating Partnership also holds 100% of the non-voting
preferred stock of the following two Associated Companies (the "Associated
Companies"):
Glenborough Corporation ("GC") is the general partner of several real
estate limited partnerships and provides asset and property management and
development services for these partnerships (the "Managed Partnerships").
It also provides partnership administration, asset management, property
management and development services to a group of unaffiliated partnerships
which include three public partnerships sponsored by Rancon Financial
Corporation, an unaffiliated corporation which has significant real estate
assets in the Inland Empire region of Southern California (the "Rancon
Partnerships").
Glenborough Hotel Group ("GHG") owns an approximate 36% limited partner
interest in a real estate joint venture.
9
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the consolidated financial
position of the Operating Partnership and its majority owned subsidiaries as of
June 30, 1999, and December 31, 1998, and the consolidated results of operations
and cash flows of the Operating Partnership for the six months ended June 30,
1999 and 1998. All intercompany transactions, receivables and payables have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal accruals) necessary to
present fairly the financial position and results of operations of the Operating
Partnership as of June 30, 1999, and for the period then ended.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 results of operations during the reporting period. Actual results could
differ from those estimates.
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS No.
133 was originally effective for fiscal years beginning after June 15, 1999,
with early adoption permitted. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of FASB Statement No. 133" was issued
which, among other things, deferred the final implementation to fiscal quarters
beginning after June 15, 2000. SFAS No. 133 provides comprehensive guidelines
for the recognition and measurement of derivatives and hedging activities and
specifically requires all derivatives to be recorded on the balance sheet at
fair value. Management is evaluating the effects, if any, that this
pronouncement will have on the Operating Partnership's consolidated financial
position, results of operations and financial statement position.
Rental Property
Rental properties are stated at cost unless circumstances indicate that cost
cannot be recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Estimated fair value: (i) is based upon the
Operating Partnership's plans for the continued operation of each property; and
(ii) is computed using estimated sales price, as determined by prevailing market
values for comparable properties and/or the use of capitalization rates
multiplied by annualized rental income based upon the age, construction and use
of the building. The fulfillment of the Operating Partnership's plans related to
each of its properties is dependent upon, among other things, the presence of
economic conditions which will enable the Operating Partnership to continue to
hold and operate the properties prior to their eventual sale. Due to
uncertainties inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and disposing of the
Operating Partnership's properties could be materially different than current
expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
The useful lives are as follows:
Buildings and Improvements 10 to 40 years
Tenant Improvements Term of the related lease
Furniture and Equipment 5 to 7 years
10
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
Real Estate Held for Sale
Real estate held for sale consists of rental properties that are under contract
or in active negotiations to be disposed of. The fulfillment of the Operating
Partnership's plans to dispose of property is dependent upon, among other
things, the presence of economic conditions which will enable the Operating
Partnership to hold the property for eventual sale. The Operating Partnership
discontinues depreciation of rental property once it is classified as held for
sale.
Investments in Development
The Operating Partnership, through mezzanine loans and equity contributions,
invests in various development alliances with projects currently under
development. The interest on advances and other direct project costs incurred by
the Operating Partnership are capitalized to the investment during the period in
which the projects are under development. See Note 6 for further discussion.
Investments in Associated Companies
The Operating Partnership's investments in the Associated Companies are
accounted for using the equity method, as discussed further in Note 4.
Mortgage Loans Receivable
The Operating Partnership monitors the recoverability of its loans and notes
receivable through ongoing contact with the borrowers to ensure timely receipt
of interest and principal payments, and where appropriate, obtains financial
information concerning the operation of the properties. Interest on mortgage
loans is recognized as revenue as it accrues during the period the loan is
outstanding. Mortgage loans receivable will be evaluated for impairment if it
becomes evident that the borrower is unable to meet its debt service obligations
in a timely manner and cannot satisfy its payments using sources other than the
operations of the property securing the loan. If it is concluded that such
circumstances exist, then the loan will be considered to be impaired and its
recorded amount will be reduced to the fair value of the collateral securing it.
Interest income will also cease to accrue under such circumstances. Due to
uncertainties inherent in the valuation process, it is reasonably possible that
the amount ultimately realized from the Operating Partnership's collection on
these receivables will be different than the recorded amounts.
Cash Equivalents
The Operating Partnership considers short-term investments (including
certificates of deposit) with a maturity of three months or less at the time of
investment to be cash equivalents.
Marketable Securities
The Operating Partnership records its marketable securities at fair value.
Unrealized gains and losses on securities are reported as a separate component
of stockholders' equity and realized gains and losses are included in net
income.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Operating Partnership, the carrying amount of debt approximates
fair value. Certain assumed debt instruments have been recorded at a premium
based upon the stated rate on the instrument and the then available borrowing
rates for the Operating Partnership. Cash and cash equivalents consist of demand
deposits and certificates of deposit with financial institutions. The carrying
amount of cash and cash equivalents as well as the mortgage loans receivable
described above, approximates fair value.
Derivative Financial Instruments
The Operating Partnership may use derivative financial instruments in the event
that it believes such instruments will be an effective hedge against
fluctuations in interest rates on a specific anticipated borrowing. Derivative
financial instruments such as forward rate agreements or interest rate swaps may
be used in this capacity. To the extent such instruments do not qualify as
hedges, they will be accounted for on a mark-to-market basis and recorded in
11
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
earnings each period as appropriate. The cost of terminated instruments not
qualifying as hedges will be recorded in earnings in the period they are
terminated. Instruments which qualify as hedges upon obtaining the related debt
will be recorded as a premium or discount on the related debt principal and
amortized into earnings over the life of the debt instrument. If the hedged
instrument is retired early, the unamortized discount or premium will be
included as a component of the calculation of gain or loss on retirement.
At June 30, 1999, the Operating Partnership was not a party to any open interest
rate protection agreements.
Deferred Financing and Other Fees
Fees paid in connection with the financing and leasing of the Operating
Partnership's properties are amortized over the term of the related notes
payable or leases and are included in other assets.
Revenues
All leases are classified as operating leases. Rental revenue is recognized as
earned over the terms of the related leases.
For the six months ended June 30, 1999, no tenants represented 10% or more of
rental revenue of the Operating Partnership.
Fees and reimbursement revenue consists of property management fees, overhead
administration fees, and transaction fees from the acquisition, disposition,
refinancing, leasing and construction supervision of real estate for an
unconsolidated affiliate.
Revenues are recognized only after the Operating Partnership is contractually
entitled to receive payment, after the services for which the fee is received
have been provided, and after the ability and timing of payments are reasonably
assured and predictable.
Scheduled rent increases are based primarily on the Consumer Price Index or a
similar factor. Material incentives paid, if any, by the Operating Partnership
to a tenant are amortized as a reduction of rental income over the life of the
related lease.
Income Taxes
No provision for income taxes is included in the accompanying Consolidated
Statements of Operations as the Operating Partnership's results of operations
are allocated to the partners for inclusion in their respective income tax
returns.
Net Income Per Partnership Unit
Net income per partnership unit is calculated using the weighted average number
of partnership units outstanding during the period. No effect on per unit
amounts has been attributed to a potential conversion of the Preferred Partner
Interest into limited partner units as the impact is anti-dilutive. No other
potentially dilutive securities of the Operating Partnership exist.
Reference to 1998 Audited Financial Statements
These unaudited financial statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in the 1998 audited
financial statements.
Note 3. INVESTMENTS IN REAL ESTATE
Acquisitions
In the second quarter of 1999, the Operating Partnership expanded its existing
holdings near Los Angeles International Airport by purchasing a 41,709 square
foot industrial building which is the second phase of the project purchased in
the first quarter (see below). This second phase has been leased on a long term
12
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
triple net basis to the tenant currently occupying phase one of the project. The
total acquisition cost, including capitalized costs, was approximately $5.6
million.
In the first quarter of 1999, the Operating Partnership acquired a 285 unit
multifamily property ("Springs of Indian Creek") located in Carrolton, Texas.
The property is the first phase of a two phase project comprising a total of 519
units. The 234 unit second phase of the project is currently under construction
through one of the Operating Partnership's development alliances and is expected
to be completed in the first quarter of the year 2000. The total acquisition
cost, including capitalized costs of Phase I was approximately $20.8 million
comprising: (i) approximately $14.1 million in assumption of debt and (ii) the
balance in cash. In addition, the Operating Partnership acquired a 1.45-acre
parcel containing 34,500 square feet of industrial buildings in Los Angeles,
California, near the Los Angeles International Airport. This property is the
first phase of a two phase project. The total acquisition cost, including
capitalized costs, was approximately $3.1 million, which was paid entirely in
cash. The property has been leased to a single tenant under a 15-year triple-net
lease.
Dispositions
In the second quarter of 1999, the Operating Partnership sold fourteen
properties, including five office, four office/flex, one retail, two industrial,
one multifamily and one hotel. The assets were sold for an aggregate sales price
of approximately $109,135,000 and an aggregate net gain of approximately
$5,742,000.
In the first quarter of 1999, the Operating Partnership sold seven properties,
including five office/flex properties and two retail properties, and a partial
interest in a REIT. These assets were sold for an aggregate sales price of
approximately $27.3 million and generated an aggregate net gain of approximately
$1,351,000.
These transactions are reflected as the net gain on sales of real estate assets
on the accompanying consolidated statement of operations for the six months
ended June 30, 1999.
Prospective Dispositions
The Operating Partnership has entered into a short-term lease agreement on the
hotel property located in Arlington, Texas with the prospective purchaser of
this property. This prospective purchaser has entered into a purchase agreement
for this property, with an anticipated closing date of August 31, 1999. The
lease terminates on the closing date of the sale of the property. The net book
value of the hotel property totals $4,112,000 at June 30, 1999. Net income
earned by the Operating Partnership (before depreciation) from the hotel totaled
$178,000 and $202,000 for the six months ended June 30, 1999 and 1998,
respectively.
The Operating Partnership has entered into separate definitive agreements to
sell eight properties, including two office properties, two office/flex
properties, two industrial properties and two retail properties. The sales are
expected to close in the third quarter of 1999 for an aggregate sales price of
approximately $44.9 million, however, they are subject to certain contingencies,
including satisfactory completion of due diligence and customary closing
conditions. As a result, there can be no assurance that these sales will be
completed. These properties are reflected as Real Estate Held For Sale on the
accompanying consolidated balance sheet as of June 30, 1999. See Note 10 for
discussion of sales subsequent to June 30, 1999.
Note 4. INVESTMENTS IN ASSOCIATED COMPANIES
The Operating Partnership accounts for its investments in the Associated
Companies (as defined in Note 1) using the equity method as a substantial
portion of their economic benefits flow to the Operating Partnership by virtue
of its 100% non-voting preferred stock interest in each of them, which interests
constitute substantially all of their capitalization. Two of the holders of the
voting common stock of GC and one of the holders of the voting common stock of
GHG are officers of the Company; however, neither the Company nor the Operating
Partnership has any direct voting or management control of either GC or GHG. The
Operating Partnership records earnings on its investments in the Associated
Companies equal to its cash flow preference, to the extent of earnings, plus its
13
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
pro rata share of remaining earnings, based on cash flow allocation percentages.
Distributions received from the Associated Companies are recorded as a reduction
of the Operating Partnership's investments.
As of June 30, 1999, the Operating Partnership had the following investments in
the Associated Companies (in thousands):
GC GHG Total
Investment at December 31, 1998 $ 6,800 $ 2,007 $ 8,807
Distributions (267) (15) (282)
Equity in earnings (loss) (535) (30) (565)
---------- ---------- ----------
Investment at June 30, 1999 $ 5,998 $ 1,962 $ 7,960
========== ========== ==========
Note 5. MORTGAGE LOANS RECEIVABLE
The Operating Partnership's mortgage loans receivable consist of the following
as of June 30, 1999, and December 31, 1998 (dollars in thousands):
1999 1998
----------- ----------
Note secured by an office property in Phoenix, AZ,
with a fixed interest rate of 7% (until May 31,
2000, at which time the rate shall change to a
fixed rate of 9%) and a maturity date of May 2001 $ 3,728 $ 3,484
Note secured by a hotel property in Dallas, TX,
with a fixed interest rate of 9%, monthly
interest-only payments and a maturity date of
August 31, 1999 3,600 3,600
Note secured by Gateway Park land located in
Aurora, CO, with a stated fixed interest rate of
13%, quarterly interest-only payments and a
maturity date of July 2005 (see below for further
discussion) 36,654 35,336
----------- ----------
Total $ 43,982 $ 42,420
=========== ==========
In 1998, the Operating Partnership entered into a development alliance with The
Pauls Corporation (see Note 6). In addition to this development alliance, the
Operating Partnership loaned approximately $34 million ($36.7 million, including
accrued interest, at June 30, 1999), secured by a First Mortgage, to continue
the build-out of Gateway Park. In this arrangement, the Operating Partnership
has rights under certain conditions and subject to certain contingencies to
purchase the properties upon completion of development and, thus, through this
arrangement, the Operating Partnership could acquire up to 2.2 million square
feet of office, office/flex and industrial space and 1,600 multifamily units
over the next ten years.
Note 6. INVESTMENTS IN DEVELOPMENT AND OTHER ASSETS
The Operating Partnership has formed 4 development alliances for the development
of approximately 713,000 square feet of office, office/flex and distribution
properties and 1,710 multifamily units in North Carolina, Colorado, Texas, New
Jersey, Kansas and Michigan. As of June 30, 1999, the Operating Partnership has
advanced approximately $39 million. Under these development alliances, the
Operating Partnership has certain rights to purchase the properties upon
completion of development over the next five years.
The Operating Partnership entered into a joint venture in which it sold a 90%
interest in Rockwall I & II, a 340,252 square foot office complex located in
Rockville, Maryland. The Operating Partnership maintains a 10% interest in the
asset along with a contract for property management services. The proceeds from
the sale were used to paydown the Credit Facility (discussed below) and to
reduce other secured debt. The value of this 10% interest is approximately $1.3
million and is included in Other Assets on the accompanying consolidated balance
sheet as of June 30, 1999. This investment will be accounted for using the
equity method.
14
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
The Operating Partnership also purchased a 10% interest in the fee simple
interest in the land under Rincon Center I & II in San Francisco, California.
The land was purchased from the United States Post Office for a purchase price
of $80.5 million. The land has a triple net ground lease with a remaining term
of 51 years with minimum 30% rental increases every six years. Occupying a full
city block near the waterfront in the Financial District, Rincon Center I & II
contains 476,709 square feet of commercial office and retail space, 320
multifamily units and 381 subterranean parking spaces. The value of this 10%
interest is approximately $2 million and is included in Other Assets on the
accompanying consolidated balance sheet as of June 30, 1999. This investment
will be accounted for using the equity method.
Note 7. SECURED AND UNSECURED LIABILITIES
The Operating Partnership had the following mortgage loans, bank lines,
unsecured notes and notes payable outstanding as of June 30, 1999, and December
31, 1998 (dollars in thousands):
1999 1998
--------- ---------
Secured loans with various lenders, net of
unamortized discount of $5,828 and $6,140 at June
30, 1999 and December 31, 1998, respectively. All
loans have a fixed interest rate of 6.125% and a
November 10, 2008 maturity date. Monthly principal
and interest payments range between $296 and $458.
These loans are secured by 35 properties with an
aggregate net carrying value of $404,157 and
$408,439 at June 30, 1999 and December 31, 1998,
respectively. $ 233,858 $ 234,871
Secured loan with a bank with a fixed interest
rate of 7.50%, monthly principal and interest
payments of $443 and a maturity date of October 1,
2022. The loan is secured by ten properties with
an aggregate net carrying value of $108,707 and
$110,129 at June 30, 1999 and December 31, 1998,
respectively. 58,561 58,942
Secured loan with an investment bank with a fixed
interest rate of 7.57%, monthly principal and
interest payments (based upon a 25-year
amortization) of $103 and a maturity date of
January 1, 2006. This loan was paid off in March
1999 with the proceeds from a $26 million loan
discussed below. -- 13,220
Secured loans with various lenders, bearing
interest at fixed rates between 6.95% and 9.25%
(approximately $53,042 of these loans include an
unamortized premium of approximately $445 which
reduces the effective interest rate on those
instruments to 6.75%), with monthly principal and
interest payments ranging between $14 and $371 and
maturing at various dates through July 1, 2008.
These loans are secured by properties with an
aggregate net carrying value of $430,143 and
$447,444 at June 30, 1999 and December 31, 1998,
respectively. 255,030 261,938
15
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
1999 1998
--------- ---------
Secured loans with various banks bearing interest
at variable rates ranging between 7.44% and 8.18%
at June 30, 1999 (approximately $114,458 of these
loans include an unamortized premium of
approximately $1,258 which reduces the effective
interest rate on those instruments to 6.75%),
monthly principal and interest payments ranging
between $16 and $790 and maturing at various dates
through December 22, 2000. These loans are secured
by properties with an aggregate net carrying value
of $187,123 and $179,438 at June 30, 1999 and
December 31, 1998, respectively. $ 130,613 $ 125,230
Secured loans with a lender, bearing interest at
fixed rates between 7.60% and 7.85%, with monthly
principal and interest payments ranging between
$11 and $22. All of these loans have a maturity
date of December 1, 2030. These loans are secured
by multifamily properties with an aggregate net
carrying value of $17,961 and $19,060 at June 30,
1999 and December 31, 1998, respectively. 14,322 14,377
Unsecured $142,500 line of credit with a bank
("Credit Facility") with a variable interest rate
of LIBOR plus 1.625% (6.69% and 7.401% at June 30,
1999 and December 31, 1998, respectively), monthly
interest only payments and a maturity date of
December 22, 2000, with one option to extend for
10 years. In June 1999, the Credit Facility was
modified. See below for further discussion. 21,247 63,519
Unsecured Series A Senior Notes with a fixed
interest rate of 7.625%, interest payable
semiannually on March 15 and September 15, and a
maturity date of March 15, 2005. Approximately
$17.1 million of the notes were retired in June
1999 as discussed below. 132,890 150,000
--------- ---------
Total $ 846,521 $ 922,097
========= =========
In March 1999, the Operating Partnership obtained a $26 million loan from a
commercial bank. The loan was non-recourse and was secured by seven properties
and had a maturity date of December 22, 1999, with an option to extend for six
months. The proceeds were used to pay off a loan which was previously secured by
these same properties and to reduce other debt. This loan was paid off in June
1999 with proceeds generated from the sales of four properties.
In June 1999, the Operating Partnership retired approximately $17.1 million of
unsecured Series A Senior Notes at a discount. As a result of this transaction,
a gain on early extinguishment of debt of approximately $1.8 million was
recorded which is included in the net loss on early extinguishment of debt on
the accompanying consolidated statements of operations for the six and three
months ended June 30, 1999, as discussed below.
In June 1999, in order to increase the Operating Partnership's financial
flexibility, the Credit Facility was modified to increase the commitment from
$100 million to $142.5 million. The interest rate, monthly payments and maturity
date remain unchanged.
In connection with the loan payoffs discussed above and the payoff of other
mortgage debt, the Operating Partnership incurred a net loss on early
extinguishment of debt of $303,000 for the six months ended June 30, 1999. This
loss consists of $2,026,000 of losses due to prepayment penalties and $105,000
of losses upon the writeoff of unamortized loan fees, offset by a gain on payoff
of Series A Senior Notes of $1,828,000 (as discussed above).
16
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
Some of the Operating Partnership's properties are held in limited partnerships
and limited liability companies in order to facilitate financing. Such limited
partnerships and limited liability companies are included in the consolidated
financial statements of the Operating Partnership in accordance with Generally
Accepted Accounting Principles ("GAAP").
The required principal payments on the Operating Partnership's debt for the next
five years and thereafter, as of June 30, 1999, are as follows (in thousands):
Year Ending
December 31,
1999 $ 119,093
2000 100,167
2001 15,435
2002 14,301
2003 37,891
Thereafter 559,634
---------
Total $ 846,521
=========
Note 8. RELATED PARTY TRANSACTIONS
Fee and reimbursement income earned by the Operating Partnership from related
parties totaled $1,874,000 and $1,232,000 for the six months ended June 30, 1999
and 1998, respectively, and consisted of property management fees, asset
management fees and other fee income.
For the six months ended June 30, 1998, the Operating Partnership paid the
Company property and asset management fees of $1,347,000 and $1,815,000,
respectively, which are included in property operating expenses and general and
administrative expenses on the accompanying consolidated statement of operations
for the six months ended June 30, 1998. In addition, the Operating Partnership
paid GC property management fees and salary reimbursements totaling $734,000 and
$608,000 for the six months ended June 30, 1999 and 1998, respectively, for
management of a portfolio of residential properties owned by the Operating
Partnership, which is included in property operating expenses on the
accompanying consolidated statements of operations.
The Operating Partnership acquired from a Managed Partnership an option to
acquire all of its rights under a Lease with Option to Purchase Agreement, to
acquire certain undeveloped land located in Burlingame, California. Upon
expiration of the option period, the independent members of the Company's Board
of Directors concluded that proceeding with the development of the property
would have required that the Operating Partnership incur substantial debt.
Accordingly, on February 1, 1999, the Operating Partnership elected not to
proceed with the development and not to exercise the option in return for the
Managed Partnership's agreement to reimburse the Operating Partnership for
$2,309,000 of predevelopment costs, $462,000 to be paid in cash with the balance
in a promissory note bearing interest at 10% and due on the earlier of sale,
refinance or March 31, 2002. The note also contains a participation in profits
realized by the Managed Partnership from the development and sale of the
property. The principal balance of the note is included in Other Assets on the
accompanying consolidated balance sheet as of June 30, 1999.
Note 9. SEGMENT INFORMATION
The Operating Partnership owns a diverse portfolio of properties comprising six
product types: office, office/flex, industrial, retail, multifamily and hotels.
Each of these product types represents a reportable segment with distinct uses
and tenant types which require the Operating Partnership to employ different
management strategies. Each segment contains properties located in various
regions and markets within the United States. The office portfolio consists
primarily of suburban office buildings. The office/flex portfolio consists of
properties designed for a combination of office and warehouse uses. The
industrial portfolio consists of properties designed for warehouse, distribution
17
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
and light manufacturing for single-tenant or multi-tenant use. The retail
portfolio consists primarily of community shopping centers anchored with
national or regional supermarkets or drug stores. The properties in the
multifamily portfolio are apartment buildings with units rented to residential
tenants on either a month-by-month basis or for terms of one year or less. The
Operating Partnership's hotel operations are limited service "all-suite"
properties leased to and operated by third parties. One of the Operating
Partnership's hotels is in contract to be sold.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Operating Partnership evaluates
performance of its property types based on net operating income derived by
subtracting rental expenses and real estate taxes (operating expenses) from
rental revenues. Significant information used by the Operating Partnership for
its reportable segments as of and for the six months ended June 30, 1999 and
1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Multi-
1999 Office Office/Flex Industrial Retail family Hotel Total
- ---- ----------- ------------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue $ 59,957 $ 18,716 $ 9,519 $ 6,043 $ 33,970 $ 988 $ 129,193
Property operating expenses 23,270 5,479 2,259 2,057 14,654 205 47,924
=========== ============= =========== =========== ============ ============ =============
Net operating income (NOI) $ 36,687 $ 13,237 $ 7,260 $ 3,986 $ 19,316 $ 783 $ 81,269
=========== ============= =========== =========== ============ ============ =============
1998
Rental revenue $ 56,339 $ 17,594 $ 6,772 $ 5,431 $ 8,438 $ 3,008 $ 97,582
Property operating expenses 20,818 5,250 1,642 1,928 3,302 705 33,645
=========== ============= =========== =========== ============ ============ =============
Net operating income (NOI) $ 35,521 $ 12,344 $ 5,130 $ 3,503 $ 5,136 $ 2,303 $ 63,937
=========== ============= =========== =========== ============ ============ =============
</TABLE>
The following is a reconciliation of segment revenues and income to consolidated
revenues and income for the periods presented above (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
Revenues
<S> <C> <C>
Total revenue for reportable segments $ 129,193 $ 97,582
Other revenue (1) 11,839 4,985
================ ================
Total consolidated revenues $ 141,032 $ 102,567
================ ================
Net Income
NOI for reportable segments $ 81,269 $ 63,937
Elimination of internal property management fees 4,063 1,709
Unallocated amounts:
Other revenue (1) 11,839 4,985
General and administrative expenses (4,760) (4,468)
Depreciation and amortization (29,312) (20,918)
Interest expense (32,958) (18,852)
================ ================
Income from operations before extraordinary items $ 30,141 $ 26,393
================ ================
</TABLE>
(1) Other revenue includes fee income, interest and other income, equity in
earnings (loss) of Associated Companies and net gain on sales of real estate
assets.
Note 10. SUBSEQUENT EVENTS
Subsequent to June 30, 1999, and through the date of this filing, the Operating
Partnership sold two office/flex properties. These properties were sold for an
aggregate sales price of $9,340,000 and generated an aggregate net gain of
approximately $1,523,000.
18
<PAGE>
GLENBOROUGH PROPERTIES, L.P.
Notes to Consolidated Financial Statements
June 30, 1999
In July 1999, the Operating Partnership acquired all of the real estate assets
of Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership in which the managing general partner is Prudential-Bache
Properties, Inc., and in which GC and Robert Batinovich, Chief Executive Officer
of the Company, have served as co-general partners since March 1994, but do not
hold a material equity or economic interest (the "Pru-Bache Portfolio"). The
acquisition was unanimously approved by the Company's independent directors,
with Robert Batinovich and Andrew Batinovich abstaining. The total acquisition
cost, including capitalized costs, was approximately $49.1 million, which
consisted of (i) approximately $15.2 million of assumed debt and (ii) the
balance in cash. The cash was funded with proceeds from the sales of real estate
assets and an advance under the Credit Facility. The Pru-Bache Portfolio
consists of four office buildings and one office/flex property, aggregating
550,592 total square feet and located in Rockville, Maryland, Memphis,
Tennessee, Sacramento, California and Seattle, Washington.
19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
Glenborough Properties, L.P., a California Limited Partnership (the "Operating
Partnership"), is engaged primarily in the ownership, operation, management,
leasing, acquisition, expansion and development of various types of
income-producing properties. As of June 30, 1999, the Operating Partnership,
directly and through various subsidiaries, owned and operated 167
income-producing properties (the "Properties," and each a "Property"). The
Properties are comprised of 49 office Properties, 40 office/flex Properties, 29
industrial Properties, 10 retail Properties, 37 multifamily Properties and 2
hotel Properties, located in 23 states.
The Operating Partnership was organized in the State of California on August 23,
1995. The Operating Partnership is the primary operating subsidiary of
Glenborough Realty Trust Incorporated (the "Company"), a self-administered and
self-managed real estate investment trust ("REIT"). On December 31, 1995, the
Company completed a consolidation (the "Consolidation") in which eight public
limited partnerships (the "Partnerships," collectively with Glenborough
Corporation (defined below), the "GRT Predecessor Entities"), merged with and
into the Company. The Company (i) issued 5,753,709 shares (the "Shares") of
$.001 par value Common Stock to the Partnerships in exchange for 3,979,376
Operating Partnership units; and (ii) merged with Glenborough Corporation, a
California Corporation, with the Company being the surviving entity. The Company
then transferred certain real estate and related assets to the Operating
Partnership in exchange for a sole general partner interest of 1% and a limited
partnership interest of 85.37% (87.30% limited partnership interest as of June
30, 1999). The Operating Partnership also acquired interests in certain
warehouse distribution facilities from GPA, Ltd., a California limited
partnership ("GPA"). The Operating Partnership commenced operations on January
1, 1996. The Operating Partnership operates the assets acquired in the
Consolidation and in subsequent acquisitions and intends to continue to invest
in income-producing property directly and through joint ventures.
Effective April 1, 1998, the Company contributed to the Operating Partnership
the majority of its assets, including 100% of its shares of the non-voting
preferred stock of Glenborough Corporation ("GC"), formerly known as Glenborough
Realty Corporation, as well as all of the Company's tangible personal property
including furniture and fixtures, all cash and investments, and a property
management contract. As part of that transaction, the Company also agreed to a
substantial reduction in the asset management fees paid by the Operating
Partnership to the Company. In return, the Operating Partnership canceled
certain obligations of the Company to the Operating Partnership, and issued
2,248,869 units of partnership interest to the Company.
Effective February 15, 1999, the Company contributed to the Operating
Partnership 100% of its shares of the non-voting preferred stock of Glenborough
Hotel Group ("GHG"). In return, the Operating Partnership issued 67,797 units of
partnership interest to the Company.
The contributions of 100% of the shares of non-voting preferred stock in GC and
GHG discussed above have been accounted for as a reorganization of entities
under common control, similar to a pooling of interests. All periods presented
have been restated to give effect to these transactions as if they occurred on
December 31, 1995. As a result of the above transactions, the only assets of the
Company that have not been contributed to the Operating Partnership are (i) its
shares of common stock in twelve qualified REIT subsidiaries, which produce
dividends that are not material to the Company, and (ii) a less than 5% limited
partnership interest in Glenborough Partners.
Since the Consolidation, and consistent with its strategy for growth, the
Operating Partnership has completed the following transactions:
Acquired 20 properties in 1996, 90 properties in 1997, 69 properties in
1998 and 2 properties in 1999. The total acquired Properties consist of an
aggregate of approximately 15.8 million rentable square feet of office,
office/flex, industrial and retail space, 9,638 multifamily units and 227
hotel suites and had aggregate acquisition costs, including capitalized
costs, of approximately $1.8 billion.
20
<PAGE>
From January 1, 1996 to the date of this filing, sold 52 properties which
were comprised of six office properties, thirteen office/flex properties,
eight industrial properties, 19 retail properties, two multifamily
properties and four hotel properties, to redeploy capital into properties
the Operating Partnership believes have characteristics more suited to its
overall growth strategy and operating goals.
Issued $150 million of unsecured 7.625% Series A Senior Notes which mature
on March 15, 2005. In June 1999, $17.1 million of the Senior Notes were
retired at a discount which resulted in a gain on early extinguishment of
debt of approximately $1.8 million.
Entered into 4 development alliances to which the Operating Partnership
has made advances of approximately $39 million and a loan (including
accrued interest) of $36.7 million as of June 30, 1999.
Results of Operations
Comparison of the six months ended June 30, 1999 to the six months ended June
30, 1998.
Rental Revenue. Rental revenue increased $31,611,000, or 32%, to $129,193,000
for the six months ended June 30, 1999, from $97,582,000 for the six months
ended June 30, 1998. The increase included growth in revenue from the office,
industrial, office/flex, retail and multifamily Properties of $3,618,000,
$2,747,000, $1,122,000, $612,000 and $25,532,000, respectively. These increases
were partially offset by a $2,020,000 decrease in revenue from the hotel
Properties due to the 1998 and 1999 sales of four hotels. Excluding properties
that have been sold, rental revenue for the six months ended June 30, 1999,
included $11,165,000 generated from the 1996 Acquisitions, $43,863,000 generated
from the 1997 Acquisitions, $65,830,000 generated from the 1998 Acquisitions and
$1,200,000 generated from the 1999 Acquisitions. In addition, $7,135,000 of
rental revenue was generated from 21 properties that were sold during the six
months ended June 30, 1999.
Fees and Reimbursements from Affiliates. Fees and reimbursements from affiliates
consist primarily of property management fees, asset management fees and lease
commissions paid to the Operating Partnership under property and asset
management agreements with the Managed Partnerships. This revenue increased
$642,000, or 52%, to $1,874,000 for the six months ended June 30, 1999, from
$1,232,000 for the six months ended June 30, 1998. The increase was primarily
due to transaction and management fees from GC.
Interest and Other Income. Interest and other income increased $2,884,000 to
$3,437,000 for the six months ended June 30, 1999, from $553,000 for the six
months ended June 30, 1998. The increase primarily consisted of interest income
on a mortgage loan receivable secured by land located in Aurora, Colorado which
originated on June 30, 1998, and interest earned on lender impound accounts,
invested cash balances and notes receivable for tenant improvements.
Equity in Earnings (Loss) of Associated Companies. Equity in earnings (loss) of
Associated Companies decreased $1,626,000 or 153%, to a loss of $565,000 for the
six months ended June 30, 1999, from earnings of $1,061,000 for the six months
ended June 30, 1998. The decrease is primarily due to a decrease in earnings
from GC resulting from a provision to reduce the carrying value of management
contracts with certain of the Managed Partnerships. This decrease is also due to
a decrease in earnings from GHG resulting from the sales and pending sales of
the Operating Partnership's hotel properties which resulted in the June 30,
1998, cancellation of GHG's hotel leases with the Operating Partnership.
Net Gain on Sales of Real Estate Assets. A net gain on sales of real estate
assets of $7,093,000 during the six months ended June 30, 1999, resulted from
the sale of five office properties, nine office/flex properties, two industrial
properties, three retail properties, one multifamily property, one hotel and a
small interest in real estate securities from the Operating Partnership's
portfolio. The net gain on sales of real estate assets of $2,139,000 during the
six months ended June 30, 1998, resulted from the sale of one multifamily
property, two industrial properties, two office/flex properties and two hotel
properties from the Operating Partnership's portfolio.
Property Operating Expenses. Property operating expenses increased $11,925,000,
or 37%, to $43,861,000 for the six months ended June 30, 1999, from $31,936,000
for the six months ended June 30, 1998. This increase represents increases in
21
<PAGE>
property operating expenses attributable to the 1998 Acquisitions and the 1999
Acquisitions offset by decreases in property operating expenses due to the 1998
and 1999 sales of properties and a $1,347,000 decrease in property management
fees from 1998 to 1999.
General and Administrative Expenses. General and administrative expenses
increased $292,000, or 7%, to $4,760,000 for the six months ended June 30, 1999,
from $4,468,000 for the six months ended June 30, 1998. The increase is due to
salary and overhead costs incurred by the Operating Partnership beginning April
1, 1998, which were previously paid by the Company, offset by the elimination of
an asset management fee which totaled $1,815,000 for the six months ended June
30, 1998 and $0 for the six months ended June 30, 1999.
Depreciation and Amortization. Depreciation and amortization increased
$8,394,000, or 40%, to $29,312,000 for the six months ended June 30, 1999, from
$20,918,000 for the six months ended June 30, 1998. The increase is primarily
due to depreciation and amortization associated with the 1998 Acquisitions and
1999 Acquisitions.
Interest Expense. Interest expense increased $14,106,000 or 75%, to $32,958,000
for the six months ended June 30, 1999, from $18,852,000 for the six months
ended June 30, 1998. Substantially all of the increase was the result of higher
average borrowings during the six months ended June 30, 1999, as compared to the
six months ended June 30, 1998, due to new debt and the assumption of debt
related to the 1998 Acquisitions and 1999 Acquisitions.
Net Loss on Early Extinguishment of Debt. Net loss on early extinguishment of
debt of $303,000 during the six months ended June 30, 1999, consists of a
$1,828,000 gain on the retirement of Senior Notes at a discount, offset by
$2,026,000 of prepayment penalties and $105,000 for the write-off of unamortized
loan fees upon the early payoff of four loans. These loans were paid-off early
when more favorable terms were obtained through new financing (discussed below)
and upon the sale of the properties securing the loans.
Comparison of the three months ended June 30, 1999 to the three months ended
June 30, 1998.
Rental Revenues. Rental revenues increased $12,933,000, or 25%, to $64,552,000
for the three months ended June 30, 1999, from $51,619,000 for the three months
ended June 30, 1998. The increase included growth in revenues from the
industrial, office/flex and multifamily Properties of $1,276,000, $168,000, and
$12,623,000, respectively. These increases were partially offset by decreases in
revenue from the office, retail and hotel Properties of $161,000, $241,000 and
$732,000, respectively. Excluding properties that have been sold, rental revenue
for the three months ended June 30, 1999, included $5,630,000 generated from the
1996 Acquisitions, $21,951,000 generated from the 1997 Acquisitions, $33,084,000
generated from the 1998 Acquisitions and $743,000 generated from the 1999
Acquisitions. In addition, $3,144,000 of rental revenue was generated from 14
properties that were sold during the three months ended June 30, 1999.
Fees and Reimbursements. Fees and reimbursements revenue consists primarily of
property management fees, asset management fees and lease commissions paid to
the Operating Partnership under property and asset management agreements. This
revenue did not change significantly with a decrease of $16,000, or 2%, to
$743,000 for the three months ended June 30, 1999, from $759,000 for the three
months ended June 30, 1998.
Interest and Other Income. Interest and other income increased $1,532,000 to
$1,778,000 for the six months ended June 30, 1999, from $246,000 for the six
months ended June 30, 1998. The increase primarily consisted of interest income
on a mortgage loan receivable secured by land located in Aurora, Colorado which
originated on June 30, 1998, and interest earned on lender impound accounts,
invested cash balances and notes receivable for tenant improvements.
Equity in Earnings (Loss) of Associated Companies. Equity in earnings (loss) of
Associated Companies decreased $1,583,000, or 223%, to a loss of $874,000 for
the three months ended June 30, 1999, from earnings of $709,000 for the three
months ended June 30, 1998. The decrease is primarily due to a decrease in
earnings from GC resulting from a provision to reduce the carrying value of
management contracts with certain of the Managed Partnerships. This decrease is
also due to a decrease in earnings from GHG resulting from the sales and pending
22
<PAGE>
sales of the Operating Partnership's hotel properties which resulted in the June
30, 1998, cancellation of GHG's hotel leases with the Operating Partnership.
Net Gain on Sales of Real Estate Assets. The net gain on sales of real estate
assets of $5,742,000 during the three months ended June 30, 1999, resulted from
the sales of five office properties, four office/flex properties, two industrial
properties, one retail property, one multifamily property and one hotel property
from the Operating Partnership's portfolio. The net gain on sales of rental
properties of $693,000 during the three months ended June 30, 1998, resulted
from the sales of one office/flex property and two hotel properties from the
Operating Partnership's portfolio.
Property Operating Expenses. Property operating expenses increased $5,595,000,
or 34%, to $21,860,000 for the three months ended June 30, 1999, from
$16,265,000 for the three months ended June 30, 1998. This increase represents
increases in property operating expenses attributable to the 1998 Acquisitions
and the 1999 Acquisitions offset by decreases in property operating expenses due
to the 1998 and 1999 sales of properties.
General and Administrative Expenses. General and administrative expenses did not
change significantly with a decrease of $57,000, or 2%, to $2,545,000 for the
three months ended June 30, 1999, from $2,602,000 for the three months ended
June 30, 1998. However, as a percentage of rental revenue, general and
administrative expenses decreased from 5% for the three months ended June 30,
1998, to 4% for the three months ended June 30, 1999.
Depreciation and Amortization. Depreciation and amortization increased
$3,286,000, or 30%, to $14,220,000 for the three months ended June 30, 1999,
from $10,934,000 for the three months ended June 30, 1998. The increase is
primarily due to depreciation and amortization associated with the 1998
Acquisitions and 1999 Acquisitions.
Interest Expense. Interest expense increased $6,711,000, or 69%, to $16,418,000
for the three months ended June 30, 1999, from $9,707,000 for the three months
ended June 30, 1998. Substantially all of the increase was the result of higher
average borrowings during the three months ended June 30, 1999, as compared to
the three months ended June 30, 1998, due to new debt and the assumption of debt
related to the 1998 Acquisitions and 1999 Acquisitions.
Net Gain on Early Extinguishment of Debt. Net gain on early extinguishment of
debt of $1,688,000 during the three months ended June 30, 1999, consists of a
$1,828,000 gain on the retirement of Senior Notes at a discount, offset by a
$35,000 prepayment penalty and $105,000 for the write-off of unamortized loan
fees upon the early payoff of two mortgage loans. These loans were paid-off
early with proceeds from the sales of properties.
Liquidity and Capital Resources
Cash Flows
For the six months ended June 30, 1999, cash provided by operating activities
increased by $3,663,000 to $49,921,000 as compared to $46,258,000 for the same
period in 1998. The increase is primarily due to an increase in net income
(before depreciation and amortization, minority interest, net gain on sales of
real estate assets and loss on early extinguishment of debt) of $7,589,000 due
to the 1998 Acquisitions and 1999 Acquisitions. Cash from investing activities
increased by $682,298,000 to $79,976,000 of cash provided by investing
activities for the six months ended June 30, 1999, as compared to $602,322,000
of cash used for investing activities for the same period in 1998. The increase
is primarily due to an decrease in property acquisitions in 1999 as compared to
the same period in 1998. During the six months ended June 30, 1998, the
Operating Partnership acquired 58 properties as compared to two properties
during the six months ended June 30, 1999. This decrease is partially offset by
an increase in proceeds from sales of properties during 1999. Cash from
financing activities decreased by $691,016,000 to $132,051,000 of cash used for
financing activities for the six months ended June 30, 1999, as compared to
$558,965,000 of cash provided by financing activities for the same period in
1998. This change was primarily due to a decrease in proceeds from new debt and
a decrease in contributions from the Company of net proceeds from the issuance
of stock. In 1998, the Company completed an offering of Preferred Stock and
contributed the net proceeds to the Operating Partnership; there have been no
offerings in 1999. In addition, in 1998, the Operating Partnership issued
$150,000,000 of unsecured Series A Senior Notes.
23
<PAGE>
The Operating Partnership expects to meets its short-term liquidity requirements
generally through its working capital, its Credit Facility (as defined below)
and cash generated by operations. The Operating Partnership believes that its
cash generated by operations will be adequate to meet operating requirements and
to make distributions in both the short and the long-term. In addition to cash
generated by operations, the Credit Facility provides for working capital
advances. However, there can be no assurance that the Operating Partnership's
results of operations will not fluctuate in the future and at times affect (i)
its ability to meet its operating requirements and (ii) the amount of its
distributions.
The Operating Partnership's principal sources of funding for acquisitions,
development, expansion and renovation of properties include the unsecured Credit
Facility, permanent secured debt financing, public unsecured debt financing,
contributions from the Company, privately placed financing, the issuance of
Operating Partnership units, proceeds from property sales and cash flow provided
by operations.
Mortgage Loans Receivable
Mortgage loans receivable increased from $42,420,000 at December 31, 1998, to
$43,982,000 at June 30, 1999. This increase was primarily due to accrued
interest on a loan made by the Operating Partnership under a development
alliance.
Secured and Unsecured Financing
Mortgage loans payable decreased from $708,578,000 at December 31, 1998, to
$692,384,000 at June 30, 1999. This decrease resulted from the payoff of
approximately $51.6 million of mortgage loans in connection with 1999 sales of
properties and refinancing of debt, and scheduled principal payments of
approximately $4.7 million. This decrease is partially offset by the assumption
of a $14.1 million mortgage loan in connection with a 1999 Acquisition and new
financing of $26 million (as discussed below).
In March 1999, the Operating Partnership obtained a $26 million loan from a
commercial bank. The loan was non-recourse and was secured by seven properties
and had a maturity date of December 22, 1999, with an option to extend for six
months. The proceeds were used to pay off a loan which was previously secured by
these same properties and to reduce other debt. This loan was paid off in June
1999, with proceeds from the sales of four properties.
In June 1999, the Operating Partnership retired $17,110,000 of the Series A
Senior Notes at a discount, which resulted in a gain on early extinguishment of
debt of approximately $1,828,000.
The Operating Partnership has an unsecured line of credit provided by a
commercial bank (the "Credit Facility"). Outstanding borrowings under the Credit
Facility decreased from $63,519,000 at December 31, 1998, to $21,247,000 at June
30, 1999, due to pay downs from proceeds from the sales of properties and
refinancing of a mortgage loan.
At June 30, 1999, the Operating Partnership's total indebtedness included
fixed-rate debt of $694,661,000 and floating-rate indebtedness of $151,860,000.
Approximately 64% of the Operating Partnership's total assets, comprising 101
properties, is encumbered by debt at June 30, 1999.
It is the Operating Partnership's policy to manage its exposure to fluctuations
in market interest rates through the use of fixed rate debt instruments to the
extent possible. At June 30, 1999, approximately 18% of the Operating
Partnership's outstanding debt, including amounts borrowed under the Credit
Facility, were subject to variable rates. The Operating Partnership may, from
time to time, enter into interest rate protection agreements intended to hedge
the cost of new borrowings that are reasonably assured of completion. It is not
the Operating Partnership's policy to engage in hedging activities for
previously outstanding debt instruments or for speculative purposes. At June 30,
1999, the Operating Partnership was not a party to any open interest rate
protection agreements.
24
<PAGE>
Equity and Debt Offerings
In January 1999, the Operating Partnership and the Company filed a shelf
registration statement with the SEC (the "January 1999 Shelf Registration
Statement") to register $300 million of debt securities of the Operating
Partnership and to carry forward the remaining $801.2 million in equity
securities of the Company from a November 1997 shelf registration statement
(declared effective by the SEC on December 18, 1997). The January 1999 Shelf
Registration Statement was declared effective by the SEC on January 25, 1999.
Therefore, the Operating Partnership and the Company have the capacity pursuant
to the January 1999 Shelf Registration Statement to issue up to $300 million in
debt securities and $801.2 million in equity securities, respectively. The
Operating Partnership and the Company currently have no plans to issue equity or
debt under these shelf registrations.
Development Alliances
The Operating Partnership has formed 4 development alliances for the development
of approximately 713,000 square feet of office, office/flex and distribution
properties and 1,710 multifamily units in North Carolina, Colorado, Texas, New
Jersey, Kansas and Michigan. As of June 30, 1999, the Operating Partnership has
advanced approximately $39 million. Under these development alliances, the
Operating Partnership has certain rights to purchase the properties upon
completion of development over the next five years. In addition, the Operating
Partnership has loaned approximately $36.7 million (including accrued interest)
under another development alliance to continue the build-out of a 1,200 acre
master-planned development in Denver, Colorado.
Inflation
Substantially all of the leases at the office/flex, industrial and retail
Properties provide for pass-through to tenants of certain operating costs,
including real estate taxes, common area maintenance expenses, and insurance.
Leases at the multifamily properties generally provide for an initial term of
one month or one year and allow for rent adjustments at the time of renewal.
Leases at the office Properties typically provide for rent adjustment and
pass-through of certain operating expenses during the term of the lease. All of
these provisions may permit the Operating Partnership to increase rental rates
or other charges to tenants in response to rising prices and therefore, serve to
reduce the Operating Partnership's exposure to the adverse effects of inflation.
Forward Looking Statements; Factors That May Affect Operating Results
This Report on Form 10-Q contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934, including statements regarding the Operating
Partnership's expectations, hopes, intentions, beliefs and strategies regarding
the future including the Operating Partnership's belief that cash generated by
operations will be adequate to meet operating requirements and to make
distributions, the Operating Partnership's expectations as to the timing of the
completion of the development projects through its development alliances and the
acquisition by the Operating Partnership of properties developed through its
development alliances. There can be no assurance that the actual outcomes or
results will be consistent with such expectations, hopes, intentions, beliefs
and strategies. Forward looking statements include statements regarding
potential acquisitions, the anticipated performance of future acquisitions,
recently completed acquisitions and existing properties, and statements
regarding the Operating Partnership's financing activities. All forward looking
statements included in this document are based on information available to the
Operating Partnership on the date hereof. It is important to note that the
Operating Partnership's actual results could differ materially from those stated
or implied in such forward-looking statements.
Factors which may cause the Operating Partnership's results to differ include
the inability to complete anticipated future acquisitions, defaults or
non-renewal of leases, increased interest rates and operational costs, failure
to obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, the Company's failure to qualify as a
real estate investment trust under the Internal Revenue Code of 1986,
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws, increases in real
property tax rates and other factors discussed under the caption "Forward
Looking Statements; Factors That May Affect Operating Results" in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of the Operating Partnership's Annual Report on Form 10-K
25
<PAGE>
for the year ended December 31, 1998, and other risk factors set forth in the
Operating Partnership's other Securities and Exchange Commission filings.
Impact of Year 2000 Compliance Costs on Operations
State of Readiness. The Operating Partnership uses a number of computer software
programs and operating systems across the entire organization. These programs
and systems primarily comprise (i) information technology systems ("IT Systems")
(i.e., software programs and computer operating systems) that serve management
operations, and (ii) embedded systems such as devices used to control, monitor
or assist the operation of equipment and machinery systems (e.g., HVAC, fire
safety and security) at the Operating Partnership's properties ("Property
Systems"). To the extent that the Operating Partnership's software applications
contain source code that is unable to appropriately interpret the upcoming
calendar year "2000" and beyond, some level of modification or replacement of
these applications will be necessary.
IT Systems. Employing a team made up of internal personnel and
third-party consultants, the Operating Partnership has completed its
identification of IT Systems, including hardware components, that are
not yet Year 2000 compliant. To the best of the Operating Partnership's
knowledge, based on available information and a reasonable level of
inquiry and investigation, the Operating Partnership has completed such
upgrading of such systems that it believes are called for under the
circumstances, and in accordance with prevailing industry practice. The
Operating Partnership has commenced a testing program which it
anticipates will be completed during 1999. In addition, the Operating
Partnership is currently communicating with third parties with whom it
does significant business, such as financial institutions, tenants and
vendors, to determine their readiness for Year 2000 compliance.
Property Systems. Employing a team made up of internal personnel and
third-party consultants, the Operating Partnership has also completed
its identification of Property Systems, including hardware components,
that are not yet Year 2000 compliant. The Operating Partnership has
commenced such upgrading of such systems that it believes are called
for under the circumstances, based on available information and a
reasonable level of inquiry and investigation, and in accordance with
prevailing industry practice. Upon completion of such upgrading, the
Operating Partnership will initiate a testing program which it
anticipates will be completed during 1999. To the best of the Operating
Partnership's knowledge, there are no Property Systems, the failure of
which would have a material effect on operations.
Costs of Addressing the Operating Partnership's Year 2000 Issues. Given the
information known at this time about the Operating Partnership's systems that
are non-compliant, coupled with its ongoing, normal course-of-business efforts
to upgrade or replace critical systems, as necessary, the Operating Partnership
does not expect Year 2000 compliance costs to have any material adverse impact
on liquidity or ongoing results of operations. The costs of such assessment and
remediation will be paid as an operating expense.
Risks of the Operating Partnership's Year 2000 Issues. In light of the Operating
Partnership's assessment and upgrading efforts to date, and assuming completion
of the planned, normal course-of-business upgrades and subsequent testing, the
Operating Partnership believes that any residual Year 2000 risk will be limited
to non-critical business applications and support hardware, and to short-term
interruptions affecting Property Systems which, if they occur at all, will not
be material to overall operations. The Operating Partnership believes that all
of its systems will be Year 2000 compliant and that compliance will not
materially adversely affect its future liquidity or results of operations or
ability to service debt, but the Operating Partnership cannot give absolute
assurance that this is the case.
The Operating Partnership's Contingency Plans. The Operating Partnership is
currently developing its contingency plans for all operations to address the
most reasonably likely worst case scenarios regarding Year 2000 compliance. Such
plans, however, will recognize material limitations on the Operating
Partnership's ability to plan for major regional or industrial failures such as
regional power outages or regional or industrial communications breakdowns. The
Operating Partnership expects such contingency plans to be completed during
1999.
26
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Blumberg. On July 24, 1999, the Supreme Court of the United States, denied a
petition for a writ of certiorari to review the Company's settlement of a class
action complaint originally filed on February 21, 1995 in connection with the
Consolidation. No further appeals are possible in this case, and the settlement
amount has been paid in full. Under the settlement, the Company agreed to pay
$855,000 to settle certain claims by Anthony E. Blumberg, and others (the
"Blumberg Action"), that the Company and others had, among other things,
breached their fiduciary duty and duty of good faith and fair dealing to
investors in the Partnerships involved in the Consolidation. Certain parties
objected to the settlement, but the settlement was approved (or review denied)
by the Superior Court of the State of California in and for San Mateo County,
the California state court of appeals, the California Supreme Court and the
Supreme Court of the United States.
BEJ Equity Partners. On December 1, 1995, a second class action complaint
relating to the Consolidation was filed in Federal District Court for the
Northern District of California (the "BEJ Action"). The plaintiffs in the BEJ
Action voluntarily stayed the action pending resolution of the Blumberg Action.
The plaintiffs in the BEJ Action are BEJ Equity Partners and others, who as a
group held limited partner interests in certain of the Partnerships included in
the Consolidation, on behalf of themselves and all others similarly situated.
The defendants are the Company and other Glenborough entities involved in the
Consolidation, as well as Robert Batinovich and Andrew Batinovich. The
Partnerships are named as nominal defendants.
This action alleges certain disclosure violations and substantially the same
breaches of fiduciary duty as were alleged in the Blumberg Action. The complaint
sought injunctive relief, which was denied at a hearing on December 22, 1995. At
that hearing, the court also deferred all further proceedings in this case until
after the scheduled January 17, 1996 hearing in the Blumberg Action. Following
several stipulated extensions of time for the Company to respond to the
complaint, the Company filed a motion to dismiss the case. Plaintiffs in the BEJ
Action voluntarily stayed the action pending resolution of the Blumberg Action;
such plaintiffs can revive their lawsuit.
It is management's position that the BEJ Action is without merit, and management
intends to pursue a vigorous defense. However, given the inherent uncertainties
of litigation, there can be no assurance that the ultimate outcome in the BEJ
Action will be in the Company's favor.
Certain other claims and lawsuits have arisen against the Company in its normal
course of business. The Company believes that such other claims and lawsuits
will not have a material adverse effect on the Company's financial position,
cash flow or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended June 30, 1999.
27
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibit Index attached hereto is hereby incorporated by
reference to this item.
(b) Reports on Form 8-K:
On April 22, 1999, the Company filed a report on Form 8-K with respect
to Supplemental Information for the quarter ended March 31, 1999.
On July 28, 1999, the Company filed a report on Form 8-K with respect
to Supplemental Information for the quarter ended June 30, 1999.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLENBOROUGH PROPERTIES, L.P.,
a California Limited Partnership
By: Glenborough Realty Trust Incorporated,
its General Partner
Date: August 13, 1999 /s/ Andrew Batinovich
---------------------
Andrew Batinovich
Director, President
and Chief Operating Officer
(Principal Operating Officer)
Date: August 13, 1999 /s/ Stephen Saul
----------------
Stephen Saul
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: August 13, 1999 /s/ Terri Garnick
-----------------
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Title
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Fixed Charges and Preferred Partner Interest
Distributions.
27.1 Financial Data Schedule.
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
GLENBOROUGH PROPERTIES, L.P.
Computation of Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges and Preferred Partner Interest Distributions
For the five years ended December 31, 1998
and the three months ended March 31, 1999 and June 30, 1999
(in thousands)
GRT Predecessor
Entities,
Combined The Operating Partnership
------------------- -------------------------------------------------------------
Three Months Three Months
Ended Ended Year To
Year Ended December 31, March 31, June 30, Date
--------------------------------------------------- --------- --------- ---------
1994 1995 1996 1997 1998 1999 1999 1999
--------- -------- ---------- -------- -------- --------- --------- ---------
EARNINGS, AS DEFINED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) before Preferred
Partner Interest Distributions(2) $ 1,580 $ 524 $ (1,901) $17,727 $ 46,136 $ 11,252 $ 18,586 $ 29,838
Extraordinary items -- -- 186 843 1,400 1,991 (1,688) 303
Federal & State income taxes 176 357 -- -- -- -- -- --
Minority Interest 43 -- -- -- -- -- -- --
Fixed Charges 1,140 2,129 3,913 9,668 53,289 16,540 16,418 32,958
--------- -------- ---------- -------- -------- --------- --------- ---------
$ 2,939 $ 3,010 $ 2,198 $28,238 $ 100,825 $ 29,783 $ 33,316 $ 63,099
--------- -------- ---------- -------- -------- --------- --------- ---------
FIXED CHARGES AND PREFERRED PARTNER
INTEREST DISTRIBUTIONS, AS DEFINED
Interest Expense $ 1,140 $ 2,129 $ 3,913 $ 9,668 $ 53,289 $ 16,540 $ 16,418 $ 32,958
Capitalized Interest -- -- -- -- 1,108 643 687 1,330
Preferred Partner Interest
Distributions -- -- -- -- 20,620 5,570 5,570 11,140
--------- -------- ---------- -------- -------- --------- --------- ---------
$ 1,140 $ 2,129 $ 3,913 $ 9,668 $ 75,017 $ 22,753 $ 22,675 $ 45,428
RATIO OF EARNINGS TO FIXED
CHARGES(3) 2.58 1.41 0.56(1) 2.92 1.85 1.73 1.95 1.84
--------- -------- ---------- -------- -------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED PARTNER
INTEREST DISTRIBUTIONS(3) 2.58 1.41 0.56(1) 2.92 1.34 1.31 1.47 1.39
--------- -------- ---------- -------- -------- --------- --------- ---------
</TABLE>
(1) For the twelve months ended December 31, 1996, earnings were insufficient to
cover fixed charges by $1,715.
(2) Net Income (Loss) before Preferred Partner Interest Distributions includes
depreciation and amortization expense as a deduction.
(3)Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges
and Preferred Partner Interest Distributions includes depreciation and
amortization expense as a deduction from earnings.
31
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 1,865
<SECURITIES> 0
<RECEIVABLES> 3,485
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,350
<PP&E> 1,716,574
<DEPRECIATION> 83,713
<TOTAL-ASSETS> 1,788,887
<CURRENT-LIABILITIES> 20,952
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 914,057
<TOTAL-LIABILITY-AND-EQUITY> 1,788,887
<SALES> 129,193
<TOTAL-REVENUES> 141,032
<CGS> 0
<TOTAL-COSTS> 73,173
<OTHER-EXPENSES> 4,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,958
<INCOME-PRETAX> 30,141
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,141
<DISCONTINUED> 0
<EXTRAORDINARY> (303)
<CHANGES> 0
<NET-INCOME> 29,838
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.52
</TABLE>
