<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 1-11918
------------------------
TRINET CORPORATE REALTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 94-3175659
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE EMBARCADERO CTR., 33RD FLOOR, SAN 94111
FRANCISCO, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(415) 391-4300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
24,872,429 shares of Common Stock, $.01 par value as of November 10, 1998
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<PAGE> 2
TRINET CORPORATE REALTY TRUST, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997........................................... 3
Consolidated Statements of Operations for the nine months
ended September 30, 1998 and 1997........................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997........................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities....................................... 19
Item 3. Defaults Upon Senior Securities............................. 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
Item 5. Other Information........................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
Signatures........................................................... 20
</TABLE>
2
<PAGE> 3
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Real estate................................................. $1,595,370 $1,163,454
Less accumulated depreciation............................. (72,837) (52,650)
---------- ----------
1,522,533 1,110,804
Cash and cash equivalents................................... 6,041 303
Restricted cash............................................. 17,293 5,043
Deferred rent receivable.................................... 27,452 20,797
Loan costs, net............................................. 12,725 13,958
Other assets, net........................................... 17,784 4,999
---------- ----------
$1,603,828 $1,155,904
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt...................................................... $ 716,907 $ 434,122
Dividends payable......................................... 15,918 13,346
Other liabilities......................................... 55,330 32,448
---------- ----------
Total liabilities................................. 788,155 479,916
---------- ----------
Commitments and contingencies
Minority interest........................................... 2,565 765
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized:
Series A: 2,000,000 shares issued and outstanding at
September 30, 1998 and December 31, 1997 (aggregate
liquidation preference $50,000)....................... 20 20
Series B: 1,300,000 shares issued and outstanding at
September 30, 1998 and December 31, 1997 (aggregate
liquidation preference $32,500)....................... 13 13
Series C: 4,000,000 shares issued and outstanding at
September 30, 1998 and December 31, 1997 (aggregate
liquidation preference $100,000)...................... 40 40
Common stock, $.01 par value, 40,000,000 shares
authorized: 24,872,429 and 20,853,106 issued and
outstanding at September 30, 1998 and December 31,
1997, respectively..................................... 249 209
Paid in capital........................................... 855,787 710,798
Accumulated deficit....................................... (43,001) (35,857)
---------- ----------
Total stockholders' equity........................ 813,108 675,223
---------- ----------
$1,603,828 $1,155,904
========== ==========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
3
<PAGE> 4
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Rent............................................. $112,303 $75,825 $40,348 $28,387
Joint venture income............................. 1,828 628 318 183
Management fees.................................. 1,025 428 429 213
Interest and other income........................ 3,689 759 2,211 213
-------- ------- ------- -------
Total revenues........................... 118,845 77,640 43,306 28,996
Expenses:
Property operating costs......................... 4,819 2,840 1,888 999
General and administrative....................... 9,644 4,890 4,289 1,713
Special charge................................... 2,990 -- 2,990 --
Interest......................................... 28,752 18,619 11,183 7,485
Depreciation and amortization.................... 20,482 13,980 7,383 5,282
-------- ------- ------- -------
Income before minority interest and gain on
sale of real estate......................... 52,158 37,311 15,573 13,517
Minority interest................................ (87) -- (41) --
Gain on sale of real estate...................... 1,115 985 -- --
-------- ------- ------- -------
Income before extraordinary item.............. 53,186 38,296 15,532 13,517
Extraordinary loss from early extinguishment of
debt.......................................... (1,272) --
Extraordinary gain from expropriation............ -- 98 -- --
-------- ------- ------- -------
Net income............................... 51,914 38,394 15,532 13,517
Preferred dividend requirement........... (11,758) (5,758) (3,919) (1,919)
-------- ------- ------- -------
Earnings available to common shares...... $ 40,156 $32,636 $11,613 $11,598
======== ======= ======= =======
Earnings available per common share:
Income available before extraordinary item....... $ 1.71 $ 1.71 $ 0.47 $ 0.57
======== ======= ======= =======
Earnings available............................... $ 1.66 $ 1.72 $ 0.47 $ 0.57
======== ======= ======= =======
Earnings available per common share, assuming
dilution:
Income available before extraordinary item....... $ 1.70 $ 1.70 $ 0.47 $ 0.56
======== ======= ======= =======
Earnings available............................... $ 1.65 $ 1.71 $ 0.47 $ 0.56
======== ======= ======= =======
Weighted average number of common shares
outstanding:
Basic............................................ 24,224 18,960 24,872 20,368
Diluted.......................................... 24,395 19,132 24,955 20,565
Dividends declared per common share................ $ 1.92 $ 1.89 $ 0.64 $ 0.63
======== ======= ======= =======
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
4
<PAGE> 5
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 51,914 $ 38,394
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary (gain) loss.............................. 1,272 (98)
Minority Interest...................................... 87 --
Depreciation and amortization.......................... 20,482 13,980
Special charges, non-cash component.................... 1,146 --
Amortization of loan cost.............................. 1,695 1,875
Straight-line rent adjustments......................... (6,655) (4,741)
Gain on sale of real estate............................ (1,115) (985)
Joint venture income................................... (1,829) (628)
Increase in other assets.................................. (7,951) (746)
Increase in other liabilities............................. 17,299 7,195
--------- ---------
Net cash provided by operating activities......... 76,345 54,246
--------- ---------
Cash flows from investing activities:
Investments in real estate and real estate joint
ventures............................................... (418,381) (333,111)
Proceeds from disposal of real estate..................... 12,299 5,030
Proceeds from sale of real estate due to expropriation.... -- 122
Cash distributions from unconsolidated joint venture...... 1,095 459
Other capital expenditures and investments................ (5,788) (455)
--------- ---------
Net cash used in investing activities............. (410,775) (327,955)
--------- ---------
Cash flows from financing activities:
Net borrowings (payments) on Acquisitions Facility........ 139,600 (4,100)
Mortgage note principal payments.......................... (288) --
Preferred dividends paid.................................. (11,758) (5,758)
Common dividends paid..................................... (44,727) (34,347)
Proceeds from issuance of common stock, net of offering
costs.................................................. 145,029 219,198
Proceeds from senior unsecured debt offering.............. 124,633 99,606
Minority interest contributions, net of distributions..... 1,713 --
Increase in restricted cash and investments............... (12,250) (236)
Debt issuance costs....................................... (1,784) (2,600)
--------- ---------
Net cash provided by financing activities......... 340,168 271,763
--------- ---------
Increase/(decrease) in cash and cash equivalents............ 5,738 (1,946)
Cash and cash equivalents, at beginning of period........... 303 4,984
--------- ---------
Cash and cash equivalents, at end of period................. $ 6,041 $ 3,038
========= =========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Mortgages assumed in connection with property
acquisitions........................................... $ 18,890 $ --
========= =========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
5
<PAGE> 6
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS:
Principles of Consolidation and Basis of Presentation:
The accompanying consolidated financial statements include the accounts of
TriNet Corporate Realty Trust, Inc. (the "Company" or "TriNet"), its
wholly-owned subsidiary corporations and partnerships, and its majority-owned
and controlled partnership. The outside equity interests in the consolidated
partnerships and limited liability companies not owned and controlled by the
Company are reflected as minority interest in the consolidated financial
statements. All significant intercompany balances and transactions have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of TriNet's consolidated
financial position and results of operations for the interim periods. The
results of operations for the three and nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the entire year.
Recent Accounting Pronouncement:
On June 15, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS 133 is effective for fiscal years beginning
after June 15, 1999, but earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 1998. SFAS 133 requires all
derivatives to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. The Company currently plans to
adopt this pronouncement effective January 1, 2000, and will determine the
impact of adoption prior to that date.
2. REAL ESTATE:
TriNet's investments in real estate, at cost, were as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Real estate held for sale.......................... $ -- $ 10,942
Improved land...................................... 241,555 200,393
Buildings and improvements......................... 1,162,561 945,458
Less accumulated depreciation................. (72,837) (52,650)
---------- ----------
1,331,279 $1,104,143
Convertible mortgage............................... 27,725 --
Investments in and advances to real estate joint
ventures......................................... 163,529 6,661
---------- ----------
Net real estate.......................... $1,522,533 $1,110,804
========== ==========
</TABLE>
Investments in and Advances to Real Estate Joint Ventures:
At September 30, 1998, TriNet had $163.5 million invested in six real
estate joint ventures for the purpose of operating, developing and acquiring
properties. TriNet's ownership interest is 50% or less in each of these joint
ventures. TriNet accounts for these investments under the equity method because
TriNet's joint venture partners have certain rights which limit the Company's
control. TriNet has guaranteed 25% of third party debt of approximately $78.6
million outstanding at September 30, 1998 for a joint venture known as Poydras
Plaza. Additionally, TriNet has commitments to finance 25% of budgeted
development projects up to $126 million for a joint venture known as Corporate
Tech Center I. Currently, the limited partners of a joint
6
<PAGE> 7
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
venture known as the Sunnyvale partnership have the option to convert their
partnership interest into cash; however, the Company may elect to deliver
258,894 shares of the Company's common stock in lieu of cash. Additionally,
commencing in March 2001 and February 2002, subject to acceleration under
certain circumstances, partnership units held by two of TriNet's joint venture
partners may be converted into 304,977 and 856,066 shares, respectively, of
TriNet common stock.
3. DEBT:
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
BALANCE AS OF
----------------------------- INTEREST RATE
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, MATURITY
LOAN 1998 1997 1998 DATE
---- ------------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Acquisitions Facility............... $257,900 $118,300 LIBOR + 0.75% 05/31/2001
7.30% Notes due 2001................ 100,000 100,000 7.30% 05/15/2001
1994 Mortgage Loan.................. 55,013 55,013 LIBOR + 1.00% 12/01/2004
7.95% Notes due 2006................ 50,000 50,000 7.95% 05/15/2006
7.70% Notes due 2017................ 100,000 100,000 7.70% 07/15/2017
6.75% Drs. due 2013(1).............. 125,000 -- 6.75% 03/01/2013
Other Mortgage Loans................ 29,932 11,433 6.00% - 11.375% (2)
-------- --------
717,845 434,746
Less debt discount.................. (938) (624)
-------- --------
$716,907 $434,122
======== ========
</TABLE>
- ---------------
(1) Subject to mandatory tender on 3/1/2003. Initial coupon of 6.75% applies to
first five-year term only.
(2) Other Mortgage Loans mature at various dates through 2009.
The 30-day LIBOR rate as of September 30, 1998 was 5.375%. On September 30,
1995, the Company entered into an interest rate protection agreement which,
together with certain existing interest rate cap agreements, effectively fix the
interest rate on $75.0 million of the Company's LIBOR-based borrowings at 5.58%
plus the applicable margin through December 1, 2004. The actual borrowing cost
to the Company with respect to indebtedness covered by the protection agreements
will depend upon the applicable margin over LIBOR for such indebtedness, which
will be determined by the terms of the relevant debt instruments.
On June 1, 1998, the Company completed an agreement with a group of 15
banks led by Morgan Guaranty Trust Company of New York to provide the Company
with a new $350 million unsecured revolving credit facility (the "Acquisitions
Facility"). This facility replaced the Company's existing $200 million unsecured
revolving credit facility. The $350 million Acquisitions Facility matures on May
31, 2001 and has an automatic one-year extension option. The Company can extend
the facility for a second, one-year term and increase the facility size up to
$500 million with approval of the bank group. LIBOR-based borrowings under the
facility are based on the Company's credit ratings. The Company obtained a
reduction of 17.5 basis points on its LIBOR-based borrowings from LIBOR plus
.925% under the old facility to LIBOR plus .75% under the new facility.
Additionally, the annual facility fee was reduced from .175% to .15%. The new
facility also has a $225 million competitive bid facility, which allows banks in
the syndicate group to bid on certain borrowings at more competitive rates. 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 facility requires interest-only payments until maturity, at which
time outstanding borrowings are due and payable. In connection with this
transaction, $1.3 million of unamortized debt issuance costs relating to the old
revolving credit facility was recognized as an extraordinary loss.
7
<PAGE> 8
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On February 24, 1998, the Company sold to the public $125 million of 6.75%
Dealer remarketable securities due March 1, 2013, (the "Drs.") at a price of
99.706% of the principal amount. Net proceeds, after issuance costs and related
settlements on treasury locks, from the Drs. were approximately $123.7 million,
of which $120.6 million was used to pay down the balance on the Acquisitions
Facility. The Drs. are subject to a mandatory tender on March 1, 2003, to J.P.
Morgan Securities, Inc. (the "Dealer"), and subject to certain terms and
conditions, must be remarketed by the Dealer. If the securities are remarketed
by the Dealer in 2003, the rate applicable to the remaining 10-year term would
be based upon the 10-year Treasury rate in effect on February 24, 1998, plus a
market spread corresponding to the Company's credit quality at the time of
remarketing. The Drs. are senior unsecured obligations of the Company and rank
equally with the Company's other senior unsecured indebtedness. The Drs. are
redeemable at any time, in whole or in part, at the option of the Company.
Interest on the Drs. will be paid semi-annually in arrears on March 1 and
September 1 of each year. In conjunction with this issuance, the Dealer paid the
Company a premium for the right to require the mandatory tender of all
outstanding Drs. at March 1, 2003. Additionally, the Company settled its
interest rate hedge agreements in conjunction with this debt issuance. The
all-in effective interest rate, including the issuance costs, the premium
received from the Dealer, and the cost associated with the settlement of the
interest rate hedge agreements, is 6.86% over the initial five-year term of the
Drs.
The following table sets forth the components of interest expense for the
nine months ended September 30 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Interest incurred........................................ $29,286 $16,744
Capitalized interest..................................... (2,229) --
Amortization of loan costs............................... 1,695 1,875
------- -------
$28,752 $18,619
======= =======
</TABLE>
4. STOCKHOLDERS' EQUITY:
On April 29, 1998, the Company completed a public offering (the "April 1998
Offering") of 701,754 shares of common stock in an underwritten offering with
Merrill Lynch & Co. Merrill Lynch deposited these common shares with the trustee
of the Equity Investor Funds Cohen & Steers Realty Majors Portfolio, a unit
investment trust. Net proceeds from the offering were approximately $23.7
million and were used to pay down the balance on the Acquisitions Facility and
for working capital.
On March 18, 1998, the Company completed a direct placement of 800,000
shares of common stock priced at $37.50 per share (the "March 1998 Offering").
The $30.0 million of proceeds were used to pay down the balance on the
Acquisitions Facility.
On February 25, 1998, the Company adopted a stockholder rights plan (the
"Stockholder Rights Plan") pursuant to a rights agreement. In connection with
the adoption of the Stockholder Rights Plan, the Company's Board of Directors
declared a dividend distribution of one preferred stock purchase right (a
"Right") for each outstanding share of Common Stock to stockholders of record as
of the close of business on April 13, 1998. Each Right entitles the holder to
purchase from the Company 1/100 of a share of a new series of preferred stock at
a price of $200 per 1/100 of a share (the "Purchase Price"). The Rights
currently are not exercisable and are attached to and trade with the outstanding
shares of Common Stock. In the event a person becomes an "acquiring person" by
acquiring more than 15% of the Company's outstanding shares, or commencing a
tender offer for more than 15% of the Company's outstanding shares, unless the
Board of Directors waives the application of Stockholder Rights Plan, each
holder of a Right (other than the acquiring person, whose Rights become null and
void) would be entitled to acquire such number of shares of the Company's Common
Stock having a value equal to two times the Purchase Price of the Right. If the
Company is acquired in a merger or other business combination transaction, or if
50% or more of the
8
<PAGE> 9
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's assets or earning power is sold or transferred, unless the Board of
Directors waives the application of Stockholder Rights Plan, each holder of a
Right (other than holders whose Rights have become null and void) would then be
entitled to purchase shares of the acquiring company's common stock having a
value equal to twice the Purchase Price of the Right.
On January 8, 1998, the Company completed a follow-on equity offering of
2,405,000 shares of common stock at a price of $37.00 per share (the "January
1998 Offering"). Net proceeds from the January 1998 Offering, after issuance
costs, were approximately $87.5 million and were used to pay down the balance on
the Acquisitions Facility.
On September 15, 1998, the Company paid a quarterly dividend of $0.5859 per
cumulative redeemable Series A preferred share, $0.5750 per cumulative
convertible Series B preferred share and $0.5000 per cumulative redeemable
Series C preferred share to preferred shareholders of record on August 31, 1998.
On September 11, 1998 the Company declared a distribution of $0.64 per
common share, payable on October 15, 1998, to common shareholders of record as
of September 30, 1998.
5. SPECIAL CHARGE:
During the third quarter of 1998, TriNet recognized a charge of
approximately $3.0 million in connection with a change in its acquisition
strategy (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations: Overview"). Accordingly the Company recorded a liability
at September 30, 1998, for the estimated costs resulting from this change. The
detail of this charge is presented below (in thousands):
<TABLE>
<S> <C>
Severance costs and related compensation.................... $1,876
Lease termination fees...................................... 209
Abandoned pursuit costs..................................... 561
Other restructuring costs................................... 344
------
$2,990
======
</TABLE>
6. 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 or results of operations.
The Company is also subject to option agreements with five existing tenants
which could require the Company to fund tenant improvements on approximately
25,000 square feet and to construct approximately 449,000 square feet of
additional adjacent space on which the Company would receive additional rent
under the terms of the option agreements. The option agreements commence and
expire at various dates through 2012.
At September 30, 1998, the Company had two contracts outstanding totaling
$44.0 million with third party developers to acquire two 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 at
various dates through 1998 and 1999. Currently, the Company has a letter of
intent to sell one of the contracts in the amount of $20.1 million to a real
estate investment company.
9
<PAGE> 10
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EARNINGS PER SHARE:
The following table presents the basic and diluted earnings per share
calculations for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
NUMERATOR
Income before extraordinary items........ $ 53,186 $38,296 $15,532 $13,517
Extraordinary items...................... (1,272) 98 -- --
-------- ------- ------- -------
Net income............................... 51,914 38,394 15,532 13,517
Preferred dividend requirement........... (11,758) (5,758) (3,919) (1,919)
-------- ------- ------- -------
Earnings available to common shares...... $ 40,156 $32,636 $11,613 $11,598
======== ======= ======= =======
DENOMINATOR
Basic:
Weighted average common shares
outstanding......................... 24,224 18,960 24,872 20,368
======== ======= ======= =======
Diluted:
Weighted average common shares
outstanding......................... 24,224 18,960 24,872 20,368
Shares issuable from assumed
conversion of common stock
options............................. 171 172 83 197
-------- ------- ------- -------
Weighted average common shares
outstanding, as adjusted............ 24,395 19,132 24,955 20,565
======== ======= ======= =======
EARNINGS AVAILABLE PER COMMON
SHARE -- BASIC:
Income available before extraordinary
items................................. $ 1.71 $ 1.71 $ 0.47 $ 0.57
Extraordinary items...................... (0.05) 0.01 -- --
-------- ------- ------- -------
Earnings available....................... $ 1.66 $ 1.72 $ 0.47 $ 0.57
======== ======= ======= =======
EARNINGS AVAILABLE PER COMMON
SHARE -- DILUTED:
Income available before extraordinary
items................................. $ 1.70 $ 1.70 $ 0.47 $ 0.56
Extraordinary items...................... (0.05) 0.01 -- --
-------- ------- ------- -------
Earnings available....................... $ 1.65 $ 1.71 $ 0.47 $ 0.56
======== ======= ======= =======
</TABLE>
For the nine months ended September 30, 1998 and 1997, there were 634,496
and 258,894 weighted average partnership units outstanding, respectively, on an
as-converted basis that were not assumed converted into common shares since they
were antidilutive to earnings per share. For the three months ended September
30, 1998 and 1997, there were 1,029,086 and 258,894 weighted average partnership
units outstanding, respectively, on an as converted basis that were not assumed
converted into Common Shares since they were antidilutive to earnings per share.
These securities may become dilutive to earnings per share in subsequent
periods.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report and also with the Company's Annual Report for 1997 filed on 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
meaning ascribed to them in such financial statements and the notes thereto.
OVERVIEW
TriNet is a real estate investment trust ("REIT") which owns predominantly
strategic corporate office and industrial properties net leased to large, well
known companies. The Company believes that operating a national portfolio of
real estate reduces the risk of exposure to economic downturns in any one
market. As of September 30, 1998, TriNet's portfolio consisted of 152
properties, which comprised more than 20 million rentable square feet in 26
states. During the first nine months of 1998, TriNet invested approximately $440
million in real estate assets including operating properties, real estate joint
ventures, and a convertible mortgage which collectively added 38 properties to
TriNet's portfolio.
TriNet is in the process of identifying a number of assets in its portfolio
for disposition and intends to use the sale proceeds to reduce debt and to fund
future acquisitions. TriNet believes that by selling selected properties and
reducing its leverage it will be in a favorable position to fund future
acquisition opportunities as they arise. As part of this new strategy, TriNet
has moderated the volume of its acquisitions activities, closed one acquisitions
office, and reduced its acquisitions staff by seven employees (approximately
47%) during the third quarter of 1998. The Company also reduced staff by 8.6% in
other departments and implemented other cost-cutting measures.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. NINE MONTHS ENDED SEPTEMBER 30,
1997
Earnings available to common shares increased by 23% to $40.2 million for
the nine months ended September 30, 1998, from $32.6 million for the same period
in 1997. The increase in earnings is principally due to an increase in operating
properties, resulting from 1997 and 1998 acquisitions, which was partially
offset by an extraordinary loss of $1.3 million from the early extinguishment of
debt, a $6.0 million increase in preferred share dividends, and a special charge
of approximately $3.0 million. Income before minority interest and gain on sale
of real estate increased by $14.9 million, or 39.9%, to $52.2 million for the
nine months ended September 30, 1998, compared to $37.3 million for the same
period in 1997.
Rent Revenues
Rent revenues for the nine months ended September 30, 1998 increased by $
36.5 million, or 48%, compared to the same period of 1997. The significant
increase in rent revenues is primarily the result of the Company's acquisitions
subsequent to September 30, 1997, which accounted for $23 million of rent
revenues during the first nine months of 1998. Additionally, the properties
acquired during the nine months ended September 30, 1997, contributed an
additional $13.8 million to rent revenues in 1998, the increase due to owning
the properties for a full nine months during 1998. The overall increase in rent
revenues was partially offset by a decrease of approximately $1.0 million due to
properties sold since January 1, 1997.
Joint Venture Income
For the nine months ending September 30, 1998, joint venture income
increased by $1.2 million from $628,000 in 1997 to $1.8 million in 1998. The
increase was the result of investments in five real estate joint ventures during
1998.
11
<PAGE> 12
Management Fees
Management fees increased by $596,000 for the nine months ended September
30, 1998 to $1.0 million from $429,000 for the same period in 1997. The increase
was primarily due to TriNet Property Management, Inc., a subsidiary of TriNet,
opening on-site property management offices at several of the Company's
properties during 1997 and 1998. In prior years, management fees were presented
as an offset to property operating costs and have been reclassified to conform
to the current year presentation.
Interest and Other income
Interest and other income increased $2.9 million from $759,000 at September
30, 1997, to $3.7 million at September 30, 1998. This increase is partially due
to the recognition of $1.4 million of income from the Company's advisory
services provided in connection with TriNet's joint venture partnerships.
Additionally, the Company received approximately $370,000 in lease termination
and restructuring fees and $278,000 in credit arrangement fees during the nine
months ended September 30, 1998. Interest income increased by $1.1 million
primarily due to notes receivable from certain joint venture partnerships.
Property Operating Costs
For the nine months ended September 30, 1998, property operating costs
increased to $4.8 million from $2.8 million for the same period of 1997. The
increase in property operating costs is due to the costs associated with the
growth in the Company's real estate portfolio in the last quarter of 1997 and
the first three quarters of 1998 and the acquisition of certain properties for
which the Company is contractually liable for operating expenses.
General and Administrative
For the nine months ended September 30, 1998, general and administrative
expenses increased to $9.6 million compared to $4.9 million for the same period
in 1997. This increase is primarily a result of increased personnel and related
overhead from the Company's continued growth. As a percentage of weighted
average undepreciated real estate at cost, including joint venture investments,
general and administrative expenses were 0.66 % for the nine months ended
September 30, 1998, compared to 0.51% for the same period in 1997.
Interest Expense
Interest expense has increased by $10.2 million to $28.8 million for the
nine months ended September 30, 1998, from $18.6 for the same period of 1997.
This increase is due to a greater weighted average debt balance of $540.4
million for the nine months ended September 30, 1998, compared to $306.5 million
for the same period of 1997. The increase in the debt balance is primarily
attributable to the issuance of the Drs. notes in February 1998 and a higher
average balance outstanding on the Acquisitions Facility. Interest expense was
reduced by $2.2 million of capitalized interest costs associated with
development projects in certain joint venture partnerships. The Company's
weighted average interest rate for the nine months ended September 30, 1998
remained relatively constant at 7.12%.
Depreciation and Amortization
Depreciation and amortization increased by 47% for the nine months ended
September 30, 1998, when compared to the first nine months of 1997, a result of
the Company's larger asset base.
12
<PAGE> 13
Special Charge
During the third quarter of 1998, TriNet recognized a charge of
approximately $3.0 million in connection with a change in its acquisition
strategy (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations: Overview"), and accordingly the company recorded a
liability at September 30, 1998 for the estimated costs resulting from this
change. The detail of this charge is presented below (in thousands):
<TABLE>
<S> <C>
Severance costs and related compensation.................... $1,876
Lease termination fees...................................... 209
Abandoned pursuit costs..................................... 561
Other restructuring costs................................... 344
------
$2,990
======
</TABLE>
Minority Interest
Minority interest expense of $87,000 for the first nine months of 1998
represents the limited partners' share of TriNet Property Partners, L.P.
("TriNet Property Partners") net income, a partnership formed in December 1997.
TriNet is the sole general partner in TriNet Property Partners, which purchased
nine office/ R&D properties in December 1997 and five additional office/R&D
properties in the first six months of 1998 from a group of private partnerships.
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30,
1997
Rent Revenues
Rent revenues for the three months ended September 30, 1998, increased by
$12.0 million, or 42%, compared to the same period of 1997. The significant
increase in rent revenues is primarily a result of the Company's acquisitions
subsequent to September 30, 1997, which accounted for $10.5 million of rental
revenues during the third quarter of 1998. Additionally, the properties acquired
in the third quarter of 1997 contributed an additional $1.7 million to rental
revenues in 1998 over that of the same period in 1997. The overall increase in
rent revenues was partially offset by a decrease of approximately $443,000 due
to properties sold subsequent to September 30, 1997.
Joint Venture Income
Joint venture income increased by $135,000, or 74%, to $318,000 for the
three month period ended September 30, 1998, from $183,000 for the same period
in 1997. The increase was the result of investments in five real estate joint
ventures subsequent to September 30, 1997.
Management Fees
Management fees increased by $216,000 for the three months ended September
30, 1998, to $429,000 from $213,000 for the same period in 1997. The increase
was primarily due to TriNet Property Management, Inc., a subsidiary of TriNet,
opening on-site property management offices at several of the Company's
properties during 1997 and 1998. In prior years, management fees were presented
as an offset to property operating costs and have been reclassified to conform
to the current year presentation.
Interest and other income
Interest and other income increased $2.0 million from $213,000 for the
three months ended September 30, 1997, to $2.2 million for the third quarter of
1998. This increase is partially due to the recognition of $683,000 of income
from the Company's advisory services provided in connection with the formation
of a joint venture partnership. Additionally, the Company received a lease
termination fee of $290,000 and credit arrangement fees of $208,000 during the
three months ended September 30, 1998. Interest income increased by $855,000
primarily due to notes receivable from certain joint venture partnerships.
13
<PAGE> 14
Property Operating Costs
For the three months ended September 30, 1998, property operating costs
increased to $1.9 million from $999,000 for the three months ended September 30,
1997. The increase in property operating costs is due to the incremental costs
associated with the continued growth in the Company's real estate portfolio and
the acquisition of certain properties since the third quarter of 1997 in which
the Company has lease obligations for operating expenses.
General and Administrative
For the third quarter of 1998, general and administrative expenses
increased to $4.3 million compared to $1.7 million for the same period in 1997.
This increase is a result of increased personnel and related overhead from the
Company's continued growth.
Interest Expense
Interest expense increased by $3.7 million to $11.2 million for the three
months ended September 30, 1998, from $7.5 million for the corresponding period
of 1997. This increase is attributable to the weighted average debt balance
increasing from $376.3 million for the three months ended September 30, 1997, to
$656.6 million for the corresponding period of 1998 and a higher weighted
average revolver balance for the quarter. The increase in the debt balance is
primarily attributable to the issuance of the Drs. in February 1998. Interest
expense for the three months ended September 30, 1998, was reduced by $1.2
million of capitalized interest costs associated with development projects in
certain joint venture partnerships.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased by $22.1 million to
$76.3 million for the nine months ended September 30, 1998, when compared to the
same period in 1997. The increase was primarily due to increased rent revenue
attributable to the increase in the portfolio size. Net cash used in investing
activities was $410.8 million for the nine months ended September 30, 1998.
These funds were used primarily to acquire properties and interests in joint
ventures. Additionally, the Company incurred $788,000 of capital expenditures on
existing properties and invested $5.0 million in the common stock of a private
real estate investment company during the first nine months of 1998.
Net cash provided by financing activities for the first nine months of 1998
was $340.2 million, primarily as a result of the proceeds from the January 1998
Offering, the March 1998 Offering, the April 1998 Offering, and the issuance of
the Drs. notes. Net proceeds from the January 1998 Offering were approximately
$87.5 million which were used to pay down the balance on the Acquisitions
Facility. Proceeds from the March 1998 and April 1998 Offerings were
approximately $53.7 million and were also used to pay down the balance on the
Acquisitions Facility. Net proceeds after issuance costs from the Drs. notes
were approximately $123.7 million, of which $120.6 million was used to pay down
the balance on the Acquisitions Facility. Net cash provided by financing
activities was offset by common dividends paid of $44.7 million and preferred
dividends paid of $11.8 million for the nine month period ended September 30,
1998.
On June 1, 1998, the Company completed an agreement with a group of 15
banks led by Morgan Guaranty Trust Company of New York to provide the Company
with a $350 million unsecured revolving credit facility. This facility replaced
the Company's existing $200 million unsecured revolving credit facility. The
$350 million Acquisitions Facility matures on May 31, 2001 and has an automatic
one-year extension option. The Company can extend the facility for a second,
one-year term and increase the facility size up to $500 million with approval of
the bank group. LIBOR-based borrowings under the facility are based on the
Company's credit ratings. The Company obtained a reduction of 17.5 basis points
on its LIBOR-based borrowings from LIBOR plus 0.925% under the old facility to
LIBOR plus 0.75% under the new facility. Additionally, the annual facility fee
was reduced from 0.175% to 0.15%. The new facility also has a $225 million
competitive bid facility, which allows banks in the syndicate group to bid on
certain borrowings at more competitive rates. 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 facility requires
interest
14
<PAGE> 15
only payments until maturity, at which time outstanding borrowings are due and
payable. In connection with this transaction, $1.3 million of unamortized debt
issuance costs relating to the old Acquisitions Facility was recognized as an
extraordinary loss in the nine months ended September 30, 1998.
Outstanding debt as of September 30, 1998, consisted of mortgage notes and
notes payable totaling $716.9 million. There are $783,000 of scheduled principal
amortization payments for the next twelve months related to the mortgage loans.
As of September 30, 1998, the available amount of credit under the Acquisitions
Facility was $92.1 million.
On January 8, 1998, the Company completed a follow-on equity offering of
2,405,000 shares of common stock at a price of $37.00 per share. Proceeds from
the January 1998 Offering, net of issuance costs, were approximately $87.5
million and were used to pay down the balance on the Acquisitions Facility.
On February 24, 1998, the Company sold to the public $125 million of 6.75%
Dealer remarketable securities due March 1, 2013, at a price of 99.706% of the
principal amount. Net proceeds after issuance costs from the Drs. were
approximately $123.7 million, of which $120.6 million was used to pay down the
balance on the Acquisitions Facility. The Drs. are subject to a mandatory tender
on March 1, 2003, to the Dealer and subject to certain terms and conditions,
must be remarketed by the Dealer. The Drs. are senior unsecured obligations of
the Company and rank equally with the Company's other senior unsecured
indebtedness. The Drs. are redeemable at any time, in whole or in part, at the
option of the Company. Interest on the Drs. will be paid semi-annually in
arrears on March 1 and September 1 of each year. In conjunction with this
issuance, the Dealer paid the Company a premium for the right to require the
mandatory tender of all outstanding Drs. at March 1, 2003. Additionally, the
Company settled its interest rate hedge agreements in conjunction with this debt
issuance. The all-in effective interest rate, including the estimated issuance
costs, the premium received from the Dealer, and the cost associated with the
settlement of the interest rate hedge agreements, is 6.86% over the initial
five-year term of the Drs.
On March 18, 1998, the Company completed a direct placement of 800,000
shares of common stock priced at $37.50 per share. The $30.0 million of proceeds
were used to pay down the balance on the Acquisitions Facility.
On April 29, 1998, the Company completed a public offering of 701,754
shares of common stock in an underwritten offering with Merrill Lynch & Co.
Merrill Lynch deposited these common shares with the trustee of the Equity
Investor Funds Cohen & Steers Realty Majors Portfolio, a unit investment trust.
Proceeds from the offering were approximately $23.7 million and were used to pay
down the balance on the Acquisitions Facility and for working capital.
The Company has on file with the Securities and Exchange Commission two
Form S-3 Registration Statements. One registration statement is a universal
shelf registration statement authorizing the issuance of debt securities, common
stock, preferred stock or depository shares representing preferred stock of the
Company with a remaining availability of $232.3 million after the April 1998
Offering. A second registration statement authorized the issuance of $250.0
million of debt securities and has a remaining availability of $150.4 million.
The exact amount of debt, common stock, preferred stock, and depository shares
representing preferred stock issued will depend on acquisitions, asset sales,
the Company's senior unsecured debt and preferred stock ratings, and the general
interest rate environment.
In managing the Company's long-term liquidity, consideration is given to
both the weighted average maturity of the Company's fixed-rate debt instruments
and to the ratio of total debt to total market capitalization. As of September
30, 1998 and 1997, the Company's weighted average fixed-rate debt maturity was
7.8 years (assuming the Drs. mandatory tender occurs in 2003) and 10.5 years,
respectively, and the ratio of total debt to total market capitalization was
41.9% and 33.1%, respectively.
The Company is also subject to option agreements with five existing tenants
which could require the Company to fund tenant improvements on approximately
25,000 square feet and to construct approximately 449,000 square feet of
additional adjacent space on which the Company would receive additional rent
under the terms of the option agreements. The option agreements commence and
expire at various dates through 2012.
15
<PAGE> 16
At September 30, 1998, the Company had an aggregate of $44.3 million of
contracts outstanding with third party developers to acquire two 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 at
various dates through the remainder of 1998 and 1999.
IMPACT OF YEAR 2000
Forward Looking Information. The statements in the following section
include Year 2000 readiness disclosure within the meaning of the Year 2000
Information and Readiness Disclosure Act. The Company intends such statements to
be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Reform Act of 1995, and is including this
statement for purposes of complying with these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Although the Company believes that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, the Company's
actual costs, progress and expenses with respect to its plan to address Year
2000 issues could differ materially from those set forth in the forward-looking
statements. Factors which could have a material adverse effect on the Company's
results and progress include, but are not limited to, changes in the expenses of
or delays in: the identification and upgrade or replacement by the Company of
computer systems that do not relate to information technology but include
embedded technology; and the Year 2000 compliance of vendors (including vendors
of the Company's computer information systems) or third-party service providers
(including the Company's primary bank and payroll processor). These risks and
uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements.
INTRODUCTION
The term "Year 2000 issue" is a general term used to describe various
problems that may result from the improper processing by computer systems of
dates after 1999. These problems could result in a system failure or
miscalculations causing disruptions of operations.
The Company's efforts to address its Year 2000 issues are focused in the
following three areas: (i) reviewing and taking any necessary steps to attempt
to correct the Company's computer information systems (i.e., software
applications and hardware platforms), (ii) evaluating and making any necessary
modifications to other computer systems that do not relate to information
technology but include embedded technology at its properties, such as security,
HVAC, elevator, fire and safety systems, and (iii) communicating with certain
significant third-party service providers to determine whether there will be any
interruption in their systems that could affect the Company.
THE COMPANY'S STATE OF READINESS
Information Technology Systems. The Company has completed an inventory of
all information technology systems and has contacted vendors to determine
whether such systems are Year 2000 compliant. Based on manufacturers'
representations, the Company has determined that its primary network operating
system, Novell Netware 5, its Company's newly acquired CTI software, and all of
the Company's desktop personal computers are Year 2000 compliant. The Company's
telephone system requires minimal upgrades.
Embedded Systems. The Company has reviewed all of its properties' operating
leases to determine whether the tenant or the Company has the responsibility to
address Year 2000 issues. For those properties with respect to which the Company
is responsible for Year 2000 compliance, independent consultants have performed
on-site inventories of the embedded systems and have contacted the various
manufacturers to determine whether the embedded systems are Year 2000 compliant.
Based on the inventory and responses from manufacturers to date, the Company has
identified five embedded systems that are not Year 2000
16
<PAGE> 17
compliant and may need to be replaced or repaired. For those properties with
respect to which the Company is not responsible for Year 2000 compliance,
written notices have been sent to tenants informing them of their obligations
under the leases.
Third Party Relationships. With respect to the Company's relationships with
third parties (e.g., transfer agents, financial institutions and landlords), the
Company has mailed a request for information to such third parties regarding
their Year 2000 readiness and compliance issues.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company has accrued $300,000 in expenses to address Year 2000 issues.
The estimated cost of replacing the embedded systems which are not Year 2000
compliant is $130,000, approximately $80,000 of which the Company believes would
be reimbursed to the Company by the tenants over the useful life of the assets.
The Company expects to fund the costs of addressing the Year 2000 issues from
cash flows resulting from operations.
Because the Company's Year 2000 assessment is ongoing and additional funds
may be required as a result of future findings, the Company's current accrual
amounts may increase as a result of unanticipated delays or preparedness issues.
While the Company's efforts to address its Year 2000 issues may involve
additional costs, the Company believes, based on available information, that
these costs will not have a material adverse effect on its business, financial
condition or results of operations. The Company expects to fund the costs of
addressing the Year 2000 issues from cash flows resulting from operations.
It should be noted that, although the Company has concluded, with respect
to many of its leases that its tenants are responsible for certain Year 2000
compliance costs, there is a possibility that certain tenants will not agree
with such conclusions.
RISKS PRESENTED BY YEAR 2000 ISSUES
The Company is still in the process of evaluating its most reasonably
likely worst case scenario that might result from Year 2000 related problems. At
this time, the Company has not identified any specific business functions that
are likely to suffer material disruption as a result of Year 2000 related
events. It is possible, however, that the Company may identify business
functions in the future that are specifically at risk of Year 2000 disruption.
The absence of any such determination as of the date of this report represents
only the Company's current status of evaluating potential Year 2000 related
problems and facts presently known to the Company, and should not be construed
to mean that there is no risk of Year 2000 related disruption. Moreover, due to
the unique and pervasive nature of the Year 2000 issue, it is not possible to
anticipate each of the wide variety of Year 2000 events, particularly outside of
the Company, that might arise in a worst case scenario which might have a
material adverse impact on the Company's business, financial condition and
results of operations.
THE COMPANY'S CONTINGENCY PLANS
Because the Company has not yet identified any specific business function
that will be materially at risk of significant Year 2000-related disruptions,
and because a full assessment of the Company's risk from potential Year 2000
failures is still in process, the Company has not yet developed detailed
contingency plans specific to Year 2000 problems. The Company intends to develop
contingency plans for significant business risks identified by the Company that
might result from Year 2000-related events by March 31, 1999.
FUNDS FROM OPERATIONS
The definition of Funds From Operations ("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 ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization (in each case only on real estate related assets),
less preferred dividends, and after adjustments
17
<PAGE> 18
for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect FFO
on the same basis. The Company's FFO is not comparable to FFO reported by other
real estate investment trusts (REITs) that do not define FFO using the current
NAREIT definition or that interpret the current NAREIT definition differently
than the Company. The Company believes that to facilitate a clear understanding
of the historical operating results of the Company, FFO should be examined in
conjunction with income as presented in the Consolidated Statements of
Operations. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the Company's financial
performance, or cash flows from operating activity (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability to make
distributions.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPT 30, (IN THOUSANDS) SEPT 30, (IN THOUSANDS)
-------------------------- --------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Funds From Operations:
Income before gains and
extraordinary items............ $ 52,071 $37,311 $ 15,532 $13,517
Real estate depreciation.......... 20,260 13,668 7,239 5,166
Joint venture effect.............. 1,292 375 585 125
Special charge.................... 2,990 -- 2,990 --
Preferred dividend requirement.... (11,758) (5,758) (3,919) (1,919)
-------- ------- -------- -------
Total Funds From
Operations.............. $ 64,855 $45,596 $ 22,427 $16,889
======== ======= ======== =======
</TABLE>
FORWARD LOOKING INFORMATION
This quarterly report contains forward-looking statements within the
meaning of the federal securities laws. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995, and is
including this statement for purposes of complying with these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Company include, but are not limited to,
changes in: economic conditions generally and the real estate market
specifically, legislative or regulatory provisions affecting the Company
(including changes to laws governing the taxation of REITs), availability of
capital, interest rates, competition, supply of and demand for office and
industrial properties in the Company's current and proposed market areas, and
general accounting principles, policies and guidelines applicable to REITs.
These risks and uncertainties, together with the other risks described from time
to time in the Company's reports and documents filed with the Securities and
Exchange Commission, should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
18
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
During the third quarter, the Company appointed Robert W. Holman, Jr. Chief
Executive Officer of the Company. Mr. Holman is Chairman of the Board of
Directors and was a co-founder of the Company. Mr. Holman replaced Mark S.
Whiting who resigned as President and Chief Executive Officer effective
September 8, 1998 to pursue other personal and business interests. In connection
with Mr. Whiting's resignation, the Non-Competition Agreement between the
Company and Mr. Whiting dated June 2, 1993 was terminated. Also during the third
quarter, Gary P. Lyon resigned as Executive Vice President and Chief
Acquisitions Officer of the Company, effective September 30, 1998.
Effective November 9, 1998, the Company has appointed First Chicago Trust
Company of New York to act as its transfer agent and registrar of the Company's
common stock and preferred stock, dividend disbursing agent, administrator of
the Company's dividend reinvestment plan, and rights agent under the Rights
Agreement dated as of February 25, 1998. In each capacity, First Chicago Trust
Company is replacing Harris Trust and Savings Bank.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
<TABLE>
<C> <S>
27.1 Financial Data Schedule.
</TABLE>
Reports on Form 8-K
<TABLE>
<CAPTION>
FINANCIAL
DATE ITEMS REPORTED STATEMENTS
---- -------------- ----------
<S> <C> <C>
September 4, 1998 5, 7 Yes
</TABLE>
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and 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.
(Registrant)
BY: /s/ A. WILLIAM STEIN
------------------------------------
A. William Stein
Executive Vice President,
Chief Financial Officer and
Secretary
(Principal Financial and Accounting
Officer)
DATE: November 13, 1998
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1998
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,401
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,595,370
<DEPRECIATION> 72,837
<TOTAL-ASSETS> 1,603,828
<CURRENT-LIABILITIES> 0
<BONDS> 716,907
0
73
<COMMON> 249
<OTHER-SE> 812,786
<TOTAL-LIABILITY-AND-EQUITY> 1,603,828
<SALES> 112,303
<TOTAL-REVENUES> 118,845
<CGS> 0
<TOTAL-COSTS> 4,819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,752
<INCOME-PRETAX> 41,428
<INCOME-TAX> 0
<INCOME-CONTINUING> 41,428
<DISCONTINUED> 0
<EXTRAORDINARY> (1,272)
<CHANGES> 0
<NET-INCOME> 40,156
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.65
</TABLE>
