SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 September 30, 1998: 2,841,341
Page 1 of 23
<PAGE>
This Form 10-Q of Glenborough Partners for the quarter ended September 30, 1998
is being amended to add the Year 2000 Compliance disclosure to the Management's
Discussion and Analysis of Financial Condition and Results of Operations in Item
2 of Part I.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
Assets
Real Estate investments:
Rental property, net of accumulated depreciation
<S> <C> <C>
of $185 at September 30, 1998 $ 2,184 $ --
Land held for sale 265 265
Cash and cash equivalents 137 2,545
Marketable securities of affiliate, at fair value (cost
$3,361 and $1,851 at September 30, 1998 and
December 31, 1997, respectively) 2,977 2,385
Securities of unaffiliated entity, at cost 400 --
Deposits in escrow 311 1,762
Notes receivable 520 457
Investments in affiliated partnership 973 973
Investments in unaffiliated entities 2,751 2,441
Investment in management contracts, net 1,708 1,450
Minority interest 148 10
Other assets 820 571
-------------- --------------
Total assets $ 13,194 $ 12,859
============== ==============
</TABLE>
- continued-
Page 2 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
Liabilities and Partners' Equity
Liabilities:
<S> <C> <C>
Notes payable $ 7,887 $ 5,021
Accounts payable and other liabilities 1,123 912
Reservation deposits 311 1,654
-------------- --------------
Total liabilities 9,321 7,587
-------------- --------------
Partners' equity:
General partner, 34,577 and 38,419 units outstanding at September 30, 1998
and December 31, 1997,
respectively 425 439
Limited partners, 2,806,764 and 2,898,722 units
outstanding at September 30, 1998 and
December 31, 1997, respectively 3,448 4,833
-------------- --------------
Total partners' equity 3,873 5,272
-------------- --------------
Total liabilities and partners' equity $ 13,194 $ 12,859
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except units outstanding and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Rental income $ 51 $ -- $ 283 $ 28
Income from management contracts 559 366 2,273 366
Income from investments in partnerships 292 185 881 557
Gain on liquidation of investment in
unaffiliated entity 246 -- 246 --
Equity in earnings of investments
in unaffiliated entities 379 142 92 218
Dividend, interest and other income 120 136 262 144
---------- ---------- --------- ---------
Total revenue 1,647 829 4,037 1,313
---------- ---------- --------- ---------
Expenses:
Operating 153 273 857 379
General and administrative, including
$153 and $125 paid to an affiliate during
the nine months ended September 30,
1998 and 1997, respectively 628 344 1,617 535
Depreciation and amortization 103 30 296 31
Interest expense 213 129 509 272
Loss on sale of real estate -- -- -- 89
---------- --------- --------- ---------
Total expenses 1,097 776 3,279 1,306
---------- ---------- --------- ---------
Income from operations before
minority interest 550 53 758 7
Minority interest 91 74 27 74
---------- ---------- --------- ---------
Net income $ 641 $ 127 $ 785 $ 81
========== ========== ========= =========
</TABLE>
- continued -
Page 4 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations - continued
(in thousands, except units outstanding and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- -----------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
Other comprehensive income:
Unrealized holding gain (loss) on
<S> <C> <C> <C> <C>
marketable securities (621) 349 (918) 349
---------- ---------- --------- --------
Comprehensive income (loss) $ 20 $ 476 $ (133) $ 430
========== ========== ========= =========
Net income per limited
partnership unit $ 0.22 $ .04 $ 0.27 $ .03
========== ========== ========= =========
Distributions per limited partnership unit $ -- $ -- $ 0.20 $ 0.10
========== ========== ========= =========
Weighted average number of limited
partnership units outstanding 2,819,675 2,901,081 2,849,962 2,907,626
========== ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Statement of Partners' Equity
For the nine months ended September 30, 1998
(in thousands)
(Unaudited)
Total
General Limited Partners'
Partner Partners Equity
Balance at December 31, 1997 $ 439 $ 4,833 $ 5,272
Net income 10 775 785
Other comprehensive income:
Unrealized holding loss on
marketable securities (17) (901) (918)
Distributions (7) (580) (587)
Redemption of units -- (679) 679)
---------- ------------ ---------
Balance at September 30, 1998 $ 425 $ 3,448 $ 3,873
========== ============ =========
See accompanying notes to consolidated financial statements.
Page 6 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net income $ 785 $ 81
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 296 31
Amortization of loan fees, included in interest expense 22 52
Minority interest (27) 74
Gain on liquidation of investment in unaffiliated entity (246) --
Equity in earnings of investments in unaffiliated entities (92) (218)
Loss on sale of real estate -- 89
Changes in certain assets and liabilities:
(Increase) decrease in deposits in escrow 1,451 (299)
Increase in notes receivable (167) (373)
Increase in other assets (271) (241)
Increase in accounts payable and accrued expenses 211 393
Decrease in reservation deposits (1,343) --
---------- ----------
Net cash provided by (used for) operating activities 619 (411)
---------- ----------
Cash flows from investing activities:
Net proceeds from sale of real estate -- 2,619
Proceeds from liquidation of investment in unaffiliated entity 366 --
Principal payments received on notes receivable 104 --
Distributions from investments in unaffiliated entities 162 962
Investment in affiliated partnership -- (444)
Investment in unaffiliated entities (500) (3,625)
Purchase of marketable securities (1,910) (1,520)
Additions to real estate investments (241) --
Increase in investment in management contracts (484) (1,847)
---------- ----------
Net cash used for investing activities $ (2,503) $ (3,855)
---------- ----------
</TABLE>
- continued -
Page 7 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows - continued
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
Net cash flows from financing activities:
<S> <C> <C>
Proceeds from notes payable $ 3,738 $ 7,824
Principal payments on notes payable (2,885) (3,573)
Minority interest in equity (111) 336
Distributions to partners (587) (295)
Redemption of limited partnership units (679) (33)
---------- ----------
Net cash provided by (used for) financing activities (524) 4,259
---------- ----------
Net decrease in cash and cash equivalents (2,408) (7)
Cash and cash equivalents at beginning of period 2,545 403
---------- ----------
Cash and cash equivalents at end of period $ 137 $ 396
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 490 $ 191
========== ==========
Supplemental disclosure of non-cash financing activities:
Increase in note payable / investment in real estate
financed through loan assumption $ 2,013 $ --
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 8 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 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. The Partnership converted Glenborough Corporation's 3,842 general
partner units to limited partner units.
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 September
30, 1998 and December 31, 1997, and the related consolidated statements of
operations for the three and nine months ended September 30, 1998 and 1997, and
the consolidated statement of partners' equity for the nine months ended
September 30, 1998 and the consolidated statements of cash flows for the nine
months ended September 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). As of September 30, 1998, Casa
31 LLC, Mountain Resorts LLC, Mountain Resort Properties LLC and Resort Group,
Inc. are wholly owned by Resort Group LLC. All significant intercompany balances
and transactions have been eliminated in the consolidation.
The Partnership owns an 80% interest in Resort Group LLC. The 20% interest of
Resort Group LLC not owned by the Partnership is reflected as minority interest
in the accompanying consolidated financial statements.
Allocation of net income (loss)
During the nine months ended September 30, 1998, the Partnership repurchased and
cancelled 91,958 limited partnership units ("Units") from its investors
resulting in 2,806,764 Units outstanding as of September 30, 1998. The
repurchased and cancelled Units resulted in revised ownership interests on
September 30, 1998 of 1.22% and 98.78% by the general partner and limited
partners, respectively.
Page 9 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
Reclassifications - Certain items in the 1997 consolidated financial statements
have been reclassified to conform to the 1998 consolidated financial statement
presentation.
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 $153,000 and
$125,000 for such expenses during the nine months ended September 30, 1998 and
1997, respectively.
Note 4. REAL ESTATE INVESTMENTS
Effective January 1, 1998, the Partnership purchased an 80% interest in Casa 31
LLC ("Casa"), for $104,000. Casa owns 21 condominiums in Galveston, Texas.
Simultaneous with this transaction, the Partnership and the 20% limited partner
in Resort Group LLC ("Resort") (see Note 7) 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 area of Colorado (see Note 7).
On May 1, 1998, the Partnership purchased 800 shares of the common stock of
Resort Group, Inc., a Nevada corporation ("RGI") from Glenborough Hotel Group, a
Nevada corporation for $340,000. The Partnership, upon the purchase of the
shares of stock, acquired an 80% interest in RGI. RGI owns six condominiums in
Texas as well as management contracts with two beachfront resort condominium
hotel properties for management of the homeowners associations and the rental
pool programs. Simultaneous with this transaction, the Partnership and its 20%
minority partner in RGI contributed their respective 80% and 20% interests in
RGI to Resort.
Page 10 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
Note 5. MARKETABLE SECURITIES OF AFFILIATE
During the nine months ended September 30, 1998, the Partnership purchased a
total of 50,000 shares of Glenborough Realty Trust Incorporated ("GLB") common
stock for $1,309,000. GLB, an affiliate of the Partnership, is a real estate
investment trust and is publicly traded on the New York Stock Exchange. As of
September 30, 1998, the Partnership owns 130,500 common shares of GLB with an
aggregate market value of $2,773,000 (based on the closing market price of
$21.25 per share on September 30, 1998) and an aggregate cost basis of
approximately $3,160,000. This represents a $387,000 unrealized loss on
marketable securities as of September 30, 1998.
On September 18, 1998, the Partnership purchased 10,000 shares of GLB preferred
stock for $201,000. As of September 30, 1998, the 10,000 shares of GLB preferred
stock had a market value of $204,000 (based on the closing market price of
$20.375 per share on September 30, 1998). Accordingly, the Partnership has an
unrealized holding gain of $3,000 on these marketable securities as of September
30, 1998.
Note 6. SECURITIES OF UNAFFILIATED ENTITY
On August 19, 1998, the Partnership purchased for $400,000, 93,350 shares of
Series B Preferred Stock of InterTrust Technologies Corporation ("ITC"), a
Delaware corporation. ITC is a privately held digital commerce and information
security company and is not an affiliate of the Partnership.
Note 7. ACCUMULATED OTHER COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." One of the reporting requirements under SFAS 130 requires that the
Partnership disclose the accumulated balance of other comprehensive income or
loss in the statement of partners' equity.
Page 11 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
The unrealized holding gain and loss on marketable securities is the
Partnership's only other comprehensive income. As of September 30, 1998, the
accumulated other comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
<S> <C> <C> <C>
Unrealized gain as of December 31, 1997 $ 12 $ 522 $ 534
Unrealized loss for the nine months ended
September 30, 1998 (17) (901) (918)
----------- ----------- -----------
Unrealized loss as of September 30, 1998 $ (5) $ (379) $ (384)
=========== =========== ===========
</TABLE>
Note 8. INVESTMENT IN AFFILIATED PARTNERSHIP
As of September 30, 1998, the Partnership owns 691,883 limited partnership units
or an approximate 1.93% interest in Glenborough Properties L.P. ("GPLP"), the
operating partnership of GLB. The Partnership acquired its interest in GPLP
through various contributions and sales of real estate assets. Since the
Partnership holds only a minimal ownership interest in GPLP, this investment is
accounted for using the cost method.
The Partnership received a total of $871,773 from GPLP during the nine months
ended September 30, 1998 representing distributions for the fourth quarter 1997
and the first two quarters of 1998. These amounts are recognized as income from
investments in partnerships on the accompanying 1998 consolidated statement of
operations.
Note 9. INVESTMENTS IN UNAFFILIATED ENTITIES
At September 30, 1998, the Partnership has a total net investment of $2,751,000
in various unaffiliated entities. These entities primarily invest in management
contracts and real estate properties.
Page 12 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
A summary of the Partnership's investments in unaffiliated entities as of
September 30, 1998 is as follows:
Ownership Net
Interest Investment
Investment (method of accounting)
Windswept Portfolio LLC (equity) 50% $ 1,961,000
Westward Gulfton, Ltd. (equity) 36.36% 377,000
Cheeseburger in Paradise - Waikiki (cost) 5.63% 200,000
Rancon Income Fund I (cost) 4.9% 213,000
Rancon Realty Fund I (cost) * --
------------
Net book investments in unaffiliated entities $ 2,751,000
=============
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 100% interests in Casa, MRPLLC and RGI (see Note 4).
Resort also owns 100% interest in Mountain Resorts LLC ("Mountain Resorts"),
after having acquired the 20% interest of the minority partner in Mountain
Resorts in August 1998. 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.
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 Investors Management Trust Real Estate,
Inc. ("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.
Page 13 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
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 September 30, 1998, and the
condensed statement of operations for the nine months ended September 30, 1998,
are as follows (in thousands):
Windswept Portfolio, LLC
Balance Sheet as of September 30, 1998
Investments in real estate $ 15,137
Cash 32
Other assets 581
-------------
Total assets $ 15,750
=============
Notes payable $ 11,805
Other liabilities 297
-------------
Total liabilities 12,102
Partners' equity 3,648
Total liabilities and partners' equity $ 15,750
=============
Windswept Portfolio, LLC
Statement of Operations
For the nine months ended September 30, 1998
Revenue $ 3,579
Expenses 3,149
------------
Net income $ 430
============
The Partnership's share of Windswept's net income for the nine months ended
September 30, 1998 was $215,000.
The Partnership has received monthly distributions of $18,000 from its
investment in Windswept for a total of $162,000 in 1998.
Page 14 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
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 September 30, 1998, and the
condensed statement of operations for the nine months ended September 30, 1998,
are as follows (in thousands):
Westward-Gulfton Ltd.
Balance Sheet as of September 30, 1998
Investment in real estate $ 6,227
Other assets 1,826
----------------
Total assets $ 8,053
================
Notes payable $ 9,150
Other liabilities 418
----------------
Total liabilities 9,568
Partners' deficit (1,515)
Total liabilities and partners' deficit $ 8,053
================
Westward-Gulfton Ltd.
Statement of Operations
For the nine months ended September 30, 1998
Revenue $ 1,478
Expenses 1,816
----------------
Net loss $ (338)
=================
The Partnership's share of Westward's net loss for the nine months ended
September 30, 1998 was $123,000. As of September 30, 1998, the Partnership has
not received any distribution from this investment.
As of September 30, 1998, the renovation of the Westward Square Apartments is
approximately 80% complete and on budget.
Page 15 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
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
minimal 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 Book
Partnership Units % Value
----------- ----- ------------- ----------
Rancon Pacific Realty L.P. 40,093 1.4% $ --
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. During the nine months
ended September 30, 1998, the Partnership received a total of $9,334 in
operating distributions from Rancon Pacific Realty L.P. and Rancon Income Fund I
which are included in income from investments in partnerships in the
accompanying consolidated statement of operations. In addition, on August 25,
1998, the Partnership received a $366,000 liquidating distribution from Rancon
Pacific Realty, L.P. resulting in a gain on liquidation of $246,000.
Note 10. 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.
Page 16 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
Note 11. 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 12. 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% to "Prime" plus 1%
and mature at various dates between March 2001 and August 2002.
During the third quarter of 1998, the Partnership paid down $970,000 on the
Mid-Pen revolving line of credit from cash receipts from Resort's payment of
prior advances made by the Partnership and from the proceeds of the liquidating
distribution of an unaffiliated partnership. In addition, the Partnership drew
$1,457,000 primarily to fund the redemption of limited partnership units and the
purchase of common and preferred stock of GLB.
On September 21, 1998, the Partnership extended its Mid-Pen's revolving line of
credit from September 8, 1998 to September 8, 1999. The loan requires monthly
interest only payments, and bears interest at 0.25 percentage point under the
lender's index rate (effective rate of 8.00% as of September 30, 1998).
Page 17 of 23
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
Note 13. 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 14. SUBSEQUENT EVENTS
On October 8, 1998, the Partnership received a third quarter 1998
distribution of $291,000 from GPLP for its 691,883 limited partnership units in
GPLP.
On October 9, 1998, the Partnership purchased 10,000 shares of GLB preferred
stock for $196,000 resulting in a total of 20,000 preferred shares of GLB stock
owned by the Partnership.
Page 18 of 23
<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
September 30, 1998 and its results of operations for the nine months ended
September 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 nine months ended September 30, 1998, the Partnership drew a total of
$3,649,000 on the Mid-Peninsula Bank ("Mid-Pen") revolving line of credit to
fund: (i) the purchases of 50,000 shares of common stock and 10,000 shares of
preferred stock of Glenborough Realty Trust Incorporated ("GLB"), an affiliate
of the Partnership which is a publicly traded (New York Stock Exchange) real
estate investment trust; (ii) 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 in 1996; (iii) the investment of
a 36.36% interest in Westward Gulfton, a limited liability company formed to own
and operate a multi-family residential property in Texas; (iv) a short-term loan
to the Partnership's joint venture partner in the Resort Group, LLC; (v) the
redemption of limited partnership units; and (vi) its short-term operating cash
requirements. As of September 30, 1998, $1,626,000 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 area
of Colorado. 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.
On August 31, 1998, Resort purchased for $404,000, Mountain Resorts LLC's
("Mountain Resorts") 20% minority interest from its minority partner. Resort,
upon purchase of the minority partner's interest, acquired 100% interest in
Mountain Resorts.
Page 19 of 23
<PAGE>
On August 25, 1998, the Partnership received a $366,000 preliminary liquidating
distribution from Rancon Pacific Realty, L.P. The proceeds were used to pay down
the Mid-Pen line of credit.
During the nine months ended September 30, 1998, the Partnership received a
total of $871,773 of distributions from its investments in Glenborough
Properties L.P. ("GPLP"), an affiliated partnership.
As of September 30, 1998, the Partnership's cash was $137,000. The remainder of
the Partnership's assets consisted primarily of its investments in marketable
securities, 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.
Management believes that the Partnership's cash balance at September 30, 1998,
plus its available line of credit, distributions and dividends from investments
will be sufficient to meet its cash requirements.
RESULTS OF OPERATIONS
Rental income increased $255,000 and $51,000 during the nine and three months
ended September 30, 1998 compared to the nine and three months ended September
30, 1997, respectively, due primarily to the Partnership's investment in Casa
and MRPLLC, which own and operate condominiums and townhouses.
Income from management contracts represents the revenue earned by Mountain
Resorts for managing various condominiums and townhouses in Colorado.
Income from investments in partnerships increased $324,000 and $107,000 during
the nine and three months ended September 30, 1998 compared to the same periods
in 1997, respectively, as a result of the increase in units held in Glenborough
Properties L.P. ("GPLP"), the operating partnership of GLB, as well as the
increase in the distribution rate from $0.32 to $0.42 per unit.
The gain on liquidation of investment in unaffiliated entity of $246,000 for the
nine and three months ended September 30, 1998 represents the preliminary
liquidating distribution from an unaffiliated entity in excess of the
Partnership's basis.
In August 1997, the Partnership purchased a 50% interest in Windswept Portfolio,
LCC ("Windswept"). During the nine months ended September 30, 1998 and 1997, the
Partnership recognized $215,000 and $122,000 of equity in earnings on
Windswept's net income of $430,000 and $244,000, respectively.
In January 1998, the Partnership purchased a 36.36% interest in Westward-Gulfton
Ltd. ("Westward"). As of September 30, 1998, the Partnership has recognized a
$123,000 loss from Westward. The sole property of Westward is a 672-unit
multifamily residential property, which is currently under renovation. The
Partnership's forecast for this investment included recognition of loss during
the renovation period, which is scheduled through the end of 1998.
Page 20 of 23
<PAGE>
Dividend, interest and other income increased $118,000 or 82% during the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997 due primarily to dividends received in January, April and July 1998 for its
shares of common stock in GLB.
Dividend, interest and other income decreased $16,000 or 12% during the three
months ended September 30, 1998 compared to the three months ended September 30,
1997 primarily due to the receipt of a prior year property tax refund in August
1997 for a property that was sold in April 1997.
Increases in operating, general and administrative, depreciation and
amortization, and interest expense during the nine months and three months ended
September 30, 1998 compared to the nine and three months ended September 30,
1997 is directly attributable to the Partnership's investments in Resort and the
consolidation of Resort and its subsidiary entities (Mountain Resorts, Casa,
MRPLLC and RGI) since July 1997. The Partnership invested in Resort and Mountain
Resorts in July 1997, Casa in January 1998, MRPLLC in February 1998, and RGI in
May 1998.
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 21 of 23
<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.
Registrant filed a Current Report on Form 8-K, dated September
14, 1998, reporting that Glenborough Partners, A California
Limited Partnership (the Registrant), acquired on July 31,
1997, a 50% non-controlling interest in Windswept Portfolio,
LLC, a limited liability company, for $1,800,000.
Page 22 of 23
<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
Its General Partner
Date: November 14, 1998
Page 23 of 23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000790129
<NAME> Glenborough Partners
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 137
<SECURITIES> 3,377
<RECEIVABLES> 520
<ALLOWANCES> 0
<INVENTORY> 265
<CURRENT-ASSETS> 3,425
<PP&E> 2,184
<DEPRECIATION> 185
<TOTAL-ASSETS> 13,194
<CURRENT-LIABILITIES> 1,434
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,873
<TOTAL-LIABILITY-AND-EQUITY> 13,194
<SALES> 0
<TOTAL-REVENUES> 4,037
<CGS> 0
<TOTAL-COSTS> 857
<OTHER-EXPENSES> 1,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 509
<INCOME-PRETAX> 758
<INCOME-TAX> 0
<INCOME-CONTINUING> 785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 785
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
