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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-11918
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TRINET CORPORATE REALTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 94-3175659
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE EMBARCADERO CENTER, 33RD FLOOR (415) 391-4300
SAN FRANCISCO, CA 94111-3722 (REGISTRANT'S TELEPHONE NUMBER)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
PREFERRED STOCK, $.01 PAR VALUE
SERIES A, SERIES B AND SERIES C
(TITLE OF CLASS)
NEW YORK STOCK EXCHANGE
(NAME OF EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $614.8 million based on the closing price on
the New York Stock Exchange for such stock on March 15, 1999.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING WAS 24,872,429 AS OF MARCH 15,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 TriNet Corporate Realty Trust, Inc. Proxy Statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the year covered by this Form 10-K with respect to the Annual Meeting of
Stockholders to be held on May 26, 1999 are incorporated by reference into Part
III.
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TABLE OF CONTENTS
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PART I
1. Business.................................................... 1
2. Properties.................................................. 8
3. Legal Proceedings........................................... 11
4. Submission of Matters to a Vote of Security Holders......... 11
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 12
6. Selected Financial Data..................................... 13
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 26
8. Financial Statements and Supplementary Data................. 27
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 27
PART III
10. Directors and Executive Officers of the Registrant.......... 27
11. Executive Compensation...................................... 27
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 27
13. Certain Relationships and Related Transactions.............. 27
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................... 28
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PART I
ITEM 1. BUSINESS
THE COMPANY
TriNet Corporate Realty Trust, Inc. (the "Company" or "TriNet") is a real
estate investment trust ("REIT") that acquires, owns and manages office and
industrial properties leased to major corporations nationwide. As of March 19,
1999, TriNet's portfolio consisted of 145 properties, which comprised 19.5
million square feet in 25 states. During 1998, the Company acquired a total of
38 properties for an aggregate purchase price of approximately $581.1 million,
which includes 20 properties purchased through joint ventures for $301.2
million. As of December 31, 1998, the Company's five largest tenants
collectively accounted for approximately 18% of the Company's annualized rent
revenue, and the Company's largest single tenant accounted for approximately 4%
of the Company's annualized rent revenue.
TriNet commenced operations effective with the completion of the Company's
initial public offering (the "Initial Offering") of its common stock, par value
$.01 per share ("Common Stock") on June 3, 1993. In connection with the Initial
Offering, the Company engaged in various transactions, including the transfer of
42 properties from its predecessor partnerships and the transfer of the
purchase/leaseback and net lease real estate business operations of The Shidler
Group.
The Company was incorporated under the laws of the State of Maryland on
March 4, 1993. The Company's principal executive offices are located at One
Embarcadero Center, 33rd Floor, San Francisco, California 94111, and its
telephone number is (415) 391-4300. TriNet's web site address is
http://www.tricorp.com. The Company maintains regional corporate offices in
Malvern, Pennsylvania and Alpharetta, Georgia. The Company's property management
subsidiary maintains offices in San Francisco, California; Atlanta, Georgia;
Dallas, Texas; Denver, Colorado and New Orleans, Louisiana. As of March 19,
1999, the Company employed 81 individuals.
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, the Company generally will
not be subject to federal income taxation at the corporate level to the extent
it distributes annually at least 95% of its REIT taxable income, as defined in
the Code, to its stockholders and satisfies certain other requirements.
BUSINESS OBJECTIVES
TriNet's business objective is to maximize the total return to stockholders
through growth in funds from operations per common share and increases in
dividends per common share. Since the Initial Offering, TriNet has increased
annualized dividends on its Common Stock from $2.19 in June 1993 to $2.60 as of
December 31, 1998. TriNet's management seeks to increase funds from operations
per share and distributions to stockholders through both active portfolio
management and the acquisition of additional properties.
The Company pursues the accretive acquisition of office and industrial
properties which are net leased under long-term leases to major corporate users.
The Company generally intends to hold its properties for long-term investment.
However, subject to certain REIT restrictions, the Company may dispose of a
property if it deems such a disposition to be in the best interest of the
stockholders and may either reinvest the proceeds of such a disposition, use the
proceeds to reduce debt, or distribute the proceeds to stockholders.
INVESTMENT PHILOSOPHY
TriNet believes that the long-term ownership of an actively managed,
diversified portfolio of strategic office and industrial properties under
long-term, net lease agreements with high quality corporate tenants produces
consistent, predictable income growth and substantial future property value.
Under a typical net lease agreement, the tenant agrees to pay a base monthly
rent and property operating expenses (taxes, maintenance and insurance) plus
future rent increases based on increases in the consumer price index or fixed
increases. TriNet's management believes that credit tenant leases, with terms
longer than five years, coupled
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with the tenant's responsibility for property operating expenses, generally
produce a more predictable income stream than many other types of real estate
portfolios, and offer the opportunity for growth in rental income.
INVESTMENT STRATEGIES
General. The Company acts as a source of capital to large corporate users
in a variety of industries by providing them with long-term net leases for their
strategic office buildings and distribution warehouses. The Company invests in
real estate markets which contain a significant number of large corporate users.
In these markets, the Company seeks tenants with the following characteristics:
Tenant Characteristics
- Established companies with stable core businesses;
- Investment grade ratings or similar credit strength; and
- Commitment to the property as an important asset to their on-going
businesses.
The Company seeks to invest in properties with tenants in major industries.
These tenants represent well-recognized national and international companies
that capture market share through differentiation, products, service, quality
control, and economies of scale. Relying on executives from its acquisitions,
real estate research, asset management, accounting, capital markets, and legal
departments, the Company undertakes thorough research and analysis to understand
industry fundamentals, and generally seeks to acquire general purpose properties
that have the following characteristics:
Property Characteristics
- Suburban offices and distribution warehouses with a single tenant;
- Properties that are important locations for nationally and
internationally recognized companies;
- Properties that are located within attractive demographic areas relative
to the businesses of the tenants, with high visibility and easy access to
major thoroughfares;
- Properties that can be purchased with the simultaneous execution or
assumption of net lease agreements with terms from 5-25 years, providing
the opportunity for both current income and future rent increases;
- Buildings which will appeal to a variety of alternate future users; and
- Properties that can be acquired at or below their appraised value at
prices generally ranging from $5.0 million to $60.0 million.
Internal Growth Strategy. TriNet seeks to grow its income internally by
negotiating leases which have scheduled rent increases, renewing expiring leases
at higher rental rates and providing management services to its tenants.
External Growth Strategy. From its inception, TriNet has acquired new
properties and increased its rent revenue by acquiring properties subject to
existing leases with major corporate tenants which provide for rental
escalations. The Company also acquires properties through various other types of
transactions including (i) build-to-suit transactions; (ii) purchase/leaseback
transactions; and (iii) investments in joint ventures.
In build-to-suit transactions, the Company seeks to negotiate with
third-party developers and corporations to acquire properties under development.
In these transactions, TriNet typically acquires the property after construction
is completed, subject to certain conditions, which generally include, but are
not limited to: (i) completion of the building within a specified period of
time; (ii) execution of a lease; (iii) receipt of a certificate of occupancy;
and (iv) the tenant's occupancy of the building.
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In a typical purchase/leaseback transaction, TriNet purchases the land and
building from an operating company and simultaneously leases them back to the
operating company under a long-term (i.e., more than five years) operating
lease. These transactions are structured to provide TriNet with a consistent
stream of income which typically increases periodically pursuant to the lease. A
purchase/leaseback transaction enables an operating company (the seller/tenant)
to realize the value of its owned real estate while continuing occupancy on a
long-term basis.
TriNet's joint venture investments generally involve the acquisition and/or
development of single and/or multi-tenanted office and industrial properties,
and/or land parcels for future development. During 1998, TriNet formed five new
joint ventures which added 20 properties to the Company's portfolio (see "Notes
to Consolidated Financial Statements: Real Estate").
Diversification. TriNet's history of solid dividend growth is testimony to
the importance of geographic, tenant and property diversification. Geographic
diversification is important because the condition of the regional economies is
highly dependent upon the health of the industries located within those regions.
TriNet has historically focused on building diversification within its group of
tenants in order to (i) minimize exposure to any one tenant; (ii) minimize
exposure to any single industry; (iii) reduce rental risk from cyclical business
fluctuations; and (iv) minimize volatility over time.
TriNet's portfolio is diversified within two property categories -- office
buildings and warehouse distribution facilities. TriNet's investment strategy
does not include retail or heavy industrial manufacturing locations. The
Company's experience is that office buildings and warehouses are more fungible,
easier to re-lease and have lower risk of future value impairment from
obsolescence than retail or specialized industrial buildings.
PORTFOLIO AND ASSET MANAGEMENT STRATEGY
The active management of the property portfolio is an essential component
of TriNet's long-term strategy. While net leases have certain passive
characteristics, there are important ways to optimize performance and maximize
values. TriNet monitors its portfolio for changes that could affect the
performance of the industries, tenants, and locations in which the Company has
invested. The Company's asset management group reviews industry research, tenant
research and performs regular property due diligence. This monitoring typically
includes ongoing review and analysis of: (i) the performance of various tenant
industries; (ii) the public information and business press of tenant companies;
(iii) the operation, management, financial condition and ratings of the tenants;
(iv) the health of the individual markets in which the Company owns properties,
from both an economic and real estate standpoint; (v) the difference between
current market rent and contractual rent; and (vi) the physical maintenance of
individual properties. The Company actively manages its relationships with its
large corporate tenants which provide a source of information concerning the
tenants' business plans for the Company's buildings. Additionally, the Company's
relationships with its tenants allows it to be proactive in renewing leases with
existing tenants or signing leases with a new tenant prior the expiration of the
lease.
The Company has pursued a strategy of identifying properties that may be
sold at attractive prices, particularly where management believes reinvestments
of the sales proceeds can generate a higher cash flow than retaining the
property. The Company will only pursue such a strategy within the constraints of
the income tax rules regarding REIT status.
FINANCING STRATEGY
Historically, the Company has accessed a wide range of capital including
public unsecured debt, project-level secured debt, public equity, private equity
and perpetual preferred stock. The Company has broad and deep relations among
its many different capital providers, and its balance sheet has been structured
to provide significant financial flexibility and stability. The first
significant debt maturity ($100 million) occurs in June 2001.
TriNet has investment grade corporate credit ratings from Fitch Investors
Services, Moody's Investor Services, Inc., and Standard & Poor's. Currently,
Fitch Investors has assigned a rating of BBB+, Moody's has
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assigned a rating of Baa2, and Standard & Poor's has assigned a rating of BBB-
to the Company's senior unsecured debt. The Company's perpetual preferred stock
ratings are one grade below its senior unsecured debt ratings.
During 1998, the Company raised approximately $264.8 million in net
proceeds in the following public offerings:
- On January 8, 1998, the Company raised net proceeds of $87.5 million in a
follow-on equity offering of 2,405,000 shares of Common Stock at a price
of $37.00 per share.
- 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 (before issuance
costs) from the Drs. were approximately $124.0 million.
- On March 18, 1998, the Company raised net proceeds of approximately $29.8
million in a direct placement of 800,000 shares of Common Stock priced at
$37.50 per share to several investors.
- On April 29, 1998, the Company raised $23.5 million of net proceeds in a
public offering of 701,754 shares of Common Stock at a price of $33.7547,
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.
Additionally in 1998, the Company raised approximately $252.0 million in
secured debt and $48.0 million in private equity through joint ventures.
On June 1, 1998, TriNet completed an agreement with a group of 15 banks led
by Morgan Guaranty Trust Company of New York to provide the Company with a
$350.0 million unsecured revolving credit facility (the $350.0 million
Acquisitions Facility" or "Facility") which matures on May 31, 2001 and has an
automatic one-year extension option. The Facility bears interest at the
one-month LIBOR rate plus 0.75% and can be extended for a second one-year term
and increased to $500.0 million with approval of the bank group. At March 19,
1999, the Facility had a remaining availability of $168.9 million.
REAL ESTATE UNDERWRITING EXPERTISE
In underwriting a prospective transaction, the Company undertakes the
following analyses, each of which the Company believes is critical to the
long-term profitability of the investment:
Real Estate Analysis. The Company evaluates the value of the property,
present and anticipated conditions in the local real estate market and the
prospects for selling or re-tenanting the property on favorable terms in the
event of a vacancy. The Company typically seeks to acquire general purpose
office and industrial properties that can accommodate single or multiple tenants
and that may be easily re-leased to new tenants without significant investment
by TriNet.
Tenant Credit Analysis. The Company evaluates each prospective tenant's
business and financial outlook to determine its ability to meet the ongoing
obligations under the lease and the need to obtain additional security for these
obligations, such as deposits, letters of credit and guarantees from parent
companies or other parties. The Company evaluates a number of strategic factors,
including the position of the prospective tenant in its industry, the strength
of the prospective tenant's business franchise and the importance of the
property to the prospective tenant's business.
NEW STRATEGIC INITIATIVES
The Company believes there are opportunities available through the
expansion of business relationships with the corporate tenants that occupy the
Company's 145 properties. The Company has the ability to add value and provide
enhanced services to its tenants, which include:
- redevelopment and tenant improvement management services;
- acquisition or build-to-suit construction to accommodate tenant expansion
and relocation needs;
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- energy consulting services to reduce the tenant's energy costs; and
- arrangements to lease roof tops of buildings to telecommunications
companies for antenna placement.
The Company continues to expand its services by providing on-site
management services at Company owned properties. TriNet Property Management,
Inc., a wholly-owned subsidiary of the Company, was formed in July 1997. TriNet
Property Management, Inc. opened on-site management offices in Denver, Atlanta,
Dallas, and New Orleans during 1997 and 1998. As a result, the Company has
recognized increased management fee income and expects to continue to increase
revenues through the opening of additional on-site property management offices
in geographic areas where it presently has or expects to have significant
holdings.
TriNet formed its first international strategic alliance in 1998 with G.
Accion S.A. de C.V. ("G. Accion"), through which it will invest in office and
industrial real estate in Mexico that is leased long-term, in dollar denominated
leases, to well-recognized multinational and U.S. corporations. TriNet invested
$2.0 million in securities issued by G. Accion during 1998, and has committed to
invest another $6.0 million during 1999 directly into properties through joint
ventures with G. Accion. The Company expects that its investments in Mexico may
exceed the $6.0 million commitment, but in any event, its investments in Mexico
are limited to a maximum of 3% of the Company's total portfolio.
EMPLOYEES
As of March 19, 1999, TriNet had 81 employees and believes its relationship
with its employees to be good. TriNet's employees are not represented by a
collective bargaining agreement.
COMPETITION
The Company faces competition for the acquisition of office and industrial
properties in general, and such properties net leased to major corporations in
particular, from insurance companies, credit companies, pension funds, private
individuals, investment companies and other REITs. The Company also competes
with other corporate landlords in re-leasing its facilities. The Company faces
competition from institutions that provide or arrange for other types of
commercial financing through private or public offerings of equity or debt or
traditional bank financings. The Company believes its management's experience in
real estate, credit underwriting and transaction structuring will allow the
Company to compete effectively for office and industrial properties and the
re-leasing of its properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as certain other
categories of parties, may be required to investigate and clean up hazardous or
toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damage and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. The Company's leases often
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
Such a contractual arrangement does not eliminate the Company's statutory
liability or preclude claims against the Company by governmental authorities or
persons who are not a party to such an arrangement. Contractual arrangements in
the Company's leases may provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable.
The cost of investigation and cleanup of Hazardous Materials on, under, in
or from property can be substantial, and the fact that the property has had a
release of Hazardous Materials, even if remediated, may adversely affect the
value of the property and the owner's ability to sell or lease the property or
to borrow using
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the property as collateral. In addition, some environmental laws create a lien
on a property in favor of the government for damages and costs it incurs in
connection with the release or threatened release of Hazardous Materials, and
certain state environmental laws provide that such a lien has priority over all
other encumbrances on the property or that a lien can be imposed on other
property owned by the responsible party. Finally, the presence of Hazardous
Materials on a property could result in a claim by a private party for personal
injury or a claim by a neighboring property owner for property damage.
Other federal, state and local laws and regulations govern the removal or
encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. In addition, federal, state and local laws,
regulations and ordinances may impose prohibitions, limitations and operational
standards on, or require permits, approvals and notifications in connection
with, the discharge of wastewater and other water pollutants, the emission of
air pollutants and operation of air polluting equipment, the generation and
management of Hazardous Materials, and workplace health and safety.
Non-compliance with environmental or health and safety requirements may also
result in the need to cease or alter operations at a property, which could
affect the financial health of a tenant and its ability to make lease payments.
Furthermore, if there is a violation of such a requirement in connection with a
tenant's operations, it is possible that the Company, as the owner of the
property, could be held accountable by governmental authorities for such
violation and could be required to correct the violation.
The Company typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Where warranted, Phase I
and/or Phase II assessments are performed by independent environmental
consulting and engineering firms. Phase I assessments do not involve subsurface
testing, whereas Phase II assessments involve some degree of soil and/or
groundwater testing. The Company may acquire a property which is known to have
had a release of Hazardous Materials in the past, subject to a determination of
the level of risk and potential cost of remediation. The Company normally
requires property sellers to fully indemnify it against any environmental
problem existing as of the date of purchase. Additionally, the Company often
structures its leases to require the tenant to assume most or all responsibility
for environmental compliance or environmental remediation relating to the
tenant's operations and to provide that non-compliance with environmental laws
is deemed a lease default. In certain instances, the Company may also require a
cash reserve, a letter of credit or a guarantee from the tenant, the tenant's
parent company or a third party to assure lease compliance and funding of
remediation. The value of any of these protections depends on the amount of the
collateral and/or financial strength of the company providing the protection.
Some of the properties are located in urban and industrial areas where fill
or current or historic industrial uses of the areas may have caused site
contamination at the properties. In addition, the Company is aware of
environmental conditions at certain of the properties that require some degree
of remediation. All such environmental conditions are primarily the
responsibility of the respective tenants under their leases. The Company and its
consultants estimate that the aggregate cost of addressing environmental
conditions known to require remediation at the properties is approximately $3.0
million, the majority of which is covered by existing letters of credit and
corporate guarantees. The Company believes that its tenants are taking or will
soon be taking all required remedial action with respect to any material
environmental conditions at the properties. However, the Company could be
responsible for some or all of these costs if one or more of the tenants fails
to perform its obligations or to indemnify the Company. Furthermore, no
assurance can be given that the environmental assessments that have been
conducted at the properties disclosed all environmental liabilities, that any
prior owner did not create a material environmental condition not known to the
Company, or that a material condition does not otherwise exist as to any of the
properties.
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ACQUISITIONS AND DISPOSITIONS
Acquisitions. During 1998, the Company acquired 38 properties for an
aggregate purchase price of approximately $581.1 million, resulting in a net
increase in its portfolio of approximately 4.1 million rentable square feet.
The following table lists the properties acquired by the Company in 1998:
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PROPERTY NAME/ PROPERTY NUMBER OF SQUARE
STREET ADDRESS CITY/STATE TYPE PROPERTIES FEET SIGNIFICANT TENANTS
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PACIFIC
Oak Creek Business Park(1) Milpitas, CA Office 11 861,639 Maxto Corp., Quantum Corp.
Town Center Office Park(1) Milpitas, CA Office 1 50,100 Read-Rite Corp.
1661 Page Mill Rd. Palo Alto, CA Office 1 62,155 Anderson Consulting, L.L.P.
Technology Centre(1) San Jose, CA Office 5 308,889 Digital Microwave Corp., Adept
Technology
161 Inverness Dr. West Englewood, CO Office 1 239,749 ICG Netcom
SOUTH CENTRAL
1301 Girod St.(1)(3) New Orleans, LA Parking 1 N/A Allright New Orleans
639 Loyola St.(1)(3) New Orleans, LA Office 1 526,041 Entergy Corp.
1250 Poydras St.(1)(3) New Orleans, LA Office 1 422,890 Mobil Corp.
Enterprise Business Center Allen, TX Office 1 82,600 Peerless Group, Inc.
6000 Connection Dr. Irving, TX Office 1 293,890 Nokia, Inc.
6665 MacArthur Blvd.(2) Irving, TX Office 1 164,970 GTE Communications Corp.
NEW ENGLAND
60 Columbian St. Braintree, MA Office 1 108,085 GTECH Holdings, Inc.
355 Wood Rd Braintree, MA Office 1 43,708 Haemonetics Corp.
Concord Farms Office Park Concord, MA Office 3 190,389 Sybase, Welch Foods, Inc.
3000 Longwater Dr. Norwell, MA Office 1 35,500 Mentor O&O, Inc.
700 Longwater Cir. Norwell, MA Office 1 72,921 Serono Laboratories, Inc.
1100 Crown Colony Dr. Quincy, MA Office 1 132,160 Arbella Insurance Group
100 Old River Dr. Quincy, MA Office 1 122,000 Mast Industries, Inc.
76 Pacella Park Dr. Randolph, MA Office 1 47,586 Serono Laboratories, Inc.
260 Kenneth W. Welch Dr. Lakeville, MA Industrial 1 104,765 Kao Infosystems Co.
SOUTH ATLANTIC
960 Northpoint Pkwy Alpharetta, GA Office 1 63,783 GTE Communications Corp.
14493 Sunset Hills Rd. Reston, VA Office 1 177,415 The MITRE Corp.
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38 4,111,235
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(1) Acquired through joint ventures
(2) Represents a convertible mortgage
(3) The property was acquired through a joint venture in which the Company holds
a 50% interest. Under the joint venture agreement, after March 2001, either
venturer may trigger a sale of the property through a buy/sell procedure in
which the triggering party sets a total price for the property and the other
party may elect either to purchase the property for that price or to agree
to have the venture sell the property at that price. In the event of a
change of control of a venturer prior to March 2001, the other venturer may
also initiate the buy/sell procedure. If the Company elects to purchase the
property or the other venturer's interest pursuant to this buy/sell
procedure, the other venturer may elect to receive for its interest either
cash or shares of the Company's Common Stock; if shares are issued, the
shares will be valued at 95% of the then-current market price if the other
venturer elects to hold the shares free of any lock-up restrictions, or 90%
of the then-current market price if the other venturer elects to hold the
shares subject to a one-year lockup.
1999 Acquisitions. On March 4, 1999, TriNet acquired an interest in a newly
constructed, three-story office building totaling 109,043 square feet in
Richardson, Texas. The transaction was structured as a convertible mortgage in
the amount of $15.9 million, bearing interest at 11% per annum. TriNet has an
option to purchase the building for $16.4 million which it expects to exercise
in October, 1999 by funding an additional $0.5 million.
Property Dispositions. The Company continually evaluates local market
conditions and property-related factors and will sell a property when it
believes it is to the Company's advantage to do so. In October 1998,
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TriNet initiated a strategy of disposing of selected properties with the
intention of using the 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 position to fund future acquisition opportunities as they arise.
From January 1, 1998 through March 19, 1999, TriNet sold eleven properties for
net proceeds of approximately $61.8 million.
ITEM 2. PROPERTIES
As of December 31, 1998, the Company's portfolio consisted of 146
properties, including office, warehouse and distribution facilities and one
retail facility located in 25 states. Below is certain information relating to
the Company's properties at December 31, 1998:
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PROPERTY NAME/ PROPERTY NUMBER OF SQUARE
STREET ADDRESS CITY/STATE TYPE PROPERTIES FEET SIGNIFICANT TENANTS
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PACIFIC
Warner Crossing Tempe, AZ Office 5 381,712 Allied Signal Inc., Wells Fargo
Bank, N.A.
Canyon Corporate Center Anaheim, CA Office 3 309,144 Experian, L.A. Cellular Co.
5200 Sheila St. Commerce, CA Office 1 108,000 Certified Grocers of
California, Ltd.
18880 Homestead Rd. Cupertino, CA Office 1 101,373 Rational Software Corp.
46702 Bayside Pkwy. Fremont, CA Office 1 44,941 Cirrus Logic, Inc.
46831 Lakeview Blvd. Fremont, CA Office 1 76,641 Cirrus Logic, Inc.
6300 Dumbarton Cir. Fremont, CA Office 1 44,000 Kelley-Clarke, Inc.
Oak Creek Business Park(1) Milpitas, CA Office 11 861,639 Maxtor Corp., Quantum Corp.
1565 Barber Ln. Milpitas, CA Office 1 102,240 Hitachi PC Corp.
1210 California Cir. Milpitas, CA Office 1 120,576 Lam Research Corp.
Town Center Office Park(1) Milpitas, CA Office 1 50,100 Read-Rite Corp.
Charleston Place Mountain View, CA Office 3 187,380 Sun Microsystems, 3Com Corp.
1661 Page Mill Rd. Palo Alto, CA Office 1 62,155 Anderson Consulting, L.L.P.
3701 Doolittle Dr. Redondo Beach, CA Office 1 124,400 TRW, Inc.
Technology Centre(1) San Jose, CA Office 5 308,889 Digital Microwave Corp., Adept
Technology
Edenvale Business Park San Jose, CA Office 1 286,330 Xerox Corp., Western Digital
Corp.
Sunnyvale Research Center Sunnyvale, CA Office 4 215,481 Mitsubishi Electronics America,
Inc.
1260 Crossman Ave. Sunnyvale, CA Office 1 174,600 Lockheed Martin Aerospace Corp.
2000 & 2050 Corporate Ctr. Dr. Thousand Oaks, CA Office 2 217,613 WellPoint Health Networks, Inc.
Walnut Creek Center Walnut Creek, CA Office 2 145,000 Teradyne, Fresenius USA
6901 South Havana St. Englewood, CO Office 1 137,900 Galileo International
161 Inverness Dr. West Englewood, CO Office 1 239,749 ICG Netcom
6162 South Willow Dr. Englewood, CO Office 1 158,146 Lucent Technologies Inc.
12110 North Pecos St. Westminster, CO Office 1 55,310 Frontier Corp.
1499 West 121st St. Westminster, CO Office 1 62,100 Frontier Corp.
Decker Lake Lane Center Salt Lake City, UT Office 1 173,107 First Health Strategies, Inc.
3002 North 27th Ave. Phoenix, AZ Industrial 1 82,935 Universal Technical Institute
50 Adrian Ct. Burlingame, CA Industrial 1 35,375 Caterair International Corp.
500 South Seventh Ave. City of Industry, CA Industrial 1 286,822 Volkswagen of America, Inc.
2652 East Long Beach Ave. E. Los Angles, CA Industrial 1 272,236 Ralph's Grocery Co.
370 Adrian Rd. Millbrae, CA Industrial 1 20,019 Caterair International Corp.
10054 Old Grove Rd. San Diego, CA Industrial 1 90,500 Fluid Systems Corp.
3254 Fraser St. Aurora, CO Industrial 1 119,200 Arrow Electronics, Inc.
1085 Bible Way Reno, NV Industrial 1 20,066 Caterair International Corp.
18850 28th Ave. Seattle, WA Industrial 1 30,750 Caterair International Corp.
MIDWEST
2611 Corporate West Dr. Lisle, IL Office 1 236,000 Unisys Corp.
440 North Fairway Dr. Vernon Hills, IL Office 1 102,208 Komatsu America
1275 Red Fox Rd. Arden Hills, MN Office 1 74,511 Land O'Lakes, Inc.
3115 Centre Point Dr. Roseville, MN Office 1 41,574 Northern States Power Co.
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PROPERTY NAME/ PROPERTY NUMBER OF SQUARE
STREET ADDRESS CITY/STATE TYPE PROPERTIES FEET SIGNIFICANT TENANTS
-------------- ---------- -------- ---------- ------ -------------------
<S> <C> <C> <C> <C> <C>
401 West Michigan St. Milwaukee, WI Office 1 229,888 Blue Cross & Blue Shield United
of WI
450 Barclay Blvd. Lincolnshire, IL Industrial 1 161,840 Volkswagen of America, Inc.
2201 East Loew Rd. Marion, IN Industrial 1 249,920 Dunham's Athleisure Corp.
3900 William Richardson Dr. South Bend, IN Industrial 1 225,000 Tech Data Corp.
5015 South Water Cir. Wichita, KS Industrial 1 105,600 Case Swayne Co., Inc.
221 West 79th St. Bloomington, MN Industrial 1 22,536 Caterair International Corp.
3501 East Terra Dr. O'Fallon, MO Industrial 1 402,192 Lever Brothers Co.
4150 Lockbourne Industrial Pkwy. Columbus, OH Industrial 1 398,471 Sears Logistics Services
2875 Needmore Rd. Dayton, OH Industrial 1 345,325 REX Stores Corp.
4000 South Racine Ave. Chicago, IL Industrial 1 140,000 Uarco Incorporated
SOUTH CENTRAL
3900 Airline Hwy.(2) Metairie, LA Retail 1 108,424 Vacant
1301 Girod St.(1) New Orleans, LA Parking 1 N/A Allright New Orleans
639 Loyola St.(1) New Orleans, LA Office 1 526,041 Entergy Corp.
1250 Poydras St.(1) New Orleans, LA Office 1 422,890 Mobil Corp.
17201 Waterview Pkwy. Dallas, TX Office 1 61,750 ADS Alliance Data
2003, 2005, & 2007 Corporate Memphis, TN Office 1 241,927 Federal Express Corp.
Ave.
Enterprise Business Center Allen, TX Office 1 82,600 Peerless Group, Inc.
13800 Diplomat Dr. Farmers Branch, TX Office 1 222,267 IBM Corp.
1321 Greenway Ave. Irving, TX Office 1 87,635 Microsoft Corp.
2901 Kinwest Pkwy. Irving, TX Office 1 174,421 Nissan Motor
6000 Connection Dr. Irving, TX Office 1 293,890 Nokia, Inc.
6665 MacArthur Blvd.(3) Irving, TX Office 1 164,970 GTE Communications
3000 Waterview Pkwy. Richardson, TX Office 1 300,820 Hewlett-Packard Co.
2021 Lakeside Blvd. Richardson, TX Office 1 60,000 Northern Telecom Inc.
Cardinal Commerce Center Richardson, TX Office 1 121,068 Northern Telecom Inc.
8400 Winchester Rd. Memphis, TN Industrial 1 812,697 NIKE, Inc.
105 West Bethany Rd. Allen, TX Industrial 1 261,700 Electronic Data Systems
100 Donwick Dr. Conroe, TX Industrial 1 251,850 Compaq Computer Corp.
500 Airline Dr. Coppell, TX Industrial 1 510,654 MJDesigns
NEW ENGLAND
6 Riverside Dr. Andover, MA Office 1 77,048 MultiLink, Inc.
60 Columbian St. Braintree, MA Office 1 108,085 GTECH Holdings, Inc.
355 Wood Rd. Braintree, MA Office 1 43,708 Haemonetics Corp.
65 Dan Rd. Canton, MA Office 1 67,200 Avitar, Inc.
30 Dan Rd. Canton, MA Office 1 80,000 Parsons Main
85 Dan Rd. Canton, MA Office 1 80,000 Vacant
Concord Farms Office Park Concord, MA Office 3 190,389 Sybase, Welch Foods,
300 Foxborough Blvd. Foxborough, MA Office 1 45,000 Pezrow New England
105 Forbes Blvd. Mansfield, MA Office 1 15,625 Chrysler Corp.
One Longwater Cir. Norwell, MA Office 1 27,100 Giga Information Group
101 Philip Dr. Norwell, MA Office 1 32,500 Kluwer Boston, Inc.
3000 Longwater Dr. Norwell, MA Office 1 35,500 Mentor O&O, Inc.
100 Longwater Cir. Norwell, MA Office 1 53,000 Serono Laboratories, Inc.
700 Longwater Cir. Norwell, MA Office 1 72,921 Serono Laboratories, Inc.
1100 Crown Colony Dr. Quincy, MA Office 1 132,160 Arbella Insurance Group
100 Old River Dr. Quincy, MA Office 1 122,000 Mast Industries, Inc
76 Pacella Park Dr. Randolph, MA Office 1 47,586 Serono Laboratories, Inc.
1022 Hingham St. Rockland, MA Office 1 125,366 Blue Cross and Blue
300 Friberg Pkwy. Westborough, MA Office 1 88,000 Bay State Gas Co.
RiverPark (office section) North Reading, MA Office 1 150,000 Lotus Development
RiverPark (industrial section) North Reading, MA Industrial 2 292,000 Lotus, Central-National
Gottesman
260 Kenneth W. Welch Dr. Lakeville, MA Industrial 1 104,765 Kao Infosystems Co.
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
PROPERTY NAME/ PROPERTY NUMBER OF SQUARE
STREET ADDRESS CITY/STATE TYPE PROPERTIES FEET SIGNIFICANT TENANTS
-------------- ---------- -------- ---------- ------ -------------------
<S> <C> <C> <C> <C> <C>
MID ATLANTIC
Gatehall Corporate Center II Parsippany, NJ Office 1 420,000 AT&T/Newcourt Credit Group
2 Corporate Center Melville, NY Office 1 270,000 Olympus America Inc.
935 First Ave. King of Prussia, PA Office 1 118,800 Lockheed Martin Corp.
2476 Swedesford Rd. Paoli, PA Office 1 370,562 Unisys Corp.
45-10 19th Ave. Astoria, NY Industrial 1 48,673 Caterair International
24-20 49th Ave. Astoria, NY Industrial 1 24,939 Caterair International
200 Dunn Rd. Lyons, NY Industrial 1 240,000 GATX Logistics, Inc.
2900 McLane Dr. Lysander, NY Industrial 1 240,000 GATX Logistics, Inc.
8401 Escort St. Philadelphia, PA Industrial 1 31,218 Caterair International
SOUTH ATLANTIC
Oak Grove Plaza Jacksonville, FL Office 3 230,346 CitiCorp Universal Card
Services
960 Northpoint Pkwy. Alpharetta, GA Office 1 63,783 GTE Communications
1500/1600 RiverEdge Pkwy. Atlanta, GA Office 1 444,362 IBM Corp., Siemens
3120 Breckinridge Blvd. Duluth, GA Office 1 190,000 Primerica Life Insurance
7700/7720 Hubble Dr. Lanham, MD Office 1 120,000 Computer Sciences Corp.
14493 Sunset Hills Rd. Reston, VA Office 1 177,415 The MITRE Corp.
11650 Central Pkwy. Jacksonville, FL Industrial 1 180,054 Volkswagen of America, Inc.
3500 Northwest 24th St. Miami, FL Industrial 1 108,534 Caterair International
3630 Northwest 25th St. Miami, FL Industrial 1 55,610 Caterair International
4101 Northwest 25th St. Miami, FL Industrial 1 46,749 Caterair International
2800 Collingswood Dr. Orlando, FL Industrial 1 49,148 Caterair International
Gateway Lakes II St. Petersburg, FL Industrial 2 179,000 MC Graphics, Jabil Circuit
7621 Energy Pkwy. Baltimore, MD Industrial 1 222,636 Sunbelt Beverage Corp.
5675 North Blackstock Rd. Spartanburg, SC Industrial 1 563,210 adidas America, Inc.
--- ----------
146 19,532,090
--- ----------
</TABLE>
- ---------------
(1) Acquired through joint ventures.
(2) This property was sold on January 6, 1999
(3) Represents a convertible mortgage.
LEASE EXPIRATIONS
The following table shows scheduled lease expirations for all properties,
including properties owned by the Company's joint ventures, as of December 31,
1998:
<TABLE>
<CAPTION>
CURRENT TOTAL PERCENT OF CURRENT
NUMBER OF NET RENTABLE SQUARE ANNUAL RENTS TOTAL ANNUAL
LEASES FEET SUBJECT TO UNDER EXPIRING RENTS REPRESENTED
YEAR OF LEASE EXPIRATION(2) EXPIRING EXPIRING LEASES(3) LEASES(1)(3) BY EXPIRING LEASES
--------------------------- --------- ------------------- -------------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999............................. 20 606,633 $ 7,380 4.07%
2000............................. 15 1,372,929 7,668 4.23%
2001............................. 26 1,964,868 23,184 12.79%
2002............................. 26 2,175,826 22,935 12.65%
2003............................. 19 2,062,293 21,719 11.98%
2004............................. 23 3,362,231 23,790 13.12%
2005............................. 9 558,832 5,646 3.11%
2006............................. 13 1,697,856 20,367 11.23%
2007............................. 8 854,132 12,398 6.84%
2008............................. 9 1,002,276 8,541 4.71%
2009 and thereafter.............. 29 3,468,638 27,691 15.27%
--- ---------- -------- ------
Total.................. 197 19,126,514 $181,319 100.00%
=== ========== ======== ======
</TABLE>
- ---------------
(1) Reflects monthly base rent in effect on December 31, 1998, multiplied by 12.
(2) Lease expirations, assuming tenants do not exercise existing renewal,
termination or purchase options.
10
<PAGE> 13
(3) Square feet does not include the GTE convertible mortgage totalling 164,970
square feet and vacant space totalling 240,606 square feet at December 31,
1998. Annualized rents do not include $2.6 million in annualized revenues
related to the GTE convertible mortgage.
PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's properties
and includes 100% of rents from properties owned by the Company's joint ventures
($30.5 million of rents), as of December 31, 1998:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
CURRENT TOTAL ANNUAL RENTS PERCENTAGE OF
NUMBER OF ANNUAL RENTS BY REPRESENTED BY NET RENTABLE NET RENTABLE
PROPERTIES PROPERTY TYPE(1) PROPERTY TYPE SQUARE FEET SQUARE FEET
---------- ---------------- ---------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Office............................ 53 $149,466 81.3% 11,993,834 61.4%
Industrial........................ 91 32,839 17.8% 7,429,832 38.0%
Retail(2)......................... 1 -- -- 108,424 0.6%
Parking Garage.................... 1 1,616 0.9% -- --
--- -------- ----- ---------- -----
Total(3)................ 146 $183,921 100.0% 19,532,090 100.0%
=== ======== ===== ========== =====
</TABLE>
- ---------------
(1) Reflects monthly base rent in effect on December 31, 1998, multiplied by 12.
(2) The one retail property owned at December 31, 1998 was sold in January 1999.
(3) Includes $2.6 million of annualized revenues and 164,970 square feet related
to the GTE convertible mortgage.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fiscal quarter ended December 31, 1998.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock is listed and traded on the New York Stock
Exchange ("NYSE") under the symbol "TRI." The high and low sales prices per
share of Common Stock and the distributions declared per share of Common Stock
are set forth below for the periods indicated.
<TABLE>
<CAPTION>
COMMON STOCK
QUARTER ENDED HIGH LOW DIVIDENDS DECLARED
------------- ------- ------- ------------------
<S> <C> <C> <C>
1997
March 31....................................... $36.750 $31.000 $0.63
June 30........................................ $33.875 $31.625 $0.63
September 30................................... $36.125 $32.875 $0.63
December 31.................................... $39.125 $34.500 $0.64
1998
March 31....................................... $40.500 $37.125 $0.64
June 30........................................ $38.375 $32.688 $0.64
September 30................................... $36.500 $28.625 $0.64
December 31.................................... $32.875 $25.750 $0.65
</TABLE>
On March 15, 1999, the reported closing sale price per share of Common
Stock on the NYSE was $25.00.
(b) Holders
The Company had 601 stockholders of record of Common Stock as of March 15,
1999.
(c) Dividends
In addition to the dividends declared to holders of Common Stock, the
Company also declared dividends to holders of its Series A Preferred Stock,
Series B Preferred Stock, and Series C Preferred Stock. For the year ended
December 31, 1998, the Company declared dividends of $2.34375 per share on its
Series A Preferred Stock, $2.30 per share on its Series B Preferred Stock, and
$2.00 on its Series C Preferred Stock. Since the consummation of the Company's
initial public offering in June 1993, the Company has paid regular and
uninterrupted distributions. The Company intends to continue to declare
quarterly distributions on its Common Stock. No assurance, however, can be given
as to the amounts or timing of future distributions, as such distributions are
subject to the Company's earnings, financial condition, capital requirements,
and such other factors as the Company's Board of Directors deems relevant.
12
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth summary financial, and operating and other data on
an historical basis for the Company. The balance sheet data is presented at
December 31st of the corresponding year. The data should be read in conjunction
with the financial statements of the Company and Management's Discussion and
Analysis of Financial Condition and Results of Operations, each included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rent revenues................................... $ 153,155 $ 106,862 $ 75,252 $ 56,199 $ 35,020
Income before minority interest, gain/(loss) on
sales of real estate and extraordinary
items......................................... 71,069 53,249 24,835 20,234 15,912
(Loss)/Gain on sale of real estate.............. (1,436) 985 6,807 -- --
Minority interest............................... (128) -- -- -- --
Provision for asset held for sale............... (5,662) -- -- -- --
Income before extraordinary items............... 63,843 54,234 31,642 20,234 15,912
Extraordinary gain on expropriation............. -- 98 -- -- --
Extraordinary gain from casualty loss........... -- -- 3,178 -- --
Extraordinary charge from early extinguishment
of debt....................................... (1,272) -- (2,191) (9,561) --
Net income...................................... $ 62,571 $ 54,332 $ 32,629 $ 10,673 $ 15,912
Earnings available per common share -- basic.... $ 1.92 $ 2.31 $ 2.09 $ 0.95 $ 1.84
Earnings available per common
share -- diluted.............................. $ 1.91 $ 2.28 $ 2.08 $ 0.95 $ 1.83
Dividends declared per common share............. $ 2.57 $ 2.53 $ 2.49 $ 2.45 $ 2.38
OTHER DATA:
Funds From Operations(1)........................ $ 87,940 $ 63,574 $ 41,551 $ 30,642 $ 22,380
Cash flows provided by (used in):
Operating activities..................... $ 107,522 $ 71,272 $ 46,683 $ 38,788 $ 24,531
Investing activities..................... (336,995) (448,165) (162,700) (161,474) (156,352)
Financing activities..................... 248,493 372,212 111,625 122,751 138,063
Total properties (at end of period)... 146 118 79 97 82
Total net rentable square feet (at end
of period, in thousands)............ 19,532 16,760 12,295 10,747 8,590
Ratio of earnings to combined fixed charges and
preferred stock dividends(2).................. 1.73x 2.23x 1.78x 1.97x 2.65x
Ratio of earnings to fixed charges(2)........... 2.26x 3.06x 2.05x 1.97x 2.65x
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, before accumulated depreciation.... $1,500,789 $1,163,454 $ 704,329 $ 538,717 $ 377,522
Total assets.................................... 1,526,567 1,155,904 708,238 559,727 401,241
Total unsecured debt............................ 562,981 367,676 251,918 77,000 --
Total secured debt.............................. 84,739 66,446 55,013 167,750 204,415
Total liabilities............................... 720,542 479,916 342,190 270,387 214,554
Total minority interest......................... 2,565 765 -- -- --
Stockholders' equity............................ 803,460 675,223 366,048 289,340 186,687
</TABLE>
- ---------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for definition of Funds From Operations.
(2) The ratios of (i) earnings to combined fixed charges and preferred stock
dividends and (ii) earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of net income
before loss/gain on sales of real estate, provision for asset held for sale,
and extraordinary items. Fixed charges consist of interest expense including
capitalized interest and amortization of loan costs, and with respect to the
ratio of earnings to combined fixed charges and preferred stock dividends,
preferred stock dividend requirements.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
Unless otherwise defined in this report, or unless the context otherwise
requires, the capitalized words or phrases referred to in this section have the
meanings ascribed to them in such financial statements and the notes thereto.
This annual 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 would 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/regulatory changes (including changes to laws
governing the taxation of REITs), availability of capital, interest rates,
competition, supply 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.
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 March 19, 1999, TriNet's portfolio, including joint venture
properties, consisted of 145 properties, which comprise more than 19.5 million
rentable square feet in 25 states. During 1998, TriNet invested approximately
$254.6 million to acquire 17 properties, $112.2 million in real estate joint
ventures consisting of 20 properties, and $27.7 million to originate a
convertible mortgage.
Also in 1998, TriNet initiated a strategy of disposing of selected
properties with the intention of using the 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 position to fund future acquisition
opportunities as they arise. From January 1, 1998, through March 19, 1999,
TriNet sold eleven properties for net proceeds of approximately $61.8 million
($48.2 million through December 31, 1998). During the second half of 1998,
TriNet moderated the volume of its acquisitions activities, downsized one
acquisitions office and one asset management office and reduced its acquisitions
staff by seven employees (approximately 47%) as part of this strategy. The
Company also reduced staff by 8.6% in other departments and implemented other
cost-cutting measures.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1998, TO YEAR ENDED DECEMBER 31, 1997
Rent Revenues
For the year ended December 31, 1998, rent revenues increased $46.3 million
or 43.3%, to $153.2 million from $106.9 million for the same period in 1997. Of
this increase, $20.4 million and $26.9 million was generated by the properties
acquired in 1998 and 1997, respectively. The difference is attributable to
properties owned at January 1, 1997, which contributed $132,000 to revenues
offset by a $1.1 million decrease related to the three properties sold in 1997,
the nine properties sold in 1998 and the one property held for sale at December
31, 1998. On a cash basis, "same store" rents increased 1.6% or $1.2 million.
14
<PAGE> 17
Joint Venture Income
Joint venture income increased $1.5 million to $2.3 million in 1998,
compared to $812,000 for 1997. Of this increase, approximately $160,000 is
attributable to an increase in revenues from the Sunnyvale joint venture formed
in June 1996. The remaining $1.3 million increase is attributable to the
Company's share of income allocated from the Poydras, CTC I, CTC II, Sierra and
Milpitas joint ventures formed during 1998 (see "Notes to Consolidated Financial
Statements: Investments in and advances to unconsolidated joint ventures"). In
addition to joint venture revenues, the Company earned interest income from
certain joint ventures and earned advisory and credit arrangement fees for
services provided to certain joint ventures (see "Interest Income" and "Other
Income" below).
Property Management Fees
Property management fees increased by $906,000 for the year ended December
31, 1998, to $1.6 million from $707,000 for the same period in 1997. This
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 year reports, management fees were
presented as an offset to property operating costs and have been reclassified to
conform to the current year presentation.
Interest Income
Interest income increased by $2.6 million from $550,000 in 1997, to $3.2
million in 1998. Of this increase, approximately $1.2 million is attributable to
interest on a $14.9 million subordinated loan to the Poydras joint venture
originated on June 19, 1998, and a $46.7 million bridge loan to Poydras
outstanding from May 29, 1998, through June 19, 1998. The subordinated loan
bears interest at 11% annually and matures on June 21, 2001. The proceeds were
used by the joint venture in combination with third party financing and equity
contributions to finance properties totalling $114.3 million. The remaining
increase of $1.4 million is attributable to a $28.7 million subordinated loan
issued by the CTC II joint venture. The loan was made in August 1998 to
partially finance the acquisition of five operating properties with a total
purchase price of $50.4 million. The loan bears interest at 12% annually, a
portion of which is payable currently, and a portion of which accrues and is
added to the loan balance. This loan matures on August 14, 2003. At December 31,
1998, the loan had an outstanding balance of $30.1 million, which includes $1.4
million of accrued interest.
Other Income
Other income increased by $2.2 million from $361,000 in 1997 to $2.6
million in 1998. This increase was partially due to an increase in the Company's
advisory fees from services provided in connection with the formation of certain
joint ventures and one build-to-suit property. The Poydras, Milpitas , and CTC I
joint ventures and the Nokia build-to-suit resulted in advisory fees of
$571,000, $683,000, $142,000 and $43,000, respectively, in 1998. Additionally in
1998, the Company received approximately $362,000 in lease termination and
restructuring fees, $402,000 in credit arrangement fees from certain joint
ventures, $138,000 in dividends on corporate securities, and $218,000 of net
proceeds for the assignment of a purchase option on a build-to-suit property.
Property Operating Costs
For the year ended December 31, 1998, property operating costs increased to
$7.5 million from $3.8 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 1998, including the acquisition of certain
properties for which the Company is contractually liable for operating expenses.
General and Administrative
For the year ended December 31, 1998, general and administrative expenses
increased to $12.7 million compared to $6.6 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 real
estate
15
<PAGE> 18
at cost, including joint venture investments, general and administrative
expenses were 0.86% for the year ended December 31, 1998, compared to 0.66% for
the same period in 1997.
Interest Expense
Interest expense increased by $14.7 million to $40.5 million for the year
ended December 31, 1998, from $25.8 million for the same period of 1997. This
increase reflects $3.3 million of capitalized interest in 1998 and a decrease of
loan costs amortization of $295,000 from the 1997 amount of $2.5 million. The
net increase (net of capitalized interest and additional amortization) is
primarily due to a greater weighted average debt balance of $581.2 million for
the year ended December 31, 1998, compared to $319.1 million for the same period
of 1997. The increase in the debt balance is primarily attributable to the
issuance of the Dealer remarketable securities (the "Drs.") (See "Notes to
Consolidated Financial Statements: Debt") in February 1998 and a higher average
balance outstanding on the Company's $350 million Acquisitions Facility (defined
hereafter). Cash interest paid in 1998, 1997, and 1996 was $38.4 million, $19.9
million and $19.9 million, respectively. The Company's weighted average interest
rates for the years ended December 31, 1998, 1997 and 1996 were 7.05%, 7.18% and
7.27%, respectively. Interest expensed incurred, capitalized interest and
amortization of loan costs for the years ended December 31, 1998, 1997, and 1996
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest incurred............................. $41,609 $23,332 $20,768
Capitalized interest.......................... (3,292) -- --
Amortization of loan costs:
Loan origination costs and loan discounts... 1,238 1,528 1,870
Interest rate protection agreements......... 980 985 985
------- ------- -------
$40,535 $25,845 $23,623
======= ======= =======
</TABLE>
Depreciation and Amortization
Depreciation and amortization increased by 41.7% for the year ended
December 31, 1998, when compared to 1997, a result of the Company's larger asset
base. This increase was partially offset by the sale of properties subsequent to
January 1, 1997.
Special Charge
During the third quarter of 1998, TriNet recognized a one-time charge of
approximately $3.0 million in connection with the expected reduction of its
acquisition activity, and accordingly, the Company recorded a liability for the
estimated costs resulting from this change. The costs associated with this
charge relate to severance and related compensation, office closures, and
abandonment of acquisitions. The details of the original charge recorded in the
third quarter of 1998 and the remaining liability of $1.8 million at December
31, 1998, are presented below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
------------ -----------
<S> <C> <C>
Severance costs and related compensation........... $1,876 $1,575
Lease termination fees............................. 209 --
Abandoned pursuit costs............................ 561 --
Other restructuring costs.......................... 344 239
------ ------
$2,990 $1,814
====== ======
</TABLE>
Of the $1.6 million of severance costs and related compensation remaining
at December 31, 1998, $1.1 million represents a non-cash charge in connection
with the extension of the exercise date for certain former employees' stock
options.
16
<PAGE> 19
Provision for Asset Held for Sale
In January 1999, TriNet sold a vacant building located in Metairie,
Louisiana, for its December 31, 1998 carrying value of $3.5 million, which was
net of a $5.7 million provision for asset held for sale recognized in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement requires assets to be disposed of to be recorded at the lower of
their carrying value or fair value less costs to sell. The building was part of
a portfolio of five retail stores known as the Louisiana Retail Portfolio.
Loss on Sale of Real Estate
TriNet disposed of nine properties in 1998, resulting in a net loss of $1.4
million as follows (in thousands):
<TABLE>
<CAPTION>
PORTFOLIO/PROPERTY DATE OF SALE NET PROCEEDS BOOK VALUE GAIN/(LOSS)
------------------ ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
GATX Logistics.................. Mar. 27, 1998 $12,299 $11,184 $ 1,115
4472 Steelway Blvd
4580 Steelway Blvd
Artline, Inc.................... Dec. 18, 1998 4,128 2,432 1,696
600 North Kilbourn Avenue
Louisiana Retail Portfolio...... Dec. 22, 1998 20,748 21,231 (483)
2424 Manhattan Boulevard
4500 Tchoupitoulas Street
2701 Airline Drive
Louisiana Retail Portfolio...... Dec. 23, 1998 487 3,324 (2,837)
8000 Greenwell Springs Road
SPX Corporation................. Dec. 29, 1998 10,560 11,487 (927)
100 Terrace Plaza
700 Terrace Point Drive
------- ------- -------
Total................................ $48,222 $49,658 $(1,436)
======= ======= =======
</TABLE>
The December sales were part of the Company's strategy to dispose of
selected properties and use the proceeds to reduce debt levels and fund future
acquisitions (see "Overview").
Minority Interest
Minority interest of $128,000 for the year ended 1998 represents the
limited partners' share of net income from Trinet Property Partners, L.P.
("TriNet Property Partners"), a partnership formed in December 1997. TriNet has
a 96.5% interest in TriNet Property Partners and is the sole general partner.
TriNet Property Partners 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.
Extraordinary Charge
In connection with the refinancing of the $200 million Acquisitions
Facility (defined hereafter) on June 1, 1998, the Company recognized a $1.3
million extraordinary charge for unamortized loan costs related to the $200
million Acquisitions Facility (defined hereafter).
Preferred Dividend Requirement
For the year ended December 31, 1998, the dividends paid to the Company's
preferred stockholders were $15.7 million compared to $9.5 million in 1997. This
increase was due to a full year of dividend recognition related to the preferred
stock issued in October 1997 (see "Liquidity and Capital Resources").
17
<PAGE> 20
Earnings Available to Common Shares
Earnings available to common shares for the year ended December 31, 1998,
were $46.9 million, a 4.7% increase over the 1997 amount of $44.8 million.
Increases in net earnings for 1998 resulting from growth in the Company's
portfolio were offset by a one-time special charge of $3.0 million, a provision
for loss on asset held for sale of $5.7 million, a loss on dispositions of real
estate of $1.4 million and an extraordinary charge of $1.3 million from the
early extinguishment of debt related to the $200 million Acquisitions Facility.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997, TO YEAR ENDED DECEMBER 31, 1996:
Rent Revenues
For the year ended December 31, 1997, rent revenues increased $31.6
million, or 42%, to $106.9 million, from $75.3 million for the same period in
1996. This significant increase was the result of the Company's acquisitions
during 1997 and 1996. The 1997 acquired properties contributed $22.4 million to
rent revenues during 1997. The remaining net increase of $9.2 million was
primarily due to rents received for a full year of operations on the properties
acquired during 1996, offset by a decrease of approximately $5.7 million due to
the properties sold since January 1, 1996. On a cash basis, "same store" rents
increased 2.6% or $1.3 million.
Joint Venture Income
The Company's joint venture investment in the Sunnyvale Partnership
contributed $812,000 to revenues in 1997, compared to $455,000 for 1996. This
increase reflects a full year of operations from the Sunnyvale Partnership as
the Company made its initial investment on June 26, 1996.
Property Management Fees
TriNet Property Management, Inc., a 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 year reports, management fees were presented as an offset to property
operating costs and have been reclassified to conform to the current year
presentation.
Management fees for the year ended December 31, 1997, were $707,000
reflecting a 190% increase from the same period of 1996. This increase was
primarily the result of opening the new on-site property management offices and
replacing some third party fee managers on other existing properties.
Interest Income
Interest income was $550,000 in 1997 compared to $620,000 in 1996. This
decrease was due to lower weighted average cash balances in 1997 compared to
1996.
Other income
Other income, which includes advisory fees and structuring fees, decreased
by 27% to $361,000 for the year ended December 31, 1997, compared to $497,000
for the year ended December 31, 1996. Other income in 1996 was comprised of
one-time revenue items such as a fee from the sale of the 34 retail stores
leased to REX Stores Corporation and a settlement structuring fee from the
settlement with MacFrugal's, a tenant, arising from the destruction of its
premises by fire in 1996 and termination of its lease. The absence of these
non-recurring fees in 1997 was offset by recognition of approximately $319,000
of income from the Company's advisory services provided in connection with
certain build-to-suit acquisitions.
Property Operating Costs
Property operating costs were $3.8 million for the year ended December 31,
1997, compared to $3.0 million for the same period of 1996. The 30% increase is
attributable to the continued growth in the
18
<PAGE> 21
Company's portfolio resulting in higher operating costs and compares favorably
to the 42% increase in rent revenue.
General and Administrative Costs
General and administrative expenses were $6.6 million for the year ended
December 31, 1997, compared to $5.4 million for 1996. This 23% increase is
attributable to increased personnel and related overhead as a result of the
Company's growth.
Interest Expense
Interest expense for the year ended December 31, 1997, was $25.8 million
compared to $23.6 million for 1996. Included in these numbers is amortization of
interest rate protection agreements and loan origination costs of $2.5 million
and $2.9 million for the years ended December 31, 1997 and 1996, respectively.
Thus, the overall increase of $2.2 million is a combination of a $2.6 million
increase in interest expense offset by a $400,000 decrease in the amortization
of financing costs.
The 12% increase in interest expense (excluding amortization of financing
costs) from 1996 to 1997 was principally due to a larger weighted average debt
balance of $319.1 million for 1997 versus $279.5 million for 1996. This increase
resulted from the issuance of the 2017 Notes in July 1997, offset by a $9.1
million reduction in the average outstanding balance on the $200 million
Acquisitions Facility. Counteracting the larger weighted average debt balance
was a lower weighted average interest rate on borrowings which fell from 7.27%
in 1996 to 7.18% in 1997, a nine basis point decrease.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 1997,
increased $6.3 million, or 46%, over that of 1996 as a result of the Company's
larger asset base. This increase was partially offset by the sale of properties
subsequent to January 1, 1996.
Gain on Sale of Real Estate and Extraordinary Gain on Expropriation
In March 1997, a 5,353 square foot parcel which was part of the Lockheed
Martin Aerospace Corporation property, located in Sunnyvale, California, was
expropriated by the Santa Clara County Transit District for construction of a
light rail system. The Company received proceeds of $122,000 resulting in an
extraordinary gain of $98,000. In May 1997, the Company sold a 148,595 square
foot property located in Malvern, Pennsylvania, formerly leased to Unisys
Corporation. The sale price was approximately $5.3 million and resulted in a
gain of approximately $985,000.
Preferred Dividend Requirement
For the year ended December 31, 1997, the dividends paid to the Company's
preferred stockholders were $9.5 million compared to $3.6 million in 1996. This
increase was due to the completion of a preferred stock offering in October 1997
together with a full year of dividend recognition related to the preferred stock
issued in 1996.
Earnings Available to Common Shares
Earnings available to common shares for the year ended December 31, 1997,
were $44.8 million, a 55% increase over the 1996 amount of $29.0 million. This
increase resulted from the continued growth in the Company's portfolio.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased by $36.3 million, or
51%, to $107.5 million for the year ended December 31, 1998, when compared to
1997. The increase was primarily due to increased revenues resulting from the
growth in the Company's portfolio.
19
<PAGE> 22
Net cash used in investing activities was $337.0 million for the year ended
December 31, 1998. These funds were expended primarily to acquire properties and
interests in joint ventures. The following table quantifies the Company's
capital expenditures (in thousands) for the indicated years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Real estate acquisitions................... $233,863 $453,572 $222,412
Issuance of convertible mortgage........... 27,725 -- --
Net investments in and advances to
unconsolidated joint ventures............ 112,220 176 6,550
Investments in corporate securities........ 6,995 -- --
Improvements and other capital
expenditures............................. 3,499 417 379
Corporate furniture, fixtures and
equipment................................ 915 295 303
-------- -------- --------
$385,217 $454,460 $229,644
======== ======== ========
</TABLE>
Offsetting these expenditures in 1998 were net proceeds from dispositions
of real estate assets totalling $48.2 million, which were used to pay down the
Company's $350 million Acquisitions Facility (defined below). Net investments in
and advances to unconsolidated joint ventures of $112.2 million consist of
TriNet's equity investments and loans to the joint ventures formed in 1998. The
costs of operating buildings purchased in 1998 by the Poydras, Milpitas and
CTCII joint ventures aggregated $301.2 million. Additionally, land held or under
development in the CTC I and Sierra joint ventures had a purchase price
totalling $66.9 million. Third party debt related to these investments was
approximately $243.1 million at December 31, 1998.
Net cash provided by financing activities for the year ended December 31,
1998, was $248.5 million, primarily as a result of the proceeds from the January
1998, March 1998 and April 1998 Offerings, the issuance of the Drs. notes and
additional net borrowings on both of the Company's revolving credit facilities
of $70.6 million. Net proceeds after issuance costs from the January 1998, March
1998 and April 1998 Offerings aggregated approximately $140.8 million and were
used to pay down the balance on the $200 million 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 $200
million Acquisitions Facility. Net cash provided by financing activities was
offset by common dividends paid of $60.6 million and preferred dividends paid of
$15.7 million for the year ended December 31, 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 (the "$350 million
Acquisitions Facility" or the "Facility"). This Facility replaced the Company's
existing $200 million unsecured revolving credit facility (the '$200 million
Acquisitions 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. Borrowing rates 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
$200 million Acquisitions Facility to LIBOR plus 0.75% under the $300 million
Acquisitions Facility. Additionally, the annual fee for the $350 million
Acquisitions Facility was reduced from 0.175% to 0.15%. The new Facility also
has a $225 million competitive bid feature, 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 $200 million
Facility were recognized as an extraordinary charge for the year ended December
31, 1998. At March 19, 1999, the Facility had and outstanding balance of $181.1
million.
Outstanding debt as of December 31, 1998, consisted of mortgage notes
totalling $84.7 million, unsecured notes of $375.0 million and an outstanding
balance on the $350 million Acquisitions Facility of $188.9 million.
20
<PAGE> 23
There are $870,000 of scheduled principal amortization payments in 1999 related
to the mortgage loans. As of December 31, 1998, the available amount of credit
under the Facility was $161.1 million.
Future maturities of outstanding long-term debt and amortization of
mortgages are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................. $ 870
2000.............................................. 4,683
2001.............................................. 100,854
2002.............................................. 15,135
2003.............................................. 568
Thereafter........................................ 337,629
--------
$459,739
========
</TABLE>
TriNet considers its liquidity and ability to generate cash from operations
and financings to be adequate and expects them to continue to be adequate to
meet the Company's acquisition, development, operating, debt service and
shareholder distribution requirements.
In October 1998, TriNet initiated a strategy of disposing of selected
properties with the intention of using the proceeds to pay down approximately
$100.0 million on its $350 million Acquisitions Facility. From the date the
strategy was announced through March 19, 1999, the Company sold nine properties
and generated net proceeds of $49.5 million, which were used to pay down the
balance on the $350 million Acquisitions Facility.
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 $87.6
million and were used to pay down the balance on the $200 million Acquisitions
Facility.
On February 24, 1998, the Company sold to the public $125 million of 6.75%
Drs. 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 $200 million
Acquisitions Facility. Upon certain terms and conditions, the Drs. are subject
to a mandatory tender on March 1, 2003, to either the Dealer or TriNet. If
tendered to the Dealer, the Drs. 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. Subject to a prepayment provision, 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 in the amount of $3.3 million for the right to require the
mandatory tender of all outstanding Drs. at March 1, 2003. Additionally, the
Company paid $3.2 million in settlement of its interest rate hedge agreements in
conjunction with this debt issuance. The premium paid by the Dealer and the
hedge settlement are being amortized over the fifteen-year term of the Drs. The
all-in effective interest rate, including 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 $200 million Acquisitions
Facility.
On April 29, 1998, the Company completed a public offering of 701,754
shares of common stock, priced at $33.7547 per share, 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 $200 million Acquisitions Facility and for working capital.
The Company has on file with the Securities and Exchange Commission a Form
S-3 Registration Statement, which is a universal shelf registration statement
authorizing the issuance of debt securities,
21
<PAGE> 24
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 Company has a second Form S-3 registration statement, which
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 the ratio of total debt to total market capitalization, among other factors.
As of December 31, 1998, the Company's weighted average fixed-rate debt maturity
was 7.6 years (assuming the Drs. mandatory tender occurs in 2003), and the ratio
of total debt to total market capitalization was 43%.
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 real estate related assets),
less preferred stock dividends, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect FFO on the same basis. 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 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
22
<PAGE> 25
fund the Company's cash needs, including its ability to make distributions. The
table below presents the calculations for FFO on a quarterly basis for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED:
-----------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, TOTAL
------------ ------------- -------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1998
Funds From Operations:
Income before gain/loss and
extraordinary items.......... $13,208 $15,532 $18,612 $17,927 $65,279
Real estate depreciation........ 7,368 7,239 6,603 6,418 27,628
Joint venture depreciation...... 767 585 503 204 2,059
Special charge.................. -- 2,990 -- -- 2,990
Provision for asset held for
sale......................... 5,662 -- -- -- 5,662
Preferred dividend
requirement.................. (3,920) (3,919) (3,920) (3,919) (15,678)
------- ------- ------- ------- -------
$23,085 $22,427 $21,798 $20,630 $87,940
======= ======= ======= ======= =======
Common dividends declared....... $16,167 $15,918 $15,918 $15,463 $63,466
======= ======= ======= ======= =======
1997
Funds From Operations:
Income before gain and
extraordinary items.......... $15,938 $13,517 $13,349 $10,445 $53,249
Real estate depreciation........ 5,679 5,166 4,676 3,826 19,347
Joint venture depreciation...... 125 125 125 125 500
Preferred dividend
requirement.................. (3,764) (1,919) (1,920) (1,919) (9,522)
------- ------- ------- ------- -------
$17,978 $16,889 $16,230 $12,477 $63,574
======= ======= ======= ======= =======
Common dividends declared....... $13,346 $13,131 $12,774 $12,773 $52,024
======= ======= ======= ======= =======
1996
Funds From Operations:
Income before gain and
extraordinary items.......... $ 2,500 $ 8,497 $ 7,148 $ 6,690 $24,835
Real estate depreciation........ 3,579 3,383 3,231 3,100 13,293
Joint venture depreciation...... 132 130 7 -- 269
Provision for portfolio
repositioning................ 6,800 -- -- -- 6,800
Preferred dividend
requirement.................. (1,920) (1,570) (156) -- (3,646)
------- ------- ------- ------- -------
$11,091 $10,440 $10,230 $ 9,790 $41,551
======= ======= ======= ======= =======
Common dividends declared....... $ 8,799 $ 8,610 $ 8,586 $ 8,582 $34,577
======= ======= ======= ======= =======
</TABLE>
The Company's FFO payout ratio, which is expressed as annual dividends paid
per share divided by annual FFO per share, has decreased over the past three
years from 83.0% in 1996, to 77.4% in 1997, to 71.2% in 1998. By continuing to
lower the payout ratio, the Company is able to retain more capital, which is the
least expensive form of equity for new investments. FFO retained, which is FFO
less dividends declared, has increased annually from $7.0 million in 1996, to
$11.6 million in 1997, to $24.5 million for the year ended December 31, 1998.
INFLATION
The structure of the majority of the Company's leases generally reduces the
risk to the Company of the adverse effects of inflation. The Company's leases
generally provide for rent adjustments during their initial lease terms and
during any option periods. Because net leases require tenants to pay for some or
all operating expenses, property taxes, property repair and maintenance costs
and insurance, some or all of the inflationary
23
<PAGE> 26
impact of these expenses will be borne by the tenants and not by the Company. An
increase in inflation, however, could result in an increase in the Company's
borrowing costs and its general and administrative costs.
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,
heating, ventilation and air conditioning, 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 currently expects to complete its Year 2000 compliance program
before the end of 1999. While the Company anticipates that the program will be
successful in all material respects, the Company intends to closely monitor its
Year 2000 compliance and is developing the contingency plans described under
"Risks Presented by Year 2000 Issues and the Company's Contingency Plan."
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 newly acquired property management and accounting
software and all of its desktop personal computers are Year 2000 compliant.
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 (e.g., security, heating,
ventilation and air conditioning, fire and elevator systems) and have contacted
the various manufacturers to determine whether
24
<PAGE> 27
the embedded systems are Year 2000 compliant. Based on the inventory and
responses from manufacturers to date, the Company has identified 24 embedded
systems that are not Year 2000 compliant, and may need to be replaced or
repaired. There are an additional 29 systems where further testing is necessary
to determine compliance.
For those 24 systems that have been identified as non-compliant, a program
has been initiated to repair, replace and test. With respect to those properties
for 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. A program is in place to follow up with these tenants to ensure that
they are taking action and meeting their responsibilities under their leases.
Third Party Relationships. With respect to the Company's relationships with
third parties (e.g., transfer agent, financial institutions, utility companies
and landlords), the Company is concurrently requesting compliance certificates
from all third parties that have an impact on the Company's operations, but no
assurance can be given that such certifications will be received by the Company
or that they will prove to be accurate. The Company is contacting those third
parties that have not responded to the initial request to determine their
readiness for Year 2000.
Costs to Address the Company's Year 2000 Issues
The Company has budgeted $250,000 in 1999 to address Year 2000 issues. As
of December 31, 1998, the Company has paid $56,000 and accrued an additional
$330,000 for Year 2000 costs incurred to date. The Company expects to fund the
costs of addressing the Year 2000 issues from operating cash flows.
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.
Although the Company has concluded that many of 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 and the Company's Contingency Plan
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. 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.
A reasonably likely worst case scenario might be the failure of an energy
management system in a building. Such a failure could adversely affect the
environmental conditions of the occupied space, thus creating discomfort and
inconvenience to the tenants until the condition could be manually corrected.
Persistence of this problem for a long period of time could result in an
increase in operating costs for the building until the energy management system
is restored to proper operations.
In the event of an unforeseen failure of any energy management system due
to a Year 2000 issue that cannot be readily cured, the Company's contingency
plan includes the deployment of teams consisting of regional facility managers,
building engineers and customer service personnel, which would manually override
any such energy management system in a timely manner.
25
<PAGE> 28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below and related footnotes provide information about the
Company's debt and derivative financial instruments that are sensitive to
changes in interest rates, which include long-term debt, mortgages, the $350
million Acquisitions Facility and the interest rate swap agreement. For debt
obligations, the table presents principal payments and the related weighted
average interest rates. For the interest rate swap, the table presents notional
amounts and the related weighted average variable and fixed interest rates.
TriNet uses derivative financial instruments to manage well-defined interest
rate risk or to minimize exposure to variable rate debt. The Company does not
use derivative financial instruments for trading purposes. Based on the
borrowing rates currently available to the Company for borrowings with similar
terms and maturities, the fair value of the Company's debt instruments
approximates their carrying value at December 31, 1998. The fair value of the
Company's derivatives, which includes the swap and two interest rate cap
agreements, had a combined fair value totalling a negative $1.3 million at
December 31, 1998. The Company's interest rate cap agreements, which are
effective through December 1, 2004, have a combined notional amount of $110.0
million, a strike price of 7.75%, and a floating index equal to the one-month
LIBOR rate. The swap, together with the cap agreements, effectively fixes the
interest rate on LIBOR borrowings up to $75.0 million at 5.58% plus the
applicable margin through December 1, 2004.
<TABLE>
<CAPTION>
EXPECTED MATURITY/ PRINCIPAL REPAYMENT SCHEDULE AT DECEMBER 31,
----------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL
----- ------ -------- ------- -------- ---------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long-term unsecured debt:
Fixed Rate(4).............. $ -- $ -- $100,000 $ -- $ -- $275,000 $375,000
Average nominal interest
rate(1).................. 7.23% 7.23% 7.23% 7.22% 7.22% 7.22%
Mortgages Payable:
Fixed Rate................. $ 870 $4,683 $ 854 $15,135 $ 568 $ 7,616 $ 29,726
Average nominal interest
rate(1).................. 8.51% 8.51% 8.48% 8.20% 8.03% 8.09%
Variable Rate.............. $ -- $ -- $ -- $ -- $ -- $ 55,013 $ 55,013
Average nominal interest
rate(1).................. 6.19% 6.19% 6.19% 6.19% 6.19% 6.19%
Unsecured $350 million
Acquisitions Facility(2):
Variable Rate.............. $ -- $ -- $ -- $ -- $188,900 $ -- $188,900
Average nominal interest
rate(1).................. 6.68% 6.68% 6.68% 6.68% 6.68% 6.68%
INTEREST RATE DERIVATIVES
Interest Rate Swap:
Variable to Fixed(3)....... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Average variable rate...... 5.59% 5.59% 5.59% 5.59% 5.59% 5.59%
Fixed rate................. 5.58% 5.58% 5.58% 5.58% 5.58% 5.58%
</TABLE>
- ---------------
(1) Reflects the weighted average nominal interest rate on the liabilities
outstanding during each period, giving affect to principal payments and
final maturities during each period, if any. The nominal interest rates for
variable rate debt have been held constant based on the actual average rates
for the year ended December 31, 1998.
(2) 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.
(3) The interest rate swap has a notional amount of $75.0 million and pays
TriNet the one-month LIBOR rate up to a maximum of 7.75% in exchange for a
fixed rate of 5.58% through December 1, 2004
(4) Dealer remarketable securities of $125.0 million, due March 1, 2013, are
subject to a mandatory tender on March 1, 2003, either to J.P. Morgan
Securities, Inc. or TriNet (see "Notes to Consolidated Financial Statements:
Debt").
26
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item 8 is included as a separate section of this
annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 26, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 26, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 26, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 26, 1999.
27
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
<TABLE>
<CAPTION>
REFERENCE
---------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996...................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
(a)(2) Financial Statement Schedules
<TABLE>
<S> <C>
Report of Independent Accountants on Financial Statement
Schedules................................................. F-23
Schedule III -- Real Estate and Accumulated Depreciation.... F-24
Notes to Schedule III....................................... F-35
</TABLE>
(a)(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation.
(Incorporated by reference to Exhibit 3.1(i) to the
Registration Statement on Form S-11 of TriNet Corporate
Realty Trust, Inc., Registration No. 33-59836.)
3.2 Definitive Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Shares of
Preferred Stock (Series A Preferred Stock). (Incorporated by
reference to Exhibit 1 of Form 8-A/A of TriNet Corporate
Realty Trust, Inc., dated June 26, 1996, filed with the
Securities and Exchange Commission on June 28, 1996.)
3.3 Definitive Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Shares of
Preferred Stock (Series B Preferred Stock). (Incorporated by
reference to Exhibit 1 of Form 8-A/A of TriNet Corporate
Realty Trust, Inc., dated August 9, 1996, filed with the
Securities and Exchange Commission on August 12, 1996.)
3.4 Definitive Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Shares of
Preferred Stock (Series C Preferred Stock). (Incorporated by
reference to Exhibit 1 of Form 8-A of TriNet Corporate
Realty Trust, Inc., dated October 3, 1997, filed with the
Securities and Exchange Commission on October 14, 1997.)
3.5 Definitive Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Shares of
Preferred Stock (Series D Preferred Stock).
3.6 Amended and Restated Bylaws. (Incorporated by reference to
Exhibit 3.1(ii) to the Registration Statement on Form S-11
of TriNet Corporate Realty Trust, Inc., Registration No.
33-59836.)
4.1 Definitive Indenture, dated as of May 22, 1996.
(Incorporated by reference to Exhibit 4.2 to the Current
Report on Form 8-K, dated June 14, 1996 of TriNet Corporate
Realty Trust, Inc.)
4.2 Definitive Supplemental Indenture No. 1, dated as of May 22,
1996, relating to the 7.30% Notes due 2001 and the 7.95%
Notes due 2006. (Incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K, dated June 14, 1996 of
TriNet Corporate Realty Trust, Inc.)
4.3 Definitive Supplemental Indenture No. 2, dated as of July
14, 1997, relating to the 7.70% Notes due 2017.
(Incorporated by reference to Exhibit 4.2 to the Current
Report on Form 8-K, dated July 9, 1997 of TriNet Corporate
Realty Trust, Inc.)
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
4.4 Remarketing Agreement, dated February 27, 1998, relating to
the Drs. (Incorporated by reference to Exhibit 1.2 to the
Current Report on Form 8-K, dated March 4, 1998 of TriNet
Corporate Realty Trust, Inc.)
4.5 Senior Debt Securities Indenture, dated as of February 27,
1998 (Incorporated by reference to Exhibit 1.3 to the
Current Report on Form 8-K, dated March 4, 1998 of TriNet
Corporate Realty Trust, Inc.)
4.6 Supplemental Indenture No. 1, dated as of February 27, 1998
(Incorporated by reference to Exhibit 1.4 to the Current
Report on Form 8-K, dated March 4, 1998 of TriNet Corporate
Realty Trust, Inc.)
4.7 TriNet Corporate Realty Trust, Inc. Amended and Restated
1993 Stock Incentive Plan. (Incorporated by reference to
Exhibit 10.24 to the Registration Statement on Form S-11, of
TriNet Corporate Realty Trust, Inc., Registration No.
33-59836.)
4.8 TriNet Corporate Realty Trust, Inc. 1995 Stock Incentive
Plan. (Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8, of TriNet Corporate
Realty Trust Inc., Registration No. 33-02222.)
4.9 TriNet Corporate Realty Trust, Inc. 1997 Stock Incentive
Plan, including the description of Management Stock Purchase
Program of TriNet Corporate Realty Trust, Inc. and the
description of Dividend Equivalent Rights Program of TriNet
Corporate Realty Trust, Inc. (Incorporated by reference to
Exhibit 4.6 to the 1997 Annual Report on Form 10-K, dated
March 30, 1998, of TriNet Corporate Realty Trust, Inc.)
4.10 TriNet Corporate Realty Trust, Inc. 1993 -- 1994 Performance
Based Management Incentive Plan. (Incorporated by reference
to Exhibit 10.49 to the Registration Statement on Form S-11,
of TriNet Corporate Realty Trust, Inc., Registration No.
33-74284.)
4.11 Rights Agreement, dated as of February 25, 1998 between
TriNet Corporate Realty Trust, Inc. and Harris Trust and
Savings Bank, as Rights Agent (incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission
on March 13, 1998)
4.12 Amendment No. 1 to Rights Agreement, dated as of November 9,
1998 between TriNet Corporate Realty Trust, Inc. and First
Chicago Trust Company of New York, as successor Rights
Agent.
10.1 Loan Agreement dated December 6, 1994, by and among Nomura
Asset Capital Corporation, Pacific Mutual Life Insurance
Company and TriNet Essential Facilities XII, Inc.
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-3, of TriNet Corporate
Realty Trust, Inc., Registration No. 33-87256.)
10.2 Interest Rate Protection Agreement dated May 21, 1993,
between certain of the Company's subsidiaries and UBS
Securities (Swaps), Inc. (Incorporated by reference to
Exhibit 10.32 to the Registration Statement on Form S-11, of
TriNet Corporate Realty Trust, Inc., Registration No.
33-74284)
10.3 Interest Rate Protection Agreement dated December 6, 1994,
between TriNet Essential Facilities XII, Inc. and Morgan
Guaranty Trust Company of New York. (Incorporated by
reference to Exhibit 4.6 to the 1997 Annual Report on Form
10-K, dated March 30, 1998, of TriNet Corporate Realty
Trust, Inc.)
10.4 Form of Noncompetition Agreement dated as of June 2, 1993,
between the Company and certain of its executive officers.
(Incorporated by reference to Exhibit 10.31 to the
Registration Statement on Form S-11, of TriNet Corporate
Realty Trust, Inc., Registration No. 33-59836.)
10.5 Form of Option Agreement between the Company and its
executive officers. (Incorporated by reference to Exhibit
10.32 to the Registration Statement on Form S-11, of TriNet
Corporate Realty Trust, Inc., Registration No. 33-59836.)
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.6 Form of Indemnification Agreement between the Company and
the Independent Directors. (Incorporated by reference to
Exhibit 10 to Form 10-Q of TriNet Corporate Realty Trust,
Inc., dated August 12, 1993, Commission file No. 1-11918.)
10.7 Description of TriNet Corporate Realty Trust, Inc. Savings
and Retirement Plan. (Incorporated by reference to Exhibit
10.50 to the Registration Statement on Form S-11, of TriNet
Corporate Realty Trust, Inc., Registration No. 33-74284.)
10.8 Form of Agreement Regarding Change of Control between the
Company and certain of its executive officers dated as of
June 17, 1998.
10.9 Amended and Restated Agreement of Limited Partnership
between TriNet Corporate Realty Trust, Inc. and the
O'Donnell Revocable Trust, the Donald S. Grant Revocable
Trust and John W. Hopkins, dated June 26, 1996.
(Incorporated by reference to Exhibit 10.1 of Form 8-K of
TriNet Corporate Realty Trust, Inc., and dated July 3, 1996,
filed with the Securities and Exchange Commission on July
17, 1996 and as amended by Form 8-K/A of TriNet Corporate
Realty Trust, Inc., dated July 3, 1996, filed with the
Securities and Exchange Commission on August 7, 1996.)
10.10 Agreement of Limited Partnership of TriNet Property
Partners, L.P. (Incorporated by reference to Exhibit 4.6 to
the 1997 Annual Report on Form 10-K, dated March 30, 1998,
of TriNet Corporate Realty Trust, Inc.)
10.11 Registration Rights Agreement between TriNet Corporate
Realty Trust, Inc. and Ronald A. Davis, Joseph P. Keller,
Dean M. Boylan, Stephen G. Mack and Lewis L. Whitman dated
December 31, 1997. (Incorporated by reference to Exhibit 4.6
to the 1997 Annual Report on Form 10-K, dated March 30,
1998, of TriNet Corporate Realty Trust, Inc.)
10.12 Third Amended and Restated Revolving Credit Agreement among
TriNet Corporate Realty Trust, Inc., as borrower, the banks
listed therein, Morgan Guaranty Trust Company of New York,
as lead agent and arranger, and certain banks named as
co-agents, dated as of June 1, 1998. (Incorporated by
reference to Exhibit 10.1 of Form 8-K of TriNet Corporate
Realty Trust, Inc., dated June 19, 1998.)
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
21.1 Schedule of Subsidiaries of the Company (all of which are
Maryland corporations, unless otherwise indicated) as of
December 31, 1998:
TriNet Essential Facilities I, Inc.
TriNet Essential Facilities II, Inc.
TriNet Essential Facilities III, Inc.
TriNet Essential Facilities IV, Inc.
TriNet Essential Facilities V, Inc.
TriNet Essential Facilities VI, Inc.
TriNet Essential Facilities VII, Inc.
TriNet Essential Facilities VIIIR, Inc.
TriNet Essential Facilities X, Inc.
TriNet Essential Facilities XI, Inc.
TriNet Essential Facilities XII, Inc.
TriNet Essential Facilities XIV, Inc.
TriNet Essential Facilities XV, Inc.
TriNet Essential Facilities XVI, Inc.
TriNet XVII Realty Trust, a Massachusetts business trust
TriNet Essential Facilities XVIII, Inc.
TriNet Essential Facilities XIX, Inc.
TriNet Essential Facilities XX, Inc.
TriNet Essential Facilities XXI, Inc.
TriNet Essential Facilities XXII, Inc.
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
TriNet Essential Facilities XXIII, Inc.
TriNet Essential Facilities XXIV, Inc.
TriNet Essential Facilities XXV, Inc.
TriNet Essential Facilities XXVI, Inc.
TriNet Essential Facilities XXVII, Inc.
TriNet Essential Facilities XXVIII, Inc.
TriNet Essential Facilities XXIX, Inc.
TriNet Essential Facilities XXX, Inc.
TriNet Corporate Partners I, L.P., a Delaware limited
partnership
TriNet Corporate Partners II, L.P., a Delaware limited
partnership
TriNet Corporate Partners III, L.P., a Delaware limited
partnership
TriNet Property Management, Inc.
TriNet Property Partners, L.P., a Delaware limited
partnership
TriNet Realty Capital, Inc.
TriNet Realty Investors I, Inc.
TriNet Realty Investors II, Inc.
TriNet Realty Investors III, Inc.
TriNet Realty Investors IV, Inc.
TriNet Realty Investors V, Inc.
TriNet Realty Ventures, Inc.
23.1 Consent of PricewaterhouseCoopers L.L.P.
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRINET CORPORATE REALTY TRUST, INC.
<TABLE>
<S> <C>
Date: March 31, 1999 /s/ ROBERT W. HOLMAN
------------------------------------------
Robert W. Holman, Jr.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: March 31, 1999 /s/ ELISA F. DITOMMASO
------------------------------------------
Elisa F. DiTommaso
Senior Vice President, Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: March 31, 1999 /s/ ROBERT W. HOLMAN
------------------------------------------
Robert W. Holman, Jr.
Chairman and Chief Executive Officer
Date: March 31, 1999 /s/ WILLIS ANDERSEN, JR.
------------------------------------------
Willis Andersen, Jr.
Director
Date: March 31, 1999 /s/ JOHN G. MCDONALD
------------------------------------------
John G. McDonald
Director
Date: March 31, 1999 /s/ ROBERT S. MORRIS
------------------------------------------
Robert S. Morris
Director
Date: March 31, 1999 /s/ STEPHEN B. ORESMAN
------------------------------------------
Stephen B. Oresman
Director
Date: March 31, 1999 /s/ GEORGE R. PUSKAR
------------------------------------------
George R. Puskar
Director
</TABLE>
32
<PAGE> 35
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Accountants on Financial Statement
Schedules................................................. F-23
Schedule III -- Real Estate and Accumulated Depreciation.... F-24
Notes to Schedule III....................................... F-35
</TABLE>
F-1
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TriNet Corporate Realty Trust, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of TriNet Corporate Realty Trust, Inc., and its subsidiaries (the
"Company") at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Francisco, California
January 22, 1999, except for
note 16, as to which the date is
March 12, 1999
F-2
<PAGE> 37
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Real estate................................................. $1,500,789 $1,163,454
Less accumulated depreciation............................. (71,950) (52,650)
---------- ----------
1,428,839 1,110,804
Cash and cash equivalents................................... 19,323 303
Restricted cash............................................. 17,768 5,043
Deferred rent receivable.................................... 27,235 20,797
Loan costs, net............................................. 12,238 13,958
Other assets, net........................................... 21,164 4,999
---------- ----------
$1,526,567 $1,155,904
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt...................................................... $ 647,720 $ 434,122
Dividends payable......................................... 16,167 13,346
Other liabilities......................................... 56,655 32,448
---------- ----------
Total liabilities................................. 720,542 479,916
---------- ----------
Commitments and contingencies (Notes 3, 9, and 16).......... -- --
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
December 31, 1998 and 1997 (aggregate liquidation
preference $50,000)................................... 20 20
Series B: 1,300,000 shares issued and outstanding at
December 31, 1998 and 1997 (aggregate liquidation
preference $32,500)................................... 13 13
Series C: 4,000,000 shares issued and outstanding at
December 31, 1998 and 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 shares issued and outstanding
at December 31, 1998 and 1997, respectively............ 249 209
Paid-in-capital........................................... 855,568 710,798
Accumulated deficit....................................... (52,430) (35,857)
---------- ----------
Total stockholders' equity........................ 803,460 675,223
---------- ----------
$1,526,567 $1,155,904
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 38
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Rent...................................................... $153,155 $106,862 $75,252
Joint venture income...................................... 2,299 812 455
Property management fees.................................. 1,613 707 244
Interest income........................................... 3,176 550 620
Other income.............................................. 2,572 361 497
-------- -------- -------
Total revenues.................................... 162,815 109,292 77,068
Expenses:
Property operating costs.................................. 7,466 3,828 2,955
General and administrative................................ 12,720 6,589 5,352
Interest.................................................. 40,535 25,845 23,623
Depreciation and amortization............................. 28,035 19,781 13,503
Provision for portfolio repositioning..................... -- -- 6,800
Special charge............................................ 2,990 -- --
-------- -------- -------
Income before minority interest, gain/(loss) on sales of
real estate and extraordinary items.................... 71,069 53,249 24,835
Minority interest......................................... (128) -- --
Provision for asset held for sale......................... (5,662) -- --
(Loss)/gain on sales of real estate....................... (1,436) 985 6,807
-------- -------- -------
Income before extraordinary items......................... 63,843 54,234 31,642
Extraordinary charge from early extinguishment of debt.... (1,272) -- (2,191)
Extraordinary gain from casualty loss..................... -- -- 3,178
Extraordinary gain on expropriation....................... -- 98 --
-------- -------- -------
Net income........................................ 62,571 54,332 32,629
Preferred dividend requirement.................... (15,678) (9,522) (3,646)
-------- -------- -------
Earnings available to common shares............... $ 46,893 $ 44,810 $28,983
======== ======== =======
Earnings available per common share:
Income available before extraordinary items............... $ 1.97 $ 2.30 $ 2.02
Earnings available........................................ $ 1.92 $ 2.31 $ 2.09
Earnings available per common share, assuming dilution:
Income available before extraordinary items............... $ 1.96 $ 2.27 $ 2.01
Earnings available........................................ $ 1.91 $ 2.28 $ 2.08
Weighted average number of common shares outstanding:
Basic..................................................... 24,387 19,435 13,864
Diluted................................................... 24,504 19,626 13,956
Dividends declared per common share......................... $ 2.57 $ 2.53 $ 2.49
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 39
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TOTAL
--------------- --------------- PAID-IN ACCUMULATED STOCKHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------ ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... -- $-- 13,842 $138 $312,904 $(23,702) $289,340
Issuance of preferred stock,
net of issuance costs..... 3,300 33 -- -- 78,733 -- 78,766
Exercise of common stock
options................... -- -- 125 1 3,215 -- 3,216
Net income................... -- -- -- -- -- 32,629 32,629
Common stock dividends
declared.................. -- -- -- -- -- (34,577) (34,577)
Preferred stock dividends
declared.................. -- -- -- -- -- (3,326) (3,326)
----- --- ------ ---- -------- -------- --------
Balance, December 31, 1996..... 3,300 33 13,967 139 394,852 (28,976) 366,048
Issuance of preferred stock,
net of issuance costs..... 4,000 40 -- -- 96,534 -- 96,574
Issuance of common stock, net
of issuance costs......... -- -- 6,818 68 217,348 -- 217,416
Exercise of common stock
options................... -- -- 34 1 881 -- 882
Issuance of stock under
management purchase
plan...................... -- -- 34 1 1,183 -- 1,184
Net income................... -- -- -- -- -- 54,332 54,332
Common stock dividends
declared.................. -- -- -- -- -- (52,024) (52,024)
Preferred stock dividends
declared.................. -- -- -- -- -- (9,189) (9,189)
----- --- ------ ---- -------- -------- --------
Balance, December 31, 1997..... 7,300 73 20,853 209 710,798 (35,857) 675,223
Issuance of common stock, net
of issuance costs......... -- -- 3,906 39 140,762 -- 140,801
Issuance of common stock, in
conjunction with real
estate acquired........... -- -- 48 -- 1,864 -- 1,864
Exercise of common stock
options................... -- -- 13 -- 346 -- 346
Issuance of stock under
management purchase
plan...................... -- -- 52 1 1,798 -- 1,799
Net income................... -- -- -- -- -- 62,571 62,571
Common stock dividends
declared.................. -- -- -- -- -- (63,466) (63,466)
Preferred stock dividends
declared.................. -- -- -- -- -- (15,678) (15,678)
----- --- ------ ---- -------- -------- --------
Balance, December 31, 1998..... 7,300 $73 24,872 $249 $855,568 $(52,430) $803,460
===== === ====== ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 40
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 62,571 $ 54,332 $ 32,629
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss/(gain).......................... 1,272 (98) (1,393)
Minority interest.................................. 128 -- --
Depreciation and amortization...................... 28,035 19,781 13,503
Special charge, non-cash component................. 1,146 -- --
Amortization of loan costs......................... 2,218 2,513 2,855
Straight-line rent adjustments..................... (8,490) (6,529) (4,824)
Loss/(gain) on sales of real estate................ 1,436 (985) (6,807)
Provision for portfolio repositioning.............. -- -- 6,800
Joint venture income............................... (2,299) (812) (455)
Distributions from operating joint venture......... 1,442 1,139 193
Provision for asset held for sale.................. 5,662 -- --
Increase in other assets.............................. (8,661) (2,852) (402)
Increase in other liabilities......................... 23,062 4,783 4,584
--------- --------- ---------
Net cash provided by operating activities..... 107,522 71,272 46,683
--------- --------- ---------
Cash flows from investing activities:
Real estate acquisitions.............................. (233,863) (453,572) (222,412)
Origination of convertible mortgage................... (27,725) -- --
Net proceeds from disposal of real estate............. 48,222 5,156 66,751
Net investments in and advances to unconsolidated
joint ventures..................................... (112,220) 963 (6,357)
Other capital expenditures and investments............ (11,409) (712) (682)
--------- --------- ---------
Net cash used in investing activities......... (336,995) (448,165) (162,700)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings on the acquisitions facilities......... 70,600 16,100 25,200
Mortgage note principal payments...................... (612) -- (112,737)
Preferred dividends paid.............................. (15,678) (9,189) (3,326)
Common dividends paid................................. (60,645) (47,477) (34,360)
Proceeds from issuance of common stock, net of
offering costs..................................... 142,946 219,482 3,216
Proceeds from issuance of preferred stock, net of
offering costs..................................... -- 96,574 78,766
Proceeds from senior unsecured debt offering.......... 124,633 99,606 149,691
Minority interest contributions, net of
distributions...................................... 1,672 -- --
(Increase)/decrease in restricted cash................ (12,725) (284) 7,483
Debt issuance costs................................... (1,698) (2,600) (2,308)
--------- --------- ---------
Net cash provided by financing activities..... 248,493 372,212 111,625
--------- --------- ---------
Increase/(decrease) in cash and cash equivalents........ 19,020 (4,681) (4,392)
Cash and cash equivalents, at beginning of period....... 303 4,984 9,376
--------- --------- ---------
Cash and cash equivalents, at end of period............. $ 19,323 $ 303 $ 4,984
========= ========= =========
Supplemental Schedule of Noncash Investing and Financing
Activities:
In conjunction with real estate acquired:
Assumption of existing mortgage notes.............. $ 18,905 $ 11,433 $ --
Issuance of common shares.......................... $ 1,864 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 41
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND:
Business:
TriNet Corporate Realty Trust, Inc., a Maryland Corporation, (the "Company"
or "TriNet") is a real estate investment trust ("REIT") which acquires, owns and
manages predominantly office and industrial properties leased to major
corporations nationwide, including corporate headquarters and strategically
located distribution facilities. As of December 31, 1998, TriNet's portfolio
consisted of 146 properties located in 25 states, including 24 properties held
in six joint venture partnerships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Basis of Presentation:
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiary corporations and partnerships, and its
majority-owned and controlled partnership. The equity interests in the
partnership 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.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents include all cash and liquid investments with an
original maturity of three months or less.
Real Estate and Depreciation:
Real estate is generally recorded at cost. Depreciation is computed using
the straight-line method of cost recovery over estimated useful lives of 31.5 or
40 years for buildings and improvements and seven years for furniture and
equipment.
Real estate assets to be disposed of are reported at the lower of their
carrying amount or fair value less cost to sell. The Company also periodically
reviews long-lived assets to be held and used for an impairment in value
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. In management's opinion, real estate assets
to be held and used are not carried at amounts in excess of their estimated
recoverable amounts.
Investment in Unconsolidated Joint Ventures and Unconsolidated Subsidiaries:
Investments in unconsolidated real estate joint ventures and unconsolidated
subsidiaries that are not majority-owned and controlled by the Company are
accounted for on the equity method.
F-7
<PAGE> 42
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capitalized Interest:
The Company capitalizes interest costs incurred during the land development
or construction period on qualified development projects including investments
in joint ventures accounted for on the equity method.
Revenue Recognition:
Rent revenue is recognized on the straight-line method of accounting and,
accordingly, contractual rent payment increases are recognized evenly over the
lease term. The difference between recognized rent revenue and actual rent cash
receipts is recorded as deferred rent receivable on the balance sheet.
Income Taxes:
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, the Company generally will
not be subject to federal income taxation at the corporate level to the extent
it distributes annually at least 95% of its REIT taxable income, as defined in
the Code, to its stockholders and satisfies certain other requirements.
Accordingly, no provision has been made for federal income taxes in the
accompanying consolidated financial statements.
Accounting for Stock-based Compensation:
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock-based compensation plans.
Interest Rate Risk Management:
The Company has entered into various interest rate protection agreements
that, together with a swap agreement, fix the interest rate on the Company's
London Interbank Offered Rate ("LIBOR") borrowings. The related cost of these
agreements is amortized over their respective lives and such amortization is
recorded as interest expense. In addition, the Company may enter into from time
to time, off-balance sheet interest rate hedge agreements to mitigate the effect
of interest rate changes that may occur from the date that the Company
determines the need to enter into a future debt agreement and the date that the
related debt is issued. Such interest rate hedge agreements, which are generally
indexed to U.S. government treasury securities, pertain to probable fixed rate
debt issuances for which the Company has identified the significant
characteristics and expected terms. Any gains or losses realized upon settlement
of qualifying hedge transactions are amortized over the lives of the related
debt agreements. In the event that the Company decides not to issue such debt or
at the time the instrument no longer qualifies as a hedge, the Company would
recognize a gain or loss in current operations based on the eventual settlement
proceeds received or paid. The Company enters into interest rate risk management
arrangements with financial institutions meeting certain minimum financial
criteria, and the related credit risk of non-performance by counter-parties is
not deemed to be significant.
Market Concentration Risk:
The Company owns and acquires properties nationally and believes that
operating a national portfolio of real estate reduces the risk of exposure to
economic downturns in any one market. Within the current national operating
strategy, TriNet believes its properties are located in markets with growing
employment, increasing real estate occupancy rates, and rising rents.
Concentration of Credit Risk:
The Company underwrites the credit of perspective tenants and may require
them to provide some form of credit support such as corporate guarantees or
letters of credit. Although the Company's properties are
F-8
<PAGE> 43
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
geographically diverse and the tenants operate in a variety of industries, to
the extent TriNet has a significant concentration of rent revenues from any
single tenant, the inability of that tenant to make its lease payments could
have an adverse effect on the Company. As of December 31, 1998, the Company's
five largest tenants collectively accounted for approximately 18% of the
Company's annualized rent revenue. The Company's largest single tenant accounted
for approximately 4% of the Company's annualized rent revenue.
Recent Accounting Standards:
On June 15, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities'("SFAS 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.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 is effective for fiscal years beginning after December
15, 1998, but earlier application is permitted. SOP 98-5 requires all costs of
start-up activities, including organization costs, to be charged to operations
as incurred. The initial application and effect of adopting SOP 98-5 is reported
as the cumulative effect of a change in accounting principle and is recorded to
net income in the period of change. Accordingly, the Company will charge
unamortized start-up costs of approximately $1.8 million to net income effective
January 1, 1999.
Reclassifications:
Certain prior year amounts have been reclassified in the consolidated
financial statements and the related notes to conform to the 1998 presentation.
3. REAL ESTATE:
TriNet's investments in real estate, at cost, were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Buildings and improvements.......................... $1,119,425 $ 945,458
Improved land....................................... 230,401 200,393
Real estate held for sale........................... 3,500 10,942
Less accumulated depreciation..................... (71,950) (52,650)
---------- ----------
1,281,376 1,104,143
Convertible mortgage................................ 27,725 --
Investments in and advances to unconsolidated joint
ventures.......................................... 119,738 6,661
---------- ----------
Net real estate.............................. $1,428,839 $1,110,804
========== ==========
</TABLE>
During 1998, TriNet sold nine properties for net proceeds of $48.2 million,
which resulted in a loss of $1.4 million (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations: Loss on Sale of Real
Estate").
F-9
<PAGE> 44
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investments in and Advances to Unconsolidated Joint Ventures:
At December 31, 1998, TriNet had $119.7 million invested in six real estate
joint ventures: TriNet Sunnyvale Partners, L.P. ("Sunnyvale"), W9/TriNet
Poydras, LLC ("Poydras"), Corporate Technology Associates LLC ("CTC I"), Sierra
Land Ventures ("Sierra"), Corporate Technology Centre Associates II LLC ("CTC
II"), and TriNet Milpitas Associates, LLC ("Milpitas"), for the purpose of
operating, acquiring and, in some cases, developing properties. At December 31,
1998, the ventures comprised 24 operating properties totaling 2.4 million square
feet, 19.4 acres of land under development and 42.16 acres of land held for
development. The 24 operating properties owned at December 31, 1998 had a total
purchase price of $331.8 million, of which $301.2 million was incurred in 1998.
The purchase price of the land, either held or under development was
approximately $66.9 million. Third party debt related to these investments
totalled $243.1 million at December 31, 1998. On an aggregate book basis, the
joint ventures had total assets of $429.3 million, total liabilities of $318.6
million, and net income of $4.0 million. TriNet accounts for these investments
under the equity method, because TriNet's joint venture partners have certain
participating rights which limit the Company's control. TriNet's investments in
and advances to unconsolidated joint ventures, its percentage ownership
interests and their respective revenues at December 31, 1998 are presented below
(in thousands):
<TABLE>
<CAPTION>
ACCRUED JOINT
EQUITY NOTES INTEREST TOTAL VENTURE INTEREST TOTAL
UNCONSOLIDATED JOINT VENTURE OWNERSHIP % INVESTMENT RECEIVABLE INCOME INVESTMENT INCOME INCOME INCOME
- ---------------------------- ----------- ---------- ---------- -------- ---------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating:
Sunnyvale................. 44.7% $ 6,191 $ -- $ -- $ 6,191 $ 972 $ -- $ 972
Poydras................... 50.0% 12,077 14,890 413 27,380 938 1,164 2,102
CTC II.................... 50.0% 2,101 28,733 1,366 32,200 (434) 1,366 932
Milpitas.................. 50.0% 28,184 -- -- 28,184 801 -- 801
Developments:
Sierra.................... 50.0% 7,144 -- -- 7,144 16 -- 16
CTC I..................... 50.0% 18,639 -- -- 18,639 6 -- 6
------- ------- ------ -------- ------ ------ ------
Total.............. $74,336 $43,623 $1,779 $119,738 $2,299 $2,530 $4,829
======= ======= ====== ======== ====== ====== ======
</TABLE>
At December 31, 1998, TriNet was the guarantor for 25% of Poydras's $78.6
million third party debt and 50% of CTC I's $40.1 million construction loan.
Additionally, under certain circumstances, the Company may have commitments to
fund further development costs for CTC I, up to a maximum of $16.8 million. The
Company has the right, however, to arrange financing secured by the development
project to reduce this funding commitment.
Currently, the limited partners of 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 certain
partners of Poydras and Milpitas may be converted into 304,977 and 856,066
shares, respectively, of TriNet's common stock.
Provision for Asset Held for Sale:
In January 1999, TriNet sold a vacant building located in Metairie,
Louisiana, for its December 31, 1998, carrying value of $3.5 million, which was
net of a $5.7 million provision for asset held for sale recognized in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement requires assets to be disposed of to be recorded at the lower of
their carrying amount or fair value less costs to sell.
F-10
<PAGE> 45
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRICTED CASH:
Under the terms of the 1994 Mortgage Loan, the Company is required to
maintain restricted cash reserves for debt service and leasing cost obligations.
At December 31, 1998 and 1997, the Company had $6.4 million and $5.0 million
respectively, of restricted cash related to these obligations. The remaining
balance of $11.3 million is comprised primarily of a $10.5 million cash deposit
securing one tenant's obligation under its lease.
5. INTEREST EXPENSE AND LOAN COSTS:
During 1998, 1997 and 1996, interest expense was $40.5 million, $25.8
million and $23.6 million, respectively, which was net of capitalized interest
of $3.3 million in 1998. Amortization of loan costs included in interest expense
was $2.2 million, $2.5 million and $2.9 million for years ended December 31,
1998, 1997 and 1996, respectively.
Cash interest paid during 1998, 1997 and 1996 was $38.4 million, $19.9
million and $19.9 million, respectively.
The following table summarizes the costs and accumulated amortization
associated with interest rate protection agreements and loan origination costs
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Loan origination costs................................... $ 8,564 $10,866
Interest rate protection agreements...................... 9,686 9,845
------- -------
18,250 20,711
Accumulated amortization................................. (6,012) (6,753)
------- -------
$12,238 $13,958
======= =======
</TABLE>
6. OTHER ASSETS AND OTHER LIABILITIES:
Accumulated amortization related to other assets aggregated approximately
$877,000 and $864,000 at December 31, 1998 and 1997, respectively.
Included in other assets at December 31, 1998, is an investment of $5.0
million consisting of 250,000 shares of the corporate stock of Fortress
Investment Corp., a private real estate investment company. TriNet records this
investment at cost and periodically reviews the asset for any permanent
impairment in value. In management's opinion, at December 31, 1998, the cost of
the investment in Fortress represented the fair value of the investment.
Also included in other assets at December 31, 1998, is the Company's
investment in and advances to TriNet Management Operating Company, Inc. ("TMOC")
of approximately $2.0 million. TMOC was created for the purpose of investing in
corporate securities of G. Accion, a Mexican real estate company, and is
accounted for as an uncontrolled subsidiary. The Company, through its non-voting
common stock ownership and advances to TMOC, will recognize 95% of the economic
returns generated by TMOC. Because TriNet does not control the voting stock of
TMOC, it accounts for its investment in TMOC on the equity method of accounting.
TMOC is a taxable corporation and will pay taxes at the applicable corporate
rates.
Included in other liabilities is $8.8 million in interest payable, $11.1
million in security deposits, $9.7 million of unearned rent, $19.8 million of
accounts payable and accrued liabilities and $7.3 million of deferred
liabilities, which primarily relate to tenant improvements.
F-11
<PAGE> 46
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT:
Debt consist of the following (in thousands):
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31,
-------------------------- INTEREST RATE AS OF MATURITY
LOAN 1998 1997 DECEMBER 31, 1998 DATE
---- ---------- ---------- ------------------- ----------
<S> <C> <C> <C> <C>
$350 million Acquisitions
Facility......................... $188,900 $ -- LIBOR + 0.750% 05/31/2001
$200 million Acquisitions
Facility......................... -- 118,300 LIBOR + 0.925% --
7.30% Notes due 2001............... 100,000 100,000 7.300% 05/15/2001
1994 Mortgage Loan................. 55,013 55,013 LIBOR + 1.000% 12/01/2004
7.95% Notes due 2006............... 50,000 50,000 7.950% 05/15/2006
7.70% Notes due 2017............... 100,000 100,000 7.700% 07/15/2017
6.75% Drs. due 2013(1)............. 125,000 -- 6.750% 03/01/2013
Other Mortgage Loans............... 29,726 11,433 6.00% - 11.375% (2)
-------- --------
648,639 434,746
Less debt discount................. (919) (624)
-------- --------
$647,720 $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 year 2010.
The 30-day LIBOR rate as of December 31, 1998, was 5.06%. The Company has
entered into interest rate protection agreements 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. 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.
Acquisitions Facilities:
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 "$350 million
Acquisitions Facility" or the "Facility"). This Facility replaced the Company's
existing $200 million unsecured revolving credit facility (the "$200 million
Acquisitions 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. Borrowing rates 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
$200 million Acquisitions 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 feature, 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
$200 million Acquisitions Facility were recognized as an extraordinary charge.
Long-Term Debt:
On February 24, 1998, the Company sold to the public $125 million of 6.75%
Dealer remarketable securities (the "Drs.") due March 1, 2013, at a price of
99.706% of the principal amount. Net proceeds after
F-12
<PAGE> 47
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
issuance costs from the Drs. were approximately $123.7 million, of which $120.6
million was used to pay down the balance on the $200 million Acquisitions
Facility. Upon certain terms and conditions, the Drs. are subject to a mandatory
tender on March 1, 2003, to either J.P. Morgan Securities, Inc. (the "Dealer")
or TriNet. If tendered to the Dealer, the Drs. 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. Subject to a prepayment
provision, 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 in the amount of $3.3 million
for the right to require the mandatory tender of all outstanding Drs. at March
1, 2003. Additionally, the Company paid $3.2 million in settlement of its
interest rate hedge agreements in conjunction with this debt issuance. The
premium paid by the Dealer and the hedge agreements are being amortized over the
fifteen year term of the Drs. The all-in effective interest rate, including
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 July 14, 1997, the Company completed a public offering of $100.0 million
of its 7.70% Notes due 2017 (the "2017 Notes"). The 2017 Notes were sold at a
price of 99.606% of the face value resulting in proceeds (net of the price
discount, underwriters' discount and issuance costs) of approximately $97.1
million. The 2017 Notes are senior unsecured obligations of the Company and rank
equally with the Company's other unsecured and unsubordinated indebtedness.
Subject to certain conditions, the 2017 Notes are redeemable at any time at the
option of the Company. Interest on the 2017 Notes is paid semi-annually in
arrears. The discount on the 2017 Notes is being amortized using the effective
interest method over the respective life of the 2017 Notes.
On May 22, 1996, the Company completed a public offering of $100.0 million
of its 7.30% Notes due 2001 (the "2001 Notes") and $50.0 million of its 7.95%
Notes due 2006 (the "2006 Notes" and, together with the 2001 Notes, the
"Notes"). The 2001 Notes were sold at a price of 99.764% of the face value, and
the 2006 Notes were sold at a price of 99.853% of the face value resulting in
proceeds (net of the price discount, underwriters' discount and issuance costs)
of approximately $147.8 million. The Notes are senior unsecured obligations of
the Company and rank equally with the Company's other unsecured and
unsubordinated indebtedness. Subject to certain conditions, the Notes are
redeemable at any time at the option of the Company. Interest on the Notes is
paid semi-annually in arrears. The discounts on the Notes are being amortized
using the effective interest method over the respective lives of the Notes.
Mortgage Loans:
In December 1994, a subsidiary of the Company entered into a $110.0 million
mortgage loan (the "1994 Mortgage Loan"). The 1994 Mortgage Loan currently bears
interest at a variable rate equal to the 30-day LIBOR plus 1.00%, subject to the
Interest Rate Swap discussed below. The 1994 Mortgage Loan requires monthly
interest-only payments until maturity in December 2004 at which time outstanding
principal is due and payable. The 1994 Mortgage Loan was assigned to a trust
intended to qualify as a real estate mortgage investment conduit, and the trust
issued commercial mortgage pass-through certificates in the aggregate amount of
$110.0 million, collateralized by certain real estate assets.
On July 1, 1996, the Company prepaid $35.0 million of the 1994 Mortgage
Loan, which reduced the interest rate from LIBOR plus 1.25% to LIBOR plus 1.00%.
This prepayment resulted in an extraordinary charge of approximately $1.2
million. On December 13, 1996, the Company prepaid approximately $20.0 million
of the 1994 Mortgage Loan as a result of the settlement of a casualty loss that
arose from a fire that destroyed a 1.2 million square foot
warehouse/distribution property located in New Orleans, Louisiana. This
prepayment resulted in an extraordinary charge of $1.0 million.
F-13
<PAGE> 48
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In conjunction with the acquisition of a portfolio of nine properties on
December 31, 1997, and five properties in the first six months of 1998, TriNet's
majority-owned consolidated partnership, TriNet Property Partners, assumed six
mortgages from a group of private partnerships which total $16.2 million as of
December 31, 1998. Additionally, TriNet assumed an outstanding mortgage with the
acquisition of a property on June 18, 1998. The outstanding balance on this
mortgage as of December 31, 1998, was $13.5 million. Together these mortgages
make up the "Other Mortgage Loans." These loans require monthly principal and
interest payments and are collateralized by certain real estate assets.
Interest Rate Swap:
Effective October 1, 1995, the Company entered into an interest rate swap
agreement (the "Interest Rate Swap") with a financial institution. The Interest
Rate Swap, together with certain existing interest rate cap agreements,
effectively fixes 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 Interest Rate Swap will depend upon the applicable margin over
LIBOR for such indebtedness, which will be determined by the terms of the
relevant debt instruments. Currently, it is expected that the contractual margin
will range from 0.75% to 1.0%, which will provide for an all-in annual interest
rate range from 6.33% to 6.58%. At December 31, 1998, the fair-value of the
Company's interest rate swaps was a negative $1.3 million.
Rates and Future Maturities:
The weighted average effective interest rates were 7.05%, 7.18% and 7.27%
for the years ended December 31, 1998, 1997 and 1996, respectively. Based on the
borrowing rates currently available to the Company for borrowings with similar
terms and maturities, the carrying value of the Company's mortgage notes payable
approximates fair value.
Future maturities of outstanding long-term debt and mortgages are as
follows (in thousands):
<TABLE>
<S> <C>
1999.............................. $ 870
2000.............................. 4,683
2001.............................. 100,854
2002.............................. 15,135
2003.............................. 568
Thereafter........................ 337,629
--------
$459,739
========
</TABLE>
8. SPECIAL CHARGE:
During the third quarter of 1998, TriNet recognized a one-time charge of
approximately $3.0 million in connection with the expected reduction of its
acquisition activity. This charge met the criteria set forth in Emerging Issues
Task Force Issue ("EITF") 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." Accordingly, the Company recorded a
liability for the estimated costs resulting from this change. The third quarter
charge was comprised of $1.9 million of severance costs and related
compensation, $209,000 in lease termination fees, $561,000 of abandoned pursuit
costs and $344,000 of other restructuring costs. At December 31, 1998, there was
a $1.8 million remaining liability, which consisted of $1.6 million of severance
and related compensation and $239,000 of other restructuring costs. Of the $1.6
million of severance and related compensation remaining, $1.1 million is a
non-cash charge made in connection with the extension of the exercise date for
certain former employees' stock options.
F-14
<PAGE> 49
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
The Company is 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 up to 497,000 square feet of additional
adjacent space on which the Company would receive additional rent under the
terms of the option agreements.
On November 3, 1998, TriNet entered into an agreement with TN-CP Venture
One ("TN-CP"), a Texas joint venture between TriNet and Sierra Office Venture
Three, Ltd. ("SOVT"), whereby TriNet is conditionally obligated to loan TN-CP up
to $40.4 million. TN-CP was formed to provide a take-out commitment to SOVT to
acquire Sierra III, a build-to-suit office building, located in Irving, Texas,
which will be 100% occupied upon completion in January 2000. TriNet's obligation
to make such a loan is conditioned upon TN-CP acquiring Sierra III from SOVT.
TN-CP's obligation to purchase Sierra III from SOVT is conditioned upon
satisfaction of certain requirements related to completion of the project the
tenant's occupancy of the building. TriNet is the Managing Partner of TN-CP and
has an option to acquire Sierra III from TN-CP, at its sole election, based upon
a pre-determined formula.
The company also has commitments relating to convertible partnership units
(Note 13) and has partially guaranteed third party debt in connection with
certain joint ventures (Note 3).
10. DIVIDENDS:
As described in Note 2, the Company qualifies for federal income tax
purposes as a REIT. The following summarizes the tax components of common
dividends paid in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Per common share:
Ordinary income............................... $1.81 $1.82 $1.27
Capital gain.................................. -- 0.01 0.10
Return of capital............................. 0.75 0.06 1.12
----- ----- -----
Total................................. $2.56(1) $1.89(2) $2.49
===== ===== =====
</TABLE>
- ---------------
(1) The fourth quarter common stock dividend of $0.65, which was payable on
January 15, 1999, to shareholders of record on December 31, 1998, is treated as
a 1999 dividend distribution for federal income tax reporting purposes and,
accordingly, is not included in the above table.
(2) The fourth quarter common stock dividend of $0.64, which was payable on
January 2, 1998, to shareholders of record on December 17, 1997, is treated as a
1998 dividend distribution for federal income tax reporting purposes and,
accordingly, is not included in the above table.
100% of the dividends declared on the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock for the years ended December 31,
1998, 1997 and 1996 represented ordinary income for income tax purposes.
11. STOCK OPTION PLANS AND EMPLOYEE BENEFITS:
The Company established the 1993 Stock Incentive Plan (the "1993 Stock
Plan") for the purpose of encouraging and enabling the Company's officers,
employees and directors to acquire a proprietary interest in the Company. The
1993 Stock Plan provides for administration by the Compensation Committee (the
"Committee") of the Board of Directors. A maximum of 500,000 common shares were
reserved for issuance
F-15
<PAGE> 50
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
under the 1993 Stock Plan. The 1993 Stock Plan authorized (i) the grant of stock
options that qualify as incentive stock options ("ISOs") under Section 422 of
the Code, (ii) the grant of stock options that do not so qualify ("Non-qualified
Options") and (iii) grants of shares contingent upon the attainment of
performance goals or subject to other restrictions. Options granted under the
1993 Stock Plan vest ratably over four years for employees and after one year
for non-employee directors.
In addition, in connection with TriNet's initial offering, options were
granted separately from the 1993 Stock Plan to executive officers to purchase an
aggregate of 290,000 shares at the initial offering price of $24.25 per share.
Options granted in connection with the initial offering vested ratably over
three years.
During 1995, the Company adopted the 1995 Stock Incentive Plan (the "1995
Stock Plan"). The 1995 Stock Plan provides for the issuance of, or grant of
options to purchase, up to 1,000,000 shares of Common Stock. Options under the
1995 Stock Plan may be ISOs or Non-qualified Options. Options granted to date
under the 1995 Stock Plan vest ratably over four years for employees and after
one year for non-employee directors.
During 1997, the Company adopted the 1997 Stock Incentive Plan (the "1997
Stock Plan"). The 1997 Stock Plan provides for the issuance of, or grant of
options to purchase, up to 800,000 shares of Common Stock. Options under the
1997 Stock Plan may be ISOs or Non-qualified Options. No options have been
granted to date under the 1997 plan.
Also during 1997, the Company adopted the Dividend Equivalent Rights
("DER") Program as part of the Company's long-term incentive compensation plans.
DERs are issued to employees and directors in conjunction with option grants to
purchase Company stock and vest in equal annual installments over a period of
four years for employees and one year for directors. DERs expire after five
years or when the underlying stock option is exercised, forfeited or canceled.
Payments on the DER units awarded will accrue and accumulate in amounts equal to
the dividends declared and paid on the underlying options, and the actual
payments on vested DERs will be made in annual installments on the vesting
dates. DER units were issued in tandem with all options granted to directors and
officers of the company in 1997 and 1998 (with the exception of two grants in
December 1998 in the aggregate amount of 130,000 options).
Changes during 1996, 1997 and 1998 in options outstanding for the combined
plans were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------- AVERAGE
NON-EMPLOYEE OPTION PRICE
EMPLOYEES DIRECTORS PER SHARE
--------- ------------ ------------
<S> <C> <C> <C>
Options Outstanding, December 31, 1995................. 744,333 78,000 $27.33
Granted, 1996........................................ 260,000 30,000 $28.46
Exercised, 1996...................................... (119,000) (6,000) $25.72
Canceled, 1996....................................... (63,500) -- $28.73
--------- -------
Options Outstanding, December 31, 1996................. 821,833 102,000 $27.81
Granted, 1997........................................ 189,000 20,000 $32.74
Exercised, 1997...................................... (34,024) -- $25.92
--------- -------
Options Outstanding, December 31, 1997................. 976,809 122,000 $28.80
Granted, 1998........................................ 567,500 24,000 $32.89
Exercised, 1998...................................... -- (12,000) $28.88
Canceled, 1998....................................... (328,584) (4,000) $32.54
--------- -------
Options Outstanding, December 31, 1998................. 1,215,725 130,000 $29.67
========= =======
</TABLE>
F-16
<PAGE> 51
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- ----------------------------------
WEIGHTED
SHARES AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICE RANGE DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICE
-------------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$24.2500 - $25.8125..... 223,000 7.63 $25.1915 93,000 $24.3235
$27.7500 - $28.2500..... 247,181 6.91 $28.0060 152,000 $27.9441
$28.3750 - $30.2500..... 78,976 6.67 $29.5336 65,476 $29.7152
$30.6250................ 212,858 2.96 $30.6250 178,333 $30.6250
$30.8750 - $32.0625..... 153,956 5.39 $30.9136 148,956 $30.8750
$32.5000................ 16,000 3.43 $32.5000 16,000 $32.5000
$32.6250................ 239,838 4.02 $32.6250 100,377 $32.6250
$34.8750................ 421,500 4.39 $34.8750 8,333 $34.8750
$38.1250................ 5,000 3.41 $38.1250 1,250 $38.1250
$38.7500................ 4,000 4.00 $38.7500 4,000 $38.7500
--------- ---- -------- ------- --------
1,602,309 5.18 $30.9185 767,725 $29.7030
========= ==== ======== ======= ========
</TABLE>
At December 31, 1998, 44,570 common shares were available for future grant
of options or awards under the 1993 stock plan, 182,518 common shares were
available for future grant of options or awards under the 1995 Stock Plan, and
756,558 common shares were available for future grant of options or awards under
the 1997 Stock Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock option plans. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans. Had compensation cost for the Company's
stock option plans been determined based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per common share would have
been reduced by approximately $618,000, or $0.03 per common share, for the year
ended December 31, 1998, by approximately $523,000, or $0.03 per common share,
for the year ended December 31, 1997, and approximately $359,000, or $0.03 per
common share, for the year ended December 31, 1996.
The fair value of the options granted during 1998 is estimated as $2.88 per
share on the date of grant using the Black-Scholes option pricing model with the
following assumptions, which are based on historical performance: dividend yield
of 7.50%, volatility of 20%, risk-free interest rates of 4.59% to 5.50%, actual
forfeitures, and an expected life of approximately five years. The fair value of
the options granted during 1997 is estimated as $3.59 per share on the date of
grant using the Black-Scholes option pricing model with the following
assumptions, which are based on historical performance: dividend yield of 7.24%,
volatility of 20%, risk-free interest rates of 5.75% to 6.5%, actual
forfeitures, and an expected life of approximately five years. The fair value of
the options granted during 1996 is estimated as $3.04 per share on the date of
grant using the Black-Scholes option pricing model with the following
assumptions, which are based on historical performance: dividend yield of 7.14%,
volatility of 21%, risk-free interest rates of 5.18% to 5.77%, actual
forfeitures, and an expected life of approximately five years.
Effective January 1, 1994, the Company implemented the TriNet Corporate
Realty Trust, Inc. Savings and Retirement Plan (the "401(k) Plan"), which is a
voluntary, defined contribution plan. All employees are eligible to participate
in the 401(k) Plan following completion of six months of continuous service with
the Company. Each participant may contribute on a pretax basis between 2% and
10% of such participant's compensation. At the discretion of the Board of
Directors, the Company may make matching contributions on
F-17
<PAGE> 52
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the participant's behalf, up to 50% of the participant's annual contribution.
The Company made contributions of approximately $183,000, $102,000 and $67,000
to the 401(k) Plan for the years ended December 31, 1998, 1997 and 1996,
respectively.
12. OPERATING LEASES:
The Company's properties are leased to tenants under net operating leases
with initial term expiration dates ranging from 1999 to 2018. Future rentals
under non-cancelable operating leases, excluding tenant reimbursements of
expenses, in effect at December 31, 1998, are approximately as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1999............................. $ 146,201
2000............................. 142,907
2001............................. 131,497
2002............................. 114,859
2003............................. 103,334
Thereafter....................... 424,426
----------
$1,063,224
==========
</TABLE>
No single tenant represented more than 4% of rent revenues received for the
year ended December 31, 1998.
F-18
<PAGE> 53
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EARNINGS PER SHARE:
The following table presents the basic and diluted earnings per share
calculations (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NUMERATOR
Income before extraordinary items...................... $ 63,843 $54,234 $31,642
Extraordinary items.................................... (1,272) 98 987
-------- ------- -------
Net income............................................. 62,571 54,332 32,629
Preferred dividend requirement......................... (15,678) (9,522) (3,646)
-------- ------- -------
Earnings available to common shares.................... $ 46,893 $44,810 $28,983
======== ======= =======
DENOMINATOR
Basic:
Weighted average common shares outstanding.......... 24,387 19,435 13,864
======== ======= =======
Diluted:
Weighted average common shares outstanding.......... 24,387 19,435 13,864
Shares issuable from assumed conversion of common
stock options..................................... 117 191 92
-------- ------- -------
Weighted average common shares outstanding, as
adjusted.......................................... 24,504 19,626 13,956
======== ======= =======
EARNINGS AVAILABLE PER COMMON SHARE -- BASIC:
Income available before extraordinary items......... $ 1.97 $ 2.30 $ 2.02
Extraordinary items................................. (0.05) 0.01 0.07
-------- ------- -------
Earnings available.................................. $ 1.92 $ 2.31 $ 2.09
======== ======= =======
EARNINGS AVAILABLE PER COMMON SHARE -- DILUTED:
Income available before extraordinary items......... $ 1.96 $ 2.27 $ 2.01
Extraordinary items................................. (0.05) 0.01 0.07
-------- ------- -------
Earnings available.................................. $ 1.91 $ 2.28 $ 2.08
======== ======= =======
</TABLE>
For the years ended December 31, 1998, 1997 and 1996 there were 865,481,
258,894 and 129,447 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.
F-19
<PAGE> 54
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Revenues........................................ $43,970 $43,306 $38,667 $36,872
Income before extraordinary item................ $10,657 $15,532 $18,612 $19,042
Extraordinary loss.............................. $ -- $ -- $(1,272) $ --
Net income...................................... $10,657 $15,532 $17,340 $19,042
Earnings available to common shares:
Basic......................................... $ 6,737 $11,613 $13,420 $15,123
Diluted....................................... $ 6,640 $11,613 $13,420 $15,123
Earnings available per common share -- Basic:
Extraordinary loss per share.................. $ -- $ -- $ (0.05) $ --
Earnings available per common share........... $ 0.27 $ 0.47 $ 0.54 $ 0.65
Earnings available per common share -- Diluted:
Extraordinary loss per share.................. $ -- $ -- $ (0.05) $ --
Earnings available per common share........... $ 0.26 $ 0.47 $ 0.54 $ 0.65
Weighted average number of shares outstanding:
Basic......................................... 24,872 24,872 24,649 23,131
Diluted....................................... 25,193 24,955 24,853 23,411
1997
Revenues........................................ $31,652 $28,995 $26,118 $22,527
Income before extraordinary item................ $15,938 $13,517 $14,334 $10,445
Extraordinary gain.............................. $ -- $ -- $ -- $ 98
Net income...................................... $15,938 $13,517 $14,334 $10,543
Earnings available to common shares............. $12,174 $11,598 $12,414 $ 8,624
Earnings available per common share -- Basic:
Extraordinary gain per share.................. $ -- $ -- $ -- $ 0.01
Earnings available per common share........... $ 0.58 $ 0.57 $ 0.61 $ 0.53
Earnings available per common share -- Diluted:
Extraordinary gain per share.................. $ -- $ -- $ -- $ 0.01
Earnings available per common share........... $ 0.58 $ 0.56 $ 0.61 $ 0.53
Weighted average number of shares outstanding:
Basic......................................... 20,845 20,368 20,275 16,191
Diluted....................................... 21,092 20,565 20,414 16,372
</TABLE>
15. STOCKHOLDERS' EQUITY:
On April 29, 1998, the Company completed a public offering of 701,754
shares of common stock (the "April 1998 Offering"), priced at $33.7547 per
share, 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 $200 million Acquisitions Facility and
for working capital.
F-20
<PAGE> 55
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On March 18, 1998, the Company completed a direct placement of 800,000
shares of common stock (the "March 1998 Offering") priced at $37.50 per share.
The $30.0 million of proceeds were used to pay down the balance on the $200
million Acquisitions Facility.
On January 30, 1998, the Company issued 47,956 common shares at $38.90 per
share in conjunction with the acquisition of property.
On January 8, 1998, the Company completed a follow-on equity offering of
2,405,000 shares of common stock (the "January 1998 Offering") 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 $200 million Acquisitions Facility.
On October 8, 1997, the Company completed a public offering of 4,000,000
shares of 8.00% Series C Preferred Stock which generated proceeds of $96.6
million (net of underwriters' discount and other offering expenses). Dividends
on the Series C Preferred Stock are payable quarterly in arrears at the rate of
8.00% per annum of the $25 per share liquidation preference (equivalent to a
fixed annual rate of $2.00 per share) in March, June, September and December.
The Series C Preferred Stock is not redeemable prior to October 8, 2002. The
Series C Preferred Stock has no stated maturity and is not subject to any
sinking fund or mandatory redemption.
On September 16, 1997, the Company completed an equity offering of 567,720
shares of common stock at a price of $35.875 per share, generating proceeds (net
of underwriters' discount and other offering costs) of $19.3 million.
On February 28, 1997, the Company completed an equity offering of 6,250,000
shares of common stock (including 250,000 shares issued in conjunction with the
exercise of the underwriters' over-allotment option) at a price of $33.625 per
share, generating proceeds (net of underwriters' discount and other offering
costs) of $198.2 million.
On August 13, 1996, the Company completed a public offering of 1,300,000
shares of 9.20% Series B Preferred Stock which generated proceeds of $31.1
million (net of underwriters' discount and other offering expenses). Dividends
on the Series B Preferred Stock are payable quarterly in arrears at the rate of
9.20% per annum of the $25 per share liquidation preference (equivalent to a
fixed annual rate of $2.30 per share) in March, June, September and December.
The Series B Preferred Stock is not redeemable prior to August 15, 2001. The
Series B Preferred Stock has no stated maturity and is not subject to any
sinking fund or mandatory redemption.
On June 19, 1996, the Company completed a public offering of 2,000,000
shares of 9 3/8% Series A Preferred Stock which generated proceeds of $47.7
million (net of underwriters' discount and other offering expenses). Dividends
on the Series A Preferred Stock are payable quarterly in arrears at the rate of
9 3/8% per annum of the $25 per share liquidation preference (equivalent to a
fixed annual rate of $2.34375 per share) in March, June, September and December.
The Series A Preferred Stock is not redeemable prior to June 15, 2001. The
Series A Preferred Stock has no stated maturity and is not subject to any
sinking fund or mandatory redemption.
16. SUBSEQUENT EVENTS:
MJDesigns, a tenant of TriNet occupying a 510,000 square foot industrial
building in Coppell, Texas, is in default under its lease. The Company learned
that on February 2, 1999, the tenant filed for protection under the federal
bankruptcy laws. The Company has collected $2.5 million on a standby letter of
credit it holds as collateral under the lease and $524,000 of cash previously
held in escrow. No actions have been taken by the tenant either to confirm or
reject its lease with the Company. The annual rents under this lease total
approximately $2.3 million in cash rents plus approximately $300,000 in
straight-line rents, which represents
F-21
<PAGE> 56
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
less than 1.6% of the Company's total revenues for the year ended December 31,
1998. The tenant is responsible for paying property taxes under the lease terms
and as March 12, 1999, was delinquent on $466,000 of property taxes that were
due on January 31, 1999. Because of the preliminary nature of these bankruptcy
proceedings, the Company is not able to determine at this time the impact this
event may have on the Company's financial statements.
Additionally, subsequent to December 31, 1998, TriNet agreed to permit the
tenant in its Gatehall Corporate Center located in Parsippany, NJ, to continue
to lease the property for an additional seven months following the July 2000
expiration of its lease. In addition to its regular rent payments, the tenant
will pay TriNet $2.5 million as consideration for the right to occupy the
property past the lease expiration date.
On March 4, 1999, TriNet acquired a newly constructed, three-story office
building totaling 109,043 square feet in Richardson, Texas. The transaction was
structured as a convertible mortgage in the amount of $15.9 million, bearing
interest at 11% per annum. TriNet has an option to purchase the building at
$16.4 million which it expects to exercise in October, 1999.
On March 12, 1999, TriNet sold an 82,600 square foot building known as the
Peerless building located in Allen, Texas. The transaction generated net
proceeds of $10.2 million, which was used to pay down the $350 million
Acquisitions Facility.
F-22
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
TriNet Corporate Realty Trust, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 22, 1999, except for Note 16, as to which the date is March
12, 1999, appearing on page F-2 of this Form 10-K of TriNet Corporate Realty
Trust, Inc. also included an audit of the financial statement schedules listed
in Item 14(a)(2) of this Form 10-K. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
San Francisco, California
January 22, 1999
F-23
<PAGE> 58
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Properties
UNISYS CORPORATION
1 2476 Swedesford Road........ $ -- $ 2,825 $ 16,421 $ -- $ --
Paoli, PA
2 2611 Corporate West Drive... 7,664 8,232 20,015 82 --
Lisle, IL
REX STORES CORPORATION
3 2875 Needmore Road.......... 2,496 1,184 5,407 -- --
Dayton, OH
UARCO INCORPORATED
4 4000 South Racine Avenue.... -- 184 998 1,930 --
Chicago, IL
RALPHS GROCERY COMPANY
5 2652 East Long Beach
Avenue........................ -- 7,293 9,767 -- --
Los Angeles, CA
UNIVERSAL TECHNICAL INSTITUTE
6 3002 North 27th Avenue...... -- 1,621 3,226 10 --
Phoenix, AZ
CATERAIR INTERNATIONAL
CORPORATION
7 50 Adrian Court............. -- 742 2,112 -- --
Burlingame, CA
8 370 Adrian Road............. -- 451 1,282 -- --
Millbrae, CA
9 3500 N.W. 24th Street....... -- 1,855 5,280 -- --
Miami, FL
10 3630 N.W. 25th Street....... -- 981 2,791 -- --
Miami, FL
11 4101 N.W. 25th Street....... -- 848 2,414 -- --
Miami, FL
12 221 West 79th Street........ -- 245 698 -- --
Bloomington, MN
13 1085 Bible Way.............. -- 151 430 -- --
Reno, NV
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Properties
UNISYS CORPORATION
1 2476 Swedesford Road........ $ 2,825 $ 16,421 $ 19,246 $ (5,720) 1990 31.5
Paoli, PA
2 2611 Corporate West Drive... 8,250 20,079 28,329 (2,279) 1994 40.0
Lisle, IL
REX STORES CORPORATION
3 2875 Needmore Road.......... 1,184 5,407 6,591 (648) 1994 40.0
Dayton, OH
UARCO INCORPORATED
4 4000 South Racine Avenue.... 389 2,723 3,112 (752) 1989 31.5
Chicago, IL
RALPHS GROCERY COMPANY
5 2652 East Long Beach
Avenue........................ 7,293 9,767 17,060 (3,317) 1990 31.5
Los Angeles, CA
UNIVERSAL TECHNICAL INSTITUTE
6 3002 North 27th Avenue...... 1,621 3,236 4,857 (1,012) 1989 31.5
Phoenix, AZ
CATERAIR INTERNATIONAL
CORPORATION
7 50 Adrian Court............. 742 2,112 2,854 (293) 1993 40.0
Burlingame, CA
8 370 Adrian Road............. 451 1,282 1,733 (177) 1993 40.0
Millbrae, CA
9 3500 N.W. 24th Street....... 1,855 5,280 7,135 (731) 1993 40.0
Miami, FL
10 3630 N.W. 25th Street....... 981 2,791 3,772 (387) 1993 40.0
Miami, FL
11 4101 N.W. 25th Street....... 848 2,414 3,262 (334) 1993 40.0
Miami, FL
12 221 West 79th Street........ 245 698 943 (96) 1993 40.0
Bloomington, MN
13 1085 Bible Way.............. 151 430 581 (60) 1993 40.0
Reno, NV
</TABLE>
F-24
<PAGE> 59
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
14 18850 28th Avenue, South.... -- 504 1,433 -- --
Seattle, WA
15 2800 Collingswood Drive..... -- 898 2,555 -- --
Orlando, FL
16 45-10 19th Avenue........... -- 1,093 3,109 -- --
Astoria, NY
17 24-20 49th Street........... -- 546 1,555 -- --
Astoria, NY
18 8401 Escort Street........... -- 377 1,074 -- --
Philadelphia, PA
SEARS LOGISTICS SERVICES
19 4150 Lockbourne............. 3,155 424 8,051 74 --
Industrial Parkway Columbus,
OH
GATX LOGISTICS, INC.
20 200 Dunn Road............... 2,008 258 4,039 40 --
Lyons, NY
21 2900 McLane Drive........... 2,008 344 5,396 95 --
Lysander, NY
NORTHERN STATES POWER
COMPANY
22 3115 Centre Point Drive..... 1,590 1,046 4,182 13 --
Roseville, MN
PNC MORTGAGE CORPORATION
OF AMERICA, INC.
23 440 North Fairway Drive..... -- 1,130 10,167 49 --
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC.
24 450 Barclay Boulevard....... 3,002 2,660 6,206 48 --
Lincolnshire, IL
25 500 South Seventh Avenue.... 3,803 3,370 7,863 60 --
City of Industry, CA
26 11650 Central Parkway....... 2,137 1,894 4,419 35 --
Jacksonville, FL
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
14 18850 28th Avenue, South.... 504 1,433 1,937 (199) 1993 40.0
Seattle, WA
15 2800 Collingswood Drive..... 898 2,555 3,453 (353) 1993 40.0
Orlando, FL
16 45-10 19th Avenue........... 1,093 3,109 4,202 (431) 1993 40.0
Astoria, NY
17 24-20 49th Street........... 546 1,555 2,101 (216) 1993 40.0
Astoria, NY
18 8401 Escort Street........... 377 1,074 1,451 (149) 1993 40.0
Philadelphia, PA
SEARS LOGISTICS SERVICES
19 4150 Lockbourne............. 424 8,125 8,549 (1,118) 1993 40.0
Industrial Parkway Columbus,
OH
GATX LOGISTICS, INC.
20 200 Dunn Road............... 259 4,078 4,337 (472) 1993 40.0
Lyons, NY
21 2900 McLane Drive........... 345 5,490 5,835 (629) 1993 40.0
Lysander, NY
NORTHERN STATES POWER
COMPANY
22 3115 Centre Point Drive..... 1,048 4,193 5,241 (537) 1993 40.0
Roseville, MN
PNC MORTGAGE CORPORATION
OF AMERICA, INC.
23 440 North Fairway Drive..... 1,135 10,211 11,346 (1,287) 1993 40.0
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC.
24 450 Barclay Boulevard....... 2,673 6,241 8,914 (785) 1993 40.0
Lincolnshire, IL
25 500 South Seventh Avenue.... 3,387 7,906 11,293 (994) 1993 40.0
City of Industry, CA
26 11650 Central Parkway....... 1,903 4,445 6,348 (562) 1993 40.0
Jacksonville, FL
</TABLE>
F-25
<PAGE> 60
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
LOCKHEED MARTIN AEROSPACE
CORPORATION
27 1260 Crossman Avenue........ 3,084 1,271 7,903 -- --
Sunnyvale, CA
LAND O LAKES
28 1275 Red Fox Road........... 2,056 684 5,061 -- --
Arden Hills, MN
MICROSOFT CORPORATION
29 1321 Greenway............... 1,647 1,473 4,620 84 --
Irving, TX
AT&T CORPORATION
30 Oak Grove Plaza............. 2,693 2,183 5,567 9 --
Jacksonville, FL
HOMESIDE LENDING, INC.
31 Oak Grove Plaza............. 1,393 1,021 2,604 -- --
Jacksonville, FL
UNISON INDUSTRIES, L.P.
32 Oak Grove Plaza............. 4,574 2,911 7,423 1 --
Jacksonville, FL
COMPAQ COMPUTER
CORPORATION
33 100 Donwick Drive........... -- 1,205 3,817 145 --
Conroe, TX
NIKE, INC.
34 8400 Winchester Road........ 7,017 1,476 23,127 -- --
Memphis, TN
CIRRUS LOGIC, INC.
35 46702 Bayside Parkway....... 1,381 603 4,239 1 --
Fremont, CA
36 46831 Lakeview Blvd......... -- 979 7,179 3 --
Fremont, CA
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
LOCKHEED MARTIN AEROSPACE
CORPORATION
27 1260 Crossman Avenue........ 1,271 7,903 9,174 (930) 1994 40.0
Sunnyvale, CA
LAND O LAKES
28 1275 Red Fox Road........... 684 5,061 5,745 (554) 1994 40.0
Arden Hills, MN
MICROSOFT CORPORATION
29 1321 Greenway............... 1,473 4,704 6,177 (507) 1994 40.0
Irving, TX
AT&T CORPORATION
30 Oak Grove Plaza............. 2,183 5,576 7,759 (609) 1994 40.0
Jacksonville, FL
HOMESIDE LENDING, INC.
31 Oak Grove Plaza............. 1,021 2,604 3,625 (285) 1994 40.0
Jacksonville, FL
UNISON INDUSTRIES, L.P.
32 Oak Grove Plaza............. 2,911 7,424 10,335 (812) 1994 40.0
Jacksonville, FL
COMPAQ COMPUTER
CORPORATION
33 100 Donwick Drive........... 1,207 3,960 5,167 (420) 1994 40.0
Conroe, TX
NIKE, INC.
34 8400 Winchester Road........ 1,476 23,127 24,603 (2,481) 1994 40.0
Memphis, TN
CIRRUS LOGIC, INC.
35 46702 Bayside Parkway....... 604 4,239 4,843 (455) 1994 40.0
Fremont, CA
36 46831 Lakeview Blvd......... 979 7,182 8,161 (741) 1994 40.0
Fremont, CA
</TABLE>
F-26
<PAGE> 61
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
CERTIFIED GROCERS
OF CALIFORNIA, LTD.
37 5200 Sheila Street.......... 3,305 2,593 9,195 -- --
Commerce, CA
FIRST HEALTH STRATEGIES, INC.
38 Decker Lake Lane Center..... -- 1,105 12,052 19 --
Salt Lake City, UT
TRW, INC.
39 3701 Doolittle Drive........ -- 2,297 8,145 -- --
Redondo Beach, CA
DUNHAM'S ATHLEISURE
CORPORATION
40 2201 E. Loew Road........... -- 181 5,861 -- --
Marion, IN 46952
AT&T CORPORATION
41 Gatehall Corporate Center
II............................ -- 4,885 49,390 4 --
Parsippany, NJ
KELLEY-CLARKE, INC.
42 6300 Dumbarton Circle........ -- 762 4,193 3 --
Fremont, CA
PEPSICO, INC.
43 5015 South Water Circle..... -- 244 3,643 -- --
Wichita, KS
TECH DATA CORPORATION
44 3900 William Richardson
Drive......................... -- 205 6,792 -- --
South Bend, IN
PRIMERICA LIFE INSURANCE
COMPANY
45 3120 Breckinridge
Boulevard..................... -- 1,367 11,948 27 --
Duluth, GA
ARROW ELECTRONICS, INC.
46 7621 Energy Parkway......... -- 612 3,979 31 --
Aurora, CO
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CERTIFIED GROCERS
OF CALIFORNIA, LTD.
37 5200 Sheila Street.......... 2,593 9,195 11,788 (929) 1994 40.0
Commerce, CA
FIRST HEALTH STRATEGIES, INC.
38 Decker Lake Lane Center..... 1,107 12,069 13,176 (1,219) 1994 40.0
Salt Lake City, UT
TRW, INC.
39 3701 Doolittle Drive........ 2,297 8,145 10,442 (790) 1995 40.0
Redondo Beach, CA
DUNHAM'S ATHLEISURE
CORPORATION
40 2201 E. Loew Road........... 181 5,861 6,042 (556) 1995 40.0
Marion, IN 46952
AT&T CORPORATION
41 Gatehall Corporate Center
II............................ 4,885 49,394 54,279 (4,579) 1995 40.0
Parsippany, NJ
KELLEY-CLARKE, INC.
42 6300 Dumbarton Circle........ 762 4,196 4,958 (372) 1995 40.0
Fremont, CA
PEPSICO, INC.
43 5015 South Water Circle..... 244 3,643 3,887 (323) 1995 40.0
Wichita, KS
TECH DATA CORPORATION
44 3900 William Richardson
Drive......................... 205 6,792 6,997 (573) 1995 40.0
South Bend, IN
PRIMERICA LIFE INSURANCE
COMPANY
45 3120 Breckinridge
Boulevard..................... 1,368 11,974 13,342 (959) 1995 40.0
Duluth, GA
ARROW ELECTRONICS, INC.
46 7621 Energy Parkway......... 616 4,006 4,622 (313) 1995 40.0
Aurora, CO
</TABLE>
F-27
<PAGE> 62
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
FLUID SYSTEMS CORPORATION
47 10054 Old Grove Road........ -- 1,332 2,665 37 --
San Diego, CA
NISSAN MOTOR ACCEPTANCE
CORPORATION
48 2901 Kinwest Parkway........ -- 1,288 9,976 101 --
Irving, TX
LEVER BROTHERS COMPANY
49 3501 E. Terra Drive......... -- 1,468 13,430 -- --
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
50 2003, 2005, 2007 Corporate
Avenue........................ -- 2,590 23,807 257 --
Memphis, TN
MJD INVESTMENTS, INC.
51 500 Airline Drive........... -- 2,437 18,207 -- --
Coppell, TX
FRESENIUS USA, INC.
52 2637 Shadelands Drive....... -- 609 6,255 2 --
Walnut Creek, CA
TERADYNE, INC.
53 2625 Shadelands Drive....... -- 423 4,347 1 --
Walnut Creek, CA
LOCKHEED MARTIN
CORPORATION
54 935 First Avenue............ -- 1,173 3,519 -- --
King of Prussia, PA
LAM RESEARCH CORPORATION
55 1210 California Circle...... -- 4,238 8,601 13 --
Milpitas, CA
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
56 401 West Michigan Street.... -- 1,945 14,430 -- --
Milwaukee, WI
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
FLUID SYSTEMS CORPORATION
47 10054 Old Grove Road........ 1,344 2,690 4,034 (205) 1995 40.0
San Diego, CA
NISSAN MOTOR ACCEPTANCE
CORPORATION
48 2901 Kinwest Parkway........ 1,292 10,073 11,365 (764) 1995 40.0
Irving, TX
LEVER BROTHERS COMPANY
49 3501 E. Terra Drive......... 1,468 13,430 14,898 (993) 1996 40.0
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
50 2003, 2005, 2007 Corporate
Avenue........................ 2,590 24,064 26,654 (1,671) 1996 40.0
Memphis, TN
MJD INVESTMENTS, INC.
51 500 Airline Drive........... 2,437 18,207 20,644 (1,271) 1996 40.0
Coppell, TX
FRESENIUS USA, INC.
52 2637 Shadelands Drive....... 609 6,257 6,866 (424) 1996 40.0
Walnut Creek, CA
TERADYNE, INC.
53 2625 Shadelands Drive....... 423 4,348 4,771 (294) 1996 40.0
Walnut Creek, CA
LOCKHEED MARTIN
CORPORATION
54 935 First Avenue............ 1,173 3,519 4,692 (224) 1996 40.0
King of Prussia, PA
LAM RESEARCH CORPORATION
55 1210 California Circle...... 4,238 8,614 12,852 (547) 1996 40.0
Milpitas, CA
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
56 401 West Michigan Street.... 1,945 14,430 16,375 (917) 1996 40.0
Milwaukee, WI
</TABLE>
F-28
<PAGE> 63
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
NORTHERN TELECOM INC.
57 2021 Lakeside Boulevard..... -- 1,226 5,643 7 --
Richardson, TX
OLYMPUS AMERICA, INC.
58 Two Corporate Center
Drive......................... -- 5,216 25,377 12 --
Melville, NY
ADIDAS AMERICA, INC.
59 5675 North Blackstock
Road.......................... -- 1,009 17,406 37 --
Spartanburg, SC
FRONTIER CORPORATION
60 12110 North Pecos Street.... -- 293 3,356 266 --
Westminster, CO
RATIONAL SOFTWARE
61 18880 Homestead Road........ 6,067 14,447 13 --
Cupertino, CA
GALILEO INTERNATIONAL
PARTNERSHIP
62 6901 S. Havana Street....... -- 3,101 15,688 -- --
Englewood, CO
LUCENT TECHNOLOGIES, INC.
63 6162 S. Willow Drive........ -- 1,514 14,413 109 --
Englewood, CO
IBM CORPORATION -- DALLAS
64 13800 Diplomat Drive........ -- 1,316 8,709 200 --
Farmers Branch, TX
RIVEREDGE SUMMIT
65 1500-1600 RiverEdge
Parkway....................... -- 6,346 54,076 286 --
Atlanta, GA
CARDINAL COMMERCE
66 1460 North Glenville
Drive......................... -- 885 8,801 22 --
Richardson, TX
CANYON CORPORATE CENTER
67 5515 East La Palma Avenue... -- 3,268 12,270 59 --
Anaheim, CA
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
NORTHERN TELECOM INC.
57 2021 Lakeside Boulevard..... 1,226 5,650 6,876 (323) 1996 40.0
Richardson, TX
OLYMPUS AMERICA, INC.
58 Two Corporate Center
Drive......................... 5,216 25,389 30,605 (1,454) 1996 40.0
Melville, NY
ADIDAS AMERICA, INC.
59 5675 North Blackstock
Road.......................... 1,011 17,441 18,452 (962) 1996 40.0
Spartanburg, SC
FRONTIER CORPORATION
60 12110 North Pecos Street.... 552 3,363 3,915 (172) 1996 40.0
Westminster, CO
RATIONAL SOFTWARE
61 18880 Homestead Road........ 6,068 14,459 20,527 (737) 1996 40.0
Cupertino, CA
GALILEO INTERNATIONAL
PARTNERSHIP
62 6901 S. Havana Street....... 3,101 15,688 18,789 (801) 1996 40.0
Englewood, CO
LUCENT TECHNOLOGIES, INC.
63 6162 S. Willow Drive........ 1,514 14,522 16,036 (737) 1996 40.0
Englewood, CO
IBM CORPORATION -- DALLAS
64 13800 Diplomat Drive........ 1,316 8,909 10,225 (413) 1997 40.0
Farmers Branch, TX
RIVEREDGE SUMMIT
65 1500-1600 RiverEdge
Parkway....................... 6,346 54,362 60,708 (2,424) 1997 40.0
Atlanta, GA
CARDINAL COMMERCE
66 1460 North Glenville
Drive......................... 885 8,823 9,708 (395) 1997 40.0
Richardson, TX
CANYON CORPORATE CENTER
67 5515 East La Palma Avenue... 3,268 12,329 15,597 (551) 1997 40.0
Anaheim, CA
</TABLE>
F-29
<PAGE> 64
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
68 5601 East La Palma Avenue... 2,229 8,366 158 --
Anaheim, CA
69 5605 East La Palma Avenue... -- 658 2,470 22 --
Anaheim, CA
RIVERPARK
70 200 Riverpark Drive......... -- 523 5,337 -- --
North Reading, MA
71 300 Riverpark Drive......... -- 1,334 13,598 -- --
North Reading, MA
72 400 Riverpark Drive......... -- 1,746 17,818 -- --
North Reading, MA
SUNBELT BEVERAGE CORP.
73 7621 Energy Parkway......... -- 1,425 8,440 2 --
Baltimore, MD
FRONTIER II
74 1499 West 121st. Street..... -- 672 7,672 -- --
Westminister, CO
CHARLESTON PLACE
75 1545 Charleston Road........ -- 5,111 11,212 -- --
Mountain View, CA
76 1565 Charleston Road........ -- 4,824 10,584 (4) --
Mountain View, CA
77 1585 Charleston Road........ -- 6,551 14,373 (10) --
Mountain View, CA
BAY STATE GAS
78 300 Friberg Parkway......... -- 1,419 9,246 -- --
Westborough, MA
WARNER CROSSING
79 1120 West Warner Road....... -- 701 4,342 -- --
Tempe, AZ
80 1130 West Warner Road....... -- 1,037 6,675 -- --
Tempe, AZ
81 1140 West Warner Road....... -- 1,037 6,675 -- --
Tempe, AZ
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
68 5601 East La Palma Avenue... 2,229 8,524 10,753 (376) 1997 40.0
Anaheim, CA
69 5605 East La Palma Avenue... 658 2,492 3,150 (111) 1997 40.0
Anaheim, CA
RIVERPARK
70 200 Riverpark Drive......... 523 5,337 5,860 (238) 1997 40.0
North Reading, MA
71 300 Riverpark Drive......... 1,334 13,598 14,932 (609) 1997 40.0
North Reading, MA
72 400 Riverpark Drive......... 1,746 17,818 19,564 (798) 1997 40.0
North Reading, MA
SUNBELT BEVERAGE CORP.
73 7621 Energy Parkway......... 1,425 8,442 9,867 (343) 1997 40.0
Baltimore, MD
FRONTIER II
74 1499 West 121st. Street..... 672 7,672 8,344 (299) 1997 40.0
Westminister, CO
CHARLESTON PLACE
75 1545 Charleston Road........ 5,111 11,212 16,323 (432) 1997 40.0
Mountain View, CA
76 1565 Charleston Road........ 4,824 10,580 15,404 (408) 1997 40.0
Mountain View, CA
77 1585 Charleston Road........ 6,551 14,363 20,914 (554) 1997 40.0
Mountain View, CA
BAY STATE GAS
78 300 Friberg Parkway......... 1,419 9,246 10,665 (356) 1997 40.0
Westborough, MA
WARNER CROSSING
79 1120 West Warner Road....... 701 4,342 5,043 (140) 1997 40.0
Tempe, AZ
80 1130 West Warner Road....... 1,037 6,675 7,712 (257) 1997 40.0
Tempe, AZ
81 1140 West Warner Road....... 1,037 6,675 7,712 (257) 1997 40.0
Tempe, AZ
</TABLE>
F-30
<PAGE> 65
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
82 8440 South Hardy Drive...... -- 1,028 6,620 -- --
Tempe, AZ
83 8430 South Hardy Drive...... -- 1,440 9,268 -- --
Tempe, AZ
GATEWAY LAKES
84 1551 102nd Avenue........... -- 723 3,063 -- --
St. Petersburg, FL
85 1527 102nd Avenue........... -- 694 2,943 -- --
St. Petersburg, FL
EDENVALE BUSINESS PARK
86 5853-5863 Rue Ferrari
Drive......................... -- 9,156 22,035 (4) --
San Jose, CA
ELECTRONIC DATA SYSTEMS
87 105 West Bethany Drive...... -- 1,352 10,070 47 --
Allen, TX
COMPUTER SCIENCES CORP.
88 7700-7720 Hubble Drive...... -- 2,218 10,737 (3) --
Lanham, MD
HITACHI
89 1565 Barber Lane............ -- 4,812 12,194 (2) --
Milpitas, CA
ALLIANCE DATA SYSTEMS
90 17201 Waterview Parkway..... -- 1,921 4,638 (4) --
Dallas, TX
HEWLETT PACKARD
91 3000 Waterview Parkway...... -- 2,815 29,978 (3) --
Richardson, TX
MULTILINK
92 6 Riverside Drive........... -- 757 8,501 13 --
Andover, MA
WELLPOINT
93 2000 Corporate Center
Drive......................... -- 1,680 9,156 2 --
Thousand Oaks, CA
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
82 8440 South Hardy Drive...... 1,028 6,620 7,648 (255) 1997 40.0
Tempe, AZ
83 8430 South Hardy Drive...... 1,440 9,268 10,708 (358) 1997 40.0
Tempe, AZ
GATEWAY LAKES
84 1551 102nd Avenue........... 723 3,063 3,786 (105) 1997 40.0
St. Petersburg, FL
85 1527 102nd Avenue........... 694 2,943 3,637 (101) 1997 40.0
St. Petersburg, FL
EDENVALE BUSINESS PARK
86 5853-5863 Rue Ferrari
Drive......................... 9,156 22,031 31,187 (711) 1997 40.0
San Jose, CA
ELECTRONIC DATA SYSTEMS
87 105 West Bethany Drive...... 1,358 10,111 11,469 (326) 1997 40.0
Allen, TX
COMPUTER SCIENCES CORP.
88 7700-7720 Hubble Drive...... 2,217 10,735 12,952 (347) 1997 40.0
Lanham, MD
HITACHI
89 1565 Barber Lane............ 4,810 12,194 17,004 (368) 1997 40.0
Milpitas, CA
ALLIANCE DATA SYSTEMS
90 17201 Waterview Parkway..... 1,921 4,634 6,555 (140) 1997 40.0
Dallas, TX
HEWLETT PACKARD
91 3000 Waterview Parkway...... 2,815 29,975 32,790 (843) 1997 40.0
Richardson, TX
MULTILINK
92 6 Riverside Drive........... 758 8,513 9,271 (221) 1997 40.0
Andover, MA
WELLPOINT
93 2000 Corporate Center
Drive......................... 1,680 9,158 10,838 (238) 1997 40.0
Thousand Oaks, CA
</TABLE>
F-31
<PAGE> 66
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
94 2050 Corporate Center
Drive......................... -- 1,751 9,543 2 --
Thousand Oaks, CA
TRINET PROPERTY PARTNERS, L.P.
95 1022 Hingham Street......... -- 1,920 11,218 43 --
Rockland, MA
96 65 Dan Road................. -- 1,010 4,294 11 --
Canton, MA
97 One Longwater Circle........ -- 1,112 1,617 6 --
Norwell, MA
98 100 Longwater Circle........ 4,069 1,112 4,345 12 --
Norwell, MA
99 101 Philip Drive............ 2,472 505 2,274 6 --
Norwell, MA
100 30 Dan Road................. -- 1,405 3,875 23 --
Canton, MA
101 85 Dan Road................. -- 1,292 1,939 594 --
Canton, MA
102 300 Foxborough Boulevard.... 3,372 1,217 3,750 11 --
Foxborough, MA
103 105 Forbes Boulevard........ 1,132 607 1,414 4 --
Mansfield, MA
104 60 Columbian Street......... -- 2,226 7,408 -- --
Braintree, MA
105 76 Pacella Park Drive....... 3,020 721 4,068 -- --
Randolph, MA
106 260 Kenneth W. Welch
Drive........................... -- 787 3,149 -- --
Lakeville, MA
107 700 Longwater Drive......... 1,408 5,633 -- --
Norwell, MA
108 3000 Longwater Circle....... 2,114 1,446 2,066 --
Norwell, MA
ICG HOLDINGS, INC.
109 161 Inverness Drive West.... -- 10,594 33,931 -- --
Englewood, CO
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
94 2050 Corporate Center
Drive......................... 1,751 9,545 11,296 (248) 1997 40.0
Thousand Oaks, CA
TRINET PROPERTY PARTNERS, L.P.
95 1022 Hingham Street......... 1,924 11,257 13,181 (293) 1997 40.0
Rockland, MA
96 65 Dan Road................. 1,012 4,303 5,315 (112) 1997 40.0
Canton, MA
97 One Longwater Circle........ 1,114 1,621 2,735 (42) 1997 40.0
Norwell, MA
98 100 Longwater Circle........ 1,114 4,355 5,469 (113) 1997 40.0
Norwell, MA
99 101 Philip Drive............ 506 2,279 2,785 (59) 1997 40.0
Norwell, MA
100 30 Dan Road................. 1,410 3,893 5,303 (100) 1997 40.0
Canton, MA
101 85 Dan Road................. 1,295 2,530 3,825 (50) 1997 40.0
Canton, MA
102 300 Foxborough Boulevard.... 1,219 3,759 4,978 (97) 1997 40.0
Foxborough, MA
103 105 Forbes Boulevard........ 608 1,418 2,026 (35) 1997 40.0
Mansfield, MA
104 60 Columbian Street......... 2,226 7,408 9,634 (161) 1998 40.0
Braintree, MA
105 76 Pacella Park Drive....... 721 4,068 4,789 (63) 1998 40.0
Randolph, MA
106 260 Kenneth W. Welch
Drive........................... 787 3,149 3,936 (68) 1998 40.0
Lakeville, MA
107 700 Longwater Drive......... 1,408 5,633 7,041 (110) 1998 40.0
Norwell, MA
108 3000 Longwater Circle....... 1,446 2,065 3,511 (31) 1998 40.0
Norwell, MA
ICG HOLDINGS, INC.
109 161 Inverness Drive West.... 10,594 33,931 44,525 (812) 1998 40.0
Englewood, CO
</TABLE>
F-32
<PAGE> 67
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
CONCORD FARMS
110 Three Concord Farms......... -- 1,420 7,531 -- --
Concord, MA
111 Four Concord Farms.......... -- 1,217 6,613 -- --
Concord, MA
112 Six Concord Farms........... -- 1,217 6,464 -- --
Concord, MA
Two Concord Farms........... -- 1,549 649 -- --
Concord, MA
Seven Concord Farms......... -- 1,200 2 -- --
Concord, MA
ARBELLA CAPITAL CORP.
113 1100 Crown Colony Drive..... 13,547 3,311 21,770 -- --
Quincy, MA
MAST INDUSTRIES
114 100 Old River Road.......... -- 2,409 11,442 -- --
Andover, MA
HAEMONETICS CORP.
115 355 Wood Road............... -- 903 5,622 -- --
Braintree, MA
NOKIA
116 6000 Connection Drive....... -- 5,767 39,839 -- --
Irving, TX
ANDERSEN CONSULTING
117 1661 Page Mill Road......... -- -- 16,781 -- --
Palo Alto, CA
WINWARD FOREST
118 960 Northpoint Parkway...... -- 1,009 7,521 -- --
Alpharetta, GA
THE MITRE CORPORATION
119 11493 Sunset Hills Road..... -- 4,482 22,608 -- --
Fairfax, VA
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONCORD FARMS
110 Three Concord Farms......... 1,420 7,531 8,951 (179) 1998 40.0
Concord, MA
111 Four Concord Farms.......... 1,217 6,613 7,830 (157) 1998 40.0
Concord, MA
112 Six Concord Farms........... 1,217 6,464 7,681 (154) 1998 40.0
Concord, MA
Two Concord Farms........... 1,549 649 2,198 -- 1998 40.0
Concord, MA
Seven Concord Farms......... 1,200 2 1,202 -- 1998 40.0
Concord, MA
ARBELLA CAPITAL CORP.
113 1100 Crown Colony Drive..... 3,311 21,770 25,081 (294) 1998 40.0
Quincy, MA
MAST INDUSTRIES
114 100 Old River Road.......... 2,409 11,442 13,851 (154) 1998 40.0
Andover, MA
HAEMONETICS CORP.
115 355 Wood Road............... 903 5,622 6,525 (75) 1998 40.0
Braintree, MA
NOKIA
116 6000 Connection Drive....... 5,767 39,839 45,606 (538) 1998 40.0
Irving, TX
ANDERSEN CONSULTING
117 1661 Page Mill Road......... -- 16,781 16,781 (225) 1998 40.0
Palo Alto, CA
WINWARD FOREST
118 960 Northpoint Parkway...... 1,009 7,521 8,530 (93) 1998 40.0
Alpharetta, GA
THE MITRE CORPORATION
119 11493 Sunset Hills Road..... 4,482 22,608 27,090 (211) 1998 40.0
Fairfax, VA
</TABLE>
F-33
<PAGE> 68
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISION
INITIAL COST FOR ASSET
----------------------- COSTS HELD FOR
BUILDING CAPITALIZED SALE AND
AND SUBSEQUENT TO PORTFOLIO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION REPOSITIONING
----------- ------------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
PEERLESS GROUP INC.
120 1021 Central Expressway
South........................... -- 1,399 8,471 -- --
Allen, TX
------- -------- ---------- ------ -------
Total Operating
Properties.............. $84,739 $229,816 $1,114,899 $5,111 $ --
------- -------- ---------- ------ -------
Asset Held for Sale
LOUISIANA RETAIL PORTFOLIO
121 3900 Airline Highway........ $ -- $ 4,369 $ 7,767 $ 246 $(8,882)
Metairie, LA
------- -------- ---------- ------ -------
TOTAL REAL ESTATE......... $84,739 $234,185 $1,122,666 $5,357 $(8,882)
======= ======== ========== ====== =======
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------
BUILDING DEPRECIABLE
AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
----------- -------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
PEERLESS GROUP INC.
120 1021 Central Expressway
South........................... 1,399 8,471 9,870 (61) 1998 40.0
Allen, TX
-------- ---------- ---------- --------
Total Operating
Properties.............. $230,401 $1,119,425 $1,349,826 $(71,950)
-------- ---------- ---------- --------
Asset Held for Sale
LOUISIANA RETAIL PORTFOLIO
121 3900 Airline Highway........ $ -- $ 3,500 $ 3,500 $ -- 1995 40.0
Metairie, LA
-------- ---------- ---------- --------
TOTAL REAL ESTATE......... $230,401 $1,122,925 $1,353,326 $(71,950)
======== ========== ========== ========
</TABLE>
F-34
<PAGE> 69
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO SCHEDULE III
DECEMBER 31, 1998
(IN THOUSANDS)
1. RECONCILIATION OF REAL ESTATE:
The following table reconciles Real Estate from January 1, 1996 to December
31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Balance at January 1.................... $1,158,295 $ 697,517 $538,717
Additions............................... 256,331 466,186 222,789
Dispositions............................ (55,638) (5,408) (58,062)
Provision for asset held for sale....... (5,662) -- --
Provision for portfolio repositioning... -- -- (5,927)
---------- ---------- --------
Balance at December 31.................. $1,353,326 $1,158,295 $697,517
========== ========== ========
</TABLE>
2. RECONCILIATION OF ACCUMULATED DEPRECIATION:
The following table reconciles Accumulated Depreciation from January 1,
1996 to December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at January 1.......................... $54,152 $36,360 $30,260
Additions..................................... 27,628 19,347 13,293
Dispositions.................................. (9,830) (1,555) (7,193)
------- ------- -------
Balance at December 31........................ $71,950 $54,152 $36,360
======= ======= =======
</TABLE>
F-35
<PAGE> 1
EXHIBIT 3.5
EXHIBIT A
TRINET CORPORATE REALTY TRUST, INC.
Series D Junior Participating Preferred Stock
(Liquidation Preference $1.00 Per Share)
ARTICLES SUPPLEMENTARY
----------------------------
Articles Supplementary of Board of Directors Classifying
and Designating a Series of Preferred Stock as
Series D Junior Participating Preferred Stock
----------------------------
Dated as of February 25, 1998
<PAGE> 2
TRINET CORPORATE REALTY TRUST, INC.
----------
Articles Supplementary of Board of Directors Classifying
and Designating a Series of Preferred Stock as
Series D Junior Participating Preferred Stock
and Fixing Distribution and
Other Preferences and Rights of Such Series
----------
TriNet Corporate Realty Trust, Inc., a Maryland corporation,
having its principal office in the State of Maryland in the City of Baltimore
(the "Company"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority conferred upon the Board of
Directors by the Amended and Restated Articles of Incorporation (the "Charter")
and the Amended and Restated Bylaws (the "Bylaws") of the Company, the Board of
Directors, as required by Section 2-208 of the Maryland General Corporation Law,
pursuant to resolutions adopted on February 25, 1998, classified and designated
500,000 shares (the "Shares") of Preferred Stock (as defined in the Charter) as
shares of Series D Junior Participating Preferred Stock, with the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption as follows, which upon any restatement of the Charter shall be made
part of Article VII, with any necessary or appropriate changes to the
enumeration or lettering of sections or subsections hereof:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Number of Shares and Designation. This class of
Preferred Stock shall be designated the Series D Junior Participating Preferred
Stock (the "Series D Preferred Shares") and the number of shares which shall
constitute such series shall be 500,000 shares, par value $.01 per share. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of Series D
Preferred Shares to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of outstanding
options,
<PAGE> 3
rights or warrants or upon the conversion of any outstanding securities
issued by the Company convertible into Series D Preferred Shares.
Section 2. Dividend Rights. (1) Subject to the rights of holders
of any shares of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series D Preferred Shares with respect to dividends,
the holders of Series D Preferred Shares shall be entitled prior to the payment
of any dividends on shares ranking junior to the Series D Preferred Shares to
receive, when, as and if authorized by the Board of Directors out of assets
legally available for the purpose, quarterly dividends payable in cash on the
first day of February, May, August and November in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series D Preferred Shares, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions (other
than a dividend payable in shares of common stock, par value $0.01 per share, of
the Company (the "Common Stock") or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise)) authorized on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series D Preferred Shares. In the event
the Company shall at any time (i) authorize or pay any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of Series D Preferred Shares
were entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(2) The Company shall authorize a dividend or distribution on the
Series D Preferred Shares as provided in subparagraph (1) above immediately
after it authorizes a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been authorized on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series D
Preferred
A-2
<PAGE> 4
Shares shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(3) Dividends shall begin to accrue and be cumulative on
outstanding Series D Preferred Shares from the Quarterly Dividend Payment Date
next preceding the date of issue of such Series D Preferred Shares, unless the
date of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of Series D Preferred Shares entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series D Preferred Shares in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of Series D Preferred Shares entitled to receive
payment of a dividend or distribution authorized thereon, which record date
shall be no more than 30 days prior to the date fixed for the payment thereof.
Section 3. Liquidation. (1) Upon any liquidation, dissolution or
winding up of the Company, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Shares unless, prior
thereto, the holders of shares of Series D Preferred Shares shall have received
$1.00 per share (the "Series D Liquidation Preference"), plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
authorized, to the date of such payment. Following the payment of the full
amount of the Series D Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series D Preferred Shares unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series D Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph (3) below to reflect such events as stocks splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series D Liquidation Preference and the Common Adjustment in
respect of all outstanding Series D Preferred Shares and shares of Common Stock,
respectively, holders of Series D Preferred Shares and holders of shares of
Common Stock shall receive their ratable and proportionate
A-3
<PAGE> 5
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to the Series D Preferred Shares and Common Stock, on a
per share basis, respectively.
(2) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series D Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series D Preferred Shares, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(3) In the event the Company shall at any time (i) authorize any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 4. No Redemption. (1) Except as provided below, the
Series D Preferred Shares shall not be redeemable.
(2) The Series D Preferred Shares are subject to the provisions
of Article IX of the Charter, including, without limitation, the provisions for
the redemption of Excess Stock (as defined in such Article).
Section 5. Voting Rights. The holders of Series D Preferred
Shares shall have the following voting rights:
(1) Subject to the provision for adjustment hereinafter set
forth, each Series D Preferred Share shall entitle the holder thereof to
100 votes on all matters voted on at a meeting of the stockholders of
the Company. In the event the Company shall at any time (i) authorize or
pay any dividend on Common Stock payable in shares of Common Stock, or
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of Series D
Preferred Shares were entitled immediately prior to such event shall be
adjusted by multiplying such number by a
A-4
<PAGE> 6
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(2) Except as otherwise provided herein or by law, the holders of
Series D Preferred Shares and the holders of shares of Common Stock and
any other stock of the Company having general voting rights shall vote
together as one voting group on all matters submitted to a vote of
stockholders of the Company.
(3) Except as set forth herein, holders of Series D Preferred
Shares shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders
of Common Stock as set forth herein) for taking any corporate action.
Section 6. Certain Restrictions.
(1) Whenever quarterly dividends or other dividends or
distributions payable on the Series D Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not authorized, on Series D Preferred Shares
outstanding shall have been paid in full, the Company shall not:
(a) authorize or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series D Preferred
Shares;
(b) authorize or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series D Preferred
Shares, except dividends paid ratably on the Series D Preferred Shares
and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such
shares are then entitled;
(c) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred
Shares, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares
of any stock of the Company ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series D Preferred
Shares; or
A-5
<PAGE> 7
(d) purchase or otherwise acquire for consideration any shares of
Series D Preferred Shares or any shares of stock ranking on a parity
with the Series D Preferred Shares, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(2) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under subparagraph (1) of this Section 6,
purchase or otherwise acquire such shares at such time and in such manner.
Section 7. Reacquired Shares. Any Series D Preferred Shares
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein or in the Charter.
Section 8. Merger, Consolidation, etc. In case the Company shall
enter into any merger, consolidation, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each Series D
Preferred Share shall at the same time be similarly exchanged or changed into an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Company
shall at any time (i) authorize any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the exchange
or change of Series D Preferred Shares shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
A-6
<PAGE> 8
Section 9. Ranking. The Series D Preferred Shares shall rank,
with respect to the payment of dividends and distribution of assets, junior to
all series of any other class of the Company's Preferred Stock unless the terms
of any such series shall provide otherwise.
Section 10. Amendment. The Charter, including these Articles
Supplementary establishing the rights and preferences of the Series D Preferred
Shares, shall not be amended in any manner which would materially alter or
change the preferences, voting powers or other rights or restrictions of the
Series D Preferred Shares, as set forth herein, so as to affect them adversely
without the affirmative vote of the holders of a majority of the outstanding
shares of Series D Preferred Shares, voting separately as one voting group.
Section 11. Fractional Shares. Series D Preferred Shares may be
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series D Preferred Shares.
SECOND: The Shares have been classified and designated by the
Board of Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the
Board of Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Corporation acknowledges
these Articles Supplementary to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
A-7
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed under seal in its name and on its behalf of its
President and attested to by its Secretary on this 25th day of February, 1998.
TRINET CORPORATE REALTY TRUST, INC.
By:
---------------------------------------
Name: Mark S. Whiting
Title: President and Chief Executive
Officer
Attest:
- ------------------------------------
Name: A. William Stein
Title: Executive Vice President,
Chief Financial Officer
and Secretary
A-8
<PAGE> 1
EXHIBIT 10.8
AGREEMENT REGARDING CHANGE OF CONTROL
This Agreement Regarding Change of Control ("Agreement") is made and
entered into as of June 17, 1998 by and between TRINET CORPORATE REALTY TRUST,
INC., a Maryland corporation (the "Company") and __________________, an
individual (the "Executive").
RECITALS
A. The Executive is currently serving as __________________________
_______________ of the Company and, in that capacity, is a valuable member of
the Company's management and a key participant in the Company's short-term and
long-term decision-making processes.
B. It is in the best interests of the Company and its stockholders to
encourage the Executive to continue to provide management services as an
employee of the Company.
C. The Company recognizes that circumstances may arise in which a
change of control of the Company may occur, through acquisition, merger, sale of
assets or otherwise, thereby causing uncertainty regarding the continuity of the
employment relationship, without regard to the competence or past contributions
of the Executive, and that such uncertainty may result in the loss of valuable
services of the Executive.
D. In order to induce the Executive to continue to serve the Company,
the Company wishes to provide reasonable security to the Executive against
changes in the employment relationship in the event of any such change of
control.
E. In consideration of the covenants and agreements of the Company
under this Agreement, the Executive is willing to agree to the restrictive
covenants set forth herein, including without limitation the non-solicitation
covenant set forth in Section 7 hereof.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter contained, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following
definitions shall apply:
"CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:
(a) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the
Company, any of its subsidiaries, or any trustee, fiduciary or other person or
entity holding securities under
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any employee benefit plan or trust of the Company or any of its subsidiaries),
together with all "affiliates" and "associates" of such person (as such terms
are defined in Rule 12b-2 under the Act), shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act), directly or indirectly,
of securities of the Company representing 40% or more of either (1) the combined
voting power of the Company's then outstanding securities having the right to
vote in an election of the Company's Board of Directors ("Voting Securities") or
(2) the then outstanding shares of Stock of the Company (in either such case
other than as a result of an acquisition of securities directly from the
Company); or
(b) persons who, as of the effective date of this Agreement,
constitute the Company's Board of Directors (the "Incumbent Directors") cease
for any reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a majority
of the Board; provided, however, that any person becoming a director of the
Company subsequent to the effective date of this Agreement whose election or
nomination for election was approved by a vote of at least a majority of the
Incumbent Directors shall, for purposes of this Plan, be considered an Incumbent
Director; or
(c) the stockholders of the Company shall approve (1) any
consolidation or merger of the Company or any subsidiary where the shareholders
of the Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, shares
representing in the aggregate 50% or more of the voting shares of the
corporation issuing cash or securities in the consolidation or merger (or of its
ultimate parent corporation, if any), (2) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company or (3) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (a) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Stock or other Voting Securities outstanding, increases (i)
the proportionate number of shares of Stock beneficially owned by any person to
40% or more of the shares of Stock then outstanding or (ii) the proportionate
voting power represented by the Voting Securities beneficially owned by any
person to 40% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in clause
(i) or (ii) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of the foregoing clause (a).
Further notwithstanding the foregoing, it is the parties' intention
that this Agreement be construed so that a "Change of Control" shall not be
deemed to have
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occurred as a result of a transaction unless and until the management of the
Company immediately prior to such transaction no longer controls the management
and operations of the Company.
"CONSTRUCTIVE TERMINATION" shall mean, with respect to the Executive,
the termination by the Executive of employment with the Company following the
occurrence of any one of the following events:
(a) The Executive no longer retains, is not re-elected to, or
is removed from, the office(s) held by the Executive immediately prior to the
Change of Control, other than as a result of the Executive's election or
appointment to position(s) of equal or superior scope and responsibility; or
(b) The Company materially diminishes the scope and
responsibility of the Executive's current office(s), so that the powers,
authority and support services normally attendant to the Executive's current
office(s) are no longer vested in the Executive, as determined by the Executive
in his or her reasonable discretion, including without limitation changes in the
individuals, groups, positions or divisions which report to the Executive or the
person or position to whom the Executive directly reports, provided, however,
that the Company shall have the right to dispute the "reasonableness" of the
Executive's determination or the "materiality" of the change, in which case the
sole and exclusive method for resolving such dispute shall be the alternative
dispute resolution procedure set forth in Section 8(a) of this Agreement; or
(c) The Executive's compensation (including, without
limitation, base salary, bonus eligibility, stock options, other incentive
awards, employee benefits coverage or retirement benefits) is reduced by more
than a de minimis amount; or
(d) The Company notifies the Executive that the Executive's
employment will be terminated or materially adversely modified in the future or
that Constructive Termination of the Executive will occur in the future; or
(e) The Company changes the primary employment location of the
Executive to a place that is more than fifty (50) miles from the primary
employment location of the Executive as of the effective date of this Agreement;
or
(f) The Company otherwise commits a material breach of its
obligations under this Agreement.
No such event described herein shall constitute Constructive Termination unless
the Executive has given written notice to the Company specifying the event
relied upon for such termination within six (6) months after the Executive has
actual notice of the occurrence of such event and the Company has not remedied
such within thirty (30) days of such notice.
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"COVERAGE PERIOD" shall mean the period during which the Executive
shall be entitled to receive various benefits pursuant to the terms of this
Agreement, commencing on the date the Termination Event (as defined in Section
2) occurs and ending at the end of the period set forth on Exhibit A attached
hereto.
"TERMINATION DATE" shall mean the date that a Termination Event occurs.
"TERMINATION EVENT" shall mean termination of the Executive's
employment by the Company or Constructive Termination of the Executive.
"VALUATION MULTIPLE" shall mean the amount by which the Executive's
annual compensation is multiplied for purposes of calculating certain benefits
paid under this Agreement, as set forth on Exhibit A attached hereto.
2. Benefits Upon Termination of Employment Due to Change of Control.
If, upon a Change of Control or within twenty-four (24) months thereafter, a
Termination Event occurs, the Executive shall be entitled to the following
benefits:
(a) Multiple of Annual Compensation. Within five (5) business
days after the Termination Date, the Executive shall be paid a lump sum by the
Company equal to the amount determined by multiplying the Valuation Multiple by
the greater of the following:
(1) the sum of the Executive's annualized base salary as of the
Termination Date, plus the largest amount of annual incentive
bonus paid by the Company to the Executive during the preceding
five (5) fiscal years; or
(2) the largest amount of annual cash compensation (including
salary and incentive bonus) and other income, from all
sources, paid by the Company to the Executive over the
preceding five (5) fiscal years, as reported by the Company in
Box 5 of Form W-2 and/or Form 1099 furnished to the Executive.
(b) Unpaid Annual Incentive Bonus. Within five (5) business
days after the Termination Date, but only as a result of termination of the
Executive's employment by the Company and not as a result of Constructive
Termination, the Executive shall be paid a lump sum in respect of unpaid
incentive bonus, calculated as follows:
(1) If the Termination Date occurs prior to the date incentive
bonuses are paid by the Company to eligible employees with
respect to services performed in the preceding fiscal year,
the Executive shall be paid an amount equal to the largest
amount of the annual incentive bonus paid to the Executive by
the Company over the preceding five (5) fiscal years,
multiplied by a fraction, the numerator of which is the number
of days which have elapsed
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from the first day of the preceding fiscal year to the
Termination Date and the denominator of which is three hundred
sixty five (365); and
(2) If the Termination Date occurs after the date incentive
bonuses have been paid by the Company to eligible employees
with respect to services performed in the preceding fiscal
year, then (a) if the Company has achieved in the current
fiscal year, on a prorated basis, at least 85% of the
quantifiable annual performance goals previously established
by the Company for determination of incentive bonuses, the
Executive shall be paid an amount equal to the largest amount
of the annual incentive bonus paid to the Executive by the
Company over the preceding five (5) fiscal years, multiplied
by a fraction, the numerator of which is the number of days
which have elapsed from the first day of the current fiscal
year to the Termination Date and the denominator of which is
three hundred sixty five (365), and (b) if the Company has not
achieved in the current fiscal year, on a prorated basis, at
least 85% of the quantifiable annual performance goals
previously established by the Company for determination of
incentive bonuses, the Executive shall be paid an amount equal
to 75% of the average incentive bonus paid to the Executive
over the preceding three (3) fiscal years, multiplied by a
fraction, the numerator of which is the number of days which
have elapsed from the first day of the current fiscal year to
the Termination Date and the denominator of which is three
hundred sixty five (365).
(c) Continuation of Benefits Coverage. The Executive (and the
Executive's dependents) shall receive coverage under the Company's health and
employee benefit plans then in effect, to the extent permitted by such plans, at
the Company's cost, during the Coverage Period (provided that substantially the
same or equivalent benefits are not available to the Executive by reason of
employment obtained following such termination);
(d) Immediate Vesting of Stock Incentive Awards and DERs;
Extension of Option Exercise Period. Notwithstanding any vesting schedule
otherwise applicable or any other provisions to the contrary in the Company's
stock incentive plans, any outstanding stock options and dividend equivalent
rights awards previously granted to Executive shall immediately be fully vested
and the Executive shall be entitled, for a period of twelve (12) months
following such termination of employment, to exercise any such stock options;
(e) Future DER Payments. The Executive shall be paid, at the
Executive's election, either (i) within five (5) business days after the
Termination Date, a lump sum equal to the aggregate amount of the annual
dividend equivalent rights payments payable to the Executive during the
remaining term of any dividend equivalent rights awards previously granted to
the Executive, based on the assumption that the Company's then-current quarterly
dividend payments continue during the remaining term
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of such awards, or (ii) annual payments during the remaining term of any
dividend equivalent rights awards granted to the Executive, in accordance with
the terms of such awards;
(f) Future 401(k) Contributions. Within five (5) business days
after the Termination Date, the Executive shall be paid a lump sum equal to the
aggregate amount of the Company's maximum contributions that would have been
made under the Company's Savings and Retirement Plan ("401(k) Plan") during the
Coverage Period if the Executive had continued to be employed and participated
in the 401(k) Plan during the Coverage Period;
(g) Forfeitures Under 401(k) Plan. Within five (5) business
days after the Termination Date, the Executive shall be paid an amount equal to
the portion, if any, of the contributions made by the Company for the
Executive's account under the 401(k) Plan which are forfeited as a result of
termination of the Executive's employment;
(h) Future Retirement Benefits. Within five (5) business days
after the Termination Date, the Executive shall be paid a lump sum equal to the
aggregate amount of the benefits, if any, under any special pension benefit or
deferred compensation plans (calculated assuming the Executive will begin
receiving benefits at the earliest retirement date under such plans) which may
subsequently be adopted by the Company, which are operational on the Termination
Date and which explicitly provide for such payments to be made in the event of a
Change of Control.
3. Excess Parachute Payments. If it is determined, by the Company's
independent public accountants in consultation with the Company's independent
legal counsel, that any amount payable to the Executive by the Company under
this Agreement, or any other plan or agreement under which the Executive
participates or is a party, would constitute an "Excess Parachute Payment"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and be subject to the excise tax imposed by Section 4999 of
the Code, the Company shall pay to the Executive a "grossing-up" amount equal to
the amount of such excise tax and all federal and state income or other taxes
with respect to payment of such excise tax, including all taxes with respect to
such grossing-up amount. The highest marginal tax rate applicable to individuals
at the time of payment of such amounts shall be used for purposes of determining
the federal and state income and other taxes with respect thereto. The Company
shall withhold from any amounts paid under this Agreement the amount of any such
excise tax or other federal, state or local taxes then required to be withheld.
4. Intercompany Transfers. If the Executive is transferred voluntarily
to an affiliate or subsidiary of the Company, such transfer shall not be deemed
to terminate or modify this Agreement and the employing corporation to which the
Executive shall have been transferred shall, for all purposes of this Agreement,
be deemed to stand in the place of the Company as of the date of such transfer.
The Company shall be secondarily liable
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to the Executive for the obligations hereunder in case the affiliate or
subsidiary of the Company cannot or chooses not to perform such obligations.
5. Source of Payments. All payments provided for under this Agreement
shall be paid in cash from the general funds of the Company; provided, however,
that such payments shall be reduced by the amount of any payments made to the
Executive or his or her dependents, beneficiaries or estate from any trust or
special or separate fund which may be established by the Company to assure such
payments. The Company shall not be required to establish a special or separate
fund or other segregation of assets to assure such payments and the Executive
shall have no right, title or interest whatever in or to any investments which
the Company may make to assist it in meeting its obligations hereunder, except
as may otherwise be expressly provided in a separate written instrument relating
to any such investments. Nothing contained in this Agreement, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind or a fiduciary relationship between the Company and the Executive or
any other person. To the extent that any person acquires rights to receive
payments from the Company, such right shall be no greater than the right of an
unsecured creditor of the Company.
6. Confidential Information. The Executive acknowledges that, during
the course of his or her employment with the Company, the Executive may
heretofore or hereafter produce, receive or have access to various materials,
records, data, trade secrets, proprietary information and other information not
generally known or available to the public (collectively, "Confidential
Information") regarding the business, properties, services, strategic plans,
business methods or practices of the Company, its subsidiaries or affiliates.
For purposes of this Agreement, "Confidential Information" shall include, but
not be limited to, purchase and sale agreements, leases, lease abstracts,
management agreements, loan and financing agreements, listing and brokerage
agreements, employment contracts, other contracts and commitments, appraisals,
title reports and policies, surveys, market analyses and evaluations,
environmental assessments, consultants' reports, strategic plans, Company policy
and procedure manuals and other information not generally known or available to
the public. During the course of employment and subsequent thereto, the
Executive shall hold in confidence and not directly or indirectly disclose, copy
or otherwise use any Confidential Information, except to the extent that such
information is or thereafter becomes lawfully available from public sources, or
such disclosure or use is authorized in writing by the Company, is required by
law or by any competent judicial or administrative authority, or otherwise is
reasonably necessary and appropriate in connection with the performance of the
Executive's duties to the Company. All records, files, documents, computer
disks, computer programs and other computer-generated material, as well as all
other materials or copies thereof relating to the Company and its business,
shall be and remain the sole property of the Company and shall be promptly
returned to the Company upon any termination of the Executive's employment
hereunder.
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7. Non-Solicitation. As a material inducement to the Company to enter
into this Agreement, the Executive agrees that, for a period of twelve (12)
months following a Termination Event resulting in the payment of benefits
hereunder to the Executive, the Executive will not directly or indirectly
solicit or induce, or attempt to solicit or induce, or otherwise participate in
an attempt to solicit or induce, any person who is an employee of the Company on
the date of the Termination Event to terminate employment with the Company in
order to join an enterprise with which the Executive is then employed or
affiliated which operates a business similar to that of the Company. For
purposes of this Section 7, a business shall be considered "similar" to that of
the Company if it is engaged in the acquisition, development, ownership or
management of office or industrial property in any geographic market or
territory in which the Company owns properties as of the Termination Date, or in
any market or territory in which the company has an acquisition pending as of
the Termination Date, or in any target market or territory which has been
publicly identified by the Company as of the Termination Date.
8. General Provisions.
(a) Alternative Dispute Resolution. Any dispute or controversy
arising under or in connection with this Agreement, or any breach thereof, shall
be resolved and settled exclusively by arbitration, conducted by a single
arbitrator sitting in San Francisco, California, in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA")
pertaining to expedited procedures. The arbitrator shall be selected by the
parties from a list of six (6) potential arbitrators provided by the AAA,
provided that no potential arbitrator shall be related to or affiliated with
either of the parties. If the parties are unable to agree on a single arbitrator
within ten (10) days after the AAA's list of potential arbitrators has been
received by the parties, the AAA shall select from the list an arbitrator who
shall arbitrate the dispute. Each party shall be entitled, but shall not be
obligated, to submit a written arbitration statement setting forth the amount
claimed, if any, and the relief sought. The arbitration hearing shall be
conducted within forty-five (45) days following the selection of the arbitrator
and the arbitrator shall render an award within twenty (20) days from the close
of the arbitration hearing. The Company shall bear the costs of the arbitration
proceeding, including the costs of counsel, experts or other representatives
retained by the parties and the fees, costs and expenses imposed or incurred by
he arbitrator. Judgment on the award entered by the arbitrator may be entered in
any court having jurisdiction thereof.
(b) Release by Executive. Notwithstanding any provision hereof
to the contrary, the Company shall not have any obligation to pay any amount or
provide any benefit, as the case may be, under this Agreement, unless and until
the Executive executes and delivers a release of the Company, its affiliates and
related parties, in such form as the Company may reasonably require, of all
claims against the Company, its affiliates and related parties relating in any
way to the Executive's employment and termination thereof, other than claims for
amounts remaining to be paid or benefits remaining to be provided pursuant to
the terms of this Agreement.
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(c) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Executive, the company and his or her and
its respective personal representatives, successors and assigns. The Company
shall require any successor to all or substantially all of the business and/or
assets of the Company, whether directly or indirectly, by purchase, merger,
consolidation, stock acquisition, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform if no such succession had occurred.
(d) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Company.
(e) Severability; Governing Law. If any of the provisions of
this Agreement shall be declared invalid or unenforceable by a court of
competent jurisdiction, the validity and enforceability of the remaining
provisions shall not be affected thereby. This Agreement shall be construed and
the rights of the parties hereto shall be determined in accordance with the laws
of the State of Maryland, without reference to the law regarding conflicts of
laws.
(f) Notices. Notices given pursuant to this Agreement shall be
in writing and shall be deemed given when received and, if mailed, shall be
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, sent to the following addresses (or to such other addresses as
the party to be notified shall have given to the other party in accordance with
this provision):
If to the Company:
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center, 33rd Floor
San Francisco, CA 94111-3722
ATTN: Vice President, Administration and General Counsel
If to the Executive:
--------------------------
--------------------------
--------------------------
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE COMPANY:
TRINET CORPORATE REALTY TRUST, INC.
a Maryland corporation
By: _________________________________
Name: Geoffrey M. Dugan
Title: Vice President, Administration and General Counsel
THE EXECUTIVE:
- --------------------------
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EXHIBIT A
NAME OF EXECUTIVE VALUATION MULTIPLE COVERAGE PERIOD
______________ ___ (_) __ months
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EXHIBIT 10.14
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
This Amendment No. 1 (the "Amendment") to the Rights Agreement
dated as of February 25, 1998 (the "Rights Agreement") between TriNet Corporate
Realty Trust, Inc., a Maryland corporation (the "Company"), and Harris Trust and
Savings Bank, a Texas corporation ("Harris Trust"), is entered into as of
November 9, 1998 between the Company and First Chicago Trust Company of New York
("First Chicago"). Unless the context indicates otherwise, capitalized terms
used without definition herein shall have the meanings ascribed to such terms in
the Rights Agreement.
WITNESSETH:
WHEREAS, pursuant to Section 21 of the Rights Agreement, the
Company appoints First Chicago as the successor Rights Agent under the Rights
Agreement;
WHEREAS, Section 21 of the Rights Agreement currently provides
that a successor Rights Agent shall have "at the time of its appointment as
Rights Agent a combined capital and surplus of at least $25 million" and the
Company waives such requirement with respect to First Chicago; and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the
Company desires to amend the Rights Agreement to modify the qualifications of a
successor Rights Agent and to alter the notification procedures in respect of
the replacement of a Rights Agent with a successor Rights Agent;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Amendment of Section 21. Section 21 of the Rights
Agreement is amended to read in its entirety as follows:
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties
under this Agreement upon thirty (30) days' notice in writing mailed to
the Company and to each transfer agent of the Preferred Stock and the
Common Stock by registered or certified mail, and, at the Company's
expense, to the holders of the Right Certificates by first class mail.
The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer
<PAGE> 2
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agent of the Preferred Stock and the Common Stock by registered or
certified mail, and to the holders of the Right Certificates by
first-class mail; provided, however, that the Company may also notify
the holders of the Right Certificates of such change in the Rights Agent
promptly upon the occurrence of such change through a periodic filing
required under the Exchange Act. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to
make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent
or by the holder of a Right Certificate (who shall, with such notice,
submit his Right Certificate for inspection by the Company), then the
Company shall become the temporary Rights Agent and the registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall
be: (a) a corporation organized and doing business under the laws of the
United States, in good standing, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or
examination by federal or state authority or which has at the time of
its appointment as Rights Agent a combined capital and surplus of at
least $25 million or (b) an Affiliate of a corporation described in
clause (a) above. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or
deed; but the predecessor Rights Agent shall deliver and transfer to the
successor Rights Agent any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date of any such
appointment or promptly thereafter the Company shall file notice thereof
in writing with the predecessor Rights Agent and each transfer agent of
the Preferred Stock and the Common Stock, and mail a notice thereof in
writing to the registered holders of the Right Certificates; provided,
however, that the Company may also notify the holders of the Right
Certificates of such appointment through a periodic filing required
under the Exchange Act. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the
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Rights Agent or the appointment of the successor Rights Agent, as the
case may be.
Section 2. References to Rights Agent. All references in the
Rights Agreement to "Harris Trust and Savings Bank" and to the "Rights Agent"
shall be deemed to be references to First Chicago.
Section 3. Notices. Section 26 of the Rights Agreement is amended
by deleting the name and address of the Rights Agent and replacing it with the
following:
First Chicago Trust Company of New York
525 Washington Boulevard
3rd Floor
Jersey City, New Jersey 07310
Attention: Tenders and Exchanges Administration
Section 4. Effectiveness. This Amendment shall be deemed
effective as of November 9, 1998, as if executed on such date. Except as amended
hereby, the Agreement shall remain in full force and effect and shall be
otherwise unaffected hereby.
Section 5. Governing Law. This Amendment shall be deemed to be a
contract made under the laws of the State of Maryland and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State
except that the rights, duties and obligations of the Rights Agent under this
Amendment shall be governed by and construed in accordance with the laws of the
State of New York.
Section 6. Counterparts. This Amendment may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 7. Descriptive Headings. Descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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S-1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
[SEAL]
TRINET CORPORATE REALTY
TRUST, INC.
Attest:
By: _____________________ By: ________________________
Name: Name: Geoffrey M. Dugan
Title: Title: Vice President,
Administrative and
General Counsel
[SEAL]
FIRST CHICAGO TRUST COMPANY OF
NEW YORK, as Rights Agent
Attest:
By: _____________________ By: ________________________
Name: Name:
Title: Title:
<PAGE> 1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
EXHIBIT 12.1
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income before loss/gain on sales of
real estate, provision for asset held
for sale and extraordinary charges $ 70,941 $ 53,249 $ 24,835 $ 20,234 $ 15,912
Add:
Interest expense 40,535 25,845 23,623 20,924 9,667
Interest expense from joint ventures 4,955 - - - -
-------- -------- -------- -------- --------
Earnings as adjusted $116,431 $ 79,094 $ 48,458 $ 41,158 $ 25,579
======== ======== ======== ======== ========
Fixed charges:
Interest expense $ 40,535 $ 25,845 $ 23,623 $ 20,924 $ 9,667
Interest expense from joint ventures 4,955 - - - -
Capitalized interest 3,292 - - - -
Capitalized interest from joint ventures 2,850 - - - -
-------- -------- -------- -------- --------
Total fixed charges $ 51,632 $ 25,845 $ 23,623 $ 20,924 $ 9,667
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.26 3.06 2.05 1.97 2.65
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(DOLLAR AMOUNTS IN THOUSANDS)
EXHIBIT 12.2
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income before loss/gain on sales of
real estate, provision for asset held
for sale and extraordinary charges $ 70,941 $ 53,249 $ 24,835 $ 20,234 $ 15,912
Add:
Interest expense 40,535 25,845 23,623 20,924 9,667
Interest expense from joint ventures 4,955 - - - -
-------- -------- -------- -------- --------
Earnings as adjusted $116,431 $ 79,094 $ 48,458 $ 41,158 $ 25,579
======== ======== ======== ======== ========
Combined fixed charges and preferred stock dividends:
Interest expense $ 40,535 $ 25,845 $ 23,623 $ 20,924 $ 9,667
Interest expense from joint ventures 4,955 - - - -
Capitalized interest 3,292 - - - -
Capitalized interest from joint ventures 2,850 - - - -
-------- -------- -------- -------- --------
Total fixed charges 51,632 25,845 23,623 20,924 9,667
Preferred stock dividends 15,678 9,552 3,646 - -
-------- -------- -------- -------- --------
Combined fixed charges and
preferred stock dividends $ 67,310 $ 35,397 $ 27,269 $ 20,924 $ 9,667
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.73 2.23 1.78 1.97 2.65
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
TriNet Corporate Realty Trust, Inc. on Form S-3 (File No. 333-64305), Form S-3
(File No. 333-57523), Form S-3 (File NO. 333-29593), Form S-3 (File No. 42717),
Form S-8 (File No. 333-02222) and Form S-8 (File No. 333-35149) of our report
dated January 22, 1999, except for Note 16, as to which the date is March 12,
1999, on our audits of the consolidated financial statements of TriNet
Corporate Realty Trust, Inc., as of December 31, 1998 and 1997 and for each of
the three years then ended, which report is included in the Annual Report on
Form 10-K.
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,323
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,500,789
<DEPRECIATION> 71,950
<TOTAL-ASSETS> 1,526,567
<CURRENT-LIABILITIES> 0
<BONDS> 647,720
0
73
<COMMON> 249
<OTHER-SE> 803,138
<TOTAL-LIABILITY-AND-EQUITY> 1,526,567
<SALES> 153,155
<TOTAL-REVENUES> 162,815
<CGS> 0
<TOTAL-COSTS> 7,466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,535
<INCOME-PRETAX> 48,165
<INCOME-TAX> 0
<INCOME-CONTINUING> 48,165
<DISCONTINUED> 0
<EXTRAORDINARY> (1,272)
<CHANGES> 0
<NET-INCOME> 46,893
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.91
</TABLE>
