SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
(Address of principal executive offices) (Zip Code)
(650) 343-9300
(Registrant's telephone number)
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 ___
Total number of units outstanding as of June 30, 1998: 2,869,774
Page 1 of 21
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
June 30, December 31,
1998 1997
<S> <C> <C>
Assets
Real Estate investments:
Rental property, net of accumulated depreciation
of $193 at June 30, 1998 $ 2,212 $ --
Land held for sale 265 265
Cash and cash equivalents 256 2,545
Marketable securities of affiliate, at fair value (cost
$2,677 and $1,851 at June 30, 1998 and December
31, 1997, respectively) 2,914 2,385
Deposits in escrow 195 1,762
Notes receivable 406 457
Investments in affiliated partnership 973 973
Investments in unaffiliated entities 2,547 2,441
Investments in management contracts, net 1,398 1,450
Minority interest 36 10
Other assets 777 571
---------- ----------
Total assets $ 11,979 $ 12,859
========== ==========
Liabilities and Partners' Equity
Liabilities:
Notes payable $ 7,368 $ 5,021
Accounts payable and accrued expenses 350 912
Reservation deposits 194 1,654
---------- ----------
Total liabilities 7,912 7,587
---------- ----------
Partners' equity:
General partner, 34,577 and 38,419 units outstanding
at June 30, 1998 and December 31,1997, respectively 430 439
Limited partners, 2,835,197 and 2,898,722 units
outstanding at June 30, 1998 and December 31,
1997, respectively 3,637 4,833
---------- ----------
Total partners' equity 4,067 5,272
---------- ----------
Total liabilities and partners' equity $ 11,979 $ 12,859
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2 of 21
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except units outstanding and per unit amounts)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 50 $ 1 $ 232 $ 28
Income from management contracts 415 -- 1,714 --
Income from investments in partnerships 294 187 589 372
Equity (loss) in earnings of investments
in unaffiliated entities (383) 46 (287) 76
Dividends, interest and other income 89 6 142 8
--------- --------- --------- ---------
Total revenue 465 240 2,390 484
--------- --------- --------- ---------
Expenses:
Operating, including $5 paid
to an affiliate during the
six months ended June 30, 1997 259 44 704 106
General and administrative, including
$103 and $86 paid to an affiliate during
the six months ended June 30, 1998
and 1997, respectively 546 103 989 191
Depreciation and amortization 132 -- 193 1
Interest expense 171 78 296 143
Loss on sale of real estate -- 89 -- 89
--------- --------- --------- ---------
Total expenses 1,108 314 2,182 530
--------- --------- --------- ---------
Income (loss) from operations before
minority interest (643) (74) 208 (46)
Minority interest 120 -- (64) --
--------- --------- -------- ---------
Net income (loss) $ (523) $ (74) $ 144 $ (46)
========= ========= ======== =========
Other comprehensive loss:
Unrealized loss on securities:
Unrealized holding loss on
marketable securities (283) -- (297) --
--------- --------- -------- ---------
Comprehensive loss $ (806) $ (74) $ (153) $ (46)
========= ========= ========= =========
</TABLE>
- continued -
Page 3 of 21
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except units outstanding and per unit amounts)- continued
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net income (loss) per limited
partnership unit $ (0.18) $ (0.03) $ 0.05 $ (0.02)
========= ========= ======== =========
Other comprehensive loss:
Unrealized holding loss on
marketable securities per
limited partnership unit (0.10) -- (0.10) --
--------- --------- -------- ---------
Comprehensive loss per limited
partnership unit $ (0.28) $ (0.03) $ (0.05) $ (0.02)
========= ========= ======== =========
Distributions per limited partnership
unit $ -- $ -- $ 0.20 $ 0.10
========= ========= ======== =========
Weighted average number of limited
partnership units outstanding 2,844,098 2,910,899 2,865,106 2,910,899
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity
For the six months ended June 30, 1998 and 1997
(in thousands)
(Unaudited)
Total
General Limited Partners'
Partner Partners Equity
Balance at December 31, 1997 $ 439 $ 4,833 $ 5,272
Net income 2 142 144
Unrealized loss on marketable securities (4) (293) (297)
Cash distributions (7) (580) (587)
Redemption of units -- (465) (465)
-------- -------- --------
Balance at June 30, 1998 $ 430 $ 3,637 $ 4,067
======== ======== ========
Balance at December 31, 1996 $ 404 $ 3,359 $ 3,763
Net loss (1) (45) (46)
Distributions (4) (291) (295)
Redemption of units -- (28) (28)
-------- -------- --------
Balance at June 30, 1997 $ 399 $ 2,995 $ 3,394
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 5 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six months ended
June 30,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 144 $ (46)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 193 1
Amortization of loan fees, included in interest expense 16 34
Minority interest 64 --
(Equity) loss in earnings of investments in partnerships 287 (76)
Loss on sale of real estate -- 89
Changes in certain assets and liabilities:
Decrease in deposits in escrow 1,567 --
Increase in other assets (226) (16)
Decrease in accounts payable and accrued expenses (562) (34)
Decrease in reservation deposits (1,460) --
-------- -------
Net cash provided by (used for) operating activities 23 (48)
-------- -------
Cash flows from investing activities:
Net proceeds from sale of real estate -- 2,619
Principal payments received from notes receivable 51 13
Distributions from investments in unaffiliated entities 108 566
Investment in affiliated partnership -- (442)
Investment in unaffiliated entities (500) (1,616)
Purchase of marketable securities (826) (475)
Purchase of real estate investments (282) --
Increase in investment in management contracts (55) --
-------- ------
Net cash provided by (used for) investing activities (1,504) 665
-------- ------
- continued -
Page 6 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows - continued
(in thousands)
(Unaudited)
Six months ended
June 30,
1998 1997
Net cash flows from financing activities:
Proceeds from notes payable $ 2,192 $ 2,920
Principal payments on notes payable (1,858) (3,457)
Minority interest in equity (90) --
Distributions to partners (587) (295)
Redemption of limited partnership units (465) (28)
-------- -------
Net cash used for financing activities (808) (860)
-------- -------
Net decrease in cash and cash equivalents (2,289) (243)
Cash and cash equivalents at beginning of period 2,545 403
-------- -------
Cash and cash equivalents at end of period $ 256 $ 160
======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 280 $ 112
======== =======
Supplemental disclosure of loss on sale of real estate:
Sales price $ -- $ 2,675
Less: Closing costs -- (56)
Basis in real estate sold -- (2,708)
-------- -------
Loss on sale of real estate $ -- $ 89
======== =======
Supplemental disclosure of non-cash investing activities:
Gross purchase of real estate investments $ 2,295 $ --
Financed through loan assumption (2,013) --
-------- -------
Purchase of real estate investments $ 282 $ --
======== =======
Supplemental disclosure of non-cash financing activities:
Increase in note payable through investments in
unaffiliated entities $ 2,013 $ --
======== =======
See accompanying notes to consolidated financial statements.
Page 7 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Note 1. THE PARTNERSHIP AND SIGNIFICANT ACCOUNTING POLICIES
Glenborough Partners, a California Limited Partnership (the "Partnership" or
"Partners") was previously owned by Glenborough Corporation, the managing
general partner, Robert Batinovich, the co-general partner, and numerous limited
partners. On May 6, 1998, Glenborough Corporation withdrew as a general partner
and Robert Batinovich ("General Partner"), assumed control as the sole general
partner.
In the opinion of management and of the General Partner, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal accruals) necessary to present fairly the consolidated financial
position of Glenborough Partners, a California Limited Partnership at June 30,
1998 and December 31, 1997, the related consolidated statements of operations
for the three and six months ended June 30, 1998 and 1997, and the consolidated
statements of partners' equity and cash flows for the six months ended June 30,
1998 and 1997.
Consolidation - The accompanying consolidated financial statements include the
accounts and transactions of Partners and its majority-owned entities GPA Ltd.
and GPA West, (through December 31, 1997), Resort Group LLC (commencing June 1,
1997), Mountain Resorts LLC (commencing June 1, 1997), Casa 31 LLC (commencing
January 1, 1998), Mountain Resort Properties LLC (commencing February 23, 1998)
and Resort Group, Inc. (commencing May 1, 1998). All significant intercompany
balances and transactions have been eliminated in the consolidation.
Allocation of net income (loss) - As a result of an offer made to all of the
Partnership's investors, the Partnership repurchased and cancelled 9,294 limited
partnership units ("Units") from its investors during the six months ended June
30, 1997. This resulted in 2,901,605 Units outstanding as of June 30, 1997. The
reduction in outstanding limited partnership units resulted in revised ownership
interests on June 30, 1997 of 2.30% and 97.70% by the general partner and
limited partners, respectively.
During the six months ended June 30, 1998, the Partnership repurchased and
cancelled 67,367 Units from its investors which resulted in 2,835,197 Units
outstanding as of June 30, 1998. Also, on May 6, 1998, Glenborough Corporation
withdrew as a general partner of the Partnership, and the Partnership converted
Glenborough Corporation's 3,842 general partner units to limited partner units.
The repurchased and cancelled Units resulted in revised ownership interests on
June 30, 1998 of 1.20% and 98.80% by the general partner and limited partners,
respectively.
Reclassifications - Certain items in the 1997 consolidated financial statements
have been reclassified to conform to the 1998 consolidated financial statement
presentation.
Page 8 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Note 2. REFERENCE TO 1997 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in the 1997 audited
consolidated financial statements.
Note 3. RELATED PARTY TRANSACTIONS
The Partnership reimburses Glenborough Corporation and the General Partner 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 on behalf of the Partnership.
Glenborough Corporation and the General Partner were reimbursed $103,000 and
$86,000 for such expenses during the six months ended June 30, 1998 and 1997,
respectively.
Note 4. REAL ESTATE INVESTMENTS
Effective January 1, 1998, the Partnership purchased for $104,000 from the
Partnership's 20% partner in Resort Group LLC ("Resort") (see Note 7), an 80%
interest in Casa 31 LLC ("Casa"), which owns 21 condominiums in Galveston,
Texas. Simultaneous with this transaction, the Partnership and its 20% minority
partner in Resort contributed their respective 80% and 20% interests in Casa to
Resort.
On February 23, 1998, Resort purchased a 100% interest in Mountain Resorts
Properties LLC ("MRPLLC") for $487,000. MRPLLC owns nine rental condominiums in
the Steamboat Springs, Colorado area (see Note 7).
On May 1, 1998, the Partnership purchased for $340,000 from Glenborough Hotel
Group, a Nevada corporation, 800 shares of the common stock of Resort Group,
Inc., a Nevada corporation ("RGI"). The Partnership, upon purchase of the shares
of stock, acquired an 80% interest in RGI. Among other things, RGI owns six
condominiums in Texas. Simultaneous with this transaction, the Partnership and
its 20% minority partner in RGI contributed their respective 80% and 20%
interests in RGI to Resort.
Casa, MRPLLC and RGI consolidate its financial statements with Resort who
consolidates its financial statements with the Partnership (the 80% owner of
Resort). The joint venture partners' interest is recognized as minority interest
in the accompanying consolidated financial statements.
Page 9 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Note 5. MARKETABLE SECURITIES OF AFFILIATE
In the first six months of 1998, the Partnership purchased a total of 30,000
shares of Glenborough Realty Trust Incorporated ("GLB") common stock for
$826,000. GLB, an affiliate of the Partnership, is a real estate investment
trust and is publicly traded on the New York Stock Exchange. As of June 30,
1998, the Partnership owns 110,500 shares of GLB with an aggregate market value
of $2,914,000 (based on the closing market price of $26.375 per share on June
30, 1998) and an aggregate cost basis of approximately $2,677,000. During the
six months ended June 30, 1998, the Partnership has an unrealized loss on these
marketable securities of $297,000.
Note 6. INVESTMENT IN AFFILIATED PARTNERSHIP
GLENBOROUGH PROPERTIES L.P.:
At June 30, 1998, the Partnership owns 691,883 limited partnership units or an
approximate 1.9% interest in Glenborough Properties L.P. ("GPLP"), the operating
partnership of GLB, from its various contributions and sales of real estate
assets to GPLP. Since the Partnership owns only a 1.9% interest in GPLP at June
30, 1998, the Partnership accounts for this investment using the cost method.
The Partnership received $290,591 from GPLP in each of the first two quarters
of 1998, representing the fourth quarter 1997 and first quarter 1998
distributions. These amounts are included in income from investments in
partnerships on the accompanying 1998 consolidated statement of operations.
At June 30, 1998, the investment in GPLP is the Partnership's only investment in
affiliated partnership with an approximate fair market value of $18,248,000,
based on the closing market price of $26.375 per share of GLB which is
equivalent to the price per GPLP unit.
Note 7. INVESTMENTS IN UNAFFILIATED ENTITIES
At June 30, 1998, the Partnership has a total net investment of $2,547,000 in
various unaffiliated entities. These entities primarily invest in management
contracts and real estate properties.
Page 10 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
A summary of the Partnership's investments in unaffiliated entities as of June
30, 1998 is as follows:
Ownership Net
Investment (method of accounting) Interest Investment
Windswept Portfolio LLC (equity) 50% $ 1,998,000
Westward Gulfton, Ltd. (equity) 36.36% 22,000
Cheeseburger in Paradise - Waikiki (cost) 5.63% 200,000
Rancon Pacific Realty, L.P. (cost) 1.4% 114,000
Rancon Income Fund I (cost) 4.9% 213,000
Rancon Realty Fund I (cost) * --
-----------
Net book investments in unaffiliated entities $ 2,547,000
===========
Note *: Less than 1%
CONSOLIDATED INVESTMENTS
RESORT GROUP LLC:
The Partnership owns an 80% interest in Resort Group LLC ("Resort"). Resort's
primary investments are an 80% interest in Mountain Resorts LLC ("Mountain
Resorts") and 100% interests in Casa and MRPLLC (see Note 4). The primary
business of Mountain Resorts is the management of various condominiums and
townhouses in the Steamboat Springs area of Colorado, which includes nine
condominiums owned by MRPLLC. As a result of its investment in Resort, the
Partnership consolidates its financial statements with Resort (after Resort
consolidates with Mountain Resorts, Casa, MRPLLC and RGI) and recognizes its
joint venture partner's interest as minority interest.
RESORT GROUP, INC.:
On May 1, 1998, the Partnership acquired for $340,000, an 80% interest in Resort
Group Inc. ("RGI") from an affiliate of GLB. The primary business of RGI is the
management of various condominiums in Texas including 21 condominiums owned by
Casa and six condominiums owned by RGI.
Page 11 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD
WINDSWEPT PORTFOLIO LLC:
The Partnership owns a 50% non-controlling interest in Windswept Portfolio LLC
("Windswept"). Windswept has contracted with Investors Management Trust Real
Estate, Inc. ("IMT") for IMT to manage and operate the following five
multifamily-residential projects in Houston, Texas:
1. Ashley Square, a 117-unit apartment complex
2. Hidden Pines, a 185-unit apartment complex
3. Shenandoah Woods, a 232-unit apartment complex
4. Southern Oaks, a 198-unit apartment complex
5. Unity Pointe, a 109-unit apartment complex
Since the Partnership owns a 50% interest in Windswept, the Partnership accounts
for this investment using the equity method.
Summary condensed balance sheet information as of June 30, 1998, and the
condensed statement of operations for the six months ended June 30, 1998, are as
follows (in thousands):
Windswept Portfolio LLC
Balance Sheet as of June 30, 1998
Investment in real estate $ 15,067
Cash 28
Other assets 665
-----------
Total assets $ 15,760
===========
Notes payable $ 11,829
Other liabilities 223
-----------
Total liabilities 12,052
Partners' equity 3,708
-----------
Total liabilities and partners' equity $ 15,760
===========
Page 12 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Windswept Portfolio LLC
Statement of Operations
For the six months ended June 30, 1998
Revenue $ 2,427
Expenses 2,046
-----------
Net income $ 381
===========
The Partnership's share of Windswept's net income for the six months ended June
30, 1998 was $191,000.
The Partnership has received monthly distributions of $18,000 from its
investment in Windswept for a total of $108,000 in 1998.
WESTWARD-GULFTON LTD:
On January 8, 1998, the Partnership purchased for $500,000, a 36.36% interest in
Westward-Gulfton Ltd., a Texas Limited Partnership ("Westward"). Westward was
organized to acquire and renovate the Westward Square Apartments, a 672-unit
multifamily residential property in Houston, Texas.
Since the Partnership owns a 36.36% interest in Westward, the Partnership
accounts for this investment using the equity method.
Summary condensed balance sheet information as of June 30, 1998, and the
condensed statement of operations for the six months ended June 30, 1998, are as
follows (in thousands):
Westward-Gulfton Ltd.
Balance Sheet as of June 30, 1998
Investment in real estate $ 6,227
Other assets 3,320
-----------
Total assets $ 9,547
===========
Notes payable $ 9,150
Other liabilities 611
-----------
Total liabilities 9,761
Partners' deficit (214)
-----------
Total liabilities and partners' deficit $ 9,547
===========
Page 13 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Westward-Gulfton Ltd.
Statement of Operations
For the six months ended June 30, 1998
Revenue $ 888
Expenses 2,202
-----------
Net loss $ (1,314)
===========
The Partnership's share of Westward-Gulfton's net loss for the six months ended
June 30, 1998 was $478,000.
As of June 30, 1998, the renovation of the Westward Square Apartments is
approximately 50% complete and on budget. Management anticipates that by the end
of September 1998, construction will be completed on 144 units and leasing will
begin on those units.
INVESTMENTS ACCOUNTED FOR UNDER THE COST BASIS METHOD
CHEESEBURGER IN PARADISE:
The Partnership owns a 5.63% non-controlling limited partnership interest in
Cheeseburger In Paradise - Waikiki, a California limited partnership
("CIP-Waikiki"). CIP-Waikiki owns and operates a Cheeseburger In Paradise
restaurant on Waikiki Beach in Honolulu, Hawaii. Since the Partnership owns a
5.63% interest in CIP-Waikiki, the Partnership accounts for this investment
using the cost method.
RANCON PARTNERSHIPS:
The Partnership owns the following limited partnership units in unaffiliated
real estate partnerships, which were purchased from sophisticated secondary
market investors:
Net
Ownership Acquisition
Partnership Units % Price
----------- ----- -------- -----------
Rancon Pacific Realty, L.P. 40,093 1.4% $ 113,662
Rancon Income Fund I 715 4.9% $ 213,141
Rancon Realty Fund I 5 * $ 150
Note *: Less than 1%
Since the Partnership owns less than 5% of the individual Rancon partnerships,
it accounts for these investments using the cost method.
Page 14 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Note 8. INVESTMENT IN MANAGEMENT CONTRACTS
Investment in management contracts reflects the unamortized portion of the
management contracts Mountain Resorts and RGI hold with various condominium and
townhouse owners in the Steamboat Springs, Colorado and Galveston, Texas areas.
These contracts are amortized over varying lengths but not exceeding seven
years.
Note 9. DEPOSITS IN ESCROW
Deposits in escrow represent amounts collected by Mountain Resorts for guest
reservations for visits to the resort within the next six months. This amount is
offset by a comparable reservation deposits liability.
Note 10. NOTES PAYABLE
On January 2, 1998, the Partnership paid down $1,692,000 on the Mid-Peninsula
Bank ("Mid-Pen") revolving line of credit from the proceeds received from the
Partnership's liquidation of a portion of its investment in unaffiliated real
estate limited partnerships in 1997. In addition, during the first half of 1998
the Partnership drew $2,192,000 primarily to fund the redemption of limited
partnership units, the purchase of common stock of GLB, a special distribution
to its partners, and the investment in an unaffiliated entity.
On February 23, 1998, Resort issued four promissory notes totaling $306,000 to
the prior owners of MRPLLC for Resort's acquisition of a 100% interest in MRPLLC
(see Note 4 above). These notes bear interest at 8.5% per annum, fully
amortizing on March 1, 2001.
The Partnership also increased its notes payable balance by $1,707,000 in the
first half of 1998 through Resort's purchase of ownership interests in Casa and
MRPLLC, which includes five existing promissory notes for these two entities.
These notes bear interest at various rates ranging from 7% fixed to "Prime" plus
1% with maturity ranging from November 1998 to November 2011.
Note 11. DISTRIBUTIONS
On February 18, 1998, the Partnership made a $587,000 cash distribution to help
alleviate its partners' tax burden arising from their portion of the
undistributed 1997 taxable income of the Partnership.
Note 12. SUBSEQUENT EVENTS
On July 6, 1998, the Partnership paid down $720,000 on the Mid-Pen revolving
line of credit from cash receipts from Resort's repayment of prior advances made
by the Partnership.
Page 15 of 21
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
On July 14, 1998, the Partnership received a second quarter 1998 distribution of
$291,000 from GPLP for its 691,883 limited partnership units in GPLP. The
Partnership also received on July 14, 1998, a second quarter dividend of $46,000
on its 110,500 shares of common stock in GLB.
From July 27, 1998 through August 10, 1998, the Partnership purchased a total of
20,000 shares of GLB for an aggregate price of $482,651. As of August 10, 1998,
the Partnership owns 130,500 shares in GLB.
Page 16 of 21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
The following discussion addresses the Partnership's financial condition at June
30, 1998 and its results of operations for the six months ended June 30, 1998
and 1997. This information should be read in conjunction with the Partnership's
audited December 31, 1997 Consolidated Financial Statements, notes thereto and
other information contained elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1998, the Partnership drew a total of $2,192,000 on the
Mid-Peninsula Bank ("Mid-Pen") revolving line of credit to fund: (i) a $587,000
distribution to its partners to help alleviate its partners' tax burden arising
from their portion of the 1997 undistributed taxable income of the Partnership;
(ii) the redemption of 67,367 limited partnership units; (iii) the purchase of
30,000 additional shares of common stock in Glenborough Realty Trust
Incorporated ("GLB"), an affiliate of the Partnership, which is a publicly
traded (New York Stock Exchange) real estate investment trust; (iv) $477,000 of
advances to Resort Group LLC to fund operations; and (v) a portion of the
Partnership's acquisition of its 80% interest in Resort Group Inc. During this
period, the Partnership paid down $1,692,000 on this revolving line of credit
from the proceeds of the Partnership's liquidation of a portion of its
investments in unaffiliated real estate limited partnerships in 1997. As of June
30, 1998, $2,112,000 remains available on this line of credit.
Effective January 1, 1998, the Partnership purchased for $104,000 from the
Partnership's 20% partner in Resort Group LLC ("Resort"), an 80% interest in
Casa 31 LLC ("Casa"). Casa owns 21 condominiums in Galveston, Texas. The
Partnership and its 20% joint venture partner immediately contributed their
respective interests in Casa to Resort.
On January 8, 1998, the Partnership invested $500,000 for a 36.36% interest in
Westward-Gulfton Ltd., a Texas Limited Partnership ("Westward"). Westward was
organized to acquire the Westward Square Apartments, a 672-unit multifamily
residential property in Houston, Texas.
On February 23, 1998, Resort purchased for $487,242 ($181,609 in cash and
$305,633 in notes payable) a 100% interest in Mountain Resort Properties LLC
("MRPLLC"). MRPLLC owns nine rental condominiums in the Steamboat Springs,
Colorado area. The net assets acquired by Resort as part of the acquisition of
MRPLLC include $1,335,000 in mortgage debt.
On May 1, 1998, the Partnership purchased, from an affiliate of GLB, 800 shares
of the common stock of Resort Group, Inc. ("RGI") for $340,000. RGI owns six
rental condominiums in Texas. The Partnership, having acquired an 80% interest
in RGI, and its 20% joint venture partner, contributed their respective
interests in RGI to Resort.
As of June 30, 1998, the Partnership's cash balance was $256,000. The remainder
of the Partnership's assets consists primarily of its investments in real
estate, marketable securities,
Page 17 of 21
<PAGE>
management contracts, and miscellaneous investments in various affiliated and
unaffiliated partnerships. The Partnership's primary liabilities included
amounts due on the Mid-Pen revolving line of credit and various mortgage and
promissory notes associated with the purchase of ownership interests in Resort,
Casa and MRPLLC.
RESULTS OF OPERATIONS
Rental income increased $204,000 and $49,000 during the six and three months
ended June 30, 1998 over the six and three months ended June 30, 1997,
respectively, due to the Partnership's first quarter 1998 investments in Casa
and MRPLLC, which own condominiums and townhouses. Seasonal peaks during the
winter at MRPLLC's Colorado condominiums and townhouses has resulted in a larger
increase in rental income in the first quarter 1998 over the second quarter
1998. Results from operations of these entities have been consolidated with the
Partnership.
The income from management contracts during the six and three months ended June
30, 1998 represents the revenue earned by Mountain Resorts for managing various
condominiums and townhouses in the Steamboat Springs, Colorado area. As with
rental income, seasonal peaks resulted in a larger increase in income from
management contracts in the first quarter 1998 compared to the second quarter in
1998.
Income from investments in partnership increased $217,000 and $107,000 during
the six and three months ended June 30, 1998 over the comparable periods in 1997
due to the increase in units held in Glenborough Properties L.P. ("GPLP"), the
operating partnership of GLB, as well as an increase in the distribution rate
from $0.32 to $0.42 per unit.
Equity (loss) in earnings of investments in unaffiliated entities decreased
$363,000 and $429,000 during the six and three months ended June 30, 1998
compared to the six and three months ended June 30, 1997, respectively, due to
the investment in Westward-Gulfton Ltd. in the first quarter of 1998. The sole
property in Westward-Gulfton Ltd is a 672-unit multifamily residential property,
which is currently being renovated. The Partnership's forecast for this
investment included a recognition of loss during the renovation period, which is
scheduled through September 1998.
The $134,000 and $83,000 increase in dividends, interest and other income during
the six and three months ended June 30, 1998 over comparable periods in 1997 is
primarily due to dividends received in January 1998 and April 1998 for its
shares of common stock in GLB. The Partnership did not own any shares in GLB
until April 1997.
The increases in operating, general and administrative, depreciation and
amortization and interest expenses during the six and three months ended June
30, 1998 compared to the six and three months ended June 30, 1997 are a result
of the Partnership's investments in and consolidation of Resort and its
subsidiary entities (Mountain Resorts, Casa, MRPLLC and RGI) during the past
twelve months. The Partnership invested in Resort and Mountain Resorts in July
1997, Casa in January 1998, MRPLLC in February 1998, and RGI in May 1998.
Page 18 of 21
<PAGE>
Year 2000 Compliance
The Partnership utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Partnership's software applications contain a source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Partnership has completed its identification of applications that are not yet
"Year 2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given the information known at this time about the
Partnership's systems that are non-compliant, coupled with the Partnership's
ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, management does not expect "Year 2000" compliance costs
to have any material adverse impact on the Partnership's liquidity or ongoing
results of operations. No assurance can be given, however, that all of the
Partnership's systems will be "Year 2000" compliant or that compliance costs or
the impact of the Partnership's failure to achieve substantial "Year 2000"
compliance will not have a material adverse effect on the Partnership's future
liquidity or results of operations.
Page 19 of 21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule
(b) Reports on Form 8-K.
None.
Page 20 of 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Robert Batinovich
Robert Batinovich
General Partner
Date: August 14, 1998
Page 21 of 21
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