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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 fiscal year ended December 31, 1996
or
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-11918
TRINET CORPORATE REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 94-3175659
(State of incorporation) (I.R.S. employer identification no.)
4 EMBARCADERO CENTER, SUITE 3150 (415) 391-4300
SAN FRANCISCO, CA 94111 (Registrant's telephone number)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
PREFERRED STOCK, $.01 PAR VALUE
(Title of class)
NEW YORK STOCK EXCHANGE
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 requirement for the past 90 days. YES X NO
------- ------
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. ______
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $703.2 million based on the closing price on the
New York Stock Exchange for such stock on March 7, 1997.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING WAS 20,236,667 AS OF
MARCH 7, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 TriNet Corporate Realty Trust, Inc. Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the year covered by this Form 10-K with respect to the Annual Meeting of
Stockholders to be held on May 28, 1997 are incorporated by reference into Part
III.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Description Page
- ---- ----------- ----
PART I
<S> <C> <C>
1. Business..................................................................................... 3
2. Properties................................................................................... 10
3. Legal Proceedings............................................................................ 12
4. Submission of Matters to a Vote of Security Holders.......................................... 12
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ....................... 13
6. Selected Financial Data...................................................................... 14
7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 15
8. Financial Statements and Supplementary Data.................................................. 22
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 22
PART III
10. Directors and Executive Officers of the Registrant .......................................... 23
11. Executive Compensation....................................................................... 23
12. Security Ownership of Certain Beneficial Owners and Management............................... 23
13. Certain Relationships and Related Transactions............................................... 23
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K............................ 24
</TABLE>
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PART I
ITEM 1. BUSINESS
THE COMPANY
TriNet Corporate Realty Trust, Inc. (the "Company" or "TriNet") is a
self-administered and self-managed real estate investment trust ("REIT") that
acquires, owns and manages predominantly office and industrial properties
leased to major corporations nationwide, including corporate headquarters and
strategically important distribution facilities. The Company believes that
operating a national portfolio of real estate reduces the risk of exposure to
economic downturns in any one market. Within its current national operating
strategy, TriNet's acquisition efforts are focused on markets with growing
employment, increasing real estate occupancy rates and rising rents.
As of December 31, 1996, TriNet's portfolio consisted of 79 properties
(the "Properties"), including four properties owned by TriNet Sunnyvale
Partners, L.P. (the "Sunnyvale Partnership"). The Properties comprise more than
12 million square feet in 23 states. All of the Properties are 100% leased.
Sixty-one properties were acquired concurrently with the consummation of the
Company's initial public offering in June 1993 (the "Initial Offering"). Since
the Initial Offering and through December 31, 1996, the Company has acquired 55
additional properties for an aggregate purchase price of approximately $615.0
million. During 1996, the Company sold 36 properties for approximately $37.1
million, resulting in an aggregate gain of approximately $6.8 million.
Additionally, on December 13, 1996, the Company received a $30.0 million cash
settlement as compensation for the destruction by fire of a
warehouse/distribution building in New Orleans, of which $3.5 million
represented consideration for the termination of the lease. As a result, the
Company realized an extraordinary gain of approximately $3.2 million which was
offset by an extraordinary charge of approximately $1.0 million. At December
31, 1996, the Company had 52 tenants, and the Company's largest single tenant
accounted for approximately 8% of the Company's annualized rental income.
TriNet generally seeks to include provisions in the leases that place
on its tenants, to the greatest extent possible, the economic costs of
ownership of its properties (such as real property taxes and assessments,
insurance, operating expenses, responsibility for structural repairs and
maintenance, and the duty to restore or relinquish to TriNet any insurance
proceeds or condemnation awards in case of casualty or condemnation). In some
cases, TriNet has agreed to retain responsibility for some of these
obligations. As used herein, the terms "triple net lease" and "net lease"
refer to leases in which the tenant is responsible for all or most of such
obligations.
The Company also seeks to include in its leases, (i) clauses providing
for periodic rent increases, either fixed or based on an index, such as the All
Urban Consumer Price Index, (ii) change of control and restrictive operating
and financial covenants, (iii) covenants providing that the tenant must
indemnify the Company against environmental and other contingent liabilities
(although such lease provisions may not entirely protect the Company as an
owner in the event of a tenant's inability to satisfy an adverse judgment),
(iv) guarantees from parent companies or other parties, (v) additional security
through recourse to other assets or letters of credit and (vi) cross-default
provisions in leases in multiple property transactions.
The Company employs experienced individuals with backgrounds in real
estate and credit analysis, finance and asset management who use established
procedures and systems to identify, acquire and manage commercial net leased
real estate assets. TriNet's senior management team has developed an extensive
network of contacts with bankers, brokers and senior corporate managers which
it uses to identify new investment opportunities. The Company currently employs
47 individuals.
The Company was incorporated under the laws of the State of Maryland
on March 4, 1993. The Company's principal executive offices are located at
Four Embarcadero Center, Suite 3150, San Francisco, California 94111, and its
telephone number is (415) 391-4300. TriNet's web site address is
http://www.tricorp.com. The Company also maintains regional offices in Florida
and Pennsylvania.
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BUSINESS OBJECTIVE
TriNet's business objective is to maximize the total return to
stockholders through (i) growth in Funds From Operations per common share and
(ii) increases in dividends per common share. As a result of additional
revenues from the properties acquired since the Initial Offering and contractual
rent increases, TriNet has been able to increase annualized dividends on its
common shares from $2.19 in June 1993 to $2.52 as of December 31, 1996. The
Company will seek to continue to grow its Funds From Operations per common share
and to further increase dividends per common share through the structuring of
additional purchase/leaseback transactions, the acquisition of additional net
leased properties and contractual rent increases. (Funds From Operations is
defined in "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Funds From Operations.") The Company generally intends
to hold its net leased properties for long-term investment. However, the Company
may dispose of a property if it deems such a disposition to be in its best
interest, and may either reinvest the proceeds of such a disposition or
distribute the proceeds to stockholders.
The Company's primary investment focus is the acquisition of
strategically important office and industrial properties leased to major
corporations. The Company will not acquire hotels, health care facilities,
restaurants or land unrelated to a corporate facility or the future operating
requirements of a corporate tenant. The Company does not intend to finance the
development of properties, but it does intend to enter into contracts to acquire
build-to-suit properties with identified tenants upon completion of construction
and when it can do so by taking minimal risk of construction completion. The
Company also may permit its tenants, under certain circumstances, to develop or
further expand properties they lease from the Company.
BUSINESS STRATEGIES
Internal Growth Strategy. TriNet seeks to grow its income internally
by negotiating leases which have scheduled rent increases and by renegotiating
expiring leases at higher rents.
External Growth Strategy. TriNet acquires new properties and
increases rent income by focusing on three primary acquisition strategies: (i)
structuring purchase/leaseback transactions with corporations, (ii) acquiring
properties subject to existing leases and (iii) working with corporations and
developers on build-to-suit transactions. From the Initial Offering through
December 31, 1996, TriNet completed over $615.0 million in acquisitions.
In a typical purchase/leaseback transaction, TriNet purchases the land
and building from an operating company and simultaneously leases them back to
the operating company under a long term (i.e., more than five years) operating
lease. These transactions are structured to provide TriNet with a consistent
stream of income which typically increases periodically pursuant to the lease.
In addition, TriNet may realize a capital gain upon sale if the property
appreciates in value. A purchase/leaseback transaction enables an operating
company (the seller/tenant) to realize the value of its owned real estate while
continuing occupancy on a long-term basis. A purchase/leaseback transaction
also may provide the seller with accounting, earnings and market value
benefits. For example, the lease on a property may be structured by the
operating company as an off-balance sheet operating lease, consistent with
generally accepted accounting principles, which may increase the seller's
earnings, net worth and borrowing capacity.
In addition to purchase/leaseback transactions, the Company also
acquires properties that are subject to existing net leases where the Company
believes the terms are favorable.
The Company seeks to negotiate with third-party developers and
corporations to acquire properties under development. In these transactions,
TriNet typically acquires the property after construction is completed, subject
to
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certain conditions, which generally include: (i) completion of the building
within a specified period of time; (ii) execution of a lease; (iii) receipt of
a certificate of occupancy; and (iv) the tenant's occupancy of the building.
INVESTMENT FOCUS
In acquiring properties, the Company seeks types of transactions and
seller circumstances that will allow it to obtain favorable terms, including:
Market Focus. Pursuant to its national operating strategy, the
Company focuses its acquisition efforts on markets with growing employment,
increasing real estate occupancy rates and rising rents. The Company's current
target markets include, but are not limited to, northern California and the
metropolitan areas of Denver, Colorado and Dallas, Texas, in all of which
markets the Company completed acquisitions in 1996.
Corporate Finance Solutions. The Company focuses its
purchase/leaseback activities on businesses that are trying to achieve
corporate financial and strategic goals and objectives, including repayment of
high-cost debt and obtaining infusions of working capital for growth, rather
than on businesses that are simply solving specific real estate financing
problems.
Tenant Credit Characteristics. The Company concentrates on businesses
that possess strong or improving credit quality characteristics, successful
operating histories, potential for growth, recognized business franchises and
market presence. The Company will consider transactions with tenants of
diverse credit quality provided the real estate meets the Company's standards
and the Company believes that the property is strategically important to the
prospective corporate tenant. The Company's tenants may include public and
private companies which may be unrated or rated investment grade or below
investment grade.
Multiple Property Transactions. The Company believes that there is
significantly less competition for purchase/leaseback transactions and net
leased property acquisitions involving portfolios containing a number of
properties located in more than one geographic region. The Company believes
its national presence, acquisition experience and access to capital allow it to
compete effectively for such transactions.
UNDERWRITING EXPERTISE
In underwriting a purchase/leaseback transaction or the purchase of a
property subject to an existing net lease, the Company undertakes the following
analyses, each of which the Company believes is critical to the long-term
profitability of the investment:
Real Estate Analysis. The Company evaluates the value of the
property, present and anticipated conditions in the local real estate market
and the prospects for selling or re-tenanting the property on favorable terms
in the event of a vacancy. The Company seeks to acquire general purpose
commercial properties that can accommodate single or multiple tenants and that
may be easily re-leased to new tenants without significant investment by
TriNet.
Tenant Credit Analysis. The Company evaluates the prospective
tenant's business and financial outlook to determine the prospective tenant's
ability to meet its ongoing obligations under the lease and the need to obtain
additional security for these obligations, such as letters of credit and
guarantees from parent companies or other parties.
Strategic Factors. The Company evaluates a number of strategic
factors, including the position of the prospective tenant in its industry, the
strength of the prospective tenant's business franchise and the importance of
the property to the prospective tenant's business.
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OPERATING AND FINANCING STRATEGIES
The Company monitors, on an ongoing basis, compliance by its tenants
with their lease obligations and the factors that could affect the financial
performance of each of its properties. The Company reviews periodic financial
statements with respect to each of its tenants and undertakes regular physical
inspections of the condition and maintenance of its properties. The Company
also monitors real estate market conditions, including market rents and
occupancy trends in the areas where its properties are located. The Company
will respond to changes in such market conditions as appropriate, including by
negotiating to extend the lease terms or by selling the property subject to the
existing lease.
The Company's tenants generally are responsible for most operating and
capital expenses relating to the properties they occupy, including real estate
taxes, utilities, insurance, maintenance and capital improvements. As a
result, the Company's operating costs are lower than would be the case if it
invested in properties that were not net leased.
Consistent with its investment policies, the Company employs leverage,
when available on favorable terms, in connection with funding
purchase/leaseback transactions and acquiring net leased properties to enable
it to acquire more properties than it otherwise could. The Company seeks to
maintain its operating flexibility and reduce its financing costs through
unsecured borrowings, such as the Acquisition Facility (defined hereafter) and
the Notes (defined hereafter), and by reducing its Funds From Operations (FFO)
payout ratio over time as FFO increases (FFO is defined in "Management's
Discussion and Analysis of Financial Conditions and Results of Operations -
Funds From Operations").
The Company may re-evaluate its financing policies and decrease or
increase its ratio of debt to total capitalization from time to time in
response to economic conditions, relative costs to the Company of debt and
equity capital, growth and acquisition opportunities and other facts and
circumstances.
COMPETITION
The Company faces competition for the acquisition of predominantly
office and industrial properties net leased to major corporations from
insurance companies, credit companies, pension funds, private individuals,
investment companies and other REITs. The Company also faces competition from
institutions that provide or arrange for other types of commercial financing
through private or public offerings of equity or debt or traditional bank
financings. The Company believes its management's experience in real estate,
credit underwriting and transaction structuring will allow the Company to
compete effectively for strategically important office and industrial
properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, regulations
and ordinances, current or former owners of real estate, as well as certain
other categories of parties, may be required to investigate and clean up
hazardous or toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damage and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. The Company's leases
generally provide that the tenant is responsible for all environmental
liability and for compliance with environmental regulations relating to the
tenant's operations. Such a contractual arrangement does not eliminate the
Company's statutory liability or preclude claims against the Company by
governmental authorities or persons who
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are not a party to such an arrangement. Contractual arrangements in the
Company's leases may provide a basis for the Company to recover from the tenant
damages or costs for which the Company has been found liable.
The cost of investigation and cleanup of Hazardous Materials on,
under, in or from property can be substantial, and the fact that the property
has had a release of Hazardous Materials, even if remediated, may adversely
affect the value of the property and the owner's ability to sell or lease the
property or to borrow using the property as collateral. In addition, some
environmental laws create a lien on a property in favor of the government for
damages and costs it incurs in connection with the release or threatened
release of Hazardous Materials, and certain state environmental laws provide
that such a lien has priority over all other encumbrances on the property or
that a lien can be imposed on other property owned by the responsible party.
Finally, the presence of Hazardous Materials on a property could result in a
claim by a private party for personal injury or a claim by a neighboring
property owner for property damage.
Other federal, state and local laws and regulations govern the removal
or encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. In addition, federal, state and local laws,
regulations and ordinances may impose prohibitions, limitations and operational
standards on, or require permits, approvals and notifications in connection
with, the discharge of wastewater and other water pollutants, the emission of
air pollutants and operation of air polluting equipment, the generation and
management of Hazardous Materials, and workplace health and safety.
Non-compliance with environmental or health and safety requirements may also
result in the need to cease or alter operations at a property, which could
affect the financial health of a tenant and its ability to make lease payments.
Furthermore, if there is a violation of such a requirement in connection with a
tenant's operations, it is possible that the Company, as the owner of the
property, could be held accountable by governmental authorities for such
violation and could be required to correct the violation.
The Company typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Where warranted, Phase I
and/or Phase II assessments are performed by independent environmental
consulting and engineering firms. Phase I assessments do not involve
subsurface testing, whereas Phase II assessments involve some degree of soil
and/or groundwater testing. The Company may acquire a property which is known
to have had a release of Hazardous Materials in the past, subject to a
determination of the level of risk and potential cost of remediation. The
Company normally requires property sellers to fully indemnify it against any
environmental problem existing as of the date of purchase. Additionally, the
Company normally structures its leases to require the tenant to assume all
responsibility for environmental compliance or environmental remediation
relating to the tenants operations and to provide that non-compliance with
environmental laws is deemed a lease default. In certain instances, the
Company may also require a cash reserve, a letter of credit or a guarantee from
the tenant, the tenant's parent company or a third party to assure lease
compliance and funding of remediation. The value of any of these protections
depends on the amount of the collateral and/or financial strength of the
Company providing the protection.
Some of the Properties are located in urban and industrial areas where
fill or current or historic industrial uses of the areas may have caused site
contamination at the Properties. In addition, the Company is aware of
environmental conditions at certain of the Properties that require some degree
of remediation. All such environmental conditions are primarily the
responsibility of the respective tenants under their leases. The Company and
its consultants estimate that the aggregate cost of addressing environmental
conditions known to require remediation at the Properties is approximately $2.0
million, the majority of which is covered by existing letters of credit and
corporate guarantees. The Company believes that its tenants are taking or will
soon be taking all required remedial action with respect to any material
environmental conditions at the Properties. However, the Company could be
responsible for some or all of these costs if one or more of the tenants fails
to perform its obligations or to indemnify the Company. Furthermore, no
assurance can be given that the environmental assessments that have been
conducted at the Properties disclosed all environmental liabilities, that any
prior owner did not create a material environmental condition not known to the
Company, or that a material condition does not otherwise exist as to any of the
Properties.
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RECENT DEVELOPMENTS
Acquisitions. During 1996, the Company acquired 19 Properties (the
"1996 Acquired Properties") with an aggregate of approximately 3.3 million net
rentable square feet for an aggregate purchase price of approximately $250.0
million. Fifteen of the 1996 Acquired Properties were acquired by wholly-owned
subsidiaries of the Company and four were acquired by the Sunnyvale
Partnership. The 1996 Acquired Properties are expected to provide an
approximately 11.1% unleveraged return on cost (computed as the weighted
average property annual contractual net operating income from leases in place
at the date of acquisition divided by total acquisition cost). The 1996
Acquired Properties are located primarily in the Company's current target
markets, including the Denver, Colorado metropolitan area, the greater Dallas,
Texas metropolitan area, northern California and the Greenville/Spartanburg
area of South Carolina, which is one of the Company's newest target markets.
1996 ACQUIRED PROPERTIES
<TABLE>
<CAPTION>
NET
NO. OF RENTABLE
TENANT OR GUARANTOR PROPERTY TYPE PROPERTIES STATE SQUARE FEET
<S> <C> <C> <C> <C>
Wholly-Owned Properties
Federal Express Corporation............................ Office/World HQ 1 TN 241,927
Olympus America Inc.................................... Office/Corp. HQ 1 NY 270,000
MJD Investments, Inc. (d/b/a "MJDesigns").............. Warehouse Distribution/Corp. HQ 1 TX 510,654
Pure Atria Corporation................................. Office/Corp. HQ 1 CA 101,373
Galileo International Partnership...................... Office 1 CO 137,900
adidas America, Inc.................................... Warehouse/Distribution 1 SC 563,210
Lever Brothers Company................................. Warehouse/Distribution 1 MO 402,192
Blue Cross & Blue Shield United of Wisconsin........... Office/Corp. HQ 1 WI 229,888
Lucent Technologies Inc................................ Office 1 CO 158,146
Lam Research Corporation............................... Office/R&D 1 CA 120,576
Fresenius USA, Inc..................................... Office/R&D 1 CA 85,000
Northern Telecom Inc................................... Office 1 TX 60,000
Teradyne, Inc.......................................... Office/R&D 1 CA 60,000
Lockheed Martin Corporation............................ Office/R&D 1 PA 118,800
Frontier Corporation .................................. Office/Corp. HQ 1 CO 55,310
-- ---------
Subtotal........................................... 15 3,114,976
Sunnyvale Partnership Properties
Mitsubishi Electronics America, Inc.................... Office/Division HQ 3 CA 181,715
National Semiconductor Corporation/Kanematsu USA Inc... Office 1 CA 33,766
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Subtotal........................................... 4 215,481
-- ---------
Total.............................................. 19 3,330,457
== =========
</TABLE>
1997 Acquisitions. On February 18, 1997, the Company acquired an
operations center leased to International Business Machines Corporation ("IBM")
for approximately $9.9 million. The 222,267 square-foot operations center
property is located in Farmers Branch, Texas, which is six miles north of
downtown Dallas, Texas.
On March 6, 1997, the Company acquired two office buildings, totaling
444,362 square feet located in Atlanta, Georgia and primarily leased to IBM,
for approximately $60.0 million.
Property Dispositions. The company continually evaluates local market
conditions and property-related factors and will sell a property when it
believes it is to the Company's advantage to do so. During 1996, the Company
disposed of 37 properties. Thirty-five of these properties were sold as part
of the Company's strategy to reposition its portfolio by reducing its retail
holdings. On April 24, 1996, the Company sold its property in Denham Springs,
Louisiana to Schwegmann Giant Super Markets ("Schwegmann"), the former tenant,
for approximately
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$1.3 million, which resulted in an immaterial gain. On November 26, 1996, the
Company sold 34 retail stores net leased to REX Stores Corporation for $24.8
million. The Company recognized a gain of approximately $6.2 million in
connection with this sale. In addition, in July 1996, the Company sold a
124,950 square foot office building occupied by Linvatec Corporation and located
in Largo, Florida to Largo Lakes-1 Limited Partnership for a sale price of
approximately $11.0 million. The Company recognized a gain of approximately
$650,000 in connection with the sale. The proceeds of these dispositions were
used primarily to reduce borrowings under the Company's $200.0 million unsecured
revolving credit facility (the "Acquisition Facility").
On March 21, 1996, a property leased to an affiliate of MacFrugal's
Bargains o Close-Outs, Inc. ("MacFrugal's") was destroyed by fire. On December
13, 1996, the Company received a $30.0 million cash settlement from MacFrugal's
as compensation for the destruction of this warehouse/distribution building and
as consideration for the termination of the lease. Through December 13, 1996,
the Company continued to receive rent payments from MacFrugal's in accordance
with the lease. The Company used approximately $20.0 million of the proceeds
from this cash settlement to partially repay the 1994 Mortgage Loan (as
hereinafter defined) and used the approximately $10.0 million balance to reduce
borrowings outstanding under the Acquisition Facility. The Company recognized
an extraordinary gain of approximately $3.2 million from the settlement proceeds
and an extraordinary charge of approximately $1.0 million due to early debt
extinguishment. The $30.0 million cash settlement included a lease cancellation
fee of $3.5 million and a structuring fee of approximately $300,000.
Financing Activities. In April 1996, the Company received unsecured
debt ratings of Baa2, BBB, BBB, and BBB- and preferred stock ratings of baa3,
BBB-,BBB-, and BB+ from Moody's Investors Service, Fitch Investors Service,
Duff & Phelps Credit Rating Co. and Standard & Poor's Corporation, respectively.
The financing for the 1996 Acquired Properties was facilitated by
draws on the Acquisition Facility, an unsecured debt offering in May 1996 and
preferred stock offerings in June and August 1996.
On May 22, 1996, the Company completed a public offering of $100.0
million of its 7.30% Notes due May 15, 2001 (the "2001 Notes") and $50.0
million of its 7.95% Notes due May 15, 2006 (the "2006 Notes" and together with
the 2001 Notes, the "Notes"). The Notes are senior unsecured obligations of
the Company. The net proceeds of the offering of the Notes were used to repay
outstanding borrowings, principally under the Acquisition Facility.
On June 19, 1996, the Company completed a public offering of 2,000,000
shares of 9 3/8% Series A Cumulative Preferred Stock (the "Series A Preferred
Stock"). The approximately $47.7 million in net proceeds of the offering were
used to repay borrowings under the Acquisition Facility. Subsequently, on July
1, 1996, the Company borrowed $35.0 million under the Acquisition Facility to
partially repay a $110.0 million term loan entered into in 1994 (the "1994
Mortgage Loan"). Following such repayment, the interest rate on the remaining
balance of $75.0 million under the 1994 Mortgage Loan was reduced from the
London Interbank Offered Rate ("LIBOR") plus 1.25% to LIBOR plus 1.00% per
annum. The 1994 Mortgage Loan is secured by first mortgage liens on 18 of the
Properties. Additionally, as discussed above, approximately $20.0 million of
the 1994 Mortgage Loan was repaid in December 1996.
On August 13, 1996, the Company completed a public offering of
1,300,000 shares of 9.20% Series B Cumulative Preferred Stock (the "Series B
Preferred Stock"). The approximately $31.1 million in net proceeds were used to
repay borrowings under the Acquisition Facility.
Effective September 30, 1996, the Company amended the Acquisition
Facility to obtain a reduction of 30 basis points on the interest rate for
outstanding borrowings, which reduced the interest rate to LIBOR plus 1.20% per
annum. In addition, the commitment fee on the average undrawn commitment was
reduced from 25 basis points to 20 basis points and the expiration of the
facility was extended by two years to October 8, 1999.
On February 28, 1997, the Company completed a follow-on public offering
for a total of 6,000,000 shares of Common Stock. The offering was priced at
$33.625 per share resulting in net proceeds of approximately $190.2 million (net
of underwriters' discount and offering expenses). The Company used
approximately $111.7 million of such net proceeds to pay down the balance on the
Acquisition Facility and the balance of $78.5 million will be used to finance
future acquisitions and for general corporate purposes. In connection with
this offering, the Company granted to the underwriters a 30-day option to
purchase up to 900,000 additional shares at the same price solely to cover
over-allotments. On March 7, 1997, the underwriters purchased 250,000 shares
pursuant to this over-allotment option at $33.625 per share resulting in net
proceeds of approximately $8.0 million (net of underwriters' discount). The
net proceeds will be used to fund future aquisitions.
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ITEM 2. PROPERTIES.
As of December 31, 1996, the Company's portfolio consisted of 79
Properties, all of which were 100% leased. The Properties include office
(including research and development), industrial (e.g., warehouse and
distribution) and retail facilities, which are located in 23 states and are
leased to tenants in a variety of industries. Set forth below is certain
information relating to the Properties.
<TABLE>
<CAPTION>
PERCENT OF
NO. OF NET RENTABLE CURRENT TOTAL TOTAL ANNUAL
TENANT OR GUARANTOR PROPERTY TYPE PROPERTIES STATE SQUARE FEET ANNUAL RENTS(1) RENTS
<S> <C> <C>
WHOLLY-OWNED PROPERTIES
AT&T Corporation (2) (3).............. Office/Corp. HQ 2 FL, NJ 466,002 $ 6,766,032 8.22%
Unisys Corporation (2)................ Office 3 IL, PA 755,157 6,171,000 7.50%
Schwegmann Giant Super Markets (4).... Retail 4 LA 381,933 4,137,796 5.03%
Caterair International Corporation.... Industrial/Distribution 12 7 states 493,617 4,124,376 5.01%
Federal Express Corporation (5)....... Office/World HQ 1 TN 241,927 3,991,796 4.85%
GATX Logistics, Inc.(2)............... Warehouse/Distribution 6 NY 1,135,500 3,260,756 3.96%
Olympus America Inc................... Office/Corp. HQ 1 NY 270,000 2,929,209 3.56%
Volkswagen of America, Inc. (2)....... Distribution Centers 3 CA, FL, IL 628,716 2,864,000 3.48%
NIKE, Inc. (2)........................ Warehouse/Distribution 1 TN 812,697 2,247,405 2.73%
MJD Investments, Inc.
(d/b/a "MJDesigns").............. Warehouse/Distribution/Corp. HQ 1 TX 510,654 2,173,000 2.64%
Pure Atria Corporation................ Office/Corp. HQ 1 CA 101,373 2,128,800 2.58%
Ralphs Grocery Company................ Warehouse/Distribution 1 CA 272,236 2,128,770 2.58%
SPX Corporation....................... Office/Corp. HQ 2 MI 214,454 1,937,500 2.35%
Galileo International Partnership..... Office 1 CO 137,900 1,877,547 2.28%
adidas America, Inc................... Warehouse/Distribution 1 SC 563,210 1,856,445 2.25%
Lever Brothers Company................ Warehouse/Distribution 1 MO 402,192 1,724,392 2.10%
Blue Cross & Blue Shield United of
Wisconsin........................ Office/Corp. HQ 1 WI 229,888 1,609,600 1.96%
Unison Industries, L.P. (2)........... Office/Corp. HQ 1 FL 135,000 1,554,243 1.89%
Primerica Life Insurance Company ..... Office/Regional HQ 1 GA 190,000 1,425,000 1.73%
Lucent Technologies, Inc.............. Office 1 CO 158,146 1,344,241 1.63%
Certified Grocers of
California, Ltd. (2)............. Office/Corp. HQ 1 CA 108,000 1,293,750 1.57%
PNC Mortgage Corporation of
America, Inc. (6)................ Office/Corp. HQ 1 IL 102,208 1,265,335 1.54%
First Health Strategies, Inc.......... Office/Corp. HQ 1 UT 173,107 1,245,046 1.51%
Microsoft Corporation (2) (7)......... Office 1 TX 87,635 1,226,890 1.49%
Sears Logistics Services (2) (8)...... Warehouse/Distribution 1 OH 398,471 1,217,432 1.48%
Cirrus Logic, Inc. (2)................ Office/R&D/Corp. HQ 2 CA 121,582 1,207,104 1.47%
TRW, Inc.............................. Office 1 CA 124,400 1,179,924 1.43%
Nissan Motor Acceptance Corporation... Office 1 TX 174,421 1,159,635 1.41%
Lam Research Corporation.............. Office/R&D 1 CA 120,576 1,157,530 1.41%
Lockheed Martin Aerospace
Corporation (2).................. Office/Division HQ 1 CA 174,600 987,694 1.20%
REX Stores Corporation (2)............ Warehouse/Distribution/Corp. HQ 1 OH 345,325 799,248 0.97%
Tech Data Corporation................. Warehouse/Distribution 1 IN 225,000 783,750 0.95%
Fresenius USA, Inc.................... Office/R&D 1 CA 85,000 739,500 0.90%
Universal Technical Institute......... Office/Corp. HQ 1 AZ 106,763 729,157 0.89%
Deluxe Corporation (2)................ Office 1 MN 73,150 694,560 0.84%
Northern Telecom Inc.................. Office 1 TX 60,000 690,332 0.84%
Dunham' s Athleisure Corporation...... Warehouse/Distribution 1 IN 249,920 647,500 0.79%
Teradyne, Inc......................... Office/R&D 1 CA 60,000 540,000 0.66%
Kelley-Clarke, Inc.................... Office/Regional HQ 1 CA 44,000 534,864 0.65%
Compaq Computer Corporation........... Warehouse/Distribution 1 TX 251,850 513,774 0.62%
Northern States Power Company (2)..... Office/Operations Center 1 MN 41,574 509,282 0.62%
Arrow Electronics, Inc................ Warehouse/Distribution 1 CO 119,200 500,482 0.61%
HomeSide Lending, Inc. (2)............ Office 1 FL 49,344 479,047 0.58%
Uarco Incorporated.................... Warehouse/Distribution 1 IL 140,000 478,800 0.58%
Art Line, Inc......................... Warehouse/Corp. HQ 1 IL 172,846 475,326 0.58%
Fluid Systems Corporation............. Office/R&D/Corp. HQ 1 CA 90,500 470,000 0.57%
Lockheed Martin Corporation (9)....... Office/R&D 1 PA 118,800 469,260 0.57%
PepsiCo, Inc. (10).................... Warehouse/Distribution 1 KS 105,600 353,040 0.43%
Frontier Corporation (11)............. Office/Corp. HQ 1 CO 55,310 345,847 0.42%
--- ----------- ------------ -------
Subtotal......................... 75 12,079,784 78,946,017 95.91%
SUNNYVALE PARTNERSHIP PROPERTIES (12)
Mitsubishi Electronics America, Inc... Office/Division HQ 3 CA 181,715 2,878,366 3.50%
National Semiconductor Corporation/
Kanematsu USA Inc................ Office 1 CA 33,766 480,841 0.59%
--- ----------- ------------ -------
Subtotal......................... 4 215,481 3,359,207 4.09%
--- ----------- ------------ -------
Total........................ 79 12,295,265 $ 82,305,224 100.00%
=== =========== ============ =======
</TABLE>
10
<PAGE> 11
_______________________
1. Contractual rent payments on a cash basis not taking into account a
straight-line method of accounting. Annual rent is calculated by
multiplying monthly rent in effect at December 31, 1996 by 12.
2. Certain Properties leased to this tenant are encumbered by a first
mortgage lien securing borrowings under the 1994 Mortgage Loan. See
Schedule III included elsewhere in this Form 10-K.
3. AT&T is the lessee under one lease and the guarantor under the other
lease, for which the lessee is AT&T Capital Corporation. The annual
rent at December 31, 1996 for the property leased to AT&T includes
$481,212 during the initial term of the lease for tenant improvements
made by the previous landlord. The annual rent at December 31, 1996
for the Property leased to AT&T Capital Corporation has been
calculated before deducting an annual management incentive fee payable
to a third party manager, which the Company estimates is currently
$750,000.
4. In the event that Schwegmann determines to permanently vacate any of
these Properties, it must offer to repurchase such Property at the
greater of TriNet's original purchase price or fair market value
(subject to the lease, including extension options), and if TriNet
elects not to sell the Property to Schwegmann, the lease for such
Property will terminate. In February 1997, an entity formed by
Kohlberg & Co., L.L.C. (the "Kohlberg Entity"), acquired Schwegmann's
retail grocery operations. See "Management's Discussion and
Analysis-Liquidity and Capital Resources."
5. The Company has a maximum annual obligation under the lease for
operating expenses and taxes of $1,451,562.
6. This Property was subleased to Komatsu America International Company
("Komatsu") effective July 29, 1996. Komatsu has executed a direct
lease with the Company that commences in July 2002.
7. The Company has a maximum annual obligation under the lease for
operating expenses of $526,634.
8. The Company has a maximum annual obligation under the lease for taxes
and insurance of $134,518.
9. Chesapeake Park, Inc. a subsidiary of Lockheed Martin Corporation, is
lessee. Lockheed Martin Corporation, which occupies the Property, is
not a guarantor on the lease.
10. The Company holds fee title to the land and a leasehold interest in
the building for this Property.
11. This Property is occupied by ConferTech International, Inc. a
subsidiary of the lessee, Frontier Corporation. Concurrently with the
acquisition of this Property, the Company entered into an agreement to
purchase a second office building that is being constructed as a
build-to-suit for Frontier Corporation. The build-to-suit property
will comprise approximately 62,100 square feet upon completion, which
is expected in June 1997.
12. In connection with the acquisition of the Sunnyvale Research Center,
comprised of four office properties, the Sunnyvale Partnership assumed
$17.0 million of non-recourse first mortgage debt owed to Chase
Manhattan Bank. The Sunnyvale Partnership's limited partnership
agreement places certain restrictions on the Sunnyvale Partnership's
ability to sell the acquired properties prior to June 1998. The
Company owns approximately 45% of the equity interest in the Sunnyvale
Partnership. The limited partners of the Sunnyvale Partnership are
entitled to receive from the Sunnyvale Partnership's distributable
cash a priority return currently equal to approximately 9% per annum
on their approximately $7.6 million investment with further
distributions made to the Company and the limited partners in a 99:1
ratio. In addition, beginning in June 1998, the limited partners have
the right, under certain circumstances, to request the redemption of
their interests in the Sunnyvale Partnership, and the Company may
satisfy the redemption request with shares of the Company's common
stock or cash.
11
<PAGE> 12
LEASE EXPIRATIONS
The following table shows scheduled lease expirations for all leases
for the Properties as of December 31, 1996.
<TABLE>
<CAPTION> PERCENT OF CURRENT
YEAR OF LEASE EXPIRATION (1) NUMBER OF NET RENTABLE SQUARE CURRENT TOTAL ANNUAL TOTAL ANNUAL RENTS
LEASES FEET SUBJECT TO RENTS UNDER EXPIRING REPRESENTED BY
EXPIRING EXPIRING LEASES LEASES (2) EXPIRING LEASES
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997 .................................... 1 148,595 $525 0.64%
1998 .................................... 1 17,725 269 0.33%
1999 .................................... 4 548,944 2,675 3.25%
2000 .................................... 8 1,580,706 11,429 13.89%
2001 .................................... 8 1,329,898 5,217 6.34%
2002 .................................... 5 1,002,277 7,376 8.96%
2003 .................................... 6 1,280,777 8,030 9.76%
2004 .................................... 10 2,335,116 12,824 15.58%
2005 .................................... 2 134,500 1,005 1.22%
2006 .................................... 5 824,045 9,090 11.04%
2007 and thereafter...................... 26 3,092,682 23,865 28.99%
------------ ------------ ------------
Total............................... 12,295,265 $82,305 100.00%
============ ============ ============
</TABLE>
_______________________
(1) Lease expirations, assuming tenants do not exercise existing renewal,
termination or purchase options.
(2) Reflects monthly base rent provided for under the terms of each expiring
lease as in effect on December 31, 1996 multiplied by 12 and does not
take into account any contractual rent escalations.
PORTFOLIO COMPOSITION
The following table sets forth the composition of the Properties as of
December 31, 1996.
<TABLE>
<CAPTION>
CURRENT TOTAL PERCENT OF TOTAL
ANNUAL RENTS ANNUAL RENTS
BY PROPERTY REPRESENTED BY
TYPE(1) PROPERTY TYPE
(IN THOUSANDS)
<S> <C> <C>
Office ............................. $52,019 63.00%
Industrial ......................... 26,148 32.00%
Retail ............................. 4,138 5.00%
------------ ------------
Total .......................... $82,305 100.00%
============ ============
</TABLE>
_______________________
(1) Reflects monthly base rent provided for under the terms of each expiring
lease as in effect on December 31, 1996 multiplied by 12 and does not
take into account any contractual rent escalations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fiscal quarter ended December 31, 1996.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's Common Stock is listed and traded on the New York Stock
Exchange ("NYSE") under the symbol "TRI." The high and low sales prices per
share of Common Stock and the distributions declared per share of Common Stock
are set forth below for the periods indicated.
<TABLE>
<CAPTION>
COMMON STOCK
QUARTER ENDED HIGH LOW DIVIDENDS DECLARED
<S> <C> <C> <C>
1995
March 31 $ 29 3/8 $ 26 $ 0.61
June 30 $ 29 1/4 $ 24 1/4 $ 0.61
September 30 $ 29 1/2 $ 26 7/8 $ 0.61
December 31 $ 29 1/2 $ 26 $ 0.62
1996
March 31 $ 30 3/8 $ 27 $ 0.62
June 30 $ 30 7/8 $ 27 1/8 $ 0.62
September 30 $ 32 3/8 $ 29 1/8 $ 0.62
December 31 $ 35 1/2 $ 31 1/8 $ 0.63
</TABLE>
On March 7, 1997, the reported closing sale price per share of
Common Stock on the NYSE was $34 3/4.
(b) Holders
The Company had 385 record stockholders of Common Stock as of
March 7, 1997.
(c) Dividends
In addition to the dividends declared to holders of Common Stock, the
Company also declared dividends to holders of its Series A Preferred Stock and
Series B Preferred Stock. The Company declared dividends of $0.5664 per share
on its Series A Preferred Stock for the period from June 19, 1996 to September
15, 1996 and $0.5859 per share for the period from September 16, 1996 to
December 15, 1996. The Company declared dividends of $0.2108 per share on its
Series B Preferred Stock for the period from August 13, 1996 to September 15,
1996 and $0.5750 per share for the period from September 16, 1996 to December
15, 1996.
Prior to the consummation of the Initial Offering, the Company did not
pay any distributions to its stockholders. Since the consummation of the
Initial Offering, the Company has paid regular and uninterrupted distributions.
The Company intends to continue to declare quarterly distributions on its
Common Stock. No assurance, however, can be given as to the amounts or timing
of future distributions, as such distributions are subject to the Company's
earnings, financial condition, capital requirements and such other factors as
the Company's Board of Directors deems relevant.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth summary financial, operating and other data on
an historical basis for the Company and, for periods prior to the Initial
Offering, the properties that were owned by seven predecessor partnerships. The
Company's operating data is presented for the years ended December 31, 1992
through 1996. The balance sheet data is presented at December 31st of the
corresponding year. This data should be read in conjunction with the financial
statements of the Company and Management's Discussion and Analysis of Financial
Condition and Results of Operations, each included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ------------ ---------- ---------- --------
(in thousands, except per share and property data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rent revenues $75,252 $56,199 $35,020 $17,511 $11,222
Income before gain on sale of real estate, extraordinary
items, depreciation, and amortization (1) 41,193 34,396 25,384 11,756 4,558
Gain on sale of real estate 6,807 0 0 0 0
Income before extraordinary items 31,642 20,234 15,912 6,767 829
Extraordinary gain from casualty loss 3,178 0 0 0 0
Extraordinary charge from early
extinguishment of debt (2,191) (9,561) 0 0 0
Net income $32,629 $10,673 $15,912 $6,767 $829
Earnings available per common share $2.09 $0.95 $1.84 0 0
Dividends declared per common share $2.49 $2.45 $2.38 $1.27 $0
OTHER DATA:
Funds From Operations (2) $41,551 $30,642 $22,380 $10,440 $3,845
Total properties (at end of period) 79 97 82 67 42
Total net rentable square feet (at end
of period, in thousands) 12,295 10,747 8,590 5,851 1,834
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, before accumulated depreciation (3) $697,517 $538,717 $377,522 $221,477 $91,066
Total assets 708,238 559,727 401,241 229,099 86,277
Total unsecured debt 251,918 77,000 0 0 0
Total secured debt 55,013 167,750 204,415 114,912 88,302
Total liabilities 342,190 270,387 214,554 120,151 92,326
Stockholders' equity (net deficit) 366,048 289,340 186,687 108,948 (6,049)
</TABLE>
________________________
(1) Income before gain on sale of real estate, extraordinary items, depreciation
and amortization for 1996 includes a provision for portfolio repositioning of
$6.8 million related to the four retail Properties leased to Schwegmann.
Effective October 1, 1996, the Company ceased recognizing straight-line rental
income from three of the Schwegmann Properties. See discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
(2) Funds From Operations has been calculated in accordance with the National
Association of Real Estate Investments Trust, Inc.'s definition of "Funds From
Operations," that is, net income, computed in accordance with generally accepted
accounting principles, excluding gains or losses from debt restructuring and
sales of property, plus depreciation and amortization (in each case only for
real estate related assets) and after adjustments for unconsolidated
partnerships and joint ventures, less preferred stock dividends. Funds From
Operations should not be considered as a substitute for net income as an
indication of the Company's performance or as a substitute for cash flow as a
measure of its liquidity. Straight-line rent adjustments for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 were $4,824, $4,226, $2,917,
$1,301 and $408, respectively.
(3) Does not include the four Properties owned by the Sunnyvale Partnership.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-K. Unless otherwise defined in this report, or unless the context
otherwise requires, the capitalized words or phrases referred to in this
section have the meanings ascribed to them in such financial statements and the
notes thereto.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995:
For the year ended December 31, 1996, rent revenues increased $19.1
million, or 34%, to $75.3 million, from $56.2 million for the same period in
1995. This significant increase is the result of the Company's acquisitions
during 1996 and 1995. The 1996 Acquired Properties, not including the
Properties owned by the Sunnyvale Partnership, contributed $11.5 million to
rent revenues during 1996. The remaining net increase of $7.6 million is
primarily due to rents received for a full year of operations on the 1995
Acquired Properties (defined hereafter) and to scheduled rent increases, offset
by a decrease of approximately $1.0 million due to the properties which were
sold during the year.
The Company's joint venture investment in the Sunnyvale Partnership
contributed $455,000 to revenues in 1996 from the acquisition date of June 26,
1996 through December 31, 1996. Compared to 1995, other revenue for 1996
increased by 61% to $1.1 million. The increase is primarily due to a fee from
the sale of the 34 retail stores leased to REX Stores Corporation and a
settlement structuring fee from the settlement with MacFrugal's, which together
comprise approximately $500,000 of other revenue in 1996.
Property operating costs were $2.9 million for the year ended December
31, 1996, compared to $1.3 million in 1995. Expenses relating to the Federal
Express Property, which was acquired in March 1996, contributed to $1.2 million
of this $1.6 million increase. The Company has a maximum annual obligation under
the Federal Express lease for operating expenses and taxes of approximately $1.5
million. The remaining increase of approximately $400,000 is due to the
continued growth in the Company's real estate portfolio.
General and administrative expenses were $5.2 million for the year
ended December 31, 1996, compared to $3.9 million for 1995. This increase of
$1.3 million, or 34%, is attributable to increased personnel and related
overhead as a result of the Company's growth. Although general and
administrative expenses have increased for 1996 when compared to 1995, these
expenses remained at 6.9% of rent revenues for both years.
Interest expense for the year ended December 31, 1996 was $20.8
million compared to $17.3 million for 1995. This increase of $3.5 million, or
20%, was due to an increased weighted average level of debt outstanding, offset
in part by a decreased weighted average interest rate during 1996. The
weighted average debt outstanding was $279.5 million for 1996 compared to
$235.8 million in 1995. The increase in the weighted average debt outstanding
in 1996 was primarily due to borrowings to finance the 1996 Acquired
Properties, offset by the net proceeds from the preferred stock offerings which
were used to reduce mortgage loans and borrowings under the Acquisition
Facility. The weighted average interest rate for 1996 was 7.27% compared to
7.35% in 1995. The decrease is due to a 0.25% decrease in the spread over
LIBOR on the 1994 Mortgage Loan and to a 0.25% decrease in the spread over
LIBOR on the Acquisition Facility due to the Company's attainment of investment
grade ratings. The overall decrease was offset in part by the higher average
interest rates payable on the Company's fixed rate term debt compared to the
variable rate debt replaced.
Depreciation expense for the year ended December 31, 1996 was $13.5
million compared to $10.5 million in 1995. This increase of approximately $3.0
million, or 28%, is primarily a result of the Company's larger asset
15
<PAGE> 16
base. Amortization expense for the year ended December 31, 1996 was $2.9
million compared to $3.6 million in 1995. This decrease of approximately
$700,000, or 19%, is primarily the result of significantly less amortization on
the Acquisition Facility compared to the amortization on the loans repaid in
connection with the debt refinancing that occurred in the fourth quarter of
1995. In addition, amortization expense has decreased during 1996 due to the
two partial repayments on the 1994 Mortgage Loan that occurred during 1996.
Partially offsetting this decrease is amortization relating to the 2001 Notes
and the 2006 Notes, which were issued in May 1996.
As of December 31, 1996, the Company owned four Properties leased to
Schwegmann (the "Schwegmann Properties"), which represented approximately 5% of
annualized rental revenues as of such date. On February 14, 1997, an entity
formed by Kohlberg & Co., L.L.C. (the "Kohlberg Entity"), a privately owned
investment firm, acquired the retail grocery operations of Schwegmann and, in
connection therewith, assumed the lease on the Schwegmann Property in New
Orleans for the remaining 18 years of the primary lease term. In addition, the
Kohlberg Entity has subleased the three other Schwegmann Properties for one
year, during which time the Company and Schwegmann intend to market these
Properties for sale or sublease. There will be approximately 20
Schwegmann-owned properties leased to the Kohlberg Entity. The agreement also
provides that TriNet will receive a $100,000 transaction structuring fee over
the next two years and that Schwegmann will pay for all of the Company's legal
costs related to this transaction. No assurance, however, can be given that
the Company will be able to sell or Schwegmann will be able to sublease these
Properties. Obligations with respect to the Schwegmann Properties are secured
by a first mortgage and assignment of rents on a separate property that is
owned by Schwegmann and leased to the Kohlberg Entity; that property generates
approximately $500,000 in annual rents. All current lease guarantees will stay
in place for the remaining 18-year term on all four Schwegmann Properties.
Schwegmann has been experiencing financial difficulties due to an
increasingly competitive grocery retailing environment. In consideration of the
Company's focus on decreasing its retail holdings and in response to
Schwegmann's deteriorating financial condition, the Company recorded, in
accordance with Statement of Financial Accounting Standards No. 121, a
provision for portfolio repositioning in its financial statements as of
December 31, 1996 in the amount of $6.8 million.
While to date Schwegmann has met its lease obligations, there can be
no assurance that timely lease and sublease payments from Schwegmann and the
Kohlberg Entity will be made in the future. Moreover, if either Schwegmann or
the Kohlberg Entity is unable, because of its financial condition, to make the
required lease or sublease payments, or if Schwegmann seeks protection under
bankruptcy laws, there can be no assurance that the Company's reserve of $6.8
million will be adequate. In addition, if Schwegmann were to seek such
protection, there can be no assurance that all or any of the Company's leases
with Schwegmann would be assumed.
During 1996, the Company sold 36 real estate properties for an
aggregate gain of approximately $6.8 million. On April 24, 1996, the Company
sold its property in Denham Springs, Louisiana to Schwegmann, the former
tenant, for approximately $1.3 million, which resulted in an insignificant
gain. On July 3, 1996, the Company sold a 124,950 square foot office building
occupied by Linvatec Corporation and located in Largo, Florida to Largo Lakes-1
Limited Partnership for a sale price of approximately $11.0 million. The
Company recognized a gain of approximately $650,000 in connection with the
sale. On November 26, 1996, the Company sold 34 retail stores net leased to
REX Stores Corporation for $24.8 million. The Company recognized a gain of
approximately $6.2 million in connection with this sale.
On March 21, 1996, a property leased to an affiliate of MacFrugal's
was destroyed by fire. On December 13, 1996, the Company received a $30.0
million cash settlement from MacFrugal's as compensation for the destruction of
this warehouse/distribution building and as consideration for termination of
the lease. Through December 13, 1996, the Company continued to receive rent
payments from MacFrugal's in accordance with the lease. The Company recognized
an extraordinary gain of approximately $3.2 million from the settlement
proceeds. The $30.0 million cash settlement included a lease cancellation fee
of $3.5 million, which will be amortized over the remainder of the original
lease term. The Company used approximately $20.0 million of the proceeds from
this cash settlement to partially repay the 1994 Mortgage Loan, which resulted
in an extraordinary charge as discussed below.
During the third quarter of 1996, the Company prepaid $35.0 million of
the 1994 Mortgage Loan. In connection with this transaction and the prepayment
on the 1994 Mortgage Loan made with the proceeds from the
16
<PAGE> 17
MacFrugal's settlement, the Company incurred certain fees and recognized
certain unamortized loan costs previously paid by the Company, which resulted
in an extraordinary charge of $2.2 million, of which $400,000 was cash and $1.8
million was non-cash.
During 1996, the Company completed two preferred stock offerings (see
Liquidity and Capital Resources). For the year ended December 31, 1996, the
dividends applicable to the preferred stock were $3.6 million. This amount was
reflected as the dividend requirement in the statement of operations for the
year ended December 31, 1996, and effectively reduced earnings available to
common shares.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994:
For the year ended December 31, 1995, rent revenues increased by 60%
to $56.2 million, compared to $35.0 million for the same period in 1994.
During 1995, the Company acquired 15 additional properties (the "1995 Acquired
Properties"). The 1995 Acquired Properties contributed $8.8 million to rent
revenue during 1995. The remaining $12.4 million increase was primarily a
result of a full year's operations on the 15 properties acquired during 1994
(the "1994 Acquired Properties"). Compared to 1994, other revenue increased by
53% for 1995 to $693,000. The increase is primarily due to larger cash
balances resulting in increased interest income.
Property operating costs were $1.3 million for the year ended December
31, 1995, compared to $804,000 in 1994. This increase of approximately
$500,000 is primarily due to a full year of operations on the Microsoft
Property, which was acquired in August 1994. The Company has a maximum annual
obligation under the Microsoft lease for operating expenses of approximately
$500,000.
General and administrative expenses were $3.9 million for the year
ended December 31, 1995, compared to $2.6 million for 1994. Although these
expenses increased $1.3 million, or 52%, for the year ended December 31, 1995,
when compared to the same period in 1994, these expenses actually decreased as
a percentage of rent revenues. For the year ended December 31, 1995, general
and administrative expenses were 6.9% of rent revenues compared to 7.3% for
1994.
Interest expense for the year ended December 31, 1995 was $17.3
million compared to $6.7 million for 1994. This increase of $10.6 million, or
158%, is attributable to higher average LIBOR rates and the increased
borrowings in 1995 to fund the $160.4 million of real estate acquisitions in
1995. The amount of outstanding debt for 1995 on a weighted average basis was
approximately $235.8 million compared to approximately $102.2 million in 1994,
with a significantly higher asset base in 1995. The weighted average interest
rate for 1995 was 7.35% compared to 6.59% in 1994.
Depreciation expense for the year ended December 31, 1995 was $10.5
million compared to $6.5 million in 1994. The increase of approximately $4.0
million, or 62% is primarily a result of the Company's larger asset base.
Amortization increased $675,000 in 1995 when compared to the year ended
December 31, 1994. However, amortization decreased by 25% to approximately
$700,000 in the fourth quarter of 1995 compared to $1.0 million in the third
quarter of 1995 due to the debt refinancing which occurred in the fourth
quarter, described hereafter.
In the fourth quarter of 1995, the Company recognized a $9.6 million
extraordinary charge due to the early extinguishment of a $50.0 million REMIC
(the "1993 Mortgage Loan") and early termination of a $150.0 million revolving
acquisition facility (the "1993 Acquisition Facility"). In connection with
entering into the Acquisition Facility, the Company repaid in full all
outstanding borrowings under the 1993 Acquisition Facility and purchased U.S.
Treasury securities that were held as substitute collateral in connection with
the refinancing of the 1993 Mortgage Loan. As a result of these transactions,
the Company incurred certain fees and recognized certain unamortized loan costs
previously paid by the Company, which resulted in a cash charge of $3.7 million
and a non-cash charge of $5.9 million.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased $7.9 million, or
20%, to $46.7 million for the year ended December 31, 1996 when compared to the
same period in 1995. The increase was primarily due to rent from the 1996
Acquired Properties and the 1995 Acquired Properties, offset by increased
expenses due to the increased portfolio size. Net cash used for investing
activities was $162.7 million in 1996 compared to $161.5 million in 1995. The
results for 1996 include real estate acquisitions of $229.0 million in 1996
compared to $160.4 million in 1995. Additionally, net cash used for investing
activities during 1996 was offset by $66.8 million of proceeds from the sale of
36 properties and the disposal of one property.
The following table sets forth the Company's capital expenditures for
each of the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Real estate acquisitions $228,962 $160,389 $155,873
Building improvements 379 806 172
Corporate FF&E 303 279 307
---------- ---------- ----------
$229,644 $161,474 $156,352
========== ========== ==========
</TABLE>
The Company did not incur any leasing costs or tenant improvement
expenditures in 1996, but does anticipate incurring such costs in 1997 in
connection with scheduled lease expirations. During 1997, the Company
currently expects to incur approximately $1.0 million in capital expenditures
on existing properties and approximately $300,000 in expenditures on corporate
furniture and equipment.
In April 1996, the Company received unsecured debt ratings of Baa2,
BBB, BBB, and BBB- and preferred stock ratings of baa3, BBB-,BBB-, and BB+ from
Moody's Investors Service, Fitch Investors Service, Duff & Phelps Credit Rating
Co. and Standard & Poor's Corporation, respectively.
On May 22, 1996, the Company completed a public offering of $100.0
million of its 2001 Notes and $50.0 million of its 2006 Notes. The 2001 Notes
were sold at a price of 99.764% of the face value and the 2006 Notes were sold
at a price of 99.853% of the face value. The proceeds (net of the price
discount and offering expenses) of approximately $147.8 million were used to
repay the remaining $28.3 million balance of a mortgage loan from NationsBank
of Texas, N.A. and to reduce indebtedness under the Acquisition Facility.
On June 3, 1996, the Company repaid a $28.5 million mortgage loan from
Connecticut General Life Insurance Company with funds borrowed under the
Acquisition Facility.
On June 19, 1996, the Company completed a public offering of 2,000,000
shares of 9 3/8% Series A Preferred Stock which generated proceeds of $47.7
million (net of underwriters' discount and offering expenses). The net
proceeds were used to repay borrowings under the Acquisition Facility.
Subsequently, on July 1, 1996, the Company borrowed $35.0 million under the
Acquisition Facility to partially repay the 1994 Mortgage Loan. Following such
repayment, the interest rate on the remaining balance of $75.0 million under
the 1994 Mortgage Loan was reduced from LIBOR plus 1.25% to LIBOR plus 1.00%.
Additionally, this prepayment resulted in an extraordinary charge of $1.2
million, all of which was non-cash.
On August 13, 1996, the Company completed a public offering of
1,300,000 shares of 9.20% Series B Preferred Stock which generated proceeds of
$31.1 million (net of underwriters' discount and offering expenses). The net
proceeds from the offering were used to repay borrowings under the Acquisition
Facility.
Effective September 30, 1996, the Company amended the Acquisition
Facility to obtain a reduction of 30 basis points on the interest rate for
outstanding borrowings, which reduced the interest rate to LIBOR plus 1.20% per
annum. In addition, the commitment fee on the average undrawn commitment was
reduced from 25 basis points to 20 basis points and the expiration date of the
facility was extended by two years to October 8, 1999.
On December 13, 1996, the Company received $30.0 million in proceeds
from the settlement of the MacFrugal's property and prepaid approximately $20.0
million of the 1994 Mortgage Loan with such proceeds.
18
<PAGE> 19
This payment resulted in an extraordinary charge of $1.0 million, of which
approximately $600,000 was non-cash. The Company used the remaining $10.0
million of the proceeds from the MacFrugal's settlement to reduce borrowings
under the Acquisition Facility.
The Company expects to meet certain long-term liquidity requirements,
such as property acquisitions and scheduled debt maturities, by long-term
secured and unsecured borrowings and the issuance of debt securities or
preferred and common stock of the Company. As of December 31, 1996, the
Company had on file with the Securities and Exchange Commission two Form S-3
registration statements with combined remaining availability of $139.0 million.
Additionally, on December 31, 1996, the Company filed a Form S-3 registration
statement with the Securities and Exchange Commission which replaced the
previous Form S-3 registration statements and authorized the Company to issue
up to $400.0 million of common stock, preferred stock or debt securities. The
exact amount of debt, preferred stock and common stock issued will depend on
market conditions, acquisitions, asset sales and the Company's senior unsecured
debt and preferred stock ratings at the time of issuance.
On February 28, 1997, the Company completed a follow-on public
offering for a total of 6,000,000 shares of Common Stock. The offering was
priced at $33.625 per share resulting in net proceeds of approximately $190.2
million (net of underwriters' discount and offering expenses). The Company
used approximately $111.7 million of such net proceeds to pay down the balance
on the Acquisition Facility, and the balance of $78.5 million will be used to
finance future acquisitions and for general corporate purposes. In connection
with this offering, the Company granted to the underwriters a 30-day option to
purchase up to 900,000 additional shares at the same price solely to cover
over-allotments. On March 7, 1997, the underwriters purchased 250,000 shares
pursuant to this over-allotment option at $33.625 per share resulting in net
proceeds of approximately $8.0 million (net of underwriters' discount). The net
proceeds will be used to fund future acquisitions.
Outstanding debt as of December 31, 1996 consisted of mortgage notes
and notes payable totaling $307.2 million. There are no scheduled principal
amortization payments in 1997.
As of December 31, 1996, the Company owned four Properties leased to
Schwegmann, which represented approximately 5% of annualized rental revenues as
of such date. On February 14, 1997, the Kohlberg Entity acquired the retail
grocery operations of Schwegmann and, in connection therewith, assumed the lease
on the Schwegmann Property in New Orleans for the remaining 18 years of the
primary lease term. In addition, the Kohlberg Entity has subleased the three
other Schwegmann Properties for one year, during which time the Company and
Schwegmann intend to market these Properties for sale or sublease. There will
be approximately 20 Schwegmann-owned properties leased to the Kohlberg Entity.
The agreement also provides that TriNet will receive a $100,000 transaction
structuring fee over the next two years and that Schwegmann will pay for all of
the Company's legal costs related to this transaction. No assurance, however,
can be given that the Company will be able to sell or Schwegmann will be able to
sublease these Properties. Obligations with respect to the Schwegmann
Properties are secured by a first mortgage and assignment of rents on a separate
property that is owned by Schwegmann and leased to the Kohlberg Entity; that
property generates approximately $500,000 in annual rents. All current lease
guarantees will stay in place for the remaining 18-year term on all four
Schwegmann Properties.
Schwegmann has been experiencing financial difficulties due to an
increasingly competitive grocery retailing environment. In consideration of
the Company's focus on decreasing its retail holdings and in response to
Schwegmann's deteriorating financial condition, the Company recorded, in
accordance with Statement of Financial Accounting Standards No. 121, a
provision for portfolio repositioning in its financial statements as of
December 31, 1996 in the amount of $6.8 million.
While to date Schwegmann has met its lease obligations, there can be
no assurance that timely lease and sublease payments from Schwegmann and the
Kohlberg Entity will be made in the future. Moreover, if either Schwegmann or
the Kohlberg Entity is unable, because of its financial condition, to make the
required lease or sublease payments, or if Schwegmann seeks protection under
bankruptcy laws, there can be no assurance that the Company's reserve of $6.8
million will be adequate. In addition, if Schwegmann were to seek such
protection, there can be no assurance that all or any of the Company's leases
with Schwegmann would be assumed.
On February 18, 1997, the Company acquired an operations center leased
to IBM for a purchase price of approximately $9.9 million. This acquisition
was funded by a draw on the Company's Acquisition Facility. The 222,267
square-foot operations center property is located in Farmers Branch, Texas,
which is six miles north of downtown Dallas, Texas. On March 6, 1997, the
Company acquired two office buildings totaling 444,362 square feet located in
Atlanta, Georgia and primarily leased to IBM, for approximately $60.0 million.
The Company used proceeds from the Common Stock offering completed in February
1997 to fund this aquisition.
19
<PAGE> 20
FUNDS FROM OPERATIONS
The Company believes that to facilitate a clear understanding of the
operating results of the Company, Funds From Operations ("FFO") should be
examined in conjunction with net income. The definition of FFO was clarified
in the National Association of Real Estate Investment Trusts, Inc. ("NAREIT")
White Paper, adopted by the NAREIT Board of Governors on March 3, 1995, as net
income (computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization (in each case only real estate related assets),
less preferred stock dividends, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures will be calculated to reflect FFO on the same basis.
Previously, the Company utilized a method which included adjustments to net
income for amortization of loan costs and interest rate protection agreements
and straight-line rents. FFO for the year ended December 31, 1994 has been
restated in accordance with the clarified definition. FFO should not be
considered as a substitute for net income as an indication of the Company's
performance or as a substitute for cash flow as a measure of its liquidity.
The table below presents the calculations for FFO on a quarterly basis for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED:
--------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 TOTAL
----------- ------------ ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
1996
Funds From Operations:
Income before gain on sale of real estate
and extraordinary items $2,500 $8,497 $7,148 $6,690 $24,835
Real estate depreciation 3,579 3,383 3,231 3,100 13,293
Joint venture income (217) (223) (15) - (455)
Joint venture FFO 349 353 22 - 724
Provision for portfolio repositioning 6,800 - - - 6,800
Preferred dividend requirement (1,920) (1,570) (156) - (3,646)
----------- ----------- ----------- ----------- -----------
Total Funds From Operations $11,091 $10,440 $10,230 $9,790 $41,551
=========== =========== =========== =========== ===========
Common dividends declared $8,799 $8,610 $8,586 $8,582 $34,577
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding 13,913 13,859 13,842 13,842 13,864
=========== =========== =========== =========== ===========
1995
Funds From Operations:
Income before extraordinary charge $6,040 $5,290 $4,764 $4,140 $20,234
Real estate depreciation 2,856 2,826 2,536 2,190 10,408
----------- ----------- ----------- ----------- -----------
Total Funds From Operations $8,896 $8,116 $7,300 $6,330 $30,642
=========== =========== =========== =========== ===========
Common dividends declared $8,583 $6,613 $6,613 $6,613 $28,422
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding 12,896 10,842 10,842 10,273 11,219
=========== =========== =========== =========== ===========
1994
Funds From Operations:
Net income $3,969 $4,917 $4,216 $2,810 $15,912
Real estate depreciation 2,102 1,553 1,449 1,364 6,468
----------- ----------- ----------- ----------- -----------
Total Funds From Operations $6,071 $6,470 $5,665 $4,174 $22,380
=========== =========== =========== =========== ===========
Common dividends declared $5,637 $5,545 $5,453 $3,619 $20,254
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding 9,242 9,242 9,231 6,838 8,647
=========== =========== =========== =========== ===========
</TABLE>
20
<PAGE> 21
INFLATION
The structure of the majority of the Company's leases generally
reduces the risk to the Company of the adverse effects of inflation. The
Company's leases generally provide for rent adjustments during their initial
lease terms and during any option periods. Because net leases require tenants
to pay for some or all operating expenses, property taxes, property repair and
maintenance costs and insurance, some or all of the inflationary impact of
these expenses will be borne by the tenants and not by the Company. An
increase in inflation, however, could result in an increase in the Company's
borrowing costs and its general and administrative costs.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item 8 is included as a separate section of this
annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
22
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 28, 1997.
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<S> <C> <C>
(A) (1) FINANCIAL STATEMENTS
Reference
---------
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule III - Real Estate and Accumulated Depreciation F-19
Notes to Schedule III F-24
</TABLE>
(A) (3) EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 (i) - Amended and Restated Articles of Incorporation.
(Incorporated by reference to Exhibit 3.1 (i) to the
Registration Statement on Form S-11 of TriNet Corporate Realty
Trust, Inc., Registration No. 33-59836.)
3.2 (i) - Definitive Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Shares of Preferred
Stock (Series A Preferred Stock). (Incorporated by reference
to Exhibit 1 of Form 8-A/A of TriNet Corporate Realty Trust,
Inc., dated June 26, 1996, filed with the Securities and
Exchange Commission on June 28, 1996.)
3.3 (i) - Definitive Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Shares of Preferred
Stock (Series B Preferred Stock). (Incorporated by reference
to Exhibit 1 of Form 8-A/A of TriNet Corporate Realty Trust,
Inc., dated August 9, 1996, filed with the Securities and
Exchange Commission on August 12, 1996.)
3.4 (ii)- Amended and Restated Bylaws. (Incorporated by reference to
Exhibit 3.1 (ii) to the Registration Statement on Form S-11 of
TriNet Corporate Realty Trust, Inc., Registration No.
33-59836.)
24
<PAGE> 25
4.1 - Definitive Supplemental Indenture No. 1, dated as of May
22, 1996, relating to the 7.30% Notes due 2001 and the 7.95%
Notes due 2006. (Incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K, dated June 14, 1996 of TriNet
Corporate Realty Trust, Inc.)
4.2 - Definitive Indenture, dated as of May 22, 1996. (Incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K,
dated June 14, 1996 of TriNet Corporate Realty Trust, Inc.)
10.1 - TriNet Corporate Realty Trust, Inc. Amended and Restated
1993 Stock Incentive Plan. (Incorporated by reference to
Exhibit 10.24 to the Registration Statement on Form S-11, of
TriNet Corporate Realty Trust, Inc., Registration No.
33-59836.)
10.2 - Loan Agreement dated December 6, 1994, by and among Nomura
Asset Capital Corporation, Pacific Mutual Life Insurance
Company and TriNet Essential Facilities XII, Inc. (Incorporated
by reference to Exhibit 10.1 to the Registration Statement on
form S-3, of TriNet Corporate Realty Trust, Inc., Registration
No. 33-87256.)
10.3 - Interest Rate Protection Agreement dated May 21, 1993,
between certain of the Company's subsidiaries and UBS
Securities (Swaps), Inc. (Incorporated by reference to Exhibit
10.32 to the Registration Statement on Form S-11, of TriNet
Corporate Realty Trust, Inc., Registration No. 33-74284)
10.4 - Reorganization Agreement dated as of May 21, 1993, between
the Company and Holman/Shidler Corporate Capital, Inc.
(Incorporated by reference to Exhibit 10.41 to the Registration
Statement on Form S-11, of TriNet Corporate Realty Trust, Inc.,
Registration No. 33-74284.)
10.5 - Form of Noncompetition Agreement dated as of June 2, 1993,
between the Company and certain of its executive officers.
(Incorporated by reference to Exhibit 10.31 to the Registration
Statement on Form S-11, of TriNet Corporate Realty Trust, Inc.,
Registration No. 33-59836.)
10.6 - Form of Option Agreement between the Company and its
executive officers. (Incorporated by reference to Exhibit 10.32
to the Registration Statement on Form S-11, of TriNet Corporate
Realty Trust, Inc., Registration No. 33-59836.)
10.7 - Indemnification Agreements between the Company and the
Independent Directors. (Incorporated by reference to Exhibit
10 to Form 10-Q of TriNet Corporate Realty Trust, Inc., dated
August 12, 1993, Commission file No. 1-11918.)
10.8 - TriNet Corporate Realty Trust, Inc. 1993 - 1994 Performance
Based Management Incentive Plan. (Incorporated by reference to
Exhibit 10.49 to the Registration Statement on Form S-11, of
TriNet Corporate Realty Trust, Inc., Registration No.
33-74284.)
25
<PAGE> 26
10.9 - Description of TriNet Corporate Realty Trust, Inc. Savings
and Retirement Plan. (Incorporated by reference to Exhibit
10.50 to the Registration Statement on Form S-11, of TriNet
Corporate Realty Trust, Inc., Registration No. 33-74284.)
10.10 - TriNet Corporate Realty Trust, Inc. 1995 Stock Incentive
Plan. (Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8, of TriNet Corporate Realty
Trust Inc., Registration No. 33-02222.)
10.11 - Management Agreement dated as of June 3, 1993, by and among
the Company and certain of its subsidiaries. (Incorporated by
reference to Exhibit 10.51 to the Registration Statement on
Form S-11, of TriNet Corporate Realty Trust, Inc., Registration
No. 33-74284.)
10.12 - Lease Agreement between Chem Network Processing Services and
AT&T Resource Management Corporation, dated April 20, 1990, as
assigned to TriNet Essential Facilities XIV, Inc. on April 18,
1995. (Incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K dated May 2, 1995 of TriNet Corporate Realty
Trust, Inc.)
10.13 - Purchase Agreement between TriNet Essential Facilities XIV,
Inc. and P.G. Associates Limited Partnership, dated March 13,
1995. (Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K dated May 2, 1995 of TriNet Corporate Realty
Trust, Inc.)
10.14 - First Amendment to Purchase Agreement between TriNet
Essential Facilities XIV, Inc. and P.G. Associates Limited
Partnership, dated April 18, 1995. (Incorporated by reference
to Exhibit 10.3 to the Current Report on Form 8-K dated May 2,
1995 of TriNet Corporate Realty Trust, Inc.)
10.15 - Management Incentive Agreement between TriNet Essential
Facilities XIV, Inc. and P.G. Associates Limited Partnership,
dated April 18, 1995. (Incorporated by reference to Exhibit
10.4 to the Current Report on Form 8-K dated May 2, 1995 of
TriNet Corporate Realty Trust, Inc.)
10.16 - Management Agreement between TriNet Essential Facilities XIV,
Inc. and P.G. Associates Limited Partnership, dated April 18,
1995. (Incorporated by reference to Exhibit 10.5 to the Current
Report on Form 8-K dated May 2, 1995 of TriNet Corporate Realty
Trust, Inc.)
10.17 - Purchase Agreement between TriNet Corporate Partners I, L.P.
and National Tea Corporation, dated November 1, 1994.
(Incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K dated June 23, 1995 of TriNet Corporate
Realty Trust, Inc.)
10.18 - First Amendment to Purchase Agreement between TriNet
Corporate Partners I, L.P. and National Tea Corporation, dated
November 1, 1994. (Incorporated by reference to Exhibit 10.2
to the Current Report on Form 8-K dated June 23, 1995 of TriNet
Corporate Realty Trust, Inc.)
10.19 - Second Amendment to Purchase Agreement between TriNet
Corporate Partners I, L.P. and National Tea Corporation, dated
February 1, 1995. (Incorporated by reference to Exhibit 10.3
to the Current Report on Form 8-K dated June 23, 1995 of TriNet
Corporate Realty Trust, Inc.)
26
<PAGE> 27
10.20 - Third Amendment to Purchase Agreement between TriNet
Corporate Partners I, L.P. and National Tea Corporation, dated
May 1, 1995. (Incorporated by reference to Exhibit 10.4 to the
Current Report on Form 8-K dated June 23, 1995 of TriNet
Corporate Realty Trust, Inc.)
10.21 - Amended and Restated Agreement of Limited Partnership between
TriNet Corporate Realty Trust, Inc. and the O'Donnell Revocable
Trust, the Donald S. Grant Revocable Trust and John W. Hopkins,
dated June 26, 1996. (Incorporated by reference to Exhibit
10.1 of Form 8-K of TriNet Corporate Realty Trust, Inc., and
dated July 3, 1996, filed with the Securities and Exchange
Commission on July 17, 1996 and as amended by Form 8-K/A of
TriNet Corporate Realty Trust, Inc., dated July 3, 1996, filed
with the Securities and Exchange Commission on August 7, 1996.)
10.22 - Amended and Restated Revolving Credit Agreement among TriNet
Corporate Realty Trust, Inc., as borrower, Morgan Guaranty
Trust Company of New York, as lead agent, and First National
Bank of Boston, as managing co- agent, dated October 9, 1996.
(Incorporated by reference to exhibit 10.2 of Form 10-Q of
TriNet Corporate Realty Trust, Inc., dated November 12, 1996,
commission file No. 1-11918.)
21.1 - Schedule of Subsidiaries of the Company as of February 27,
1997:
TriNet Essential Facilities I, Inc.
TriNet Essential Facilities II, Inc.
TriNet Essential Facilities III, Inc.
TriNet Essential Facilities IV, Inc.
TriNet Essential Facilities V, Inc.
TriNet Essential Facilities VI, Inc.
TriNet Essential Facilities VII, Inc.
TriNet Essential Facilities VIIIR, Inc.
TriNet Essential Facilities X, Inc.
TriNet Essential Facilities XI, Inc.
TriNet Essential Facilities XII, Inc.
TriNet Essential Facilities XIV, Inc.
TriNet Essential Facilities XV, Inc.
TriNet Essential Facilities XVI, Inc.
TriNet XVII Realty Trust
TriNet Corporate Partners I, L.P.
TriNet Corporate Partners II, L.P.
TriNet Essential Facilities XVIII, Inc.
TriNet Essential Facilities XIX, Inc.
TriNet Essential Facilities XX, Inc.
TriNet Essential Facilities XXI, Inc.
TriNet Essential Facilities XXII, Inc.
TriNet Essential Facilities XXIII, Inc.
TriNet Essential Facilities XXIV, Inc.
TriNet Sunnyvale Partners, L.P.
23.1 - Consent of Coopers & Lybrand L.L.P.
27.1 - Financial Data Schedule
27
<PAGE> 28
(b) Reports on Form 8-K
1. On March 25, 1996 the Company filed a report on Form
8-K with the Securities and Exchange Commission to
report the destruction of the property net leased to
MacFrugal's Bargains o Close-Outs, Inc. by fire.
2. On April 12, 1996, the Company filed a report on Form
8-K with the Securities and Exchange Commission to
report the acquisition of three additional properties
during the first quarter of 1996.
3. On May 2, 1996, the Company filed a report on Form
8-K/A with the Securities and Exchange Commission to
report the audited historical financial statements
and pro forma financial statements relating to
acquisitions reported in the Form 8-K filed with the
Securities and Exchange Commission on April 12, 1996.
4. On May 10, 1996, the Company filed a report on Form
8-K with the Securities and Exchange Commission to
provide the Form T-1 of the Trustee for the Notes
offering completed in May 1996.
5. On May 21, 1996, the Company filed a report on Form
8-K with the Securities and Exchange Commission to
provide the underwriting agreement for the unsecured
debt offering completed in May 1996.
6. On May 24, 1996, the Company filed a report on Form
8-K with the Securities and Exchange Commission to
report changes in the Board of Directors and the
titles of certain officers.
7. On July 1, 1996, the Company filed a report on Form
8-K with the Securities and Exchange Commission to
provide certain documents relating to the Notes
offering and the Series A Preferred Stock offering.
8. On July 17, 1996, the Company filed a report on Form
8-K with the Securities and Exchange Commission to
report the acquisition of nine additional properties
and the sale of two properties since the April 12th
Form 8-K filing.
9. On August 7, 1996, the Company filed a report on Form
8-K/A with the Securities and Exchange Commission to
report the audited historical financial statements
and pro forma financial statements relating to the
acquisition of nine additional properties and the
sale of two properties reported in the Form 8-K filed
with the Securities and Exchange Commission on July
17, 1996.
10. On August 16, 1996, the Company filed a report on
Form 8-K with the Securities and Exchange Commission
to provide certain documents relating to the Series B
Preferred Stock Offering.
11. On December 27, 1996, the Company filed a report on
Form 8-K with the Securities and Exchange Commission
to report the audited historical financial statements
and pro forma financial statements relating to the
acquisition of 4 properties and the disposition of 35
properties since the July 17th Form 8-K filing.
12. On February 5, 1997, the Company filed a report on
Form 8-K with the Securities and Exchange Commission
to report the Company's audited financial statements
for the year ended December 31, 1996.
13. On March 7, 1997, the Company filed a report on
Form 8-K with the Securities and Exchange Commission
to provide the underwriting agreement for the Common
Stock offering completed in February 1997.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TRINET CORPORATE REALTY TRUST, INC.
Date: March 11, 1997 /s/ Mark S. Whiting
---------------------------------------
Mark S. Whiting, President
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 11, 1997 /s/ Robert W. Holman, Jr.
---------------------------------------
Robert W. Holman, Jr., Chairman
of the Board of Directors
Date: March 11, 1997 /s/ Mark S. Whiting
---------------------------------------
Mark S. Whiting, President
Chief Executive Officer and Director
Date: March 11, 1997 /s/ Jay H. Shidler
--------------------------------------
Jay H. Shidler, Director
Date: March 11, 1997 /s/ Willis Andersen, Jr.
---------------------------------------
Willis Andersen, Jr., Director
Date: March 11, 1997 /s/ John G. McDonald
---------------------------------------
John G. McDonald, Director
Date: March 11, 1997 /s/ Robert S. Morris
---------------------------------------
Robert S. Morris, Director
Date: March 11, 1997 /s/ Stephen B. Oresman
---------------------------------------
Stephen B. Oresman, Director
Date: March 11, 1997 /s/ A. William Stein
---------------------------------------
A. William Stein, Executive Vice
President Chief Financial Officer and
Secretary (Principal Financial and
Accounting Officer)
29
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1996
and 1995 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1995, and 1994 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Schedule III - Real Estate and Accumulated Depreciation F-19
Notes to Schedule III F-24
F-1
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TriNet Corporate Realty Trust, Inc.:
We have audited the consolidated balance sheets and the financial
statement schedule of TriNet Corporate Realty Trust, Inc. and its
subsidiaries (the "Company") as of December 31, 1996 and 1995 and the
related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements and the financial
statement schedule are the responsibility of the Company'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 the Company as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 24, 1997
F-2
<PAGE> 32
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
-----------------
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Real estate:
Land $ 120,084 $ 95,748
Depreciable property 577,433 442,969
--------- ---------
697,517 538,717
Less accumulated depreciation (36,360) (30,260)
--------- ---------
661,157 508,457
Investment in joint venture 6,812 --
--------- ---------
Total real estate 667,969 508,457
Cash and cash equivalents 4,984 9,376
Restricted cash and investments 4,759 12,242
Deferred rent receivable 14,268 11,456
Interest rate protection agreements and loan costs, net 13,870 16,312
Other assets, net 2,388 1,884
--------- ---------
$ 708,238 $ 559,727
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt $ 306,931 $ 244,750
Dividends payable 8,799 8,582
Other liabilities 26,460 17,055
--------- ---------
Total liabilities 342,190 270,387
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized:
Series A: 2,000,000 shares issued and outstanding
at December 31, 1996
(aggregate liquidation preference $50,000) 20 --
Series B: 1,300,000 shares issued and outstanding
at December 31, 1996
(aggregate liquidation preference $32,500) 13 --
Common stock, $.01 par value, 40,000,000 shares authorized:
13,966,667 and 13,841,667 shares issued and outstanding
at December 31, 1996 and 1995, respectively 139 138
Paid-in-capital 394,852 312,904
Accumulated deficit (28,976) (23,702)
--------- ---------
Total stockholders' equity 366,048 289,340
--------- ---------
$ 708,238 $ 559,727
========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE> 33
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
-----------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rent $ 75,252 $ 56,199 $ 35,020
Joint venture income 455 -- --
Other 1,117 693 452
------------ ------------ ------------
Total revenues 76,824 56,892 35,472
Expenses:
Property operating costs 2,867 1,275 804
General and administrative 5,196 3,892 2,558
Interest 20,768 17,329 6,726
Depreciation 13,479 10,546 6,531
Amortization 2,879 3,616 2,941
Provision for portfolio repositioning 6,800 -- --
------------ ------------ ------------
Income before gain on sale
of real estate and extraordinary items 24,835 20,234 15,912
Gain on sale of real estate 6,807 -- --
------------ ------------ ------------
Income before extraordinary items 31,642 20,234 15,912
Extraordinary gain from
casualty loss 3,178 -- --
Extraordinary charge from early
extinguishment of debt (2,191) (9,561) --
------------ ------------ ------------
Net income 32,629 10,673 15,912
Preferred dividend requirement (3,646) -- --
------------ ------------ ------------
Earnings available to common shares $ 28,983 $ 10,673 $ 15,912
============ ============ ============
Per common share:
Income available before extraordinary items,
net of preferred dividend requirement $ 2.02 $ 1.80 $ 1.84
Extraordinary gain 0.23 -- --
Extraordinary charge (0.16) (0.85) --
------------ ------------ ------------
Earnings available $ 2.09 $ 0.95 $ 1.84
============ ============ ============
Weighted average number of common shares outstanding 13,864,116 11,219,201 8,646,948
============ ============ ============
Dividends declared per common share $ 2.49 $ 2.45 $ 2.38
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE> 34
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
(in thousands)
-----------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
---------------------- ---------------------- Paid-In Accumulated Stockholders'
Issued Amount Issued Amount Capital Deficit Equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 -- $ -- 6,240 $ 62 $ 110,497 $ (1,611) $ 108,948
Issuance of common stock,
net of issuance costs -- -- 2,990 30 81,768 -- 81,798
Exercise of common
stock options -- -- 12 -- 283 -- 283
Net income -- -- -- -- -- 15,912 15,912
Common stock
dividends declared -- -- -- -- -- (20,254) (20,254)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1994 -- -- 9,242 92 192,548 (5,953) 186,687
Issuance of common stock,
net of issuance costs -- -- 4,600 46 120,356 -- 120,402
Net income -- -- -- -- -- 10,673 10,673
Common stock
dividends declared -- -- -- -- -- (28,422) (28,422)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 -- -- 13,842 138 312,904 (23,702) 289,340
Issuance of preferred stock,
net of issuance costs 3,300 33 -- -- 78,733 -- 78,766
Exercise of common
stock options -- -- 125 1 3,215 -- 3,216
Net income -- -- -- -- -- 32,629 32,629
Common stock
dividends declared -- -- -- -- -- (34,577) (34,577)
Preferred stock
dividends declared -- -- -- -- -- (3,326) (3,326)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 3,300 $ 33 13,967 $ 139 $ 394,852 $ (28,976) $ 366,048
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE> 35
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
-----------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 32,629 $ 10,673 $ 15,912
Noncash income and expenses included in net income:
Extraordinary charge from early extinguishment of debt 1,785 5,845 --
Extraordinary gain from casualty loss (3,178) -- --
Depreciation and amortization 16,358 14,162 9,472
Straight line rent adjustments (4,824) (4,226) (2,917)
Gain on sale of real estate (6,807) -- --
Provision for portfolio repositioning 6,800 -- --
Joint venture income (455) -- --
Cash provided by (used for) operating assets and liabilities:
Other assets (402) (220) (693)
Other liabilities 4,777 12,554 2,757
--------- --------- ---------
Net cash provided by operating activities 46,683 38,788 24,531
--------- --------- ---------
Cash flows from investing activities:
Real estate acquisitions (228,962) (160,389) (155,873)
Proceeds from disposal of real estate 66,751 -- --
Cash distributions from unconsolidated joint venture 193 -- --
Other capital expenditures (682) (1,085) (479)
--------- --------- ---------
Net cash used in investing activities (162,700) (161,474) (156,352)
--------- --------- ---------
Cash flows from financing activities:
Acquisition Facility borrowings 288,511 156,800 --
Acquisition Facility payments (263,311) (79,800) --
Mortgage note proceeds -- 114,912 232,515
Mortgage note principal payments (112,737) (151,577) (143,012)
Proceeds from issuance of common stock 3,216 120,402 82,081
Proceeds from senior unsecured debt offering 149,691 -- --
Proceeds from issuance of preferred stock 78,766 -- --
Preferred stock dividends paid (3,326) -- --
Common stock dividends paid (34,360) (25,478) (18,111)
Decrease (increase) in restricted cash and investments 7,483 (8,095) (647)
Increase in interest rate protection agreements,
loan costs, and other assets (2,308) (4,413) (14,763)
--------- --------- ---------
Net cash provided by financing activities 111,625 122,751 138,063
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (4,392) 65 6,242
Cash and cash equivalents, at beginning of period 9,376 9,311 3,069
--------- --------- ---------
Cash and cash equivalents, at end of period $ 4,984 $ 9,376 $ 9,311
========= ========= =========
Supplemental information:
Cash paid during the year for interest $ 19,932 $ 17,276 $ 5,891
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 36
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
1. COMPANY BACKGROUND:
Public Stock Offerings and Corporate Reorganization:
TriNet Corporate Realty Trust, Inc. (the "Company" or
"TriNet") was incorporated in the state of Maryland on March 4, 1993,
and commenced operations effective with the completion of the Company's
initial public offering of its common stock (the "Initial Offering") on
June 3, 1993. In connection with the Initial Offering, the Company
engaged in various transactions, including the transfer of 42
properties from the predecessor partnerships (the "Predecessor
Partnerships Properties") and the transfer of the purchase/leaseback
and net lease real estate business operations of The Shidler Group (the
"Reorganization").
During 1995 and 1994, in three separate follow-on public
offerings (the "Follow-on Offerings"), the Company issued 7,590,000
aggregate shares of common stock at prices ranging from $27.50 to
$29.25 generating proceeds (net of underwriters' discount and other
offering costs) of $202.2 million. The proceeds from the Follow-on
Offerings were used for debt repayments, real estate acquisitions and
general working capital.
On June 19, 1996, the Company completed a public offering of
2,000,000 shares of 9.375% Series A Preferred Stock (the "Series A
Preferred Stock") which generated proceeds of $47.7 million (net of
underwriters' discount and other offering expenses). Dividends on the
Series A Preferred Stock are payable quarterly in arrears at the rate
of 9.375% per annum of the $25 per share liquidation preference
(equivalent to a fixed annual rate of $2.34375 per share) in March,
June, September, and December. The Series A Preferred Stock is not
redeemable prior to June 15, 2001. The Series A Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory
redemption.
On August 13, 1996, the Company completed a public offering of
1,300,000 shares of 9.20% Series B Preferred Stock (the "Series B
Preferred Stock") which generated proceeds of $31.1 million (net of
underwriters' discount and other offering expenses). Dividends on the
Series B Preferred Stock are payable quarterly in arrears at the rate
of 9.20% per annum of the $25 per share liquidation preference
(equivalent to a fixed annual rate of $2.30 per share) in March, June,
September, and December. The Series B Preferred Stock is not redeemable
prior to August 15, 2001. The Series B Preferred Stock has no stated
maturity and is not subject to any sinking fund or mandatory
redemption.
Business:
TriNet is a real estate investment trust ("REIT") which
acquires, owns and manages predominantly office and industrial
properties leased to major corporations nationwide, including corporate
headquarters and strategically important distribution facilities. As of
December 31, 1996, TriNet's portfolio consisted of 79 properties,
including four properties held in the TriNet Sunnyvale Partnership,
located in 23 states. All of the properties are 100% leased by a
diverse group of U.S. corporations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Basis of Presentation:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary corporations
and partnerships. All significant intercompany balances and
transactions have been eliminated in consolidation.
F-7
<PAGE> 37
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Revenue Recognition:
Rental income is recognized on a straight-line method of
accounting and, accordingly, contractual rent payment increases are
recognized evenly over the lease term. The difference between
recognized rental income and actual rental cash receipts is recorded as
deferred rent receivable on the balance sheet.
Real Estate:
Real estate is recorded at cost, except for the 42 Predecessor
Partnerships Properties, which have been accounted for as a
reorganization of entities under common control; therefore, the
Predecessor Partnerships Properties have been reported at the
historical cost of the previous owners. Depreciation is computed using
the straight-line method of cost recovery over estimated useful lives
ranging from 31.5 to 40 years for buildings and improvements and 7 to
12 years for furniture and equipment.
Investment in Real Estate Joint Ventures:
Investments in real estate joint ventures are accounted for on
the equity method.
Financial Instruments:
The Company enters into interest rate protection agreements
(the "Protection Agreements"), with parties whose credit ratings are
generally "AAA", to limit the Company's exposure should interest rates
rise above specified levels. The Protection Agreements are held for
purposes other than trading. Related costs are amortized over the
lives of the underlying debt agreements and such amortization is
included in amortization expense. The remaining unamortized cost of
the Protection Agreements is included as "Interest rate protection
agreements and loan costs" on the balance sheet.
Cash and Cash Equivalents:
Cash and cash equivalents include all cash and liquid
investments with an initial maturity of three months or less.
Income Taxes:
The Company has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). As a result,
the Company generally will not be subject to federal income taxation at
the corporate level to the extent it distributes annually at least 95%
of its REIT taxable income, as defined in the Code, to its stockholders
and satisfies certain other requirements. Accordingly, no provision has
been made for federal income taxes in the accompanying consolidated
financial statements.
In connection with the Initial Offering, the tax basis of the
Predecessor Partnership Properties transferred to the Company has been
recorded based upon the value of the consideration paid by the Company.
Accordingly, the tax basis of the real estate assets exceeds the book
basis by approximately $10.0 million.
Real Estate Market Concentration Risk
The Company owns and acquires properties nationally and
believes that operating a national portfolio of real estate reduces the
risk of exposure to economic downturns in any one market. Within the
current national operating strategy, TriNet believes its acquisition
efforts are focused on markets with growing employment, increasing
real estate occupancy rates, and rising rents.
F-8
<PAGE> 38
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
Concentration of Credit Risk:
Management of the Company performs ongoing credit evaluations
of the tenants and may require tenants to provide some form of credit
support such as corporate guarantees. Although the Company's properties
are geographically diverse and the tenants operate in a variety of
industries, to the extent TriNet has a significant concentration of
rental revenues from any single tenant, the inability of that tenant to
make its lease payments could have an adverse effect on the Company. As
of December 31, 1996, the Company's five largest tenants collectively
accounted for approximately 31% of the Company's annualized rental
income. The Company's largest single tenant accounted for approximately
8% of the Company's annualized rental income.
Accounting for Stock-based Compensation:
The Company applies Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its plans.
Earnings Per Share:
The computation of earnings per share is based on the
weighted average number of outstanding common shares during the period.
For the purpose of these calculations, earnings are reduced by the
preferred stock dividend requirement.
Reclassification:
Certain prior year amounts have been reclassified in the
consolidated financial statements and the related notes to conform to
the 1996 presentation.
3. REAL ESTATE:
In April 1996, a wholly owned subsidiary of the Company sold a
retail property located in Denham Springs, Louisiana for a sale price
of $1.3 million, resulting in an insignificant gain. In June 1996, a
wholly owned subsidiary of the Company sold an office building located
in Largo, Florida for a sale price of $11.0 million, resulting in a
gain of approximately $650,000. In November 1996, a wholly owned
subsidiary of the Company sold 34 retail properties for a sale price of
$24.8 million, resulting in a gain of approximately $6.2 million.
In December 1996, a wholly owned subsidiary of the Company
received a $30.0 million cash settlement from MacFrugal's Bargains
Close-outs Inc., as compensation for the destruction of its New
Orleans warehouse/distribution property which was destroyed by fire in
March 1996. The proceeds from this disposal are comprised of
approximately $26.2 million as casualty proceeds, $3.5 million as a
lease termination fee, and approximately $300,000 as a settlement
structuring fee. In addition, the Company recognized an extraordinary
gain of approximately $3.2 million on this transaction. Approximately
$20.0 million of the proceeds were used to paydown a mortgage loan
(see Note 8), resulting in a $1.0 million extraordinary charge.
The Company has implemented a strategy of reducing its
ownership in retail properties as demonstrated by the sale of the 34
retail properties in November 1996, which resulted in a gain of
approximately $6.2 million as discussed above. One of the Company's
five largest tenants, Schwegmann Giant Super Markets ("Schwegmann"),
is experiencing financial difficulties due to an increasingly
competitive grocery retailing environment. The Company owns four
properties leased to Schwegmann, which represented approximately 5% of
annualized rental revenues as of December 31, 1996. In consideration of
the Company's focus on decreasing its retail property holdings and in
response to Schwegmann's deteriorating financial condition, the Company
recorded a provision for portfolio repositioning as of December 31,
1996 in the amount of $6.8 million, and reduced the depreciable basis
of the retail properties and related deferred rent receivable.
Schwegmann recently curtailed operations at two of the Properties as a
cost savings measure, and is working with the Company to explore
possible sale or subleasing options for these Properties to alternative
retail users. While to date Schwegmann has met its rental obligations
to the Company, there can be no assurance of timely or continued
payments in the future. To the extent that Schwegmann is unable,
because of its financial condition, to make required lease payments to
the Company or seeks protection under bankruptcy laws, there can be no
assurance that the Company's provision of $6.8 million will be
adequate. In addition, if Schwegmann were to seek such protection,
there can be no assurance that all or any of the Company's leases with
Schwegmann would be assumed.
F-9
<PAGE> 39
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
4. INVESTMENT IN REAL ESTATE JOINT VENTURE:
In June 1996, the Company contributed $6.1 million in cash in
exchange for a 44.7% sole general partner interest in TriNet Sunnyvale
Partners, L.P. (the "Partnership"). The Partnership owns a
four-building office campus in Sunnyvale, California, subject to a
$17.0 million non-recourse first mortgage. Interest on the mortgage is
due monthly at the London Interbank Offered Rate ("LIBOR") plus 2.00%,
with the principal balance due on April 1, 1998. The Company accounts
for its partnership investment under the equity method. Commencing in
June 1998, the limited partners have the option to convert their
interest into 258,894 shares of the Company's common stock.
The following table represents the condensed balance sheet
of the Partnership as of December 31, (in thousands):
<TABLE>
<CAPTION>
1996 1996
------- -------
<S> <C> <C> <C>
Assets: Liabilities and partners' equity:
Real estate, net $31,135 Mortgages payable $17,000
Other assets 842 Other Liabilities 471
Partner's equity 14,506
------- -------
$31,977 $31,977
======= =======
</TABLE>
The following table summarizes the operating results of the
Partnership for the period from June 26, 1996 through December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 2,058
Property operating costs (298)
Mortgage interest (671)
Depreciation and amortization (279)
-------
Net income $ 810
=======
</TABLE>
5. RESTRICTED CASH AND INVESTMENTS:
Restricted cash and investments consists of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Restricted cash, held in trust $4,759 $ 4,085
U.S. Treasury securities, held in trust -- 8,157
------ -------
$4,759 $12,242
====== =======
</TABLE>
Under the terms of the 1994 Mortgage Loan (Note 8), the
Company is required to maintain restricted cash as a reserve for debt
service and leasing cost obligations.
F-10
<PAGE> 40
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
In connection with the extinguishment of the 1993 Mortgage
Loan (Note 8), the Company placed U.S. Treasury securities with a
trustee as substitute collateral. In June 1996, the proceeds from the
redemption of such securities were released to the Company.
6. INTEREST RATE PROTECTION AGREEMENTS AND LOAN COSTS:
The following table summarizes the costs and accumulated
amortization associated with interest rate protection agreements and
loan costs (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Loan origination costs $ 8,285 $ 8,420
Protection agreement costs 9,845 9,845
------- -------
18,130 18,265
Accumulated amortization (4,260) (1,953)
------- -------
Loan origination costs and
protection agreement costs, net $13,870 $16,312
======= =======
</TABLE>
Loan origination cost amortization for the years ended
December 31, 1996, 1995 and 1994 was approximately $1.9 million, $2.1
million and $1.7 million, respectively. Protection agreement cost
amortization expense for the years ended December 31, 1996, 1995 and
1994 was approximately $985,000, $1.5 million and $816,000,
respectively. The fair value of the interest rate protection
agreements, based on estimated market prices, approximated $5.7
million as of December 31, 1996.
7. OTHER ASSETS, NET:
Accumulated amortization related to other assets aggregated
approximately $452,000 and $252,000 at December 31, 1996 and 1995,
respectively.
8. DEBT:
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
Balance as of December 31,
-------------------------- Interest Rate as of Maturity
Loan 1996 1995 December 31, 1996 Date
-------------------- ---------- ---------- ------------------- ----------
<S> <C> <C> <C> <C>
Acquisition Facility $102,200 $ 77,000 LIBOR + 1.20% 10/08/1999
7.30% Notes due 2001 100,000 -- 7.30% 5/15/2001
1994 Mortgage Loan 55,013 110,000 LIBOR + 1.00% 12/01/2004
7.95% Notes due 2006 50,000 -- 7.95% 5/15/2006
Other Mortgage Loans -- 57,750 -- --
-------- --------
307,213 244,750
Less debt discount (282) --
-------- --------
$306,931 $244,750
======== ========
</TABLE>
F-11
<PAGE> 41
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
ACQUISITION FACILITY. In October 1995, the Company entered
into a $200.0 million acquisition facility (the "Acquisition
Facility"), a revolving credit facility to be used for real estate
acquisitions and for general working capital purposes. Borrowings under
the Acquisition Facility bear interest, at the Company's discretion, at
either i) applicable LIBOR plus 1.20% or ii) prime plus .50%, subject
to the Interest Rate Swap discussed elsewhere. On October 15, 1996, the
Company amended certain terms of the Acquisition Facility. The Company
obtained a reduction of 30 basis points on its current LIBOR borrowings
cost from LIBOR plus 1.50% to LIBOR plus 1.20%. The commitment fee was
reduced from 25 basis points to 20 basis points. In addition, the
expiration date of the facility was extended two years and will mature
in October 1999. All of the available commitment under the facility
may be borrowed for general corporate and working capital needs, as
well as for the acquisition of real estate. The revised terms were
effective September 30, 1996. The Acquisition Facility requires
monthly interest-only payments until maturity in October 1999 at which
time outstanding borrowings are due and payable. In addition, the
Company pays a quarterly commitment fee in arrears equal to .20%
annually of the unused loan commitment. Borrowings under the
Acquisition Facility are unsecured. The Acquisition Facility is
subject to certain restrictive covenants including limitations on
additional borrowings based on the value of real estate assets, minimum
debt service and fixed charges coverage, minimum net worth levels and
maximum leverage.
Borrowings under the Acquisition Facility were used to
extinguish $50.0 million and $62.6 million outstanding under a
mortgage loan and the Company's previous acquisition facility,
respectively. In connection with the early extinguishment of these
loans, the Company incurred fees of $3.7 million and wrote-off related
unamortized loan costs of $5.9 million resulting in an extraordinary
charge of $9.6 million for the year ended December 31, 1995.
2001 NOTES AND 2006 NOTES. On May 22, 1996 the Company
completed a public offering of $100.0 million of its 7.30% Notes due
2001 (the "2001 Notes") and $50.0 million of its 7.95% Notes due 2006
(the "2006 Notes" and, together with the 2001 Notes, the "Notes"). The
2001 Notes were sold at a price of 99.764% of the face value, and the
2006 Notes were sold at a price of 99.853% of the face value resulting
in proceeds (net of the price discount, underwriters' discount and
issuance costs) of approximately $147.8 million. The Notes are senior
unsecured obligations of the Company and rank equally with the
Company's other unsecured and unsubordinated indebtedness. Subject to
certain conditions, the Notes are redeemable at any time at the option
of the Company. Interest on the Notes is paid semi-annually in arrears.
The discounts on the Notes are being amortized using the effective
interest method over the respective lives of the Notes.
1994 MORTGAGE LOAN. In December 1994, a subsidiary entered
into a $110.0 million mortgage loan(the "1994 Mortgage Loan"). The
1994 Mortgage Loan bears interest at a variable rate equal to the
30-day LIBOR plus 1.00% subject to the Interest Rate Swap discussed
elsewhere. The 1994 Mortgage Loan requires monthly interest-only
payments until maturity in December 2004 at which time outstanding
principal is due and payable. The 1994 Mortgage Loan was assigned to a
trust intended to qualify as a real estate mortgage investment conduit,
and the trust issued commercial mortgage pass-through certificates in
the aggregate amount of $110.0 million, secured by certain real estate
assets.
On July 1, 1996, the Company prepaid $35.0 million of the 1994
Mortgage Loan, which reduced the interest rate from LIBOR plus 1.25% to
LIBOR plus 1.00%. Additionally, this prepayment resulted in an
extraordinary charge of approximately $1.2 million, the majority of
which was non-cash. On December 13, 1996, the Company prepaid
approximately $20.0 million of the 1994 Mortgage Loan as a result of
the settlement of the casualty loss that arose from the fire that
destroyed the 1.2 million square foot warehouse/distribution property
located in New Orleans, Louisiana. Additionally, this prepayment
resulted in an extraordinary charge of $1.0 million of which $627,000
was non-cash.
F-12
<PAGE> 42
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
OTHER MORTGAGE LOANS. During 1995, in connection with the
acquisition of two properties, the Company entered into other mortgage
loans of $29.3 million and $28.5 million. These loans were repaid
during 1996 with proceeds from the Notes offering and draws on the
Acquisition Facility.
INTEREST RATE SWAP. Effective October 1, 1995, the Company
entered into an interest rate swap agreement (the "Interest Rate Swap")
with a financial institution which, together with certain existing
interest rate cap agreements, effectively fixes the interest rate on
$110.0 million of the Company's LIBOR based borrowings at 5.58% plus
the applicable margin. The notional amount of indebtedness covered by
the Interest Rate Swap varies over time and was $110.0 million through
May 1996, and will be $160.0 million from June 1996 through December
1997, $125.0 million from January 1998 through May 1998 and $75.0
million from June 1998 through November 2004. The actual borrowing
cost to the Company with respect to indebtedness covered by the
Interest Rate Swap will depend upon the applicable margin over LIBOR
for such indebtedness, which will be determined by the terms of the
relevant debt instruments. Currently, it is expected that the margin
will range from 1.00% to 1.20%, which will provide for an all-in
annual interest rate range from 6.58% to 7.33%.
The average effective interest rate, including the effect of
the Interest Rate Swap and other protection agreements, on the
Company's variable-rate borrowings was 7.27%, 7.35% and 6.59% for the
years ended December 31, 1996, 1995 and 1994, respectively. Based on
the borrowing rates currently available to the Company for borrowings
with similar terms and maturities, the carrying value of the Company's
mortgage notes payable approximates fair value.
Future maturities of outstanding debt are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ --
1998 --
1999 102,200
2000 --
2001 100,000
Thereafter 105,013
--------
$307,213
========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
From time to time the Company is subject to routine litigation
incidental to its business. The Company believes that the results of
any pending legal proceedings will not have a materially adverse effect
on the Company's financial condition.
As of January 24, 1997, the Company had entered into an
aggregate of approximately $61.0 million of contracts with third party
developers to acquire four separate properties currently under
construction. The acquisition of these properties is subject to the
completion of construction, occupancy of the premises by the tenants
(pursuant to leases that have already been executed by the parties) and
satisfaction of certain conditions. Completion of construction is
expected during the second and fourth quarters of 1997. In connection
with two of these acquisitions, the Company has issued letters of
credit as earnest money for a combined total of approximately $1.8
million. In addition, two existing tenants have the option to
require the Company to construct approximately 174,000 total square
feet of additional adjacent space.
F-13
<PAGE> 43
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
10. DIVIDENDS:
As described in Note 2, the Company qualifies for federal
income tax purposes as a REIT. The following summarizes the tax
components of common dividends declared in 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Per Common Share:
Ordinary income $1.27 $1.47 $1.78
Capital gain 0.10 -- --
Return of capital 1.12 0.98 0.60
----- ----- -----
Total $2.49 $2.45 $2.38
===== ===== =====
</TABLE>
100% of the dividends declared on the Series A Preferred Stock
and the Series B Preferred Stock for the period ended December 31, 1996
represented ordinary income for income tax purposes.
11. STOCK OPTION PLANS AND EMPLOYEE BENEFITS:
The Company has established the 1993 Stock Incentive Plan (the
"1993 Stock Plan") for the purpose of encouraging and enabling the
Company's officers, employees and directors to acquire a proprietary
interest in the Company. The 1993 Stock Plan provides for
administration by the Compensation Committee (the "Committee") of the
Board of Directors. A maximum of 500,000 common shares have been
reserved for issuance under the 1993 Stock Plan. The 1993 Stock Plan
authorized (i) the grant of stock options that qualify as incentive
stock options ("ISOs") under Section 422 of the Code, (ii) the grant of
stock options that do not so qualify and (iii) grants of shares
contingent upon the attainment of performance goals or subject to other
restrictions. Options granted under the 1993 Stock Plan vest ratably
over four years for employees and after one year for non-employee
directors.
In addition, in connection with the Initial Offering, options
were granted separately from the 1993 Stock Plan to executive officers
to purchase an aggregate of 290,000 shares at the Initial Offering
price of $24.25 per share. Options granted in connection with the
Initial Offering vested ratably over three years.
During 1995, the Company adopted the 1995 Stock Incentive Plan
(the "1995 Stock Plan"). The 1995 Stock Plan provides for the issuance
of, or grant of options to purchase, up to 1,000,000 shares of Common
Stock. Options under the 1995 Stock Plan may be ISOs or nonqualified
options. Options granted to date under the 1995 Stock Plan vest ratably
over four years for employees and after one year for non-employee
directors.
F-14
<PAGE> 44
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
Changes during 1994, 1995 and 1996 in options outstanding
for the combined plans were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------------------------- Average Option
Employees Non-employee Directors Price Per Share
----------- ---------------------- ---------------
<S> <C> <C> <C>
Options Outstanding
December 31, 1993 290,000 24,000 $24.28
Granted, 1994 200,000 24,000 $30.81
Exercised, 1994 (11,667) -- $24.25
---------- -------
Options Outstanding
December 31, 1994 478,333 48,000 $27.06
Granted, 1995 266,000 30,000 $27.81
Exercised, 1995 -- --
---------- -------
Options Outstanding
December 31, 1995 744,333 78,000 $27.33
Granted, 1996 260,000 30,000 $28.46
Exercised, 1996 (119,000) (6,000) $25.72
Canceled, 1996 (63,500) -- $28.73
---------- -------
Options Outstanding
December 31, 1996 821,833 102,000 $27.81
========== =======
</TABLE>
The following table summarizes information concerning
currently outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------- ---------------------------
Weighted Average Weighted Weighted
Number Outstanding Remaining Average Number Average
Exercise Price as of December 31, 1996 Contractual Life Exercise Price Exercisable Exercise Price
- -------------- ----------------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$24.25 193,333 6.42 $24.25 193,333 $24.25
$24.63 18,000 6.50 $24.63 18,000 $24.63
$27.75 208,500 8.00 $27.75 73,500 $27.75
$28.25 248,000 8.96 $28.25 -- --
$28.38 30,000 8.76 $28.38 7,500 $28.38
$29.00 12,000 9.49 $29.00 -- --
$30.00 30,000 9.41 $30.00 -- --
$30.25 24,000 7.44 $30.25 24,000 $30.25
$30.88 160,000 7.42 $30.88 80,000 $30.88
------ ------- ---- ------ ------- ------
923,833 7.87 $27.81 396,333 $26.69
======= ==== ====== ======= ======
</TABLE>
At December 31, 1996, 63,500 common shares were available for
future grant of options or awards under the 1993 Stock Plan, and
666,000 common shares were available for future grant of options or
awards under the 1995 Stock Plan.
The Company applies Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for its stock-based
compensation plans. Had compensation cost for the Company's stock
F-15
<PAGE> 45
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
option plans been determined based upon the fair value at the grant
date for awards under these plans consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company's net income and
earnings per share would have been reduced by approximately $370,000 or
$.03 per share for the year ended December 31, 1996, and approximately
$150,000 or $.01 per common share for the year ended December 31, 1995.
The fair value of the options granted during 1996 is estimated as $3.13
per common share on the date of grant using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 7.21%,
volatility of 21%, risk-free interest rates of 5.18% to 5.77%, actual
forfeitures, and an expected life of approximately 5 years. The fair
value of the options granted during 1995 is estimated as $2.94 per
common share on the date of grant using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 7.21%,
volatility of 21%, risk-free interest rates of 5.18% to 5.77%, actual
forfeitures, and an expected life of approximately 5 years.
Effective January 1, 1994, the Company implemented the TriNet
Corporate Realty Trust, Inc. Savings and Retirement Plan (the "401(k)
Plan"), which is a voluntary, defined contribution plan. All employees
are eligible to participate in the 401(k) Plan following completion of
six months of continuous service with the Company. Each participant may
contribute on a pretax basis between 2% and 10% of such participant's
compensation. At the discretion of the Board of Directors, the Company
may make matching contributions on the participant's behalf, up to 50%
of the participant's annual contribution. The Company made
contributions of approximately $67,000, $50,000 and $29,000 to the plan
for the years ended December 31, 1996, 1995 and 1994, respectively.
12. OPERATING LEASES:
The properties are leased to tenants under net operating
leases with initial term expiration dates ranging from 1997 to 2018.
Future rentals under non-cancelable operating leases, excluding tenant
reimbursements of expenses, in effect at December 31, 1996, are
approximately as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---------- --------
<S> <C>
1997 $ 79,335
1998 80,304
1999 80,437
2000 75,697
2001 67,546
Thereafter 418,736
--------
$802,055
========
</TABLE>
No single tenant represented more than 10% of rental revenues
received for the year ended December 31, 1996.
13. DEPRECIATION:
Depreciation expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Real estate $13,293 $10,408 $6,470
Corporate furniture and equipment 186 138 61
------- ------- ------
$13,479 $10,546 $6,531
======= ======= ======
</TABLE>
F-16
<PAGE> 46
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
14. SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION: (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
December 31 September 30 June 30 March 31
------------ ------------ ------------ ------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
1996
- ----
Revenues $ 21,018 $ 20,079 $ 18,913 $ 16,814
Income before extraordinary items $ 8,644 $ 9,159 $ 7,149 $ 6,690
Extraordinary gain $ 3,178 $ -- $ -- $ --
Extraordinary charge $ (1,026) $ (1,165) $ -- $ --
Net income $ 10,799 $ 7,991 $ 7,149 $ 6,690
Earnings available to common shares $ 8,879 $ 6,421 $ 6,993 $ 6,690
Extraordinary gain per share $ 0.23 $ -- $ -- $ --
Extraordinary charge per share $ (0.08) $ (0.08) $ -- $ --
Earnings available per common share
net of preferred dividend requirement $ 0.64 $ 0.46 $ 0.51 $ 0.48
Weighted average number of
common shares outstanding 13,913,692 13,858,754 13,841,865 13,841,667
1995
- ----
Revenues $ 15,720 $ 15,480 $ 13,777 $ 11,915
Net income before extraordinary charge $ 6,040 $ 5,290 $ 4,764 $ 4,140
Extraordinary charge $ (9,561) $ -- $ -- $ --
Net income (loss) $ (3,521) $ 5,290 $ 4,764 $ 4,140
Extraordinary charge per share $ (0.74) $ -- $ -- $ --
Net income (loss) per share $ 0.27 $ 0.49 $ 0.44 $ 0.40
Weighted average number of
common shares outstanding 12,896,015 10,841,667 10,841,667 10,272,778
</TABLE>
15. PRO FORMA FINANCIAL INFORMATION: (UNAUDITED)
The pro forma financial information set forth below is
presented as if the notes offerings, the Series A Preferred Stock and
Series B Preferred Stock offerings, the acquisitions of real estate
during 1995 and 1996, the dispositions of real estate during 1996, and
the related refinancings of other mortgage loans had occurred on
January 1, 1995. The calculation of pro forma common shares outstanding
includes the shares issued in connection with the common offering that
occurred in October 1995.
F-17
<PAGE> 47
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
The pro forma financial and operating data are not
necessarily indicative of what the actual results of operations or
financial position of the Company would have been nor do they purport
to represent the results of operations or financial position for future
periods. In addition, the pro forma financial and operating data do
not include the effects of the gains on the sale of real estate and
extraordinary items recognized in the Company's historical financial
statements.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
(in thousands, except share data)
<S> <C> <C>
Revenues $ 86,802 $ 86,802
Income from recurring operations $ 31,230(1) $ 37,423
Earnings available to common shares $ 23,553 $ 29,746
Earnings available per common share $ 1.69 $ 2.13
Common shares outstanding 13,966,667 13,966,667
</TABLE>
(1) Pro forma income from recurring operations for the year ended
December 31, 1996 includes a provision for portfolio repositioning
of $6.8 million.
F-18
<PAGE> 48
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
----------------------------------------- Costs
Furniture Capitalized
Building and and Subsequent to
Description Encumbrances Land Improvements Fixtures Acquisition
----------- ------------ ---- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
UNISYS CORPORATION (3)
1 70E Swedesford Rd ( W.T.) $ - $ 393 $ 2,283 $ 154 $ -
Paoli, PA
2 2476 Swedesford Rd ( C.T.) - 3,027 17,598 1,184 -
Paoli, PA
3 2611 Corporate W. Dr 7,664 8,232 20,015 - 82
Lisle, IL
SPX CORPORATION
4 700 Terrace Point Dr. - 570 7,891 445 -
Muskegon, MI
5 100 Terrace Plaza - 465 6,441 364 -
Muskegon, MI
REX STORES CORPORATION
6 2875 Needmore Rd. 2,496 1,184 5,407 - -
Dayton, OH
UARCO INCORPORATED
7 4000 South Racine Ave. - 184 998 - 1,924
Chicago, IL
RALPHS GROCERY COMPANY
8 2652 Long Beach Ave. - 7,293 8,914 853 -
Los Angeles, CA
ART LINE, INC.
9 600 North Kilbourn - 268 2,353 124 391
Chicago, IL
UNIVERSAL TECHNICAL INSTITUTE
10 3002 North 27th Ave. - 1,621 3,226 - 10
Phoenix, AZ
CATERAIR INTERNATIONAL CORPORATION
11 50 Adrian Court - 742 2,112 - -
Burlingame, CA
12 370 Adrian Road - 451 1,282 - -
Millbrae, CA
13 3500 N.W. 24th Street - 1,855 5,280 - -
Miami, FL
14 3630 N.W. 25th Street - 981 2,791 - -
Miami, FL
15 4101 N.W. 25th Street - 848 2,414 - -
Miami, FL
16 221 West 79th St. - 245 698 - -
Bloomington, MN
17 1085 Bible Way - 151 430 - -
Reno, NV
18 18850 28th Avenue, South - 504 1,433 - -
Seattle, WA
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
Provision for ----------------------------------------------------------------
Portfolio Furniture and Building
Description Repositioning Land Buildings Fixtures Improvements Total
----------- ------------- ------ --------- ------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
UNISYS CORPORATION (3)
1 70E Swedesford Rd ( W.T.) $- $ 393 $ 2,283 $ 154 $ - $ 2,830
Paoli, PA
2 2476 Swedesford Rd ( C.T.) - 3,027 17,598 1,184 - 21,809
Paoli, PA
3 2611 Corporate W. Dr - 8,250 20,059 - 20 28,329
Lisle, IL
SPX CORPORATION
4 700 Terrace Point Dr. - 570 7,891 445 - 8,906
Muskegon, MI
5 100 Terrace Plaza - 465 6,441 364 - 7,270
Muskegon, MI
REX STORES CORPORATION
6 2875 Needmore Rd. - 1,184 5,407 - - 6,591
Dayton, OH
UARCO INCORPORATED
7 4000 South Racine Ave. - 389 2,696 - 21 3,106
Chicago, IL
RALPHS GROCERY COMPANY
8 2652 Long Beach Ave. - 7,293 8,914 853 - 17,060
Los Angeles, CA
ART LINE, INC.
9 600 North Kilbourn - 283 2,680 124 49 3,136
Chicago, IL
UNIVERSAL TECHNICAL INSTITUTE
10 3002 North 27th Ave. - 1,621 3,226 - 10 4,857
Phoenix, AZ
CATERAIR INTERNATIONAL CORPORATION
11 50 Adrian Court - 742 2,112 - - 2,854
Burlingame, CA
12 370 Adrian Road - 451 1,282 - - 1,733
Millbrae, CA
13 3500 N.W. 24th Street - 1,855 5,280 - - 7,135
Miami, FL
14 3630 N.W. 25th Street - 981 2,791 - - 3,772
Miami, FL
15 4101 N.W. 25th Street - 848 2,414 - - 3,262
Miami, FL
16 221 West 79th St. - 245 698 - - 943
Bloomington, MN
17 1085 Bible Way - 151 430 - - 581
Reno, NV
18 18850 28th Avenue, South - 504 1,433 - - 1,937
Seattle, WA
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Accumulated Date Life
Description Depreciation Acquired (Years)
----------- ------------ -------- -----------
<S> <C> <C> <C>
UNISYS CORPORATION (3)
1 70E Swedesford Rd ( W.T.) $ 706 1990 31.5
Paoli, PA
2 2476 Swedesford Rd ( C.T.) 5,440 1990 31.5
Paoli, PA
3 2611 Corporate W. Dr 1,275 1994 40.0
Lisle, IL
SPX CORPORATION
4 700 Terrace Point Dr. 2,240 1989 31.5
Muskegon, MI
5 100 Terrace Plaza 1,829 1989 31.5
Muskegon, MI
REX STORES CORPORATION
6 2875 Needmore Rd. 377 1994 40.0
Dayton, OH
UARCO INCORPORATED
7 4000 South Racine Ave. 579 1989 31.5
Chicago, IL
RALPHS GROCERY COMPANY
8 2652 Long Beach Ave. 2,599 1990 31.5
Los Angeles, CA
ART LINE, INC.
9 600 North Kilbourn 750 1989 31.5
Chicago, IL
UNIVERSAL TECHNICAL INSTITUTE
10 3002 North 27th Ave. 807 1989 31.5
Phoenix, AZ
CATERAIR INTERNATIONAL CORPORATION
11 50 Adrian Court 187 1993 40.0
Burlingame, CA
12 370 Adrian Road 113 1993 40.0
Millbrae, CA
13 3500 N.W. 24th Street 467 1993 40.0
Miami, FL
14 3630 N.W. 25th Street 247 1993 40.0
Miami, FL
15 4101 N.W. 25th Street 214 1993 40.0
Miami, FL
16 221 West 79th St. 62 1993 40.0
Bloomington, MN
17 1085 Bible Way 38 1993 40.0
Reno, NV
18 18850 28th Avenue, South 127 1993 40.0
Seattle, WA
</TABLE>
F-19
<PAGE> 49
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
----------------------------------------- Costs
Furniture Capitalized
Building and and Subsequent to
Description Encumbrances Land Improvements Fixtures Acquisition
----------- ------------ ----- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
CATERAIR INTERNATIONAL CORPORATION
19 2800 Collingswood Drive - 898 2,555 - -
Orlando, FL
20 45-10 19th Avenue - 1,093 3,109 - -
Astoria, NY
21 24-20 49th Street - 546 1,555 - -
Astoria, NY
22 8401 Escort Street - 377 1,074 - -
Philadelphia, PA
SEARS LOGISTICS SERVICES
23 4150 Lockbourne 3,155 424 8,051 - 8
Industrial Parkway
Columbus, OH
GATX LOGISTICS, INC.
24 Steelway Blvd., North (A-F) - 394 6,174 - 403
Clay, NY
25 Steelway Blvd., North (G) - 84 1,326 - 41
Clay, NY
26 Steelway Blvd., North (H) - 85 1,326 - 40
Clay, NY
27 Steelway Blvd.., South - 124 1,949 - 379
Clay, NY
28 Dunn Rd. at Paliotti Pkwy. 2,008 258 4,039 - 40
Lyons, NY
29 2900 McLane Drive 2,008 344 5,396 - 89
Lysander, NY
NORTHERN STATES POWER COMPANY
30 3115 Center Point Drive 1,590 1,046 4,182 - 13
Roseville, MN
PNC MORTGAGE CORPORATION OF AMERICA, INC.
31 440 North Fairway Drive - 1,130 10,167 - 49
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC.
32 450 Barclay Blvd. 3,002 2,660 6,206 - 44
Lincolnshire, IL
33 500 South Seventh Ave. 3,803 3,370 7,863 - 56
City of Industry, CA
34 11650 Central Parkway 2,137 1,894 4,419 - 31
Jacksonville, FL
LOCKHEED MARTIN AEROSPACE CORPORATION
35 1260 Crossman Ave. 3,084 1,287 7,903 - -
Sunnyvale, CA
DELUXE CORPORATION
36 1275 Red Fox Road 2,056 684 5,061 - -
Arden Hills, MN
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
Provision for ---------------------------------------------------------------
Portfolio Furniture and Building
Description Repositioning Land Buildings Fixtures Improvements Total
----------- ------------ ---- --------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
CATERAIR INTERNATIONAL CORPORATION
19 2800 Collingswood Drive - 898 2,555 - - 3,453
Orlando, FL
20 45-10 19th Avenue - 1,093 3,109 - - 4,202
Astoria, NY
21 24-20 49th Street - 546 1,555 - - 2,101
Astoria, NY
22 8401 Escort Street - 377 1,074 - - 1,451
Philadelphia, PA
SEARS LOGISTICS SERVICES
23 4150 Lockbourne - 424 8,051 - 8 8,483
Industrial Parkway
Columbus, OH
GATX LOGISTICS, INC.
24 Steelway Blvd., North (A-F) - 395 6,192 - 384 6,971
Clay, NY
25 Steelway Blvd., North (G) - 85 1,329 - 37 1,451
Clay, NY
26 Steelway Blvd., North (H) - 85 1,329 - 37 1,451
Clay, NY
27 Steelway Blvd.., South - 125 1,956 - 371 2,452
Clay, NY
28 Dunn Rd. at Paliotti Pkwy. - 259 4,050 - 28 4,337
Lyons, NY
29 2900 McLane Drive - 345 5,412 - 72 5,829
Lysander, NY
NORTHERN STATES POWER COMPANY
30 3115 Center Point Drive - 1,048 4,193 - - 5,241
Roseville, MN
PNC MORTGAGE CORPORATION OF AMERICA, INC.
31 440 North Fairway Drive - 1,135 10,211 - - 11,346
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC.
32 450 Barclay Blvd. - 2,673 6,237 - - 8,910
Lincolnshire, IL
33 500 South Seventh Ave. - 3,387 7,902 - - 11,289
City of Industry, CA
34 11650 Central Parkway - 1,903 4,441 - - 6,344
Jacksonville, FL
LOCKHEED MARTIN AEROSPACE CORPORATION
35 1260 Crossman Ave. - 1,287 7,903 - - 9,190
Sunnyvale, CA
DELUXE CORPORATION
36 1275 Red Fox Road - 684 5,061 - - 5,745
Arden Hills, MN
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Accumulated Date Life
Description Depreciation Acquired (Years)
----------- ------------ -------- ------------
<S> <C> <C> <C>
CATERAIR INTERNATIONAL CORPORATION
19 2800 Collingswood Drive 226 1993 40.0
Orlando, FL
20 45-10 19th Avenue 275 1993 40.0
Astoria, NY
21 24-20 49th Street 138 1993 40.0
Astoria, NY
22 8401 Escort Street 95 1993 40.0
Philadelphia, PA
SEARS LOGISTICS SERVICES
23 4150 Lockbourne 713 1993 40.0
Industrial Parkway
Columbus, OH
GATX LOGISTICS, INC.
24 Steelway Blvd., North (A-F) 692 1993 40.0
Clay, NY
25 Steelway Blvd., North (G) 136 1993 40.0
Clay, NY
26 Steelway Blvd., North (H) 136 1993 40.0
Clay, NY
27 Steelway Blvd.., South 246 1993 40.0
Clay, NY
28 Dunn Rd. at Paliotti Pkwy. 266 1993 40.0
Lyons, NY
29 2900 McLane Drive 357 1993 40.0
Lysander, NY
NORTHERN STATES POWER COMPANY
30 3115 Center Point Drive 327 1993 40.0
Roseville, MN
PNC MORTGAGE CORPORATION OF AMERICA, INC.
31 440 North Fairway Drive 776 1993 40.0
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC.
32 450 Barclay Blvd. 474 1993 40.0
Lincolnshire, IL
33 500 South Seventh Ave. 601 1993 40.0
City of Industry, CA
34 11650 Central Parkway 338 1993 40.0
Jacksonville, FL
LOCKHEED MARTIN AEROSPACE CORPORATION
35 1260 Crossman Ave. 535 1994 40.0
Sunnyvale, CA
DELUXE CORPORATION
36 1275 Red Fox Road 301 1994 40.0
Arden Hills, MN
</TABLE>
F-20
<PAGE> 50
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
----------------------------------------- Costs
Furniture Capitalized
Building and and Subsequent to
Description Encumbrances Land Improvements Fixtures Acquisition
----------- ------------ ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
MICROSOFT CORPORATION
37 1321 Greenway 1,647 1,473 4,620 - 11
Irving, TX
AT&T CORPORATION
38 7595 Baymeadows Way 2,693 2,183 5,567 - -
Jacksonville, FL
HOMESIDE LENDING, INC.
39 7585 Baymeadows Way 1,393 1,021 2,604 - -
Jacksonville, FL
UNISON INDUSTRIES, L.P.
40 7575 Baymeadows Way 4,574 2,911 7,423 - 1
Jacksonville, FL
COMPAQ COMPUTER CORPORATION
41 100 Donwick Dr. - 1,205 3,817 - 119
Conroe, TX
NIKE, INC.
42 8400 Winchester Rd. 7,017 1,476 23,127 - -
Memphis, TN
CIRRUS LOGIC, INC.
43 46702 Bayside Parkway 1,381 603 4,239 - 1
Fremont, CA (#2)
44 46831 Lakeview Blvd. - 979 7,179 - 3
Fremont, CA (#8)
CERTIFIED GROCERS OF CALIFORNIA, LTD.
45 5200 East Sheila St. 3,305 2,593 9,195 - -
Commerce, CA
FIRST HEALTH STRATEGIES, INC.
46 2610,2650,2691 S. Decker Lane - 1,105 12,052 - 19
West Valley City, UT
TRW, INC.
47 3701 Doolittle Drive - 2,297 8,145 - -
Redondo Beach, CA
DUNHAM'S ATHLEISURE CORPORATION
48 2201 E. Loew Rd. - 181 5,861 - -
Marion, IN 46952
AT&T CORPORATION
49 Gatehall II / Gatehall Drive - 4,885 49,390 - -
Parsippany -Troy Hills, NJ
SCHWEGMANN GIANT SUPER MARKETS
50 8000 Greenwell Springs Road - 1,062 3,995 - -
Baton Rouge, LA
51 2424 Manhattan Blvd. - 2,971 8,456 - -
Harvey, LA
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
---------------------------------------------------------------
Provision for
Portfolio Furniture and Building
Description Repositioning Land Buildings Fixtures Improvements Total
----------- ------------- ----- --------- ------------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
MICROSOFT CORPORATION
37 1321 Greenway - 1,473 4,622 - 9 6,104
Irving, TX
AT&T CORPORATION
38 7595 Baymeadows Way - 2,183 5,567 - - 7,750
Jacksonville, FL
HOMESIDE LENDING, INC.
39 7585 Baymeadows Way - 1,021 2,604 - - 3,625
Jacksonville, FL
UNISON INDUSTRIES, L.P.
40 7575 Baymeadows Way - 2,911 7,424 - - 10,335
Jacksonville, FL
COMPAQ COMPUTER CORPORATION
41 100 Donwick Dr. - 1,207 3,821 - 113 5,141
Conroe, TX
NIKE, INC.
42 8400 Winchester Rd. - 1,476 23,127 - - 24,603
Memphis, TN
CIRRUS LOGIC, INC.
43 46702 Bayside Parkway - 604 4,239 - - 4,843
Fremont, CA (#2)
44 46831 Lakeview Blvd. - 979 7,182 - - 8,161
Fremont, CA (#8)
CERTIFIED GROCERS OF CALIFORNIA, LTD.
45 5200 East Sheila St. - 2,593 9,195 - - 11,788
Commerce, CA
FIRST HEALTH STRATEGIES, INC.
46 2610,2650,2691 S. Decker Lane - 1,107 12,069 - - 13,176
West Valley City, UT
TRW, INC.
47 3701 Doolittle Drive - 2,297 8,145 - - 10,442
Redondo Beach, CA
DUNHAM'S ATHLEISURE CORPORATION
48 2201 E. Loew Rd. - 181 5,861 - - 6,042
Marion, IN 46952
AT&T CORPORATION
49 Gatehall II / Gatehall Drive - 4,885 49,390 - - 54,275
Parsippany -Troy Hills, NJ
SCHWEGMANN GIANT SUPER MARKETS
50 8000 Greenwell Springs Road (1,517) 1,062 2,478 - - 3,540
Baton Rouge, LA
51 2424 Manhattan Blvd. (1,727) 2,971 6,729 - - 9,700
Harvey, LA
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Accumulated Date Life
Description Depreciation Acquired (Years)
----------- ------------ -------- -----------
<S> <C> <C> <C>
MICROSOFT CORPORATION
37 1321 Greenway 275 1994 40.0
Irving, TX
AT&T CORPORATION
38 7595 Baymeadows Way 331 1994 40.0
Jacksonville, FL
HOMESIDE LENDING, INC.
39 7585 Baymeadows Way 155 1994 40.0
Jacksonville, FL
UNISON INDUSTRIES, L.P.
40 7575 Baymeadows Way 441 1994 40.0
Jacksonville, FL
COMPAQ COMPUTER CORPORATION
41 100 Donwick Dr. 223 1994 40.0
Conroe, TX
NIKE, INC.
42 8400 Winchester Rd. 1,325 1994 40.0
Memphis, TN
CIRRUS LOGIC, INC.
43 46702 Bayside Parkway 243 1994 40.0
Fremont, CA (#2)
44 46831 Lakeview Blvd. 382 1994 40.0
Fremont, CA (#8)
CERTIFIED GROCERS OF CALIFORNIA, LTD.
45 5200 East Sheila St. 469 1994 40.0
Commerce, CA
FIRST HEALTH STRATEGIES, INC.
46 2610,2650,2691 S. Decker Lane 616 1994 40.0
West Valley City, UT
TRW, INC.
47 3701 Doolittle Drive 382 1995 40.0
Redondo Beach, CA
DUNHAM'S ATHLEISURE CORPORATION
48 2201 E. Loew Rd. 262 1995 40.0
Marion, IN 46952
AT&T CORPORATION
49 Gatehall II / Gatehall Drive 2,109 1995 40.0
Parsippany -Troy Hills, NJ
SCHWEGMANN GIANT SUPER MARKETS
50 8000 Greenwell Springs Road 154 1995 40.0
Baton Rouge, LA
51 2424 Manhattan Blvd. 326 1995 40.0
Harvey, LA
</TABLE>
F-21
<PAGE> 51
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
----------------------------------------- Costs
Furniture Capitalized
Building and and Subsequent to
Description Encumbrances Land Improvements Fixtures Acquisition
----------- ------------ ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
52 3900 Airline Highway - 4,369 7,767 - -
Metairie, LA
53 4500 Tchoupitoulas Street - 3,609 7,006 - 26
New Orleans, LA
KELLEY-CLARKE, INC.
54 6300 Dumbarton Circle - 762 4,193 - 3
Fremont, CA
PEPSICO, INC.
55 5015 South Water Circle - 244 3,643 - -
Wichita, KS
TECH DATA CORPORATION
56 3900 William Richardson Drive - 205 6,792 - -
South Bend, IN
PRIMERICA LIFE INSURANCE COMPANY
57 3120 Breckinridge Blvd. - 1,367 11,948 - 8
Duluth, GA
ARROW ELECTRONICS, INC.
58 3254 Fraser Street - 612 3,979 - 31
Aurora, CO
FLUID SYSTEMS CORPORATION
59 10054 Old Grove Road - 1,332 2,665 - 37
San Diego, CA
NISSAN MOTOR ACCEPTANCE CORPORATION
60 2901 Kinwest Parkway - 1,288 9,976 - 69
Irving, TX
LEVER BROTHERS COMPANY
61 3501 E. Terra Drive - 1,468 13,430 - -
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
62 2003 - 2007 Corporate Avenue - 2,590 23,807 - 123
Memphis, TN
MJD INVESTMENTS, INC.
63 500 Airline Drive - 2,437 18,207 - -
Coppell, TX
FRESENIUS USA, INC.
64 2637 Shadelands Drive - 609 6,255 - 2
Walnut Creek, CA
TERADYNE, INC.
65 2625 Shadelands Drive - 423 4,347 - 1
Walnut Creek, CA
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
----------------------------------------------------------------
Provision for
Portfolio Furniture and Building
Description Repositioning Land Buildings Fixtures Improvements Total
----------- ------------- ------ --------- ------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
52 3900 Airline Highway (2,683) 4,374 5,093 - - 9,467
Metairie, LA
53 4500 Tchoupitoulas Street - 3,618 7,023 - - 10,641
New Orleans, LA
KELLEY-CLARKE, INC.
54 6300 Dumbarton Circle - 762 4,193 - 3 4,958
Fremont, CA
PEPSICO, INC.
55 5015 South Water Circle - 244 3,643 - - 3,887
Wichita, KS
TECH DATA CORPORATION
56 3900 William Richardson Drive - 205 6,792 - - 6,997
South Bend, IN
PRIMERICA LIFE INSURANCE COMPANY
57 3120 Breckinridge Blvd. - 1,368 11,955 - - 13,323
Duluth, GA
ARROW ELECTRONICS, INC.
58 3254 Fraser Street - 616 4,006 - - 4,622
Aurora, CO
FLUID SYSTEMS CORPORATION
59 10054 Old Grove Road - 1,344 2,690 - - 4,034
San Diego, CA
NISSAN MOTOR ACCEPTANCE CORPORATION
60 2901 Kinwest Parkway - 1,292 10,010 - 31 11,333
Irving, TX
LEVER BROTHERS COMPANY
61 3501 E. Terra Drive - 1,468 13,430 - - 14,898
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
62 2003 - 2007 Corporate Avenue - 2,590 23,807 - 123 26,520
Memphis, TN
MJD INVESTMENTS, INC.
63 500 Airline Drive - 2,437 18,207 - - 20,644
Coppell, TX
FRESENIUS USA, INC.
64 2637 Shadelands Drive - 609 6,255 - 2 6,866
Walnut Creek, CA
TERADYNE, INC.
65 2625 Shadelands Drive - 423 4,347 - 1 4,771
Walnut Creek, CA
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Accumulated Date Life
Description Depreciation Acquired (Years)
----------- ------------ -------- -----------
<S> <C> <C> <C>
52 3900 Airline Highway 300 1995 40.0
Metairie, LA
53 4500 Tchoupitoulas Street 271 1995 40.0
New Orleans, LA
KELLEY-CLARKE, INC.
54 6300 Dumbarton Circle 162 1995 40.0
Fremont, CA
PEPSICO, INC.
55 5015 South Water Circle 140 1995 40.0
Wichita, KS
TECH DATA CORPORATION
56 3900 William Richardson Drive 234 1995 40.0
South Bend, IN
PRIMERICA LIFE INSURANCE COMPANY
57 3120 Breckinridge Blvd. 361 1995 40.0
Duluth, GA
ARROW ELECTRONICS, INC.
58 3254 Fraser Street 113 1995 40.0
Aurora, CO
FLUID SYSTEMS CORPORATION
59 10054 Old Grove Road 70 1995 40.0
San Diego, CA
NISSAN MOTOR ACCEPTANCE CORPORATION
60 2901 Kinwest Parkway 261 1995 40.0
Irving, TX
LEVER BROTHERS COMPANY
61 3501 E. Terra Drive 322 1996 40.0
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
62 2003 - 2007 Corporate Avenue 471 1996 40.0
Memphis, TN
MJD INVESTMENTS, INC.
63 500 Airline Drive 360 1996 40.0
Coppell, TX
FRESENIUS USA, INC.
64 2637 Shadelands Drive 111 1996 40.0
Walnut Creek, CA
TERADYNE, INC.
65 2625 Shadelands Drive 77 1996 40.0
Walnut Creek, CA
</TABLE>
F-22
<PAGE> 52
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
---------------------------------------- Costs
Furniture Capitalized
Building and and Subsequent to
Description Encumbrances Land Improvements Fixtures Acquisition
----------- ------------ ------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
LOCKHEED MARTIN CORPORATION
66 935 First Avenue - 1,173 3,519 - -
King of Prussia, PA
LAM RESEARCH CORPORATION
67 1210 California Circle - 4,238 8,601 - -
Milpitas, CA
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
68 401 West Michigan Street - 1,945 14,430 - -
Milwaukee, WI
NORTHERN TELECOM, INC.
69 2021 Lakeside Boulevard - 1,226 5,643 - -
Richardson, TX
OLYMPUS AMERICA, INC.
70 Two Corporate Center Drive - 5,216 25,377 - -
Melville, NY
ADIDAS AMERICA, INC.
71 5675 North Blackstock Road - 1,009 17,406 - -
Spartanburg, SC
FRONTIER CORPORATION
72 12110 North Pecos Street - 293 3,356 - -
Westminster, CO
PURE ATRIA CORPORATION
73 18880 Homestead Road 6,067 14,447 - -
Cupertino, CA
GALILEO INTERNATIONAL PARTNERSHIP
74 6901 S. Havana Street - 3,102 15,697 - -
Englewood, CO
LUCENT TECHNOLOGIES, INC.
75 6162 S. Willow Drive - 1,514 14,413 - -
Englewood, CO
------- -------- -------- ------ ------
TOTAL REAL ESTATE $55,013 $119,755 $576,495 $3,124 $4,054
======= ======== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
----------------------------------------------------------------
Provision for
Portfolio Furniture and Building
Description Repositioning Land Buildings Fixtures Improvements Total
----------- ------------- ------ --------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
LOCKHEED MARTIN CORPORATION
66 935 First Avenue - 1,173 3,519 - - 4,692
King of Prussia, PA
LAM RESEARCH CORPORATION
67 1210 California Circle - 4,238 8,601 - - 12,839
Milpitas, CA
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
68 401 West Michigan Street - 1,945 14,430 - - 16,375
Milwaukee, WI
NORTHERN TELECOM, INC.
69 2021 Lakeside Boulevard - 1,226 5,643 - - 6,869
Richardson, TX
OLYMPUS AMERICA, INC.
70 Two Corporate Center Drive - 5,216 25,377 - - 30,593
Melville, NY
ADIDAS AMERICA, INC.
71 5675 North Blackstock Road - 1,009 17,406 - - 18,415
Spartanburg, SC
FRONTIER CORPORATION
72 12110 North Pecos Street - 293 3,356 - - 3,649
Westminster, CO
PURE ATRIA CORPORATION
73 18880 Homestead Road - 6,067 14,447 - - 20,514
Cupertino, CA
GALILEO INTERNATIONAL PARTNERSHIP
74 6901 S. Havana Street - 3,102 15,697 - - 18,799
Englewood, CO
LUCENT TECHNOLOGIES, INC.
75 6162 S. Willow Drive - 1,514 14,413 - - 15,927
Englewood, CO
------- -------- -------- ------ ------ --------
TOTAL REAL ESTATE $(5,927) $120,084 $572,988 $3,124 $1,321 $697,517
======= ======== ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Accumulated Date Life
Description Depreciation Acquired (Years)
----------- ------------ -------- -----------
<S> <C> <C> <C>
LOCKHEED MARTIN CORPORATION
66 935 First Avenue 48 1996 40.0
King of Prussia, PA
LAM RESEARCH CORPORATION
67 1210 California Circle 116 1996 40.0
Milpitas, CA
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
68 401 West Michigan Street 195 1996 40.0
Milwaukee, WI
NORTHERN TELECOM, INC.
69 2021 Lakeside Boulevard 41 1996 40.0
Richardson, TX
OLYMPUS AMERICA, INC.
70 Two Corporate Center Drive 185 1996 40.0
Melville, NY
ADIDAS AMERICA, INC.
71 5675 North Blackstock Road 91 1996 40.0
Spartanburg, SC
FRONTIER CORPORATION
72 12110 North Pecos Street 3 1996 40.0
Westminster, CO
PURE ATRIA CORPORATION
73 18880 Homestead Road 15 1996 40.0
Cupertino, CA
GALILEO INTERNATIONAL PARTNERSHIP
74 6901 S. Havana Street 16 1996 40.0
Englewood, CO
LUCENT TECHNOLOGIES, INC.
75 6162 S. Willow Drive 15 1996 40.0
Englewood, CO
-------
TOTAL REAL ESTATE $36,360
=======
</TABLE>
F-23
<PAGE> 53
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO SCHEDULE III
DECEMBER 31, 1996
(in thousands)
1. Reconciliation of Real Estate:
The following table reconciles Real Estate from January 1, 1994 to
December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 ............................................. $ 538,717 $ 377,522 $ 221,477
Additions ........................................................ 222,789 161,195 156,045
Dispositions ..................................................... (58,062) -- --
Provision for portfolio repositioning ............................ (5,927) -- --
--------- --------- ---------
Balance at December 31 ........................................... $ 697,517 $ 538,717 $ 377,522
========= ========= =========
</TABLE>
2. Reconciliation of Accumulated Depreciation:
The following table reconciles Accumulated Depreciation from January 1,
1994 to December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 ............................................. $ 30,260 $ 19,852 $ 13,382
Additions ........................................................ 13,293 10,408 6,470
Dispositions ..................................................... (7,193) -- --
--------- --------- ---------
Balance at December 31 ........................................... $ 36,360 $ 30,260 $ 19,852
========= ========= =========
</TABLE>
F-24
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
TriNet Corporate Realty Trust, Inc. on Form S-3 (File No. 333-19137), Form S-3
(File No. 33-79746), Form S-8 (File No. 33-79748) and Form S-8 (File No.
333-02222) of our report dated January 24, 1997, on our audits of the
consolidated financial statements and financial statement schedule of TriNet
Corporate Realty Trust, Inc. as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
San Francisco, California
March 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FILING ON FORM 8-K CONTAINING THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,743
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 697,517
<DEPRECIATION> 36,360
<TOTAL-ASSETS> 708,238
<CURRENT-LIABILITIES> 0
<BONDS> 306,931
0
33
<COMMON> 139
<OTHER-SE> 365,876
<TOTAL-LIABILITY-AND-EQUITY> 708,238
<SALES> 75,252
<TOTAL-REVENUES> 76,824
<CGS> 0
<TOTAL-COSTS> 2,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,768
<INCOME-PRETAX> 31,642
<INCOME-TAX> 0
<INCOME-CONTINUING> 31,642
<DISCONTINUED> 0
<EXTRAORDINARY> 987
<CHANGES> 0
<NET-INCOME> 32,629
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 0
</TABLE>
