UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the year ended December 31, 1996
OR
[ ] 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: 33-3657
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 94-3199021
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
San Mateo, California (Zip Code)
(Address of principal executive offices)
Partnership's telephone number, including area code: (415) 343-9300
Securities registered pursuant to 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 ____
No market for the Limited Partnership Units exists and therefore a market value
for such Units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE: See Exhibit Index in Item 14
Page 1 of 52
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PART I
Item 1. Business.
Organization and Historical Information
Glenborough Limited, A California Limited Partnership pursuant to section 15d-5
of the Securities Exchange Act of 1934, was formed in 1986 to acquire, own,
operate, develop and lease commercial and residential real estate. To facilitate
compliance with certain recording and filing requirements, a second limited
partnership, GOCO Realty Fund I, a California Limited Partnership formerly known
as Glenborough Operating Co. Ltd., A California Limited Partnership ("GOCO"),
was formed in April, 1986 to hold and operate all real and personal property
then or thereafter owned by Glenborough Limited (the "Partnership Property"). At
the end of 1993, there was a technical termination of Glenborough Limited and
Glenborough Partners, A California Limited Partnership ("Partners"), commenced
as successor to Glenborough Limited. GOCO was succeeded in 1995 by GPA Ltd., A
California Limited Partnership ("GPA"). Partners and GPA operate as an economic
unit and unless specifically designated otherwise, are referred to collectively
as the "Partnership". The general partners of both Partners and GPA are
Glenborough Corporation, a California corporation formerly known as Glenborough
Realty Corporation, and Robert Batinovich (collectively "Glenborough" or
"General Partner"). Glenborough Corporation is the managing general partner of
the Partnership (the "Managing General Partner"). Glenborough Partners is the
sole limited partner of GPA.
In June, 1986, the Partnership acquired 66 real estate projects from 21 limited
partnerships and one individual (collectively, the "Predecessor Owners") in
exchange for 4,899,488 limited partnership units (the "Exchange Transaction").
On May 21, 1992, New West Federal, the lender on substantially all the
Partnership Property, filed a judicial foreclosure action in the Superior Court
of Orange County. Also on May 21, 1992, GOCO Realty Fund I filed a petition in
the United States Bankruptcy Court for the Northern District of California for
reorganization under Chapter 11 of the Federal Bankruptcy Code. On January 13,
1994, a plan of reorganization was filed with the Bankruptcy court which became
effective January 24, 1994. Under the plan of reorganization, the Partnership
exercised its option to obtain releases from the lender on eight properties,
while the options on the remaining properties were not exercised and those
properties were transferred to the lender in satisfaction of the lender's
claims.
As set forth under the plan of reorganization, two new subsidiary partnerships
were created in February, 1994: (i) GPA West, L.P. ("West"), and (ii) GPA
Industrial, L.P. ("Industrial") to facilitate the Partnership's holding and
transfer of real property. A third subsidiary partnership, GPA Bond, L.P.
("Bond") was created in December, 1994 to hold and operate a property purchased
on December 29, 1994. The general partners of each of these partnerships were
Glenborough Corporation and Robert Batinovich while the sole limited partner of
each was GPA.
Page 2 of 52
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Investment in Glenborough Properties L.P.
On December 31, 1995, Industrial and its four properties were contributed to an
affiliated partnership, Glenborough Properties, L.P. ("Properties"), the
operating partnership of Glenborough Realty Trust Incorporated ("GLB"), a real
estate investment trust managed by affiliates of the Partnership, in exchange
for 542,333 limited partnership units in Properties. The debt securing the
properties owned by Industrial was assumed by the acquiring partnership. As a
result of the contribution, Industrial ceased to be a subsidiary of the
Partnership at the end of 1995.
In July, 1996, the Partnership contributed its 45% non-voting limited
partnership interest in University Club Tower (UCT) to Properties in exchange
for 10,606 limited partnership units.
In September, 1996, the Partnership sold its interest in Bond to Properties and
GRT Corporation, a wholly owned subsidiary of GLB, in exchange for 26,067
limited partnership units in Properties. As a result of the sale, Bond is no
longer a subsidiary of the Partnership.
At December 31, 1996, the Partnership owns 579,006 units or approximately a
7.38% interest in Properties.
Other Investments
In September, 1995, the Partnership invested $1,050,000 for a 25% limited
partnership interest in GRC Airport Associates ("GRC Airport"). GRC Airport owns
a property consisting of 10.14 acres of improved land with a 216,780 square foot
building located in San Bruno, California. This property is leased to a single
tenant which operates an off-site long-term parking facility for the San
Francisco International Airport. Through January, 1997, the Partnership has
received distributions from GRC Airport totaling $128,000. Additionally, in
January, 1997 the Partnership received $500,000, from GRC Airport representing a
return of capital upon the refinancing of the property.
In June and July, 1996, the Partnership acquired 131,347 units (representing a
13% interest) of Glenco Squaw Associates ("Squaw"), an affiliated partnership,
for $352,000. Squaw's sole asset is a promissory note receivable from the sale
of its interest in a resort in Squaw Valley, California. This sale of its
interest in the resort provided Squaw with: (i) $700,000 cash; (ii) a $2,300,000
promissory note bearing interest at 8% per annum payable quarterly with $800,000
due in 1998 and $1,500,000 due in 1999; and (iii) additional payment contingent
upon the consideration received in excess of a stated price related to any
future sale of the resort.
In December, 1996, the Partnership purchased 931 limited partnership units or a
2.7% interest in Outlook Income/Growth Fund VIII, ("Outlook VIII"), an
affiliated partnership, for $163,000. At December 31, 1996, Outlook VIII owned
interests in three rental properties.
After the cancellation of a total of 1,937,635 limited partnership units of the
Partnership from December, 1986 through May, 1994 and the redemption of 50,954
limited partnership units in June, 1996, 2,910,899 limited partnership units
were outstanding at December 31, 1996.
Page 3 of 52
<PAGE>
Information regarding the Partnership Properties is incorporated herein by
reference to Item 2. - Properties.
Business Plan
In 1997, the Partnership's intentions are: (i) to sell the Rosemead Springs
property; (ii) to explore the feasibility and economic benefit of purchasing, at
substantial discounts, limited partnership units in various partnerships; and
(iii) to locate other suitable investments.
Management and Operations
The Partnership engages Glenborough Corporation (the "Property Manager") to
manage the Partnership assets. Pursuant to a written management agreement,
Glenborough Corporation has broad managerial responsibility for all Partnership
assets, including collection of all rents and other charges due from tenants.
The agreement as amended, expires in 2001, except that the Partnership may
terminate the agreement without cause on 30-days written notice or immediately
if Glenborough Corporation ceases to be the managing general partner.
Federal, state and local statutes, ordinances and regulations which have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment do not presently have a
material effect on the operations of the Partnership Property nor on the capital
expenditures, earnings or competitive position of the Partnership. There can be
no assurance that such regulations will not change or have some material effect
on the Partnership in the future.
The Partnership does not directly employ any individuals. All regular employees
rendering services on behalf of the Partnership are employees of Glenborough
Corporation or its affiliates.
The business of the Partnership to date has involved only one industry segment
(real estate). The Partnership has no foreign operations and the business of the
Partnership is not seasonal.
Competition
Management believes that characteristics influencing the competitiveness of a
real estate project are the geographic location of the property, the
professionalism of the property manager and the maintenance and appearance of
the property, in addition to external factors such as general economic
circumstances, trends, and the existence of new, competing properties in the
vicinity. Additional competitive factors with respect to rental properties are
the ease of access to the property, the adequacy of related facilities, such as
parking, and the ability to provide rent concessions and tenant improvements
commensurate with local market conditions. Although management believes the
Partnership Property is competitive with comparable properties as to those
factors within the Partnership's control, over-building and other external
factors could adversely affect the ability of the Partnership to attract and
retain tenants. The marketability of the Partnership Property may also be
affected (either positively or negatively) by these factors as well as by
changes in general or local economic conditions, including prevailing interest
rates. Depending on market and economic conditions, the Partnership may be
required to retain ownership of its properties for periods longer than
anticipated, or may need to dispose earlier than anticipated, or refinance a
property, at a time or under terms and conditions that
Page 4 of 52
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are less advantageous than would be the case if unfavorable economic or market
conditions did not exist.
Item 2. Properties.
As of December 31, 1996, the Partnership owns one rental property, Rosemead
Springs Business Center ("Rosemead"), a 129,500 square foot multi-tenant office
building located in El Monte, California. Rosemead consists of seven one-story
and two-story buildings, which had an 11% occupancy rate at December 31, 1996.
This property has one lease at December 31, 1996, totaling approximately 4,200
square feet or 3% of the leasable space, which provides for base monthly rents
of $6,310 and expires on September 7, 1997. The other tenant, occupying
approximately 10,100 square feet of space or 8% of the leasable space, is on a
month to month lease. As of December 31, 1996 and the date of this filing, the
Rosemead property is held for sale and management has entered into a sales
contract; however, there can be no assurance that the sale will actually take
place.
During 1996, the Rosemead property was assessed $78,000 in property taxes based
on an average realty tax rate of 1.17% plus additional assessments.
Information regarding encumbrances on Partnership Property is incorporated
herein by reference to Item 8, Note 6 - Notes Payable in the Notes to
Consolidated Financial Statements.
In the opinion of management, the insurance coverage on the Rosemead property is
adequate.
Also, as of December 31, 1996, the Partnership owns limited partnership
interests ranging from 2.7% to 25% in three affiliated real estate partnerships
and one partnership whose sole asset is a promissory note.
Item 3. Legal Proceedings.
The Partnership did not become a party to, nor were any of its assets the
subject of any material pending legal proceedings in 1996.
Item 4. Results of Votes of Security Holders.
During the fourth quarter of fiscal year 1996, no matters were submitted to a
vote of security holders through the solicitation of proxies or otherwise.
Page 5 of 52
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PART II
Item 5. Market for the Registrant's Equity and Related Security Holder Matters.
Market Information
There is no public market for units of limited partnership interest in the
Partnership (the "Units") and it is not expected that any will develop. The
Units have limited transferability. Restrictions on transfer may be imposed
under certain state securities laws. Consequently, holders of Units may not be
able to liquidate their investments and the Units may not be readily acceptable
as collateral.
Holders
As of December 31, 1996, 391 holders of record held 2,910,899 Limited
Partnership Units.
Cash Distributions
The Partnership began paying quarterly cash distributions on April 30, 1987, at
a quarterly rate of $0.375 per Limited Partnership Unit and continued paying the
same quarterly cash distribution through the fourth quarter 1988 distribution on
January 31, 1989. In 1989, the Partnership lowered its quarterly cash
distribution to $0.25 per Unit for the first quarter distribution and to $0.1875
per Unit beginning with the second quarter 1989 distribution. Distributions were
suspended as of the second quarter of 1990. In the first quarter of 1997, the
Partnership made a special cash distribution totaling $295,000 to help alleviate
its partners' tax burden arising from their portion of the undistributed taxable
income of the Partnership in 1996.
Page 6 of 52
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Item 6. Selected Financial Data.
The selected financial data should be read in conjunction with the financial
statements and related notes contained elsewhere in this report. This selected
financial data is not covered by the reports of the independent public
accountants.
<TABLE>
<CAPTION>
Condensed Consolidated Operating Data
(in thousands, except for Per Unit Data
and actual number of assets)
For the years ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues $1,581 $3,259 $ 7,729 $ 22,061 $ 24,963
Total expenses 2,424 3,940 10,126 28,389 31,140
----- ------ -------- -------- ------
Income (loss) before
extraordinary items (843) (681) (2,397) (6,328) (6,177)
Extraordinary items (Note 1) 125 --- 119,954 (30) (40)
------ ------ -------- -------- --------
Net income (loss) $ (718) $ (681) $117,557 $ (6,358) $(6,217)
====== ====== ======== ======== =======
Cash distributed (Note 2) $ --- $ --- $ --- $ --- $ ---
Per limited partnership unit (Note 3):
Income (loss) before
extraordinary items $ (.28) $ (.23) $ (.74) $ (1.81) $(1.77)
Net income (loss) $ (.24) $ (.23) $ 36.52 $ (1.82) $(1.78)
Distributions (Note 2) $ --- $ --- $ --- $ --- $ ---
At December 31:
Projects held 1 5 6 30 30
Mortgage notes receivable held --- --- --- 1 1
(continued)
See accompanying notes.
</TABLE>
Page 7 of 52
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet Data
(in thousands)
December 31,
-------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Assets
<S> <C> <C> <C> <C> <C>
Net real estate investments $3,225 $7,493 $ 19,778 $123,701 $127,395
Notes receivable, net 316 14 --- 44,951 45,635
Cash and other assets 2,492 2,325 3,407 16,630 19,618
------ ------ -------- -------- --------
Total assets $6,033 $9,832 $ 23,185 $185,282 $192,648
====== ====== ======== ======== ========
Liabilities and Partners' Equity (Deficit)
Notes payable and
accrued interest $2,218 $5,069 $ 17,267 $295,380 $295,310
Other liabilities 52 155 629 2,170 3,248
------ ------ -------- -------- --------
Total liabilities 2,270 5,224 17,896 297,550 298,558
Total partners' equity (deficit) 3,763 4,608 5,289 (112,268)(105,910)
------ ------ -------- -------- --------
Total liabilities and partners'
equity (deficit) $6,033 $9,832 $ 23,185 $185,282 $192,648
====== ====== ======== ======== ========
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
1. The Partnership recognized extraordinary items from the Chapter 11
bankruptcy reorganization and early forgiveness of debt in 1994, 1993 and
1992.
2. The Partnership has suspended distributions since the second quarter of
1990.
3. In 1996, the per unit data is based on a 97.71% limited partnership
interest and 2,936,376 weighted average limited partner units outstanding.
In 1995 and 1994, the per unit data is based on a 97.73% limited
partnership interest and 2,961,853 and 3,146,492 weighted average limited
partner units outstanding, respectively. In 1993 and 1992, the per unit
data is based on a 98.01% limited partnership interest and 3,414,839
weighted average limited partner units outstanding.
The comparability of the Consolidated Financial Data reflected in the above
table has been affected by the reduction of total assets and related debt
resulting from: (i) the disposition of properties in 1996 and 1995; and (ii) the
bankruptcy reorganization and early extinguishment of debt in 1994.
Page 8 of 52
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
The predecessor partnership, Glenborough Limited, A California Limited
Partnership, commenced operations as of June 30, 1986, following its acquisition
of 66 real estate projects subject to non-recourse institutional debt secured by
the projects and certain other assets, subject to certain liabilities, most of
which related to the operations of the projects. Glenborough Limited acquired
the projects and other assets in exchange for Partnership Units, in an Exchange
Transaction involving 21 limited partnerships and one individual property owner.
At the end of 1993, there was a technical termination of the predecessor
partnership and Glenborough Partners commenced as successor to Glenborough
Limited (collectively, "the Partnership").
The following discussion addresses the Partnership's financial condition at
December 31, 1996 and its results of operations for the years ended December 31,
1996, 1995 and 1994. This information should be read in conjunction with the
Consolidated Financial Statements, notes thereto and other information contained
elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
In September, 1995, the Partnership invested $1,050,000 for a 25% limited
partnership interest in GRC Airport. GRC Airport owns a property consisting of
10.14 acres of improved land with a 216,780 square foot building located in San
Bruno, California. This property is leased to a single tenant which operates an
off-site long-term parking facility for the San Francisco International Airport.
Through January, 1997, the Partnership has received distributions from GRC
Airport totaling $128,000. Additionally, in January, 1997 the Partnership
received $500,000, from GRC Airport representing a return of capital upon the
refinancing of the property. An amendment to the lease was executed in November
1996 and calls for base monthly rent commencing in January 1997 of $96,000
compared to $ 83,000 under the prior lease terms.
Through three separate transactions in 1995 and 1996, including both the
contribution of and sale of its assets, the Partnership has acquired a total of
579,006 limited partnership units in Properties. In 1996, Properties made
distributions at an annual rate of $1.20 per limited partnership unit. These
distributions provide a greater cash flow to the Partnership than the
Partnership would have realized (after debt service payments) had it retained
Industrial, UCT and Bond. In calendar year 1996, the Partnership received a
total of $502,000 in distributions from Properties.
Effective June 30, 1996, the Partnership repurchased 50,954 units from its
limited partners at a price of $2.50 per unit, which due to the illiquidity of
the units, is a substantial discount from the estimated value of the units.
These units have been canceled, which provides each remaining unitholder a
slightly larger interest in the Partnership's assets, allowing all investors to
share in the benefits from this purchase. Management believes that the limited
partners opting to sell their ownership units back to the Partnership did so
based on a desire to dispose of illiquid investments and eliminate the need for
annual processing of tax related information.
Page 9 of 52
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In June and July, 1996, the Partnership acquired 131,347 units (representing a
13% interest) of Squaw, an affiliated partnership, for $352,000. Squaw's sole
asset is a promissory note receivable from the sale of its interest in a resort
in Squaw Valley, California. This sale of its interest in the resort provided
Squaw with: (i) $700,000 cash; (ii) a $2,300,000 promissory note bearing
interest at 8% per annum payable quarterly with $800,000 due in 1998 and
$1,500,000 due in 1999; and (iii) additional payment contingent upon the
consideration received in excess of a stated price related to any future sale of
the resort.
On August 1, 1996, the Partnership purchased a $546,370 promissory note and a
$1,350,000 NuView Union School District Credit for total consideration of
$300,000 from an unaffiliated partnership which was liquidated in the fourth
quarter of 1996. The promissory note is secured by a 199 acre parcel of land
located in Riverside, California, requires no accrual or payment of interest,
has a ten-year term and provides for a discounted payoff of $246,000 in the
first year, increasing at increments of $30,000 in each subsequent year through
the ten-year term. The School Credits represent prepaid property tax assessments
on specified parcels of land in the Tri-City area of San Bernardino, California.
In order for the specified parcels to be developed, the School Credits must
first be repaid to the Partnership.
On September 9, 1996, the Partnership paid-off the $2,200,000 debt secured by
the Rosemead property with proceeds from a $3,400,000 promissory note with a
revolving line of credit provision. As of December 31, 1996, $1,200,000 of the
total $3,400,000 remained undrawn on the line of credit. The new loan is secured
by the Partnership's interest in Properties, accrues interest at a rate of 1
percentage point over the lender's index rate and requires monthly interest only
payments. In January, 1997, the Partnership paid down $700,000 on this line of
credit from the distributions received from GRC Airport (see above). In
February, 1997, the Partnership drew the remaining $1,900,000 on this line of
credit to fund the purchase of partnership units in various affiliated and
non-affiliated partnerships. In March, 1997, the Partnership obtained approval
from the lender to increase its line of credit from $3,400,000 to $5,000,000.
In December, 1996, the Partnership purchased 931 limited partnership units or a
2.7% interest in Outlook VIII, an affiliated partnership for $163,000. At
December 31, 1996, Outlook VIII owned interests in three rental properties.
The Partnership's investments in real estate partnerships have either generated
positive cash flow for the Partnership or management believes have substantial
upside potential.
As of December 31, 1996, the only real estate directly owned by the Partnership
is a 129,500 square foot business center known as Rosemead Springs located in El
Monte, California, consisting of seven, one and two story buildings. In January
1997, the Partnership entered into a contract with an unaffiliated third party
for the sale of Rosemead Springs Business Center. The sale is expected to close
in April, 1997 for a purchase price of $2,675,000. The Partnership's management
can provide no guarantee that this sale will close under the terms specified or
under any other terms.
Management believes that the Partnership's $403,000 cash and cash equivalents
balance at December 31, 1996 plus its available line of credit (discussed above)
are sufficient to meet its operating cash requirements.
Page 10 of 52
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The Partnership suspended its distributions in 1990 in an attempt to increase
liquidity and improve its capital resources after paying for tenant and capital
improvements, lease commissions, refinancing costs, and increasing debt service
payments. As of December 31, 1996, distributions remain suspended, however in
March, 1997 the Partnership made a special cash distribution totaling $295,000
to help alleviate its partners' tax burden arising from their portion of the
undistributed taxable income of the Partnership in 1996.
Management continues to explore other opportunities where it may invest its
capital resources in order to maximize return to its investors.
RESULTS OF OPERATIONS
1996 versus 1995
Rental revenues decreased $2,404,000 or 81% during the year ended December 31,
1996 from the year ended December 31, 1995 due to: (i) the contribution of
Industrial and its four properties into Properties at December 31, 1995 and (ii)
the sale of Bond to Properties on September 24, 1996.
Income from investments in affiliated partnerships during the year ended
December 31, 1996 of $502,000 represents dividends received from its investment
in Properties.
Equity in earnings from investment in an affiliated partnership increased in
1996 as such investment was not acquired until September, 1995; and thus, 1995
represented only a partial year of operations.
Interest and other revenue increased $93,000 or 28% during the year ended
December 31, 1996 over the year ended December 31, 1995 largely due to the
recognition as other income of: (i) a non-refundable deposit received from the
potential buyer of Rosemead Springs after the sale fell through in 1996, and
(ii) a fee in 1996 for the dissolution of a purchase/sale agreement paid by the
owner of a property which the Partnership was negotiating to acquire.
Operating, general and administrative, depreciation and amortization, and
interest expenses decreased in 1996 compared to 1995 due to the contribution of
Industrial and sale of Bond to Properties.
At December 31, 1996, after several unsuccessful contracts to sell the property
for an amount that would recover its carrying value, management concluded that
the carrying value of the Partnership's investment in Rosemead Springs Business
Center and adjacent lots was in excess of its estimated fair value and a
provision for impairment of the investment in the amount of $1,090,000 was
recorded. The estimated fair value of the Rosemead property has been based on a
current offer for the property less selling costs.
The Partnership recognized $125,000 in gain from debt forgiveness after the
lender on the loan secured by the Bond office building forgave $125,000 in debt,
prior to the sale of Bond.
Page 11 of 52
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1995 versus 1994
Total revenue and expenses decreased in all areas except interest and other
revenue during 1995 compared to 1994 due to the transferring of all but eight of
the remaining properties back to Brazos (lender) during the first five months of
1994 in the bankruptcy reorganization. Two of the eight properties transferred
from Brazos were sold soon after in 1994.
Interest and other revenue increased during this same period, largely resulting
from the loan fees received upon the advances to unaffiliated partnerships and
from property tax refunds from successful property tax appeals on the
Partnership's current properties.
Page 12 of 52
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Item 8. Financial Statements and Supplementary Data.
GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Report of Independent Public Accountants...................................14
Financial Statements:
Consolidated Balance Sheets - December 3l, l996
and l995 .......................................................15
Consolidated Statements of Operations
for the years ended December 3l, l996, l995
and l994........................................................16
Consolidated Statements of Partners' Equity
(Deficit) for the years ended December 3l, l996,
l995 and l994...................................................17
Consolidated Statements of Cash Flows for the years
ended December 3l, l996, l995 and l994..........................18
Notes to the Consolidated Financial Statements ......................20
Financial Statement Schedule:
Schedule III - Consolidated Real Estate
Investments and Related Accumulated Depreciation
at December 31, 1996 and Note thereto...........................32
Financial Statement Exhibit:
Financial Statements of Significant Subsidiary.......................34
Other schedules are omitted either because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
Page 13 of 52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of GLENBOROUGH
PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996 and 1995,
and the related consolidated statements of operations, partners' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements and the schedule
referred to below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996,
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
listed in the index to consolidated financial statements and schedule is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic consolidated
financial statements. This information has been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
San Francisco, California
February 11, 1997 (except with regards
to the matter discussed in Note 2, as to
which the date is March 28, 1997)
Page 14 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands, except units outstanding)
Assets 1996 1995
- ------ -------- --------
Real estate investment:
Land $ --- $ 483
Building and improvements --- 2,778
------- -------
--- 3,261
Less:
Accumulated depreciation --- (75)
------- -------
Net real estate investment --- 3,186
Real estate held for sale - net 3,225 4,307
Other assets:
Cash and cash equivalents 403 812
Notes receivable and other assets 368 400
Deferred financing and other fees, net
of accumulated amortization of $234 and
$219 at December 31,1996 and 1995, respectively 33 64
Investments in affiliated partnerships 2,004 1,063
------- -------
Total assets $ 6,033 $ 9,832
======= =======
Liabilities and Partners' Equity
Notes payable $ 2,200 $ 5,035
Accrued interest 18 34
Accounts payable and accrued expenses 52 155
------- -------
Total liabilities 2,270 5,224
------- -------
Partners' equity
General partner 404 420
Limited partners, 2,910,899 and 2,961,853
units outstanding at December 31, 1996
and 1995, respectively 3,359 4,188
------- -------
Total partners' equity 3,763 4,608
------- -------
Total liabilities and partners' equity $ 6,033 $ 9,832
======= =======
The accompanying notes are an integral part of these consolidated statements.
Page 15 of 52
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per unit amounts)
1996 1995 1994
---- ---- ----
Revenue:
<S> <C> <C> <C>
Rental $ 563 $ 2,967 $ 5,821
Income from investments in
affiliated partnerships 502 --- ---
Equity in earnings (loss) of
affiliated partnerships 86 (45) ---
Interest and other 430 337 277
Gain on property sales --- --- 1,631
------- ------- --------
Total revenues 1,581 3,259 7,729
------- ------- --------
Expenses:
Operating, including $47, $132 and $445
paid to affiliates in 1996, 1995
and 1994, respectively 517 625 2,500
General and administrative, including
$217, $292 and $590 paid to affiliates
in 1996, 1995 and 1994, respectively 316 521 1,466
Depreciation and amortization 74 914 1,540
Interest expense 427 1,880 3,620
Provision for impairment of real estate
held for sale 1,090 --- ---
Loss on investment in unconsolidated
joint venture --- --- 1,000
------- ------- --------
Total expenses 2,424 3,940 10,126
------- ------- --------
Loss before extraordinary items (843) (681) (2,397)
Extraordinary items:
Gain from bankruptcy reorganization
and early extinguishment of debt --- --- 119,954
Gain on forgiveness of debt 125 --- ---
------- ------- --------
Net income (loss) $ (718) $ (681) $117,557
======= ======= ========
Loss before extraordinary items
per Limited Partnership Unit $ (.28) $ (.23) $ (.74)
Extraordinary items per Limited Partnership Unit .04 --- 37.26
------- ------- --------
Net income (loss) per Limited Partnership Unit $ (.24) $ (.23) $ 36.52
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 16 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity
(Deficit) For the years ended December 31, 1996, 1995 and 1994
(in thousands)
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
----------- --------- ----------
Balance, December 31, 1993 $ (2,234) $(110,034) $(112,268)
Net income 2,669 114,888 117,557
---------- --------- ---------
Balance, December 31, 1994 435 4,854 5,289
Net loss (15) (666) (681)
---------- --------- --------
Balance, December 31, 1995 420 4,188 4,608
Redemption of Units --- (127) (127)
Net loss (16) (702) (718)
---------- --------- --------
Balance, December 31, 1996 $ 404 $ 3,359 $ 3,763
========== ========= ========
The accompanying notes are an integral part of these consolidated statements.
Page 17 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows For
the years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (718) $ (681) $117,557
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 74 914 1,540
Amortization of loan fees, included in
interest expense 22 55 442
Gain on property sales --- --- (1,631)
Loss on investment in unconsolidated joint venture --- --- 1,000
(Income) loss on investments in
affiliated partnerships (86) 45 ---
Gain from bankruptcy reorganization
and early extinguishment of debt --- --- (119,954)
Gain on forgiveness of debt (125) --- ---
Provision for impairment of real estate held for sale 1,090 --- ---
Changes in certain assets and liabilities:
Increase in deferred financing and other fees (56) (77) (462)
Decrease in prepaid incentive and transaction fees
(paid to related party) --- --- 348
Decrease (increase) in other assets 131 270 (503)
Increase (decrease) in amount due from affiliate 195 (60) 60
Increase in accrued interest 1 --- 107
Decrease in accounts payable
and accrued expenses (56) (379) (554)
-------- ------- --------
Net cash provided by (used for) operating activities 472 87 (2,050)
-------- ------- --------
Cash flows from investing activities:
Distribution from unconsolidated joint venture 102 --- ---
Purchases of real estate --- --- (318)
Improvements to real estate (26) (108) (440)
Proceeds from sales of real estate --- --- 5,520
Investment in unconsolidated joint venture --- --- (1,000)
Increase in restricted cash --- --- (35)
Investment in affiliated partnership (515) (1,108) ---
Increase in notes receivable (302) (2,154) ---
Principal payment on note receivable --- 2,141 ---
-------- ------- --------
Net cash provided by (used for) investing activities (741) (1,229) 3,727
-------- ------- --------
</TABLE>
(continued)
Page 18 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows - continued
For the years ended December 31, 1996 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Cash flows from financing activities: 1996 1995 1994
----- ------ -----
<S> <C> <C> <C>
Proceeds from notes payable $ 2,200 $ 1,200 $ 912
Principal payments on notes payable (2,213) (1,850) (1,491)
Redemption of limited partnership units (127) --- ---
-------- ------- --------
Net cash used for financing activities (140) (650) (579)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents (409) (1,792) 1,098
Cash and cash equivalents (net of restricted cash):
Beginning of period 812 2,604 1,506
-------- ------- --------
End of period $ 403 $ 812 $ 2,604
======== ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 421 $ 1,898 $ 3,070
======== ======= ========
Purchase of existing notes receivable $ --- $(2,368) $ ---
======== ======= ========
Notes receivable paid off $ --- $ 2,368 $ ---
======== ======= ========
Supplemental disclosure of non cash transactions:
Purchase of real estate:
Increase in notes payable through purchase
of real estate $ --- $ --- $ 2,835
======== ======= ========
Bankruptcy reorganization and early extinguishment of debt:
Rollout and foreclosure of real estate, net $ --- $ --- $(99,867)
Extinguishment of debt --- --- 280,482
Other --- --- (60,661)
-------- ------- --------
Gain from bankruptcy reorganization
and early extinguishment of debt $ --- $ --- $119,954
======== ======= ========
Contribution of subsidiary partnership to an affiliated partnership:
Contribution of real estate, net $ 3,145 $(11,799) $ ---
Assumption of debt by acquiring
partnership (including accrued interest) (2,714) 11,583 ---
Other assets and liabilities 10 216 ---
-------- ------- -------------
Net investment in affiliated partnership $ 441 $ --- $ ---
======== ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 19 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Note 1. SUMMARY OF PARTNERSHIP AND SIGNIFICANT ACCOUNTING POLICIES
Glenborough Limited, A California Limited Partnership, and GOCO Realty Fund I, a
California Limited Partnership formerly known as Glenborough Operating Co. Ltd.,
A California Limited Partnership ("GOCO"), were formed in 1986 to acquire, own,
operate, develop and lease commercial and residential real estate. At the end of
1993, there was a technical termination of Glenborough Limited. Glenborough
Partners, A California Limited Partnership ("Partners"), commenced as successor
to Glenborough Limited. GOCO was succeeded in 1995 by GPA Ltd., A California
Limited Partnership ("GPA"). Partners and GPA operate as an economic unit and
unless specifically designated otherwise, are referred to collectively as the
"Partnership". The general partners of both Partners and GPA are Glenborough
Corporation, a California corporation formerly known as Glenborough Realty
Corporation, and Robert Batinovich (collectively "Glenborough" or "General
Partner"). Glenborough Corporation is the managing general partner of the
Partnership (the "Managing General Partner"). Glenborough Partners is the sole
limited partner of GPA.
In June, 1986, the Partnership acquired 66 real estate projects from 21 limited
partnerships and one individual (collectively, the "Predecessor Owners") in
exchange for 4,899,488 limited partnership units (the "Exchange Transaction").
On May 21, 1992, GOCO Realty Fund I filed a petition in the United States
Bankruptcy Court for the Northern District of California for reorganization
under Chapter 11 of the Federal Bankruptcy Code. On January 13, 1994, a plan of
reorganization was filed with the Bankruptcy court which became effective
January 24, 1994. Under the plan of reorganization, the Partnership exercised
its option to obtain releases from the lender on eight properties, while the
options on the remaining properties were not exercised and those properties were
transferred to the lender in satisfaction of the lender's claims.
As set forth under the plan of reorganization, two new subsidiary partnerships
were created in February, 1994: (i) GPA West, L.P. ("West"), and (ii) GPA
Industrial, L.P. ("Industrial") to facilitate the Partnership's holding and
transfer of real property. A third subsidiary partnership, GPA Bond, L.P.
("Bond") was created in December, 1994 to hold and operate a property purchased
on December 29, 1994. The general partners of each of these partnerships were
Glenborough Corporation and Robert Batinovich while the sole limited partner of
each was GPA.
Through December 31, 1995, all three partnerships were subsidiaries of GPA. On
December 31, 1995, the Partnership contributed Industrial and its four
properties to an affiliated partnership, Glenborough Properties, L.P.
("Properties"), the operating partnership of Glenborough Realty Trust
Incorporated ("GLB"), a real estate investment trust managed by affiliates of
the Partnership, in exchange for 542,333 limited partnership units in
Properties. The debt securing the
Page 20 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
properties owned by Industrial was assumed by the acquiring partnership. As a
result of the contribution, Industrial ceased to be a subsidiary of the
Partnership effective December 31, 1995.
On July 15, 1996, the Partnership contributed its 45% non-voting limited partner
interest in an affiliated partnership, University Club Tower ("UCT") (see Note
5), to Properties in exchange for 10,606 limited partnership units in
Properties.
On September 24, 1996, the partners of Bond sold their respective ownership
interests in Bond to Properties and GRT Corporation, a wholly owned subsidiary
of GLB. Properties issued 26,067 limited partnership units and paid-off
approximately $2,800,000 of indebtedness secured by the Bond property in
exchange for the interests in Bond. As of September 24, 1996, as a result of the
sale, Bond is no longer a subsidiary of the Partnership.
As a result of the transactions described, the Partnership's real estate
holdings as of December 31, 1996 has been reduced to one property which is
currently held for sale.
Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash
flow from operations, (ii) meet its debt obligations, (iii) provide
distributions either from operations or the ultimate disposition of the
Partnership's properties or (iv) continue as a going concern, may be impacted by
changes in interest rates, property values, geographic economic conditions, or
the entry of other competitors into the market. The accompanying financial
statements do not provide for adjustments with regard to these uncertainties.
Investments in Real Estate - In March, 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". The Partnership adopted SFAS 121 in the fourth quarter of 1995.
SFAS 121 requires that an evaluation of an individual property for possible
impairment be performed whenever events or changes in circumstances indicate
that an impairment may have occurred and that long-lived assets to be disposed
of be carried at the
Page 21 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
lower of carrying amount or fair value. There was no impact on the financial
position or results of operations of the Partnership from the initial adoption
of SFAS 121.
Rental Property - Rental properties are stated at cost unless events or
circumstances indicate that cost cannot be recovered, in which case carrying
value of the property is reduced to estimated fair value. Estimated fair value:
(i) is based upon the Partnership's plans for continued operations of each
property; (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, and (iii) does not purport, for a specific
property, to represent the current sales price that the Partnership could obtain
from third parties for such property. The fulfillment of the Partnership's plans
related to each of its properties is dependent upon, among other things, the
presence of economic conditions which will enable the 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
Partnership's properties could be materially different than current
expectations.
The rental property which is reflected on the Partnership's December 31, 1995
balance sheet was sold on September 24, 1996.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Real Estate Held for Sale - Rental property held for sale is stated at the lower
of cost or estimated fair value. Estimated fair value is computed using the
estimated fair market sales price of the rental property. Once a rental property
is classified as "held for sale", depreciation of the asset is ceased.
Cash and Cash Equivalents - The Partnership considers certificates of deposit
and money market funds with original maturities of less than ninety days to be
cash equivalents.
Deferred Financing Costs and Other Fees - Deferred financing costs are costs
associated with obtaining financing and include refinancing and certain
transaction fees. These deferred financing fees are amortized over the life of
the related loan. Other fees consist primarily of deferred lease commissions
which are amortized over the initial fixed term of the related lease agreement.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Allocation of Net Income (Loss) - In 1994 and 1995, pursuant to the partnership
agreements of Partners and GPA, the general partners and limited partners had
ownership interests of 2.27% and 97.73%, respectively. This percentage is
derived from the general partners' 1% direct interest in
Page 22 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
GPA and a 1.27% indirect interest through their 1.28% general partner interest
in Partners' 99% interest in GPA.
As a result of an offer made to all of the Partnership's investors in April,
1996, the Partnership paid $127,000, a substantial discount from the estimated
value of the units, to repurchase 50,954 limited partnership units from
investors. These units were canceled with an effective date of June 30, 1996.
The reduction in outstanding limited partnership units resulted in revised
ownership interests of 2.29% and 97.71% by the general partners and limited
partners, respectively.
Net Income (Loss) Per Limited Partnership Unit - Net income (loss) per limited
partnership unit is based on the limited partners' allocation of net income
(loss) divided by the weighted average limited partner units outstanding. In
1996, 1995 and 1994, the weighted average limited partner units outstanding was
2,936,376, 2,961,853 and 3,146,492, respectively.
Income Taxes - No provision for income taxes is included in the accompanying
consolidated financial statements, as the Partnership's results of operations
are allocated to the partners for inclusion in their respective income tax
returns. Net income (loss) and partners' equity (deficit) for financial
reporting purposes will differ from the Partnership income tax return because
accounting methods used for certain items differ for financial reporting and
income tax purposes.
Consolidation - The accompanying consolidated financial statements include the
accounts of Partners and its majority owned partnerships GPA, West, Bond
(through September 24, 1996), and Industrial (through December 31, 1995). All
significant intercompany balances and transactions have been eliminated in the
consolidation.
Reclassifications - Certain 1995 and 1994 balances have been reclassified to
conform with the current year presentation.
Note 2. RELATED PARTY TRANSACTIONS
As discussed in Note 1, the general partners of Partners and GPA and its
subsidiaries are Glenborough Corporation and Robert Batinovich. Glenborough
Corporation is the managing general partner of the Partnership and has the
exclusive management and control of the business of the Partnership.
Fees to Affiliates
Glenborough Corporation and its affiliates are entitled to receive expense
reimbursements, fees, and other compensation for services provided to the
Partnership as follows:
Property management fees - 3% to 5% of gross property receipts collected
Page 23 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Incentive fee - .5% of the fair value of assets to the extent earnings exceed
$1.50 per unit Transaction fee - 2% of qualifying transaction price Refinancing
fee - 1% of qualifying net loan refinancing proceeds
Fees and reimbursable expenses paid to Glenborough and included in the
Partnership's operating expenses for the years ended December 31, 1996, 1995 and
1994 are as follows (in thousands):
1996 1995 1994
----- ------ ------
Property management fees $ 30 $ 106 $ 239
Property management salaries (reimbursed) 17 26 206
----- ------ ------
Total property management fees and salaries $ 47 $ 132 $ 445
===== ====== ======
Leasing fees $ --- $ --- $ 50
===== ====== ======
The Partnership also reimburses Glenborough for expenses incurred for services
provided to the Partnership such as accounting, investor services, data
processing, legal and administrative services, and the actual costs of goods and
materials used for or by the Partnership. Glenborough was reimbursed $217,000,
$292,000 and $590,000 for such expenses in 1996, 1995 and 1994, respectively.
Loss on Investment in Unconsolidated Joint Venture
In order for the Partnership to obtain free and clear title from Brazos, the
previous mortgage holder on the properties known as the J.I. Case and Navistar
buildings, the Partnership made a $1,000,000 principal paydown on a note payable
on behalf of an affiliated partnership. In December, 1994, the Partnership and
the affiliated partnership, UCT, agreed that the $1,000,000 paid by the
Partnership and any subsequent payments on behalf of UCT would be an investment
in UCT. The $1,000,000 investment was made possible after Glenborough waived a
portion of its potential transaction fees due from the Partnership for the
disposition of properties in 1994.
At December 31, 1994, the General Partner concluded that there was no equity in
UCT, therefore the $1,000,000 invested in UCT was recognized as a loss on
investment in unconsolidated joint venture in 1994.
Note receivable from affiliate
On March 28, 1995, West purchased a $1,908,000 mortgage note receivable from
California Federal Bank, secured by a first deed of trust on a property owned by
an affiliated partnership. This transaction was funded from the proceeds of a
1994 property sale. This note was repaid in May, 1995.
Page 24 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Note 3. REAL ESTATE HELD FOR SALE
At December 31, 1996 the Partnership has a 129,500 square foot office project in
El Monte, California, known as Rosemead Springs which is held for sale. In prior
years, the Partnership received offers which supported its carrying value of
approximately $4,315,000. At December 31, 1996, after unsuccessfully closing on
offers which would recover the property's carrying value, management concluded
that the carrying value of the Partnership's investment in Rosemead Springs
Business Center and adjacent lots was in excess of its estimated fair value and
a provision for impairment of the investment in the amount of $1,090,000 was
recorded. The estimated fair value of the Rosemead property has been based on a
current purchase offer for the property less selling costs.
Note 4. NOTE RECEIVABLE AND OTHER ASSETS
On August 1, 1996, the Partnership purchased a $546,370 promissory note and a
$1,350,000 credit with the NuView Union School District ("School Credits") for
total consideration of $300,000 from an unaffiliated partnership which was
liquidating. The promissory note is secured by a 199 acre parcel of land located
in Riverside, California, requires no accrual or payment of interest, has a ten
year term and provides for a discounted payoff of $246,000 in the first year
increasing at increments of $30,000 in each subsequent year through the ten year
term. The School Credits represent prepaid property tax assessments on specified
parcels of land in the Tri-City area of San Bernardino, California. In order for
the specified parcels to be developed, the School Credits must first be repaid
to the Partnership. At December 31, 1996, these assets are recorded at cost of
$300,000 and are included in notes receivable and other assets.
At December 31, 1995, the Partnership had incurred $3,000 in costs and $75,000
in purchase deposits for the potential acquisition of a lodging property.
Through May, 1996, costs had increased to $35,000 and purchase deposits to
$500,000. However, in May, 1996, the Partnership's offer was outbid in a
bankruptcy court action procedure and the costs incurred and the $500,000 in
purchase deposits plus accrued interest was refunded to the Partnership.
Additionally, in June, 1996, the Partnership received a net breakup fee of
$52,000 which is included in other income on the 1996 statement of operations.
Note 5. INVESTMENT IN AFFILIATED PARTNERSHIPS
GLENBOROUGH PROPERTIES:
As stated in Note 1, on December 31, 1995, the Partnership contributed
Industrial and its four properties including related debt, to an affiliated
partnership, Properties, in exchange for 542,333 limited partnership units. The
net assets contributed to the operating partnership had a net carrying value of
zero.
Page 25 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
On July 15, 1996, the Partnership contributed its 45% non-voting limited
partnership interest in UCT (see below) to Properties, in exchange for 10,606
limited partnership units in Properties. The net investment contributed to
Properties had a net carrying value of zero.
On September 24, 1996, the Partnership sold its ownership interest in Bond to
Properties in exchange for 26,067 limited partnership units, giving the
Partnership a cumulative total of 579,006 units. The net assets sold to
Properties had a net carrying value of $441,000. In September, 1996, Heller
Financial Inc., the lender on the loan secured by the Bond Street Building
forgave $125,000 in debt, prior to the sale of Bond to Properties, discussed
above. As a result, the Partnership recognized $125,000 of extraordinary gain
from forgiveness of debt.
Since the Partnership holds only a 7.38% ownership interest in Properties at
December 31, 1996, the Partnership accounts for this investment using the cost
method. The Partnership's investment in Properties at December 31, 1996 is
$441,000 which represents the equity in Bond at the time of sale.
Properties paid $502,000 in distributions to the Partnership in 1996. A fourth
quarter 1996 distribution of $185,000 was declared by Properties' board of
directors in January, 1997 and paid to the Partnership in March, 1997.
GLENCO SQUAW ASSOCIATES:
In 1996, the Partnership purchased 131,347 units (13% of the total units) in
Glenco Squaw Associates ("Squaw") from investors for $352,000. Squaw is a
partnership whose sole asset is a promissory note from the sale of its interest
in a resort in Squaw Valley, California. Since the Partnership owns only a 13%
interest in Squaw, the Partnership accounts for the investment in Squaw using
the cost method.
OUTLOOK INCOME/GROWTH FUND VIII:
In December, 1996, the Partnership purchased 931 limited partnership units
(equal to a 2.7% interest) in Outlook Income/Growth Fund VIII, a California
Limited Partnership ("Outlook VIII"), for $163,000. At December 31, 1996,
Outlook VIII owned interests in three properties: (i) a 71,000 square foot
retail shopping center in San Jose, California; (ii) a 96,000 square foot retail
shopping center in San Marcos, Texas, which is currently held for sale; and
(iii) a 50% interest in a 342-unit apartment complex in Huntington Beach,
California. The Partnership accounts for this investment in Outlook VIII using
the cost method.
GRC AIRPORT ASSOCIATES:
In September, 1995, the Partnership made a $1,050,000 investment to acquire 25%
of an unconsolidated joint venture, GRC Airport Associates ("GRC Airport"). The
sole real estate asset of GRC Airport is a 216,000 square foot industrial
warehouse in San Bruno, California purchased
Page 26 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
in October, 1995 for $9,225,000. The Partnership accounts for its investment in
GRC Airport using the equity method.
In 1996, the Partnership received distributions totaling $102,000 from GRC
Airport. A fourth quarter 1996 distribution to the Partnership of $26,500 plus a
return of capital of $500,000 was declared and paid to the Partnership in
January, 1997.
Summary condensed balance sheet information as of December 31, 1996, and the
condensed statement of operations for the year then ended are as follows (in
thousands):
Balance Sheet as of December 31, 1996
Investment in real estate, net $ 9,304
Other assets 278
-------
Total assets $ 9,582
=======
Note payable $ 5,180
Other liabilities 204
-------
Total liabilities 5,384
Partners' equity 4,198
Total liabilities and partners' equity $ 9,582
=======
Statement of Operations
For the Year Ended December 31, 1996
Revenue $ 1,242
Expenses 911
-------
Net income $ 331
=======
Page 27 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Note 6. NOTES PAYABLE
Notes payable as of the stated balance sheet dates was as follows (in
thousands):
1996 1995
---- ----
A $3,400 line of credit with Mid-Peninsula
Bank, secured by the Partnership's interest
in Glenborough Properties. The loan requires
monthly interest only payments, accruing at a
rate of 1 percentage point over the lender's
index rate (effective rate of 9.25% at
December 31, 1996), and matures September 8,
1997. $ 2,200 $ ---
Note payable due Mid-Peninsula Bank, secured
by first deed of trust on Rosemead Springs
and the Partnership's investment in GRC
Airport. The loan originally matured on April
15, 1996, but was extended to coincide with
the approval of a $3,400 line of credit. This
loan was paid off in September, 1996. -- 2,200
Note payable due Heller Financial Inc.,
secured by first deed of trust on the Bond
Street Building. The loan required monthly
interest only payments at three hundred fifty
(350) basis points plus the three month
"Libor" rate and matured on December 31,
1999. The loan was assumed and paid off by
Properties upon its acquisition of the Bond
property on September 24, 1996. -- 2,835
------- ------
Total notes payable $ 2,200 $ 5,035
======= =======
Note 7. OPTION PLAN
The Partnership's Option Plan provided for the grant of nonstatutory options to
purchase units to the General Partners and the officers, directors, employees
and certain consultants of the Managing General Partners, the property manager
and its affiliates. Individuals who rendered services to Glenborough or its
affiliates as an independent contractor may be considered an "employee" for
purposes of the Option Plan, provided services are rendered on a continuing
basis.
Page 28 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
In 1995, all of the options were terminated except those held by a former
director to purchase 19,000 Partnership units at $6.50 per unit. These
outstanding options remain exercisable through the year 2000.
Note 8. INCOME TAXES
Federal and state income tax laws provide that the income or loss of the
Partnership is reportable by the partners in their respective income tax
returns. Accordingly, no provisions for such taxes have been made in the
accompanying financial statements. The Partnership reports certain transactions
differently for tax and financial reporting purposes.
The Partnership's tax returns, its qualification as a partnership for federal
income tax purposes, and the amount of taxable income or loss are subject to
examination by the federal and state taxing authorities. If such examinations
result in changes to the Partnership's taxable income or loss, the tax liability
of the partners could change accordingly.
For federal income tax reporting, (i) revenues and expenses are recognized on an
accrual basis, i.e. lease income is recognized under the terms of the lease
contract, (ii) fees paid for services related to seeking and evaluating
potential real estate investments are deducted if and when the plans of
acquisition are subsequently abandoned, (iii) depreciation is provided for under
accelerated and modified accelerated cost recovery methods, (iv) certain
organizational costs classified as syndication costs for tax purposes are not
deductible, and (v) bad debts are deducted and written off when deemed
uncollectible.
Page 29 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
The following is a reconciliation for the years ended December 31, 1996, 1995
and 1994, of the net income (loss) for financial reporting purposes to the
estimated taxable income (loss) determined in accordance with accounting
practices used in preparation of federal income tax returns (in thousands):
1996 1995 1994
----- ------ -----
Net income (loss) per financial statements $ (718) $ (681) $117,557
Adjustments:
Loss from investment in affiliated
partnerships (54) (1,000) ---
Depreciation (45) 392 1,132
Provision for impairment of investment
in unconsolidated joint venture 1,090 --- ---
Loan fee amortization --- --- (2,626)
Gain on disposition of real estate --- --- (95,188)
Loss on investment in unconsolidated
joint venture --- --- 1,000
Other (116) (388) (343)
------- ------- --------
Partners' income (loss) for
federal income tax purposes $ 157 $(1,677) $ 21,532
======= ======= ========
The following is a reconciliation as of December 31, 1996 and 1995 of partners'
equity (deficit) for financial reporting purposes to estimated partners' equity
(deficit) for federal income tax purposes (in thousands):
1996 1995
----- -----
Partners' equity per financial statements $ 3,763 $ 4,608
Adjustments:
Real estate investments (14,500) (14,500)
Depreciation 5,801 5,846
Cumulative provision for impairment
of investment in real estate 1,090 ---
Unit redemptions (35,501) (35,501)
Other (183) ---
-------- ---------
Partners' equity (deficit) for
federal income tax purposes $ (39,530) $ (39,547)
========= =========
Page 30 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Note 9. SUBSEQUENT EVENTS
In January, 1997, the Partnership paid down $700,000 on the Mid-Peninsula Bank
line of credit. The funds used to pay down the line of credit came from the
January, 1997 distributions from GRC Airport of $526,500 and cash reserves as of
December 31, 1996. In February, 1997, the Partnership drew the remaining
$1,900,000 available on the line of credit to fund the purchase of partnership
units in various affiliated and non-affiliated real estate partnerships. On
March 6, 1997, the Partnership obtained approval from the lender to increase its
line of credit from $3,400,000 to $5,000,000 and subsequently has drawn an
additional $280,000 to fund a special distribution to its partners.
Page 31 of 52
<PAGE>
GLENBOROUGH PARTNERS
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------- ------------ ------------------ ----------------
Net Costs
Capitalized
(Reduced)
Initial Subsequent
Cost to to Acqui-
Partnership sition
---------------- ---------------
Properties Encumbrances Land Buildings Improvements
- ------------ ------------ ----- ---------- ----------------
Rosemead Springs
Business Center,
<S> <C> <C> <C> <C>
El Monte, CA (1) $ 0 $ 2,874 $ 9,792 $ (6,514)
Note (1): Rosemead Springs is classified as real estate held for sale at
December 31, 1996.
</TABLE>
<TABLE>
<CAPTION>
Column A Column E Column F Column G Column H Column I
- ------------- --------------------------- ----------- ----------- -------- --------------
Life on Which
Depreciation
Gross Amount in the Latest
Carried at Accumulated Date of Date Income Statement
December 31, 1996 Depreciation Construction Acquired Is Computed
---------------------------- ------------- ------------ -------- --------------
Buildings
and
Properties Land Improv Totals
- ------------ ----- -------- ------
Rosemead Springs
Business Center,
<S> <C> <C> <C> <C> <C> <C> <C>
El Monte, CA (1) $ 1,309 $ 4,843 $ 6,152 $ 2,927 1980 7/15/83 50 years
</TABLE>
See accompanying reconciliations
Page 32 of 52
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
RECONCILIATION OF REAL ESTATE COST
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
NOTE TO SCHEDULE III - REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION
1996 1995 1994
------ ------ -----
Balance, beginning of period $ 3,261 $ 18,121 $ 166,576
Real estate addition --- --- 3,153
Improvements 18 108 440
Disposition of real estate (3,279) (14,968) (144,814)
Real estate held for sale --- --- (7,234)
---------- --------- ---------
Balance, end of period $ --- $ 3,261 $ 18,121
========== ========= =========
RECONCILIATION OF ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1996 1995 1994
------ ------ -----
Balance, beginning of period $ 75 $ 2,901 $ 42,875
Depreciation expense 59 343 1,467
Disposition of real estate (134) (3,169) (38,765)
Real estate held for sale --- --- (2,676)
---------- --------- --------
Balance, end of period $ --- $ 75 $ 2,901
========== ========= ========
The aggregate cost basis of real estate owned at December 31, 1996, for federal
income tax purposes was approximately $ 3,304.
Page 33 of 52
<PAGE>
Exhibit: Financial Statements of Significant Subsidiary
GRC AIRPORT ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
Report of Independent Public Accountants..................................35
Financial Statements:
Balance Sheet - December 3l, l996 ..................................36
Statement of Operations
for the year ended December 3l, l996...........................37
Statement of Partners' Equity
for the year ended December 3l, l996...........................38
Statement of Cash Flows for the year
ended December 3l, l996........................................39
Notes to the Financial Statements ..................................40
Financial Statement Schedule:
Schedule III - Real Estate
Investments and Related Accumulated Depreciation at
December 31, 1996 and Note thereto..............................43
Other schedules are omitted either because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
Page 34 of 52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying balance sheet of GRC AIRPORT ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996, and the related
statements of operations, partners' equity and cash flows for the year then
ended. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GRC AIRPORT ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule listed in the index to
financial statements and schedule is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
San Francisco, California
February 11, 1997
Page 35 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheet
December 31, 1996
(in thousands, except units outstanding)
Assets
Real estate investment:
Land $ 1,711
Building and improvements 7,835
------------
9,546
Less:
Accumulated depreciation (242)
------------
Net real estate investment 9,304
Other assets:
Cash 78
Accounts receivable 69
Deferred financing and other fees,
net of accumulated amortization of $23 74
Prepaid expenses 57
-----------
Total assets $ 9,582
===========
Liabilities and Partners' Equity
Liabilities:
Note payable $ 5,180
Accrued interest 39
Accounts payable and accrued expenses 165
----------
Total liabilities 5,384
Partners' equity
General partner 3
Limited partners, 8 limited partnership
units outstanding 4,195
----------
Total partners' equity 4,198
----------
Total liabilities and partners' equity $ 9,582
==========
The accompanying notes are an integral part of these statements.
Page 36 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
Statement of Operations
For the year ended December 31, 1996
(in thousands)
Revenue:
Rental $ 1,227
Interest 15
-----------
Total revenue 1,242
Expenses:
Operating, including $60, paid to affiliates 191
General and administrative 14
Depreciation and amortization 202
Interest expense 504
-----------
Total expenses 911
-----------
Net income $ 331
===========
Net income per Limited Partnership Unit $ 41
===========
The accompanying notes are an integral part of these statements.
Page 37 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
Statement of Partners' Equity
For the year ended December 31, 1996
(in thousands)
Total
General Limited Partners'
Partner Partners Equity
------- -------- --------
Balance, December 31, 1995 $ --- $ 3,867 $ 3,867
Net income 3 328 331
------- -------- --------
Balance, December 31, 1996 $ 3 $ 4,195 $ 4,198
======= ======== ========
The accompanying notes are an integral part of these statements.
Page 38 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
Statement of Cash Flows
For the year ended December 31, 1996
(in thousands)
Cash flows from operating activities:
Net income $ 331
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 202
Amortization of loan fees, included in interest expense 17
Changes in certain assets and liabilities:
Increase in account receivable (29)
Increase in deferred financing and other fees (36)
Increase in prepaid expenses (32)
Decrease in accrued interest (13)
--------
Decrease in accounts payable and accrued expenses (26)
--------
Net cash provided by operating activities 414
--------
Cash flows from investing activities:
Improvements to real estate (65)
--------
Net cash used for investing activities (65)
--------
Cash flows from financing activities:
Principal payments on notes payable (773)
Cash contribution by limited partners 525
Cash distribution (381)
--------
Net cash used for financing activities (629)
---------
Net decrease in cash (280)
Cash:
Beginning of period 358
--------
End of period $ 78
========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 500
=======
The accompanying notes are an integral part of these statements.
Page 39 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1996
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
GRC Airport Associates, A California Limited Partnership, ("GRC Airport") was
formed on August 31, 1995, to acquire, operate, lease and sell a parcel of land
comprising approximately 10.14 acres with an approximately 216,780 square foot
building in San Bruno, California ("Skypark"). GRC Airport has issued eight
limited partnership units ("Units"). The general partner is GRC Airport GP
Incorporated, a California corporation whose president is Robert Batinovich.
Allocation of distributions, net income and net loss are made pursuant to the
terms of the Agreement of Limited Partnership. Distributions are allocated first
ninety-nine percent (99%) to the GRC Airport limited partners and one percent
(1%) to the general partner until the GRC Airport limited partners receive its
invested capital plus a cumulative, but non-compounded annual return of twelve
percent (12%) on the GRC Airport limited partners adjusted invested capital;
thereafter eighty-five percent (85%) to the GRC Airport limited partners and
fifteen percent (15%) to the general partner. Generally, net income is allocated
to the partners to the extent of any deficit in their capital accounts then by
the same method distributions would be allocated to the partners. Net loss is
allocated ninety-nine percent (99%) to the GRC Airport limited partners (only to
the extent that the GRC Airport limited partners capital accounts are not
reduced below zero) with all other net loss allocated to the general partner.
Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash
flow from operations, (ii) meet its debt obligations, (iii) provide
distributions either from operations or the ultimate disposition of the
Partnership's properties or (iv) continue as a going concern, may be impacted by
changes in interest rates, property values, geographic economic conditions, or
the entry of other competitors into the market. The accompanying financial
statements do not provide for adjustments with regard to these uncertainties.
Investment in Real Estate - In March, 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". GRC Airport adopted SFAS 121 in the fourth quarter
Page 40 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1996
of 1995. SFAS 121 requires that an evaluation of an individual property for
possible impairment be performed whenever events or changes in circumstances
indicated that an impairment may have occurred and that long-lived assets to be
disposed of be carried at the lower of carrying amount or fair value. There was
no impact on the financial position or results of operations of GRC Airport from
the initial adoption of SFAS 121.
Rental Property - Rental property is stated at cost unless events or
circumstances indicate that cost cannot be recovered, in which case carrying
value of the property is reduced to estimated fair value. Estimated fair value:
(i) is based upon GRC Airport's plans for continued operations of the property;
(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, and (iii) does not purport, for a specific property, to
represent the current sales price that GRC Airport could obtain from third
parties for such property. The fulfillment of GRC Airport's plans related to its
property is dependent upon, among other things, the presence of economic
conditions which will enable GRC Airport to continue to hold and operate the
property prior to its 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 GRC Airport's property could be materially
different than current expectations.
Cash and Cash Equivalents - Certificates of deposit and money market funds with
original maturities of less than ninety days are considered to be cash
equivalents.
Deferred Financing Costs and Other Fees - Deferred financing costs are costs
associated with obtaining financing and include refinancing and certain
transaction fees. These deferred financing fees are amortized over the life of
the related loan. Other fees consist of organizational costs which are amortized
over five years.
Rental Income - Rental income is recognized as earned over the life of the
respective lease.
Net Income (Loss) Per Limited Partnership Unit - Net income (loss) per limited
partnership unit is based on the limited partners' allocation on net income
(loss) divided by the weighted average limited partner units outstanding.
Income Taxes - No provision for income taxes is included in the accompanying
financial statements, as GRC Airport's results of operations are allocated to
the partners for inclusion in their respective income tax returns. Net income
(loss) and partners' equity for financial reporting purposes will differ from
the GRC Airport income tax return because accounting methods used for certain
items differ for financial reporting and income tax purposes.
Note 2. RELATED PARTY TRANSACTIONS
GRC Airport GP Incorporated and its affiliates are entitled to receive expense
reimbursements, fees, and other compensation for services provided to the
Partnership as follows:
Property management fees - 5% of gross partnership revenue collected
Acquisition fee - $184,500 payable only to the extent that distributions paid to
GRC Airport's limited partners are at a rate of 10% of the limited
partners' adjusted invested capital, without depleting cash reserves below
$50,000.
Page 41 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1996
Refinancing fee - 1% of qualifying net loan refinancing proceeds
Property management fees of $60,000 were paid to an affiliate of the general
partner in 1996 and are included in GRC Airport's operating expenses for the
year ended December 31, 1996.
Note 3. NOTE PAYABLE
At December 31, 1996, GRC Airport had a $5,180,000 note payable due to Amresco
Management, Inc., secured by the Skypark property. The loan was refinanced in
January, 1997 with a $7,500,000 loan, secured by the Skypark property. The new
loan accrues interest at 8.774% fixed for ten years (225 basis points above the
10 year Treasury Yield) and requires $61,783 in monthly principal and interest
payments. The loan matures on January 7, 2007.
Note 4. TENANT LEASE
GRC Airport's sole real estate property has one operating lease at December 31,
1996 that expires October 31, 2016. Future minimum rents on the non-cancelable
lease as of December 31, 1996 is as follows (in thousands):
1997 $ 1,150
1998 1,207
1999 1,268
2000 1,331
2001 1,398
Thereafter 20,847
-------------
Total $ 27,201
=============
Note 5. TAXABLE INCOME
GRC Airport's tax returns, the qualification of GRC Airport as a partnership for
federal income tax purposes, and the amount of income or loss are subject to
examination by federal and state taxing authorities. If such examinations result
in changes to GRC Airport's taxable income or loss, the tax liability of the
partners could change accordingly.
Note 6. SUBSEQUENT EVENT
In January, 1997, GRC Airport made a fourth quarter 1996 distribution of
$110,000 and a return of capital of $2,000,000 was declared and paid to its
partners.
Page 42 of 52
<PAGE>
GRC AIRPORT ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------- -------------- -------------------- --------------
Net Costs
Capitalized
Initial Subsequent
Cost to to Aqui-
Partnership sition
------------------ ---------------
Properties Encumbrances Land Buildings Improvements
- ------------ ------------ ----- ---------- ----------------
Skypark,
<S> <C> <C> <C> <C>
San Bruno, CA $ 5,180 $ 1,711 $ 7,514 $ 321
</TABLE>
<TABLE>
<CAPTION>
Column A Column E Column F Column G Column H Column I
- ------------- ------------------------------ ------------- ------------ -------- -------------
Life on Which
Depreciation
in the Latest
Gross Amount Income
Carried at Accumulated Date of Date Statement
December 31, 1996 Depreciation Construction Acquired Is Computed
----------------------------- ------------ ------------ -------- -------------
Buildings
and
Properties Land Improv Totals
- ------------ ----- -------- -----
Skypark,
<S> <C> <C> <C> <C> <C> <C> <C>
San Bruno, CA $ 1,711 $ 7,835 $ 9,546 $ 242 N/A 10/10/95 39 years
</TABLE>
See accompanying reconciliations
Page 43 of 52
<PAGE>
GRC AIRPORT ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
RECONCILIATION OF REAL ESTATE COST
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands)
NOTE TO SCHEDULE III - REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION
Balance, beginning of period $ 9,481
Improvements 65
---------
Balance, end of period $ 9,546
=========
RECONCILIATION OF ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands)
Balance, beginning of period $ 41
Depreciation expense 201
--------
Balance, end of period $ 242
========
The aggregate cost basis of real estate owned at December 31, 1996, for federal
income tax purposes was approximately $ 9,546.
Page 44 of 52
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Page 45 of 52
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
General Partners
The Partnership has no directors or executive officers. The general partners of
the Partnership are Glenborough Corporation ("GC", the "Managing General
Partner", formerly known as Glenborough Realty Corporation) and Robert
Batinovich.
Robert Batinovich was the President, Chief Executive Officer and Chairman of
Glenborough Corporation from its inception in 1987 until his resignation
effective January 10, 1996. On August 31, 1994, Mr. Batinovich was elected
Chairman, President and Chief Executive Officer of Glenborough Realty Trust
Incorporated ("GLB"), a newly created Real Estate Investment Trust, which began
trading on the New York Stock Exchange on January 31, 1996. He was a member of
the Public Utilities Commission from 1975 to January 1979 and served as it
President from January 1977 to January 1979. He is a member of the Board of
Directors of Farr Company, a publicly held company that manufactures industrial
filters. He has extensive real estate investment experience. Mr. Batinovich's
business background includes managing and owning manufacturing, vending and
service companies and a national bank.
For informational purposes, the following are the names and a brief description
of the background and experience of each of the controlling persons, directors
and executive officers of the Managing General Partner as of February 28, 1997:
Name Age Position
Andrew Batinovich 38 Chief Executive Officer and
Chairman of the Board
Robert Bailey 35 Secretary and Corporate Counsel
Sandra Boyle 48 President and
Chief Operating Officer
June Gardner 45 Director
Terri Garnick 36 Chief Financial Officer
Judy Henrich 51 Vice President
Wallace A. Krone Jr. 65 Director
Page 46 of 52
<PAGE>
Andrew Batinovich was elected Chairman of the Board and Chief Executive Officer
of GC on January 10, 1996. He has been employed by GC since 1983, and had
functioned since 1987 as Chief Operating Officer and Chief Financial Officer.
Mr. Batinovich also serves as Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of GLB. He holds a California real estate
broker's license and is a Member of the National Advisory Council of BOMA
International. He received his B.A. in International Finance from the American
University of Paris. Prior to joining Glenborough, Mr. Batinovich was a lending
officer with the International Banking Group and the Corporate Real Estate
Division of Security Pacific National Bank.
Robert Bailey joined GC in 1989 as Associate Counsel and was elected Secretary
of GC on May 15, 1995. He is responsible for all landlord/tenant documentation,
tenant litigation, corporate and partnership matters and employment matters. In
1984, he received his Bachelor of Arts degree from the University of California
at Santa Barbara and his Juris Doctor degree from Vermont Law School in 1987.
From 1987 to 1989, Mr. Bailey was an associate with the law firm of Pedder,
Stover, Hesseltine & Walker, where he specialized in business litigation. He is
a member of the State Bar of California.
Sandra Boyle has been associated with GC or its associated entities since 1984
and has served as President and Chief Operating Officer of GC since January 10,
1996. She was originally responsible for residential marketing, and her
responsibilities were gradually expanded to include residential leasing and
management in 1985, and commercial leasing and management in 1987. She was
elected Vice President in 1989, and continues to supervise marketing, leasing,
property management operations and regional offices. Ms. Boyle also serves as a
Senior Vice President of GLB. Ms. Boyle holds a California real estate broker's
license and a CPM designation, and is a member of the National Advisory Council
and Finance Committee of BOMA International; and Board of Directors of BOMA San
Francisco and BOMA California.
June Gardner was elected a director of GC on January 10, 1996. She was
associated with GC from 1984 through 1995, as Senior Vice President, Corporate
Controller with responsibilities in the areas of corporate financial planning,
reporting, accounting and banking relationships. Before joining GC, Ms. Gardner
was Assistant Vice President of JMB Realty Corporation from 1977 to 1984, with
responsibilities in the areas of financial management and reporting.
Terri Garnick has served as Chief Financial Officer of GC since January 10,
1996. She is also Senior Vice President, Chief Accounting Officer and Treasurer
of GLB. Ms. Garnick is responsible for property management accounting, financial
statements, audits, Securities and Exchange Commission reporting, and tax
returns. Prior to joining GC in 1989, Ms. Garnick was a controller at August
Financial Corporation from 1986 to 1989 and was a Senior Accountant at Deloitte,
Haskins and Sells from 1983 to 1986. She is a Certified Public Accountant and
has a Bachelor of Science degree from San Diego State University.
Judy Henrich is a Vice President of GC, effective January 10, 1996 and is
responsible for the coordination of all due diligence, broker-dealer and
investor communications for partnerships managed by GC. Prior to joining GC, Ms.
Henrich, was associated with Rancon Financial Corporation from 1981 through
early 1995, as Senior Vice President since 1985, with responsibilities similar
to those at GC. Ms. Henrich also served as Executive Vice President of Rancon
Securities Corporation from
Page 47 of 52
<PAGE>
1988 to 1991, and thereafter as its Chief Executive Officer. Prior to joining
Rancon, Ms. Henrich was manager of public relations and advertising for Kaiser
Development Company, a diversified real estate holding company.
Wallace A. Krone has been an entrepreneur in the restaurant business since 1965,
and owns a number of Burger King restaurants in the San Francisco area. Mr.
Krone has been associated with GC since 1982 as an investor in one or more
partnerships, and has been a member of the board of directors of GC since 1989.
Item 11. Executive Compensation.
Compensation and Fees
In accordance with the Partnership Agreement for GPA Ltd, the Managing General
Partner receives expense reimbursements and fees for services provided to the
Partnership. Information regarding these fees and reimbursements is incorporated
herein by reference to Note 2 of the Notes to Consolidated Financial Statements
under the heading "Fees to Affiliates" and Note 1 of the Notes to Consolidated
Financial Statements under the heading "Allocation of Net Income (Loss)".
The Partnership has no employees and pays no salary or other cash compensation,
directly to any person other than the fees and expense reimbursements described
above. All officers of the Managing General Partner receive a salary and other
benefits from Glenborough Corporation as compensation for Partnership activities
as well as other activities of Glenborough Corporation not related to the
Partnership.
Option Plan
As of December 31, 1996, all outstanding options, except for 19,000 options
exercisable by a former director, have been terminated.
Page 48 of 52
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the Units owned on
December 31, 1996 by (a) each Unitholder known to the Partnership to own
beneficially more than 5% of the outstanding Units; (b) each Unitholder under
common control of an officer, director, or 5% Unitholder; (c) each individual
general partner of the Partnership and each director of the managing general
partner; and (d) all executive officers and directors of the managing general
partner as a group. All outstanding options, except for 19,000 options
exercisable by a former director were canceled as of December 4, 1995.
Name of Beneficial Units Percent
Owner (Notes 1 and 2) Owned Owned (3)
- --------------------- ----- ---------
Robert Batinovich
(Note 4) 549,469 18.51%
Robert Batinovich,
General Partner 34,577 1.16%
Glenborough Realty Trust Incorporated 116,945 3.94%
Glenborough Corporation 1,108 0.04%
Glenborough Corporation
General Partner 3,842 0.13%
Andrew Batinovich 24,248 0.82%
Wallace A. Krone, Jr. 52,026 1.75%
1650 Borel Place, #226
San Mateo, CA 94402
Samuel Scripps (Note 5) 459,138 15.47%
All Executive Officers and 77,688 2.62%
Directors as a Group
(3 persons)
Notes:
(1) Unless otherwise indicated, the addresses of the above beneficial owners are
the same as that of the registrant.
Page 49 of 52
<PAGE>
(2) The persons named on the table have sole voting and investment power with
respect to all interests beneficially owned by them, subject to community
property laws where applicable and the information contained in the footnotes to
the table. The table assumes the exercise of outstanding options held by one
former director to acquire an aggregate of 19,000 Units, which are presently
exercisable.
(3) Percent owned is calculated by dividing the sum of the Unitholder's Units
and exercisable options by the sum of all outstanding Units and exercisable
options.
(4) Excludes Mr. Batinovich's 1.17% General Partner interest in the Partnership.
Excludes 14,817 Units that Mr. Batinovich may vote as Trustee for one
Unitholder, as to which Mr. Batinovich disclaims beneficial ownership. Excludes
the 0.1% General Partner interest and 1,108 Limited Partnership Units owned by
Glenborough Corporation, of which Mr. Batinovich was majority owner. Excludes
5,198 Units owned by the Robert and Garnet Anne Batinovich l982 Irrevocable
Inter Vivos Trust for the benefit of Angela Batinovich, as to which Robert
Batinovich disclaims beneficial ownership.
(5) Includes Units owned by three trusts and one partnership of which Samuel
Scripps is the beneficial owner.
Item l3. Certain Relationships and Related Transactions.
Fees and Reimbursable Expenses - During l996 and in accordance with the prior
and current Limited Partnership Agreements (incorporated by reference to
Exhibits 10.40 through 10.43 to the Partnership's annual report on Form 10-K
dated December 31, 1995, No. 33-3657), the Managing General Partner received
management fees and reimbursed expenses (see Item 8., Note 2 - Related Party
Transactions).
Item l4. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (l) Financial Statements and
(2) Financial Statement Schedule
See Item 8 of this Form 10-K for the Financial Statements of the
Partnership, Notes thereto, Report of Independent Certified Public
Accountants, and Supplemental Schedule. A Table of Contents to
Financial Statements, Supplemental Schedule and Exhibit is included in
Item 2 and incorporated herein by reference.
Page 50 of 52
<PAGE>
(3) Exhibits
Page Number or
Exhibit Incorporation
Number Description By Reference to
- ------------------------------------------------------------------------------
10.39 Cash Collateral and Property Exhibit 10.39 to
Management Agreement dated the Annual Report
July 1, 1992 and amended on Form 10-K
October 23, 1992 by and among No. 33-3657 for the
New West Federal Savings and year ended
Loan Association, GOCO Realty December 31, 1992.
Fund I and Glenborough Corporation.
10.40 Limited Partnership Agreement Exhibit 10.40 to the
of Glenborough Partners, A Annual Report on
California Limited Partnership Form 10-K No. 33-3657
for the year ended
December 31, 1995
10.41 Limited Partnership Agreement of Exhibit 10.41 to the
GPA West L.P. Annual Report on Form
10-K No. 33-3657 for
the year ended
December 31, 1995
10.42 Limited Partnership Agreement of Exhibit 10.42 to the
GPA Industrial L.P. Annual Report on Form
10-K No. 33-3657 for
the year ended
December 31, 1994
10.43 Limited Partnership Agreement of Exhibit 10.43 to the
GPA Bond L.P. Annual Report on Form
10-K No. 33-3657 for
the year ended
December 31, 1994
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed in the period subsequent to
September 30, l996.
Page 51 of 52
<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 PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Robert Batinovich By: Glenborough Corporation,
Robert Batinovich a California corporation
General Partner
Date: March 28, 1997 By: /s/ Andrew Batinovich
Andrew Batinovich
Chief Executive Officer
and Chairman of the Board
Date: March 28, 1997
By: /s/ Terri Garnick
Terri Garnick
Chief Financial Officer
Date: March 28, 1997
By: /s/ June Gardner
June Gardner
Director
Date: March 28, 1997
(A Majority of the Board of Directors of the General Partner)
Page 52 of 52
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<NAME> GLENBOROUGH PARTNERS
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
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0
0
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