<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 JUNE 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 FRANCISCO, CA 94111
(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:
24,871,879 shares of Common Stock, $.01 par value as of August 7, 1998
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<PAGE> 2
TRINET CORPORATE REALTY TRUST, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1998 and December
31, 1997.................................................... 3
Consolidated Statements of Operations for the six months
ended June 30, 1998 and 1997................................ 4
Consolidated Statements of Cash Flows for the six months
ended June 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.................................................. 12
</TABLE>
PART II -- OTHER INFORMATION
<TABLE>
<S> <C> <C>
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............................ 20
Signatures........................................................... 21
</TABLE>
2
<PAGE> 3
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Real estate................................................. $1,470,761 $1,163,454
Less accumulated depreciation............................. (65,597) (52,650)
---------- ----------
1,405,164 1,110,804
Cash and cash equivalents................................... 5,707 303
Restricted cash and investments............................. 16,475 5,043
Deferred rent receivable.................................... 25,274 20,797
Loan costs, net............................................. 13,093 13,958
Other assets, net........................................... 16,554 4,999
---------- ----------
$1,482,267 $1,155,904
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt...................................................... $ 594,190 $ 434,122
Dividends payable......................................... 15,912 13,346
Other liabilities......................................... 52,125 32,448
---------- ----------
Total liabilities................................. 662,227 479,916
---------- ----------
Commitments and contingencies
Minority interest........................................... 2,557 765
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized:
Series A: 2,000,000 shares issued and outstanding at
June 30, 1998 and December 31, 1997 (aggregate
liquidation preference $50,000)....................... 20 20
Series B: 1,300,000 shares issued and outstanding at
June 30, 1998 and December 31, 1997 (aggregate
liquidation preference $32,500)....................... 13 13
Series C: 4,000,000 shares issued and outstanding at
June 30, 1998 and December 31, 1997 (aggregate
liquidation preference $100,000) (aggregate
liquidation preference $100,000)...................... 40 40
Common stock, $.01 par value, 40,000,000 shares
authorized:
24,871,879 and 20,853,106 issued and outstanding at
June 30, 1998 and December 31, 1997, respectively...... 249 209
Paid-in-capital........................................... 855,850 710,798
Accumulated deficit....................................... (38,689) (35,857)
---------- ----------
Total stockholders' equity........................ 817,483 675,223
---------- ----------
$1,482,267 $1,155,904
========== ==========
</TABLE>
The accompanying notes 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>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Rent.............................................. $71,589 $47,438 $36,323 $25,459
Joint venture income.............................. 1,510 445 1,062 207
Management fees................................... 596 216 331 129
Interest and other income......................... 1,844 546 951 323
------- ------- ------- -------
Total revenues............................ 75,539 48,645 38,667 26,118
Expenses:
Property operating costs.......................... 2,931 1,842 1,671 949
General and administrative........................ 5,355 3,177 2,845 1,623
Interest.......................................... 17,569 11,134 8,863 5,414
Depreciation and amortization..................... 13,099 8,698 6,642 4,783
------- ------- ------- -------
Income before minority interest and gain on
sale of real estate.......................... 36,585 23,794 18,646 13,349
Minority interest................................. (46) -- (34) --
Gain on sale of real estate....................... 1,115 985 -- 985
------- ------- ------- -------
Income before extraordinary item............... 37,654 24,779 18,612 14,334
Extraordinary loss from early extinguishment of
debt........................................... (1,272) -- (1,272) --
Extraordinary gain from expropriation............. -- 98 -- --
------- ------- ------- -------
Net income................................... 36,382 24,877 17,340 14,334
Preferred dividend requirement............... (7,839) (3,839) (3,920) (1,920)
------- ------- ------- -------
Earnings available to common shares.......... $28,543 $21,038 $13,420 $12,414
======= ======= ======= =======
Earnings available per common share:
Income available before extraordinary item........ $ 1.24 $ 1.14 $ 0.59 $ 0.61
Earnings available................................ $ 1.19 $ 1.15 $ 0.54 $ 0.61
Earnings available per common share, assuming
dilution:
Income available before extraordinary item........ $ 1.23 $ 1.13 $ 0.59 $ 0.61
Earnings available................................ $ 1.18 $ 1.14 $ 0.54 $ 0.61
Weighted average number of common shares
outstanding:
Basic............................................. 23,894 18,245 24,649 20,275
Diluted........................................... 24,141 18,405 24,853 20,414
Dividends declared per common share................. $ 1.28 $ 1.26 $ 0.64 $ 0.63
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 36,382 $ 24,877
Noncash income and expenses included in net income:
Extraordinary (gain)/loss.............................. 1,272 (98)
Minority interest...................................... 46 --
Depreciation and amortization.......................... 13,099 8,698
Amortization of loan costs............................. 1,261 1,237
Straight-line rent adjustments......................... (4,477) (3,160)
Gain on sale of real estate............................ (1,115) (985)
Joint venture income................................... (1,510) (445)
Cash provided by (used in) operating assets and
liabilities:
Other assets........................................... (6,634) (982)
Other liabilities...................................... 19,357 2,311
----------- ---------
Net cash provided by operating activities......... 57,681 31,453
----------- ---------
Cash flows from investing activities:
Investments in real estate................................ (295,369) (264,276)
Proceeds from disposal of real estate..................... 12,299 5,030
Proceeds from sale of real estate due to expropriation.... -- 122
Other capital expenditures and investments................ (5,609) (378)
----------- ---------
Net cash used in investing activities............. (288,679) (259,502)
----------- ---------
Cash flows from financing activities:
Acquisition Facility borrowings........................... 1,069,500 185,335
Acquisition Facility payments............................. (1,052,800) (132,635)
Mortgage note principal payments.......................... (190) --
Preferred dividends paid.................................. (7,839) (3,839)
Common dividends paid..................................... (28,809) (21,573)
Proceeds from issuance of common stock.................... 143,227 199,936
Proceeds from senior unsecured debt offering.............. 124,633 --
Minority interest contributions, net of distributions..... 1,746 --
Increase in restricted cash and investments............... (11,432) (47)
Increase in loan costs, and other assets.................. (1,634) (82)
----------- ---------
Net cash provided by financing activities......... 236,402 227,095
----------- ---------
Increase/(decrease) in cash and cash equivalents............ 5,404 (954)
Cash and cash equivalents, at beginning of period........... 303 4,984
----------- ---------
Cash and cash equivalents, at end of period................. $ 5,707 $ 4,030
=========== =========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Mortgages assumed in connection with property
acquisitions........................................... $ 18,890 $ --
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. Certain reclassifications have been made to the
prior year financial statements to conform to the current year presentation.
In the opinion of the Company's management, all material adjustments
consisting of only normal recurring accruals considered necessary for a fair
presentation of results of operations for the interim periods have been
included. The results of operations for the six month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
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 does not believe
the application of SFAS 133 will have a material effect on its consolidated
financial statements.
2. REAL ESTATE
The following summarizes real estate investments as of June 30, 1998 and
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Real estate held for sale........................ $ -- $ 10,942
Improved land.................................... 234,631 200,393
Buildings and improvements....................... 1,123,344 945,458
Less accumulated depreciation.................. (65,597) (52,650)
---------- ----------
1,292,378 1,104,143
Convertible mortgage............................. 27,725 --
Investments in and advances to real estate joint
ventures....................................... 85,061 6,661
---------- ----------
Net real estate........................... $1,405,164 $1,110,804
========== ==========
</TABLE>
Investments in Real Estate Joint Ventures
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
"Sunnyvale Partnership"). The Sunnyvale Partnership owns a four-building office
campus in Sunnyvale, California, subject to a $17.1 million non-recourse first
mortgage. The Company accounts for its partnership investment under the equity
method as the limited partners have certain rights which limit the Company's
control. The limited partners are entitled to a preferred return and as of June
1998, the limited partners have the option to convert their interest into cash;
however, the Company
6
<PAGE> 7
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
may elect to deliver 258,894 shares of the Company's common stock in lieu of
cash. As of June 30, 1998 the limited partners had not converted any of their
interest.
On March 16, 1998, the Company, via a joint venture (the "Joint Venture")
with Whitehall Street Real Estate Limited Partnership IX ("Whitehall"), an
affiliate of Goldman, Sachs & Co., acquired two office towers, a parking
facility, and a development parcel in the central business district of New
Orleans, Louisiana, for a purchase price of approximately $114.3 million. The
properties consist of a 28-story, 526,041 square foot office tower, a 24-story,
422,890 square foot office tower, a 1,078 space parking garage, a 1.5 acre
development parcel, and a 0.68 acre garage expansion site. The Company has a 50
percent interest in the Poydras Joint Venture and will manage the assets on
behalf of the venture. Commencing in March 2001, subject to acceleration under
certain circumstances, Whitehall has the right to exchange its interest in the
joint venture for shares of the Company's Common Stock, with registration
rights. The Company accounts for its limited liability investment under the
equity method.
During the second quarter of 1998, the Poydras Joint Venture obtained third
party financing of approximately $78.6 million from Dresdner Bank AG ("the
Dresdner Loan"). Additionally, $4.5 million is available on the loan for
potential expansion and to fund tenant improvements and leasing costs. The
Dresdner Loan bears interest at the Libor rate plus 1.375% and matures on June
19, 2001 with an optional one year extension. The Company has provided a
guarantee of 25% of the principal and interest on the Dresdner Loan and receives
as compensation for the guarantee a fee of $98,000 per quarter. The proceeds of
the loan were used to partially refinance the capital contributions of the
partners in the Poydras Joint Venture. As of June 30, 1998, the Company's 50%
interest in Poydras totaled $12.5 million. Additionally, at June 30, 1998, the
Company had a $14.9 million note receivable from Poydras in the form of a
Subordinated Promissory Note, which bears interest at 11%, payable quarterly,
and matures on June 20, 2001.
On March 26, 1998, the Company entered into a joint venture with a private
real estate investment, development, and management company to participate in
the development and ownership of a multi-building office campus, Corporate
Technology Centre ("Tech Centre"), in San Jose, California. The venture intends
to construct up to seven Class A office buildings comprising approximately
603,000 square feet and expects the project's final cost to total approximately
$126 million. The Company initially invested over $50 million in the joint
venture, which acquired a 33 acre, fully-entitled land parcel. The Company has a
50 percent interest in the venture which totalled $47.1 million at June 30,
1998. The Tech Centre joint venture partner will be responsible for the
project's development and leasing activities. The Company accounts for its
limited liability investment under the equity method.
7
<PAGE> 8
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
BALANCE AS OF
------------------------
JUNE 30, DECEMBER 31, INTEREST RATE MATURITY
LOAN 1998 1997 AS OF JUNE 30, 1998 DATE
---- -------- ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Acquisition Facility............... $135,000 $118,300 LIBOR + 0.75% 10/08/1999
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............... 30,134 11,433 6.00% - 11.375% (2)
-------- --------
595,147 434,746
Less unamortized debt discount..... (957) (624)
-------- --------
$594,190 $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 2010.
The 30-day LIBOR rate as of June 30, 1998 was 5.66%. The Company has
entered into interest rate protection agreements which, together with certain
existing interest rate cap agreements, effectively fix the interest rate on
$125.0 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 is $75.0 million from June 1998 through November 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 two one year extension options. The Company has
the option of increasing the facility size up to $500 million. 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 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.
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 Acquisition
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
8
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TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2003, the rate applicable to such 10 year security 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 (in
thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Gross interest........................................... $17,372 $ 9,897
Capitalized interest..................................... (1,064) --
Amortization of loan costs............................... 1,261 1,237
------- -------
Net interest expense........................... $17,569 $11,134
======= =======
</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 Acquisition 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
Acquisition 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, 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 Company's assets or earning power is sold or transferred,
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.
9
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TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 Acquisition Facility.
On June 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 May 29, 1998.
On May 27, 1998 the Company declared a distribution of $0.64 per common
share, payable on July 15, 1998 to common shareholders of record as of June 30,
1998.
5. 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 497,000 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.
As of June 30, 1998, the Company had an aggregate of $56.8 million of
contracts outstanding with third party developers to acquire three 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.
10
<PAGE> 11
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. EARNINGS PER SHARE
The following table presents the basic and diluted earnings per share
calculations for the three months ending (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
NUMERATOR:
Income before extraordinary items......................... $37,654 $24,779
Extraordinary items....................................... (1,272) 98
------- -------
Net income................................................ 36,382 24,877
Preferred dividend requirement............................ (7,839) (3,839)
------- -------
Earnings available to common shares....................... $28,543 $21,038
======= =======
DENOMINATOR:
Basic:
Weighted average common shares outstanding............. 23,894 18,245
======= =======
Diluted:
Weighted average common shares outstanding............. 23,894 18,245
Shares issuable from assumed conversion of common stock
options.............................................. 247 160
------- -------
Weighted average common shares outstanding, as
adjusted............................................. 24,141 18,405
======= =======
EARNINGS AVAILABLE PER COMMON SHARE -- BASIC:
Income available before extraordinary items............... $ 1.24 $ 1.14
Extraordinary items....................................... (0.05) 0.01
------- -------
Earnings available........................................ $ 1.19 $ 1.15
======= =======
EARNINGS AVAILABLE PER COMMON SHARE -- DILUTED:
Income available before extraordinary items............... $ 1.23 $ 1.13
Extraordinary items....................................... (0.05) 0.01
------- -------
Earnings available........................................ $ 1.18 $ 1.14
======= =======
</TABLE>
As of June 1998, the limited partners of the Sunnyvale Partnership have the
option to convert their interest into cash; however, the Company may elect to
deliver 258,894 shares of the Company's common stock in lieu of cash. Similarly,
commencing in July 1999 the limited partners of TPP have the option to convert
their interests into cash and the Company may elect to deliver 65,077 shares of
common stock in lieu of cash should the limited partners redeem their interests.
Commencing in March 2001, Whitehall has the option to convert its limited
liability interest into 304,977 shares of common stock, subject to certain
adjustments. The assumed conversions by the limited partners and members of the
Sunnyvale Partnership, TPP, and the Poydras Joint Venture were not included in
the calculation of diluted earnings per share as they were antidilutive for the
periods presented.
11
<PAGE> 12
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") that acquires, owns and
manages primarily office and industrial properties leased to major corporations
nationwide. 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 June 30, 1998, TriNet's portfolio consisted of 132
properties, which comprise more than 18.6 million rentable square feet in 25
states. During the first six months of 1998, the Company acquired 17 properties,
originated a convertible mortgage and invested in development projects with
aggregate costs of approximately $338.6 million.
TriNet's business objective is to maximize the total return to stockholders
through growth in Funds From Operations ("FFO") (See "-- Funds From Operations"
below) per common share and increases in dividends per common share. Since the
Company's initial public offering in June 1993, TriNet has increased annualized
dividends on its common shares from $2.19 in June 1993 to $2.56 as of June 30,
1998. The Company will seek to continue to grow its FFO 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, contractual rent increases and other sources. The Company
generally intends to hold its 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.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 VS. SIX MONTHS ENDED JUNE 30, 1997
Earnings available to common shares increased by $7.5 million or 35.7% to
$28.5 million for the first six months of 1998 from $21.0 million for the same
period in 1997. The increase in earnings is principally due to increased
properties in operation, resulting from 1997 and 1998 acquisitions which was
partially offset by an extraordinary loss of $1.3 million from the early
extinguishment of debt and a $4.0 million increase in preferred share dividends.
Income before minority interest and gain on sale of real estate increased by
$12.8 million or 54% to $36.6 million for the first six months of 1998 compared
to $23.8 million for the same period in 1997.
Rental Revenues
Rent revenues for the first six months of 1998 increased by $24.2 million
or 50.9% compared to the first six months of 1997. The significant increase in
rent revenue is primarily the result of the Company's acquisitions subsequent to
June 30, 1997, which accounted for $15.9 million of rent revenue during the
first six months of 1998. Additionally, the properties acquired in the first six
months of 1997 contributed an additional $8.5 million to rent revenue in 1998,
the increase due to owning the properties for a full six months during 1998. The
overall increase in rent revenue was partially offset by a decrease of
approximately $0.4 million due to properties sold since January 1, 1997.
Joint Venture Income
On March 16, 1998, the Company, via a joint venture (the "Poydras Joint
Venture") with Whitehall Street Real Estate Limited Partnership IX
("Whitehall"), an affiliate of Goldman, Sachs & Co., acquired two
12
<PAGE> 13
office towers, a parking facility, and a development parcel in the central
business district of New Orleans, Louisiana, for a purchase price of
approximately $114.3 million. The Company has a 50 percent interest in the
Poydras Joint Venture, which contributed $1,036,000 to joint venture income
during the six months ended June 30, 1998. The Company's joint venture
investment in the Sunnyvale Partnership contributed $474,000 to revenues for the
six months ended June 30, 1998, an increase from the $445,000 for the same
period in 1997.
Management Fees
TriNet Property Management, Inc., a newly formed subsidiary of the Company,
realized increased management fee income as a result of opening on-site property
management offices at two of the Company's properties. These property management
offices are located at the RiverEdge property in Atlanta, Georgia, opened in
July 1997, and at the Microsoft property in Irving, Texas, opened in September
1997. 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.
Other Revenue
Other revenue increased $1,298,000 from $546,000 at June 30, 1997 to
$1,844,000 at June 30, 1998. This increase is the result of the recognition of
approximately $713,000 of income from the Company's advisory services provided
in connection with the Poydras Joint Venture and the Tech Centre investments
during 1998. Additionally, other revenue increased by $704,000 due to interest
income recognized from the GTE convertible mortgage and the mezzanine financing
with the Poydras Joint Venture. These increases were offset by lower interest
income due to lower average cash balances. Average cash balances were higher in
the first quarter of 1997 due to proceeds from the February 1997 equity offering
of 6,250,000 shares of common stock.
Property Operating Costs
For the six months ended June 30, 1998, property operating costs increased
to $2.9 million from $1.8 million for the same period of 1997. The increase in
property operating costs is due to the costs associated with the continued
growth in the Company's real estate portfolio and the acquisition of certain
properties, primarily the Keller Davis and Concord Farms portfolios, in which
the Company has lease obligations for certain operating expenses.
General and Administrative
For the six months ended June 30, 1998, general and administrative expenses
increased 68.6% to $5.4 million compared to the same period in 1997. This
increase is a result of increased personnel and related overhead from the
Company's continued growth. As a percentage of weighted average joint venture
investments and undepreciated real estate, general and administrative expenses
were 0.38% for the first six months of 1998 as compared to 0.35% for the first
six months of 1997.
Interest Expense
Interest expense has increased 57.8% to $17.6 million for the six months
ended June 30, 1998 as compared to $11.1 million for the same period of 1997.
This increase is due to a greater weighted average debt balance of $481.0
million for the six months ended June 30, 1998, as compared to $271.1 million
for the same period of 1997. The increase in the debt balance is primarily
attributable to the issuance of the 2017 Notes in July 1997 and the issuance of
the Drs. in February 1998. Interest expense was reduced by $1.1 million of
capitalized interest costs associated with the Tech Centre land loan. The
Company's weighted average interest rate for the six months ended June 30, 1998
remained relatively constant at 7.18%.
Depreciation and Amortization
Depreciation and amortization increased by 50.6% for the six months ended
June 30, 1998 when compared to the first six months of 1997, a result of the
Company's larger asset base.
13
<PAGE> 14
Minority Interest
The $46,000 minority interest for the first six months of 1998 represents
the limited partners' interest in TriNet Property Partners, L.P. ("TPP"), a
partnership formed in December 1997. TPP, in which a wholly-owned subsidiary of
the Company is the sole general partner, 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 JUNE 30, 1998 VS. THREE MONTHS ENDED JUNE 30, 1997
Rental Revenues
Rental revenues for the three months ended June 30, 1998 increased by $10.9
million or 42.7% compared to the same period of 1997. The significant increase
in rental revenue is primarily a result of the Company's acquisitions subsequent
to June 30, 1997, which accounted for $8.7 million of rental revenue during the
second quarter of 1998. Additionally, the properties acquired in the second
quarter of 1997 contributed an additional $2.6 million to rental revenue in 1998
over that of the same period in 1997. The overall increase in rental revenue was
partially offset by a decrease of approximately $443,000 due to properties sold
subsequent to June 30, 1997.
Joint Venture Income
On March 16, 1998, the Company, via a joint venture (the "Poydras Joint
Venture") with Whitehall Street Real Estate Limited Partnership IX
("Whitehall"), an affiliate of Goldman, Sachs & Co., acquired two office towers,
a parking facility, and a development parcel in the central business district of
New Orleans, Louisiana, for a purchase price of approximately $114.3 million.
The Company has a 50 percent interest in the Poydras Joint Venture, which
contributed $806,000 to joint venture income during the three months ended June
30, 1998. The Company's joint venture investment in the Sunnyvale Partnership
contributed $254,000 to revenues for the three months ended June 30, 1998, an
increase from $207,000 for the same period in 1997.
Management Fees
TriNet Property Management, Inc., a newly formed subsidiary of the Company,
realized increased management fee income as a result of opening on-site property
management offices at two of the Company's properties. One such office was
opened at the RiverEdge property in Atlanta, Georgia, in July 1997, and the
other was opened at the Microsoft property in Irving, Texas, in September 1997.
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.
Other Revenue
Other revenue increased $628,000 from $323,000 for the three months ended
June 30, 1997 to $951,000 for the three months ended June 30, 1998. This
increase is the result of the recognition of $704,000 of interest income
recognized from the GTE convertible mortgage and the mezzanine financing with
the Poydras Joint Venture. This increase was offset by lower interest income due
to a lower average cash balances. Average cash balances were higher in the first
quarter of 1997 due to proceeds from the February 1997 equity offering of
6,250,000 shares of common stock.
Property Operating Costs
For the three months ended June 30, 1998, property operating costs
increased to $1,671,000 for the three months ended June 30, 1998 from $949,000
for the three months ended June 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 1997, primarily the Keller Davis and Concord Farms portfolios in which the
Company has lease obligations for operating expenses.
14
<PAGE> 15
General and Administrative
For the second quarter of 1998, general and administrative expenses
increased 75% to $2.8 million, as compared to the same period in 1997. This
increase is the result of additional personnel and related overhead from the
Company's continued growth. As a percentage of combined rental revenue and joint
venture income, general and administrative expenses has increased to 7.6% for
the second quarter of 1998 from 6.3% for the second quarter of 1997.
Interest Expense
Interest expense increased 63.7% to $8.9 million for the three months ended
June 30, 1998 as compared to $5.4 million for the corresponding period of 1997.
This increase is attributable to the weighted average debt balance increasing
from $264.0 million for the three months ended June 30, 1997 to $524.3 million
for the corresponding period of 1998. The increase in the debt balance is
primarily attributable to the issuance of the 2017 Notes in July 1997 and the
issuance of the Drs. in February 1998. Interest expense for the three months
ending June 30, 1998 was reduced by $1.1 million of capitalized interest costs
associated with the Tech Centre land loan.
Depreciation and Amortization
Depreciation and amortization increased by 38.9% for the three months ended
June 30, 1998 when compared to the same period in 1997 as a result of the
Company's larger asset base.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased by $26.2 million, or
83.4%, to $57.7 million for the six months ended June 30, 1998, when compared to
the same period in 1997. The increase was primarily due to increased rental
revenue attributable to the increase in the portfolio size. Net cash used in
investing activities was $288.7 million for the six months ended June 30, 1998.
These funds were used primarily to acquire properties and interest in joint
ventures. The Company incurred $609,000 of capital expenditures on existing
properties during the first six months of 1998, and expects to incur an
additional $3.1 million of such expenditures for the remainder of 1998.
Net cash provided by financing activities for the first six months of 1998
was $236.4 million, primarily a result of the proceeds from the January 1998
Offering, the March 1998 Offering, the April 23, 1998 Offering and the issuance
of the Drs. Net proceeds from the January 1998 Offering were approximately $87.5
million which were used to pay down the balance on the Acquisition Facility.
Proceeds from the March 1998 and April offerings were approximately $55.0
million and were also used to pay down the balance on the Acquisition Facility.
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
Acquisition Facility. Net cash provided by financing activities was offset by
common dividends paid of $28.8 million and preferred dividends paid of $7.8
million for the six month period ended June 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 two one year
extension options. The Company has the option of increasing the facility size up
to $500 million. 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 only payments until maturity, at which time outstanding borrowings are
due and payable. In connection with
15
<PAGE> 16
this transaction, $1.3 million of unamortized debt issuance costs relating to
the old Acquisitions Facility was recognized as an extraordinary loss.
Outstanding debt as of June 30, 1998, consisted of mortgage notes and notes
payable totaling $594.2 million. There are $833,000 of scheduled principal
amortization payments for the next twelve months which are related to the Other
Mortgage Loans. As of June 30, 1998, the available amount of credit under the
Acquisition Facility was $215.0 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 (the "January
1998 Offering"). Proceeds from the January 1998 Offering, net of issuance costs,
were approximately $87.5 million which were used to pay down the balance on the
Acquisition Facility.
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 from the Drs.
were approximately $123.7 million, of which $120.6 million was used to pay down
the balance on the Acquisition 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. 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 "March 1998 Offering").
The $30.0 million of proceeds were used to pay down the balance on the
Acquisition Facility.
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, before issuance costs, and were used to pay down the balance on the
Acquisition Facility and for working capital.
On February 5, 1998, Schwegmann Giant Supermarkets ("Schwegmann") failed to
meet its lease obligations on two Schwegmann properties in Baton Rouge and
Metairie, Louisiana and was in default of these lease agreements with the
Company. Obligations with respect to the Schwegmann properties were secured by a
first mortgage and assignment of rents on a separate property that was owned by
an affiliate of Schwegmann and leased to SGSM Acquisition Company, LLC ("SGSM")
(the "Collateral Property"). On May 4, 1998, the Company accepted a deed on the
Collateral Property as consideration for the future release of Schwegmann's
obligations under both defaulted leases and various guarantees. The 108,424
square foot Collateral Property is located in Metairie, Louisiana and is 100%
leased to SGSM through 2017. The Collateral Property has annual net operating
income of approximately $500,000. The Company does not expect a material impact
on its financial condition or results of operations as a result of this
transaction.
The Company expects to meet certain long-term liquidity requirements, such
as property acquisitions and scheduled debt maturities, using long-term
unsecured and secured borrowings and the issuance of debt securities or
preferred and common stock of the Company. 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. The other 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,
16
<PAGE> 17
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 term debt instruments
and to the ratio of total debt to total market capitalization. As of June 30,
1998 and 1997, the Company's weighted average fixed term debt maturity was 8.1
years (assuming the Drs. mandatory tender occurs in 2003) and 6.1 years,
respectively, and the ratio of total debt to total market capitalization was
36.7% and 32.3%, respectively. The lengthening of the weighted average fixed
term debt is primarily the result of the issuance of the 2017 Notes in July
1997.
As of June 30, 1998, the Company had an aggregate of approximately $56.8
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 1998 and 1999.
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 does not believe
the application of SFAS 133 will have a material effect on its consolidated
financial statements.
FUNDS FROM OPERATIONS
The definition of Funds From Operations 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 for unconsolidated partnerships
and joint ventures. Adjustments for unconsolidated partnerships and joint
ventures will be calculated to reflect funds from operations 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 SIX MONTHS FOR THE THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ---------------------
1998 1997 1998 1997
-------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Funds From Operations:
Income before gains and extraordinary items..... $36,539 $23,794 $18,612 $13,349
Real estate depreciation........................ 13,021 8,502 6,603 4,676
Joint venture effect............................ 707 250 503 125
Preferred dividend requirement.................. (7,839) (3,839) (3,920) (1,920)
------- ------- ------- -------
Total Funds From Operations............. $42,428 $28,707 $21,798 $16,230
======= ======= ======= =======
</TABLE>
17
<PAGE> 18
YEAR 2000
The Company's primary uses of software systems are for corporate and
property accounting. The Company's current system is widely used by the real
estate industry and is Year 2000 compliant. The Company is replacing its current
corporate and property accounting system with one which is also designed to be
Year 2000 compliant. Therefore, the Company believes that the risk of Year 2000
compliance is not significant as it relates to its computer software systems.
At this time, no estimates can be made as to any potential adverse impact
resulting from the failure of tenants and third-party service providers and
vendors to prepare for the Year 2000. Also, at this time, no estimate can be
made for the potential cost related to evaluating and correcting the embedded
systems of the Company's properties. The Company is attempting to identify those
risks as well as to receive compliance certificates from all third parties that
have a material impact on the Company's operations, but the cost and timing of
third party Year 2000 compliance is not within the Company's control and no
assurances can be given with respect to the cost or timing of such efforts or
the potential effects of any failure to comply.
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
The Company's Annual Meeting of Stockholders was held on May 27, 1998. At
that time, the stockholders voted to elect George R. Puskar as a Class III
Director of the Company for a term expiring in 1999 and Robert W. Holman, Jr.
and John G. McDonald as Class II Directors of the Company for terms expiring in
2001. The total number of shares of the Company's Common Stock entitled to vote
at the Annual Meeting was 23,930,204. A total of 20,633,671 shares of the
Company's Common Stock were present in person or by proxy at the Annual Meeting.
A total of 20,137,951 votes (84.2% of the outstanding shares) were cast for the
election of Mr. Puskar and 495,720 votes (2.1%) were withheld. A total of
20,142,336 votes(84.2%) were cast for the election of Mr. Holman and 491,335
votes (2.1%) were withheld. A total of 20,133,986 votes (84.1%) were cast for
the election of Mr. McDonald and 499,685 votes (2.1%) were withheld. Mark S.
Whiting and Robert S. Morris continue to serve as Class I Directors until their
present terms expire in 2000 and their successors are duly elected. Willis
Andersen, Jr. and Stephen B. Oresman continue to serve as Class III Directors
until their present terms expire in 1999 and their successors are duly elected.
The stockholders also voted to approve a proposed amendment to the TriNet
Corporate Realty Trust, Inc. Articles of Incorporation to modify the provision
relating to liability of Directors and officers, as described in the Company's
proxy statement. A total of 16,628,456 votes (69.5%) were cast for approval of
this proposal, 3,367,909 votes (14.1%) were cast against, and 637,306 votes
(2.7%) abstained.
The stockholders further voted to ratify the Board of Directors' selection
of Coopers & Lybrand L.L.P. as the Company's independent auditors for the fiscal
year ending December 31, 1998. A total of 20,504,130 votes (85.7%) were cast for
this proposal, 77,566 votes (0.3%) were cast against, and 51,975 votes (0.2%)
abstained.
The Annual Meeting was adjourned after the votes on these matters and was
reconvened on June 24, 1998 for the purpose of voting on a proposed amendment to
the TriNet Corporate Realty Trust, Inc. Articles of Incorporation to increase
the authorized capital stock of the Company, as described in the Company's proxy
statement. A total of 13,681,422 votes (57.2%) were cast for approval of this
proposal, 3,850,572 votes (16.1%) were cast against, and 3,519,943 votes (14.7%)
abstained. The affirmative votes of two-thirds of the Company's outstanding
shares were required for approval of this proposal and, accordingly, this
proposal was not passed.
ITEM 5. OTHER INFORMATION
None.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27.1 Financial Data Schedule.
Reports on Form 8-K
<TABLE>
<CAPTION>
FINANCIAL
DATE ITEMS REPORTED STATEMENTS
---- -------------- ----------
<S> <C> <C>
June 19, 1998....................................... 7 No
June 5, 1998........................................ 7 No
April 30, 1998...................................... 5, 7 Yes
</TABLE>
20
<PAGE> 21
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: August 10, 1998
21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT
No.
-------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE
30, 1998
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 22,182
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,470,761
<DEPRECIATION> 65,597
<TOTAL-ASSETS> 1,482,267
<CURRENT-LIABILITIES> 0
<BONDS> 594,190
0
73
<COMMON> 249
<OTHER-SE> 817,161
<TOTAL-LIABILITY-AND-EQUITY> 1,482,267
<SALES> 71,589
<TOTAL-REVENUES> 75,539
<CGS> 0
<TOTAL-COSTS> 2,931
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<INTEREST-EXPENSE> 17,569
<INCOME-PRETAX> 29,815
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,815
<DISCONTINUED> 0
<EXTRAORDINARY> (1,272)
<CHANGES> 0
<NET-INCOME> 28,543
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.18
</TABLE>
