<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-10150
------------------------
TRINET CORPORATE REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 94-3175659
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1114 AVENUE OF THE AMERICAS, 27TH FLOOR 10036
NEW YORK, NY 10036 (Zip Code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: (212)930-9400
------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant; (i) 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 (ii) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of August 8, 2000, there were 100 shares of common stock outstanding
("Common Stock").
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I (1) (a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE.
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<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. Consolidated Financial Information.......................... 2
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 2000 and December
31, 1999.................................................. 2
Consolidated Statements of Operations--For the three- and
six-month periods ended June 30, 2000 and 1999............ 3
Consolidated Statement of Changes in Shareholders'
Equity--For the six-month period ended June 30, 2000...... 4
Consolidated Statements of Cash Flows--For the three- and
six-month periods ended June 30, 2000 and 1999............ 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
PART II. Other Information........................................... 18
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 3. Defaults Upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures.................................................. 19
</TABLE>
1
<PAGE>
PART I--CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Loans and other lending investments, net.................... $ 41,116 $ 39,244
Real estate subject to operating leases, net................ 1,466,651 1,529,804
Cash and cash equivalents................................... 17,982 12,011
Restricted cash............................................. 7,262 6,697
Deferred rent receivable.................................... 5,637 1,147
Loan costs, net............................................. 2,728 3,022
Other assets, net........................................... 12,422 8,719
---------- ----------
Total assets............................................ $1,553,798 $1,600,644
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities.... $ 43,086 $ 44,556
Debt obligations............................................ 619,732 691,591
---------- ----------
Total liabilities....................................... 662,818 736,147
---------- ----------
Commitments and contingencies............................... -- --
Minority interest in consolidated entities.................. 2,565 2,565
Shareholders' equity:
Common stock, $0.01 par value, 100 shares authorized: 100
shares issued and outstanding at June 30, 2000 and
December 31, 1999......................................... -- --
Common stock of IStar Financial held in treasury (at
cost)..................................................... (40,100) (39,994)
Additional paid in capital.................................. 879,418 890,271
Retained earnings........................................... 49,097 11,655
---------- ----------
Total shareholders' equity.............................. 888,415 861,932
---------- ----------
Total liabilities and shareholders' equity.............. $1,553,798 $1,600,644
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ------------- ---------- -------------
(PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C>
REVENUE:
Interest income............................ $ 2,301 $ 2,157 $ 4,396 $ 3,847
Operating lease income..................... 41,336 39,152 83,430 78,513
Joint venture income....................... 2,164 596 2,620 1,523
Other income............................... 234 661 383 1,108
------- ------- ------- -------
Total revenue............................ 46,035 42,566 90,829 84,991
------- ------- ------- -------
COSTS AND EXPENSES:
Interest expense........................... 12,972 11,009 26,783 22,171
Property operating costs................... 2,959 1,430 6,284 2,597
Depreciation and amortization.............. 7,432 7,160 15,055 14,264
General and administrative................. 2,981 3,229 5,840 6,307
------- ------- ------- -------
Total costs and expenses................. 26,344 22,828 53,962 45,339
------- ------- ------- -------
Net income before minority interest, gain on
sale of net lease assets, extraordinary
loss and cumulative effect................. 19,691 19,738 36,867 39,652
Minority interest in consolidated entities... (41) (40) (82) (81)
Gain on sale of net lease assets............. 441 -- 974 1,153
------- ------- ------- -------
Net income before extraordinary loss and
cumulative effect.......................... 20,091 19,698 37,759 40,724
Extraordinary loss on early extinguishment of
debt....................................... -- -- (317) --
Cumulative effect of a change in accounting
principle.................................. -- -- -- (1,810)
------- ------- ------- -------
Net income................................... 20,091 19,698 37,442 38,914
Preferred dividend requirements.............. -- (3,920) -- (7,839)
------- ------- ------- -------
Net income allocable to common
shareholders............................... $20,091 $15,778 $37,442 $31,075
======= ======= ======= =======
Basic earnings per common share.............. N/A $ 0.63 N/A $ 1.25
======= =======
Diluted earnings per common share............ N/A $ 0.63 N/A $ 1.23
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
TREASURY PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1999......................... $(39,994) $890,271 $11,655 $861,932
Purchase of IStar Financial shares held in
treasury........................................... (106) -- -- (106)
Dividends paid to IStar Financial.................... -- (13,500) -- (13,500)
Dividends received on IStar Financial shares held in
treasury........................................... -- 2,647 -- 2,647
Net income for the period............................ -- -- 37,442 37,442
-------- -------- ------- --------
Balance at June 30, 2000............................. $(40,100) $879,418 $49,097 $888,415
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2000 1999 2000 1999
---------- ------------- --------- -------------
(PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $20,091 $19,698 $37,442 $38,914
Adjustments to reconcile net income to cash flows provided
by operating activities:
Minority interest......................................... 41 40 82 81
Equity in earnings of unconsolidated joint ventures....... (2,164) (596) (2,620) (1,515)
Depreciation and amortization............................. 8,469 7,160 17,107 14,264
Amortization of discounts/premiums and costs on lending
investments............................................. (355) 489 (836) 974
Distributions from operating joint ventures............... 1,426 1,470 2,378 2,842
Straight-line operating lease income adjustments.......... (2,249) (1,269) (4,531) (2,708)
Gain on sale of net lease assets.......................... (441) -- (974) (1,153)
Extraordinary loss on early extinguishment of debt........ -- -- 317 --
Cumulative effect of a change in accounting principle..... -- -- -- 1,810
Changes in assets and liabilities:
(Increase) decrease in other assets..................... 584 2,824 (1,533) 2,828
Increase (decrease) in accounts payable, accrued
expenses and other liabilities........................ 952 (10,065) (4,575) (9,626)
------- ------- ------- -------
Cash flows provided by operating activities............... 26,354 19,751 42,257 46,711
------- ------- ------- -------
Cash flows from investing activities:
New investment originations/acquisitions.................. (82,125) (966) (82,125) (16,864)
Net proceeds from sale of net lease assets................ 100,974 -- 145,948 14,480
Net investments in and advances to unconsolidated joint
ventures................................................ (11,136) (1,428) (11,804) (2,072)
Capital expenditures on real estate subject to operating
leases.................................................. (1,224) (2,015) (3,082) (2,648)
------- ------- ------- -------
Cash flows provided by (used in) investing activities..... 6,489 (4,409) 48,937 (7,104)
------- ------- ------- -------
Cash flows from financing activities:
Net repayments under revolving credit facility............ (22,900) (12,100) (65,000) (25,000)
Repayments under term loans............................... (234) (215) (8,592) (426)
Common dividends paid..................................... -- (16,201) -- (32,368)
Minority interest......................................... (41) (40) (82) (81)
Preferred dividends paid.................................. -- (3,920) -- (7,839)
Payment for deferred financing costs...................... (25) (9) (25) (78)
Proceeds from issuance of common stock.................... -- 3,602 -- 4,763
(Increase) decrease in restricted cash and investments.... 410 10,408 (565) 9,658
Purchase of IStar Financial shares held in treasury....... -- -- (106) --
Dividends paid to IStar Financial......................... (8,000) -- (13,500) --
Dividends received on IStar Financial shares held in
treasury................................................ 1,359 -- 2,647 --
------- ------- ------- -------
Cash flows used in financing activities................... (29,431) (18,475) (85,223) (51,371)
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents............ 3,412 (3,133) 5,971 (11,764)
Cash and cash equivalents, at beginning of period........... 14,570 10,692 12,011 19,323
------- ------- ------- -------
Cash and cash equivalents, at end of period................. $17,982 $ 7,559 $17,982 $ 7,559
======= ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $10,841 $10,618 $25,706 $23,098
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
ORGANIZATION--TriNet Corporate Realty Trust, Inc., a Maryland Corporation,
(the "Company"), became a wholly-owned subsidiary of IStar Financial Inc., a
Maryland Corporation ("IStar Financial") through a merger on November 4, 1999.
As a wholly-owned subsidiary of IStar Financial, a real estate investment trust
("REIT"), the Company intends to operate as a qualified real estate investment
trust subsidiary ("QRS") under the Internal Revenue Code of 1986, as amended
(the "Code").
BUSINESS--IStar Financial and its subsidiaries, including the Company,
provide structured mortgage, mezzanine and lease financing through IStar
Financial's nationwide origination, acquisition and servicing platform. The
Company provides capital to major corporations and real estate owners nationwide
by structuring purchase/leaseback transactions and acquiring properties subject
to existing long-term net leases to creditworthy tenants. As of June 30, 2000,
the Company's portfolio consisted of 144 properties principally subject to net
leases to approximately 162 tenants, comprising 17.7 million square feet in 24
states. Of the 144 total properties, there are 26 properties, four of which are
under development totaling 366,000 square feet, held in six joint ventures.
MERGER TRANSACTION--On November 3, 1999, the Company's stockholders and the
shareholders of IStar Financial approved the merger of the Company with a
wholly-owned subsidiary of IStar Financial. The shareholders of IStar Financial
also approved: (i) the acquisition by IStar Financial, through a merger and
contribution of interests, of 100% of the ownership interests in its external
advisor; and (ii) the change in form of its organization from a business trust
to a corporation ("Incorporation Merger"). Pursuant to the merger, the Company
merged with and into a subsidiary of IStar Financial, with the Company surviving
as a wholly-owned subsidiary of IStar Financial. In the merger, each issued and
outstanding share of the Company's common stock was converted into 1.15 shares
of common stock of IStar Financial. Each issued and outstanding share of
Series A, Series B and Series C Cumulative Redeemable Preferred Stock of the
Company was converted into a share of Series B, Series C, and Series D
(respectively) Cumulative Redeemable Preferred Share of IStar Financial. The
IStar Financial preferred stock issued to the Company's former preferred
stockholders has substantially the same terms as the Company's preferred stock,
except that the new shares of Series B, C and D preferred stock have additional
voting rights not associated with the Company's preferred stock. The holders of
IStar Financial's Series A Preferred Shares received Series A Preferred Shares
in the Incorporation Merger with the same rights and preferences as existed
prior to the merger. The merger was structured as a tax-free reorganization
under federal tax law.
These transactions were consummated as of November 4, 1999, at which time
IStar Financial's single class of common shares began trading on the New York
Stock Exchange under the symbol "SFI".
NOTE 2--BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements have been
prepared in conformity with the instructions to Form 10-Q and Article 10,
Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles ("GAAP") for complete financial statements. The
Consolidated Financial Statements include the accounts of the Company, its
wholly-owned subsidiary corporations and partnerships, and its majority-owned
and controlled partnership. The Company has an investment in TriNet Management
Operating Company, Inc. ("TMOC"), a taxable noncontrolled subsidiary of the
Company, which is accounted for under the equity method. Further, certain other
investments in partnerships or joint ventures which the company does not control
are also accounted for under the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
6
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
In the opinion of management, the accompanying unaudited Consolidated
Financial Statements contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's consolidated
financial position at June 30, 2000 and December 31, 1999 and the results of its
operations, changes in shareholders' equity and its cash flows for the three-
and six-month periods ended June 30, 2000 and 1999, respectively. Such operating
results are not necessarily indicative of the results that may be expected for
any other interim periods or the entire year.
The merger was accounted for as a purchase of the Company by IStar Financial
and the balance sheet of the Company on November 4, 1999 was adjusted to reflect
the purchase price as required by Accounting Principles Board Opinion 16 ("APB
16"), "Accounting for Business Combinations." The purchase price was
approximately $1.5 billion, which included the assumption of the outstanding
preferred stock, debt and other liabilities of the Company. This purchase price
was allocated to the net assets of the Company based on their relative fair
values and resulted in no allocation to goodwill.
The Company's consolidated results of operations for the three- and
six-month periods ended June 30, 1999 reflect the historical operating results
prior to the merger. The Company's consolidated results of operations for the
three- and six-month periods ended June 30, 2000 reflect the operations of the
Company after the merger and the impact of the required APB 16 purchase
accounting adjustments, as previously described. In general, the recognition of
straight-line lease revenue, depreciation, interest income and interest expense
have been impacted by the new cost basis of the assets and liabilities reflected
on the balance sheet.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOANS AND OTHER LENDING INVESTMENTS, NET--Loans and other lending
investments include a partnership loan and a convertible mortgage (see Note 8).
In general, management considers its investments in this category as
held-to-maturity and, accordingly, reflects such items at amortized historical
cost.
REAL ESTATE SUBJECT TO OPERATING LEASES AND DEPRECIATION--Real estate
subject to operating leases is generally recorded at cost. On November 4, 1999,
the effective date of the merger, adjustments were made to increase the book
value of real estate assets in the aggregate to reflect IStar Financial's
purchase price and to eliminate prior period accumulated depreciation. The
June 30, 2000 balances reflect these adjustments. Certain improvements and
replacements are capitalized when they extend the useful life, increase capacity
or improve the efficiency of the asset. Repairs and maintenance items are
expensed as incurred. The company capitalizes interest costs incurred during the
land development or construction period on qualified development projects
including investments in joint ventures accounted for under the equity method.
Beginning on November 4, 1999, real estate depreciation expense is computed
using the straight-line method of cost recovery with an estimated remaining
useful life of 40 years. Depreciation expense for all periods prior to the
merger was computed using the straight-line method of cost recovery over
estimated useful lives of 31.5 or 40 years. Additionally, depreciation is
computed using the straight-line method of cost recovery over the estimated
useful lives of five years for furniture and equipment, the remaining lease term
for tenant improvements, and the remaining life of the building for building
improvements.
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
7
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all cash held
in banks or invested in money market funds with original maturity terms of less
than 90 days.
REVENUE RECOGNITION--Lease revenue is recognized on the straight-line method
of accounting over the term of the lease. Accordingly, increases in contractual
lease payments are recognized evenly over the lease term. The difference between
recognized lease revenue and contractual lease payments is recorded as deferred
operating lease income receivable on the balance sheet.
On November 4, 1999, the effective date of the merger, certain purchase
accounting adjustments were made to eliminate the deferred operating lease
income receivable. Additionally, for purposes of calculating the average lease
rates over the remaining lives of the leases, the term of all leases in place at
the time of the merger has been adjusted to reflect a new start date beginning
November 4, 1999.
INCOME TAXES--For the period from January 1, 1999 to November 4, 1999, the
Company elected to be taxed as a REIT under the Code. Subsequent to November 4,
1999, the Company will be taxed as a QRS under the Code. As a QRS, the Company
is included in the consolidated tax return of IStar Financial. IStar Financial
elected to be taxed as a REIT for the tax year ended December 31, 1998 under the
Code, and believes its current organization and method of operation will enable
it to maintain its status as a REIT. Accordingly, no provision has been made for
federal income taxes in the accompanying Consolidated Financial Statements.
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 LIBOR based borrowings. The related cost of these
agreements is amortized over their respective lives and such amortization is
recorded as interest expense. 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
counterparties is not deemed to be significant.
CONCENTRATION OF CREDIT RISK--The Company underwrites the credit of
prospective tenants and may require them to provide some form of credit support
such as corporate guarantees or letters of credit. Although the Company's assets
are geographically diverse and its tenants operate in a variety of industries,
to the extent the Company has a significant concentration of lease 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 June 30, 2000, the Company's five
largest tenants collectively accounted for approximately 16.7% of the Company's
annualized lease revenue. The Company's largest single tenant accounted for
approximately 5.2% of the Company's annualized lease revenue.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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.
RECENT ACCOUNTING STANDARDS--In June 1998, the Financial Accounting
Standards Board ("FASB") issued Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). On
June 23, 1999, the FASB voted to defer the effectiveness of SFAS 133 for one
year. SFAS 133 is now effective for fiscal years beginning after June 15, 2000,
but earlier application is
8
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998.
SFAS 133 establishes accounting and reporting standards for derivative financial
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as: (i) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment; (ii) a hedge of the exposure to variable cash
flows of a forecasted transaction; or (iii) in certain circumstances a hedge of
a foreign currency exposure. The Company currently plans to adopt this
pronouncement, as amended by Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities--deferral
of the Effective Date of FASB Statement No. 133" and Statement of Financial
Accounting Standards No. 138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities--an Amendment of FASB Statement No. 133," as required
effective January 1, 2001. The adoption of SFAS 133 is not expected to have a
material impact on the financial position or results of operations of the
Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company will be required to adopt
SAB 101 by the fourth quarter of fiscal 2001. The Company has not completed its
determination of the impact of the adoption of SAB 101 on its consolidated
financial position or results of operations.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified in the
consolidated financial statements and the related notes to conform to the 2000
presentation.
NOTE 4--REAL ESTATE SUBJECT TO OPERATING LEASES
The Company's investments in real estate subject to operating leases, at
cost, were as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Buildings and improvements.......................... $1,093,881 $1,223,015
Land and land improvements.......................... 317,311 251,794
Less accumulated depreciation....................... (18,427) (5,111)
---------- ----------
1,392,765 1,469,698
Investments in unconsolidated joint ventures........ 73,886 60,106
---------- ----------
Real estate subject to operating leases, net........ $1,466,651 $1,529,804
========== ==========
</TABLE>
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES--At June 30,
2000, the Company had investments in six joint ventures: (i) TriNet Sunnyvale
Partners, L.P. ("Sunnyvale"), whose external partners are John D. O'Donnell,
Trustee, John W. Hopkins, and Donald S. Grant; (ii) Corporate Technology Centre
Associates LLC ("CTC I"), whose external member is Corporate Technology Centre
Partners LLC; (iii) Sierra Land Ventures ("Sierra"), whose external joint
venture partner is Sierra-LC Land, Ltd.; (iv) Corporate Technology Centre
Associates II LLC ("CTC II"), whose external joint venture member is Corporate
Technology Centre Partners II LLC; (v) TriNet Milpitas Associates, LLC
("Milpitas"), whose external member is The Prudential Insurance Company of
America; and (vi) TN-CP Venture One ("TN-CP"), whose external partner is Sierra
Office Venture Three, Ltd. These ventures were
9
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--REAL ESTATE SUBJECT TO OPERATING LEASES (CONTINUED)
formed for the purpose of operating, acquiring and, in certain cases, developing
corporate net lease facilities.
At June 30, 2000, the ventures comprised 26 facilities totaling 2.3 million
square feet, 4 of which are under development totaling 366,000 square feet.
Additionally, 17.7 acres of land are held for sale. The Company's combined
investment in these joint ventures at June 30, 2000 was $73.9 million. The joint
ventures' purchase price for the 26 facilities owned at June 30, 2000 was
$336.7 million. The purchase price of the land held for sale was $6.8 million.
In the aggregate, the joint ventures had total assets of $387.4 million, total
liabilities of $301.8 million, and net income of $3.9 million. The Company
accounts for these investments under the equity method because its joint venture
partners have certain participating rights which limit the Company's control.
The Company's investments in and advances to unconsolidated joint ventures, its
percentage ownership interests, its respective income and pro-rata share of
third-party debt as of June 30, 2000 are presented below (in thousands):
<TABLE>
<CAPTION>
PRO RATA
ACCRUED JOINT SHARE OF
UNCONSOLIDATED OWNERSHIP EQUITY NOTES INTEREST TOTAL VENTURE INTEREST TOTAL THIRD-PARTY
JOINT VENTURE % INVESTMENT RECEIVABLE RECEIVABLE INVESTMENT INCOME INCOME INCOME DEBT
--------------------- --------- ---------- ---------- ---------- ---------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating:
Sunnyvale.......... 44.7% $13,547 $ -- $ -- $ 13,547 $ 732 $ -- $ 732 $ 7,385
CTC II............. 50.0% 4,177 21,561 5,070 30,808 (417) 2,669 2,252 8,190
Milpitas........... 50.0% 20,762 -- -- 20,762 1,383 -- 1,383 40,889
TN-CP.............. 50.0% 7,595 -- -- 7,595 263 -- 263 18,982
Development:
Sierra............. 50.0% 5,890 -- -- 5,890 166 -- 166 724
CTC I.............. 50.0% 21,915 -- -- 21,915 493 -- 493 36,550
------- ------- ------- -------- ------ ------ ------- --------
Total.......... $73,886 $21,561 $ 5,070 $100,517 $2,620 $2,669 $ 5,289 $112,720
======= ======= ======= ======== ====== ====== ======= ========
</TABLE>
At June 30, 2000, the Company was the guarantor for 50% of CTC I's $73.1
million construction loan. CTC I has commenced the development of phase II of
the project. As a result, the Company has an additional commitment to fund
further development costs in the amount of approximately $6.0 million. This
amount will vary depending upon the amount of senior third-party financing
obtained.
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 297,728 shares of common stock of IStar Financial in lieu of cash.
Additionally, commencing in February 2002, subject to acceleration under certain
circumstances, partnership units held by certain partners of Milpitas may be
converted into 984,476 shares of common stock of IStar Financial.
10
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DEBT OBLIGATIONS
As of June 30, 2000 and December 31, 1999, the Company had debt obligations
under various arrangements with financial institutions as follows (in
thousands):
<TABLE>
<CAPTION>
MAXIMUM CARRYING VALUE AS OF STATED SCHEDULED
AMOUNT --------------------------------- INTEREST MATURITY
AVAILABLE JUNE 30, 2000 DECEMBER 31, 1999 RATES DATE
--------- ------------- ----------------- ------------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
UNSECURED REVOLVING
CREDIT FACILITY
Line of credit....... $350,000 $121,700 $186,700 LIBOR + 1.55% 05/31/2001
========
UNSECURED NOTES
6.75% Dealer remarketable
securities(1)................. 125,000 125,000 6.75% 03/01/2013
7.30% Notes..................... 100,000 100,000 7.30% 05/15/2001
7.70% Notes..................... 100,000 100,000 7.70% 07/15/2017
7.95% Notes..................... 50,000 50,000 7.95% 05/15/2006
-------- --------
375,000 375,000
Less debt discount.............. (20,017) (21,481)
-------- --------
Total unsecured notes......... 354,983 353,519
SECURED TERM LOANS
Poydras mortgage loan........... 78,610 78,610 LIBOR + 1.38% 06/18/2001
1994 mortgage loan.............. 36,296 44,426 LIBOR + 1.00% 12/01/2004
Other mortgage loans............ 28,393 28,856 6.00%--11.38% (2)
-------- --------
143,299 151,892
Less debt discount.............. (250) (520)
-------- --------
Total secured term loans...... 143,049 151,372
TOTAL DEBT OBLIGATIONS............ $619,732 $691,591
======== ========
</TABLE>
EXPLANATORY NOTES:
------------------------
(1) Subject to mandatory tender on 3/1/2003. Initial coupon of 6.75% applies to
first five year term only.
(2) Other Mortgage Loans mature at various dates through 2010.
The 30-day LIBOR rate as of June 30, 2000 was 6.64%. The Company has entered
into interest rate protection agreements which, 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. 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. In addition, $75.0 million of the
outstanding balance of the Poydras Mortgage Loan is subject to an interest rate
cap which limits LIBOR to 7.50%.
11
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DEBT OBLIGATIONS (CONTINUED)
The following table sets forth the components of interest expense for the
periods presented (in thousands):
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Interest incurred......................................... $25,064 $22,259
Capitalized interest...................................... (338) (1,062)
Amortization of loan costs, interest rate protection
agreements, and loan discounts.......................... 2,057 974
------- -------
$26,783 $22,171
======= =======
</TABLE>
NOTE 6--COMMITMENTS AND CONTINGENCIES
The Company is subject to option agreements with two existing tenants which
could require the Company to construct approximately 299,000 square feet of
additional adjacent space on which the Company would receive additional
operating lease payments under the terms of the option agreements. These option
agreements expire in 2006 and 2012.
NOTE 7--EARNINGS PER SHARE
The following table presents the basic and diluted weighted average shares
outstanding for the three- and six-month periods ended June 30, 1999 (in
thousands). Effective November 4, 1999, the Company became a wholly-owned
subsidiary of IStar Financial. IStar Financial is the sole shareholder of the
Company; therefore, the basic and diluted calculations for the three- and
six-month periods ended June 30, 2000 have been omitted.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Weighted average common shares outstanding for basic
earnings per common share................................. 24,957 24,917
Add effect of shares issuable from assumed conversion of
common stock options...................................... 26 18
Add effect of shares issuable in exchange for land.......... 95 95
Add effect of partnership units as if converted............. 370 305
------ ------
Weighted average common shares outstanding for diluted
earnings per common share................................. 25,448 25,335
====== ======
</TABLE>
For the three- and six-month periods ended June 30, 1999, there were
1,114,960 and 1,180,037 weighted average partnership units outstanding, on an as
converted basis, that were not assumed converted into common shares because they
were antidilutive to earnings per share.
NOTE 8--SUBSEQUENT EVENTS
At June 30, 2000, the Company had a convertible mortgage loan of
approximately $15.9 million on a 109,043 square foot office facility located in
Richardson, Texas. On August 1, 2000, the Company exercised its option to
purchase the facility by funding an additional $210,000.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report and
also with the Company's Annual Report for 1999 filed on Form 10-K. Unless
otherwise defined in this report, or unless the context otherwise requires, the
capitalized words or phrases referred to in this section have the meaning
ascribed to them in such financial statements and the notes thereto.
GENERAL
As a wholly-owned subsidiary of IStar Financial, the Company provides
mezzanine and lease financing through IStar Financial's nationwide origination,
acquisition and servicing platform. The Company provides capital to major
corporations and real estate owners nationwide by structuring purchase/leaseback
transactions and acquiring properties subject to existing long-term leases to
creditworthy office and industrial tenants. As of June 30, 2000, the Company's
portfolio consisted of 144 properties principally subject to net leases to
approximately 162 tenants, comprising 17.7 million square feet in 24 states. Of
the 144 total properties, there are 26 properties, four of which are under
development totaling 366,000 square feet, held in six joint ventures.
On November 3, 1999, the Company's stockholders and the shareholders of
IStar Financial approved the merger of the Company with a wholly-owned
subsidiary of IStar Financial. The shareholders of IStar Financial also
approved: (i) the acquisition by IStar Financial, through a merger and
contribution of interests, of 100% of the ownership interests in its external
advisor; and (ii) the change in form of its organization from a business trust
to a corporation ("Incorporation Merger"). Pursuant to the merger, the Company
merged with and into a subsidiary of IStar Financial, with the Company surviving
as a wholly-owned subsidiary of IStar Financial. In the merger, each issued and
outstanding share of the Company's common stock was converted into 1.15 shares
of common stock of IStar Financial. Each issued and outstanding share of
Series A, Series B and Series C Cumulative Redeemable Preferred Stock of the
Company was converted into a share of Series B, Series C, and Series D
(respectively) Cumulative Redeemable Preferred Share of IStar Financial. The
IStar Financial preferred stock issued to the Company's former preferred
stockholders has substantially the same terms as the Company's preferred stock,
except that the new shares of Series B, C and D preferred stock have additional
voting rights not associated with the Company's preferred stock. The holders of
IStar Financial's Series A Preferred Shares received Series A Preferred Shares
in the Incorporation Merger with the same rights and preferences as existed
prior to the merger. The merger was structured as a tax-free reorganization
under federal tax law.
These transactions were consummated as of November 4, 1999, at which time
IStar Financial's single class of common shares began trading on the New York
Stock Exchange under the symbol "SFI."
The merger was accounted for as a purchase of the Company by IStar Financial
and the balance sheet of the Company on November 4, 1999 was adjusted to reflect
the purchase price as required by Accounting Principles Board Opinion 16 ("APB
16"), "Accounting for Business Combinations." The purchase price was
approximately $1.5 billion, which included the assumption of the outstanding
preferred stock, debt and other liabilities of the Company. This purchase price
was allocated to the net assets of the Company based on their relative fair
values and resulted in no allocation to goodwill.
Effective November 22, 1999, the joint venture partners of W9/TriNet
Poydras, LLC ("Poydras") elected to exercise their right under the partnership
agreement, which was accelerated as a result of the merger, to exchange all of
their membership units for 350,746 shares of Common Stock of IStar Financial and
$767,000 of cash. These membership units were valued at $33.32, after
consideration for the 1.15 exchange ratio, (see above) and converted into shares
of Common Stock of IStar Financial on a one-for-one basis.
13
<PAGE>
The three and six months ended June 30, 1999 represents the historical basis
of the Company's operations prior to the date of the merger. The three and six
months ended June 30, 2000 reflects the operations of the Company after the
merger and includes the consolidated results of Poydras as a wholly-owned
subsidiary. Additionally, the 2000 periods reflect the operating impact of the
purchase accounting adjustments made to the assets and liabilities as previously
described. In general, the recognition of straight-line lease revenue,
depreciation, interest income and interest expense have been impacted by the new
cost basis of the corresponding assets and liabilities on the balance sheet.
The following discussion of the results of operations focuses on comparisons
between the pre-merger period in 1999 and the post-merger period for 2000.
Material fluctuations in operations resulting from the effect of purchase
accounting and the consolidation of Poydras are highlighted.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE THREE-MONTH PERIOD ENDED
JUNE 30, 1999
INTEREST INCOME--Interest income increased to $2.3 million for the three
months ended June 30, 2000 from $2.2 million for the same period in 1999.
Additionally, interest earned on cash balances increased by $164,000 over the
1999 amount. These increases were offset by a decrease of $408,000 in interest
income on the Poydras mezzanine loan made by the Company to a previously
unconsolidated partnership. This inter-entity loan was eliminated in
consolidation subsequent to the merger because the joint venture partner
converted its interest into shares of common stock of IStar Financial.
OPERATING LEASE INCOME--Operating lease income increased to $41.3 million
for the three months ended June 30, 2000 from $39.2 million for the same period
in 1999. Of this increase, $3.8 million was attributable to the consolidation of
Poydras in the Company's financial statements and $1.6 million was attributable
to additional operating lease income from assets owned in both quarters.
Increases in operating lease income from assets owned was partially offset by a
$3.4 million decrease in operating lease income from asset dispositions during
1999 and 2000 and by a reduction from vacancies at certain facilities.
JOINT VENTURE INCOME--For the three months ended June 30, 2000, joint
venture income increased by $1.6 million, from $596,000 in 1999 to $2.2 million
in 2000. The first phase of the CTC I development was completed and four of the
first five buildings were occupied which resulted in an increase in joint
venture income of $545,000. Joint venture income at CTC II, Milpitas and
Sunnyvale increased by $163,000, $216,000 and $152,000, respectively. These
increases resulted from new leases and lease modifications at the underlying
properties. Sierra's joint venture income increased by $321,000 due to the sale
of land in the second quarter. Additionally, TN-CP purchased property in the
second quarter, which contributed an additional $263,000 of joint venture income
for the three- month period ended June 30, 2000.
INTEREST EXPENSE--For the three months ended June 30, 2000, interest expense
increased by $2.0 million, or 17.8%, to $13.0 million from $11.0 million for the
same period in 1999. This increase is primarily due to a greater weighted
average debt balance of $636.1 million for the three months ended June 30, 2000,
compared to $618.3 million for the same period of 1999. The increase in the debt
balance is primarily the result of the consolidation of the $78.6 million
Poydras mortgage which added $1.5 million to interest expense. Additional
non-cash interest expense in the amount of $876,000 was recognized through
amortization of the notes payable discounts recorded as a result of the merger.
Interest expense increased by $518,000 due to the completion of construction
projects which resulted in a reduction of capitalized interest. The weighted
average debt balance under the revolving credit facility decreased from
$167.9 million for the 1999 period to $115.1 million for the 2000 period. The
weighted average interest rate on the revolver increased from 6.10% to 8.26%.
The combination of a lower average revolving credit balance and a higher
weighted average interest rate resulted in an overall decrease of $185,000 in
interest expense. Interest expense was reduced by $254,000 during the second
quarter of 2000 from the write-off of loan fees in connection with the merger.
14
<PAGE>
PROPERTY OPERATING COSTS--For the three months ended June 30, 2000, property
operating costs increased to $3.0 million from $1.4 million for the same period
in 1999. The increase is primarily due to the consolidation of Poydras, which
contributed an additional $1.4 million to property operating costs in 2000
compared to 1999.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased by
$272,000, or 3.8%, for the three months ended June 30, 2000, when compared to
the same period of 1999. Depreciation and amortization were impacted by the
purchase accounting adjustments recorded during the fourth quarter of 1999.
Accordingly, the cost basis of the depreciable assets increased from the 1999
amount, resulting in greater depreciation expense. This increase was partially
offset by reduced depreciation as a result of property dispositions since
June 30, 1999.
GENERAL AND ADMINISTRATIVE--For the three months ended June 30, 2000,
general and administrative expenses decreased by $248,000, or 7.7%, to
$3.0 million compared to $3.2 million for the same period in 1999. This decrease
is primarily a result of a reduction in personnel and related overhead costs in
2000 as compared to 1999.
MINORITY INTEREST--Minority interest expense of $41,000 for the three months
ended June 30, 2000 represents the limited partners' share of net income from
TriNet Property Partners, L.P., a partnership formed in December 1997. The
Company has a 96.5% interest in TriNet Property Partners, L.P. and is the sole
general partner.
GAIN ON SALE OF NET LEASE ASSETS--On April 25, 2000, the Company sold a
251,850 square foot industrial building located in Conroe, Texas for
$5.5 million and recognized a gain of $11,000. On May 22, 2000, the Company sold
a 442,000 square foot industrial property located in North Reading,
Massachusetts for $47.0 million and recognized a gain of $222,000. On June 1,
2000, the Company sold a 420,000 square foot office building located in
Parsippany, New Jersey for $49.8 million and recognized a gain of $207,000.
SIX-MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE SIX-MONTH PERIOD ENDED
JUNE 30, 1999
INTEREST INCOME--Interest income increased to $4.4 million for the six
months ended June 30, 2000 from $3.8 million for the same period in 1999.
Interest income earned on the loan made to the Alcatel property increased by
$307,000 over the prior year as a result of a full six months of income on the
loan, which was originated in March of 1999. Interest earned on cash balances
increased $162,000 over the 1999 amount. The increases are offset by a decrease
of $813,000 in interest income on the Poydras mezzanine loan made by the Company
to a previously unconsolidated partnership. This inter-entity loan was
eliminated in consolidation subsequent to the merger because the joint venture
partner converted its interest into shares of common stock of iStar Financial.
OPERATING LEASE INCOME--Operating lease income increased to $83.4 million
for the six months ended June 30, 2000 from $78.5 million for the same period in
1999. Of this increase, $7.6 million was attributable to the consolidation of
Poydras in the Company's financial statements and $3.3 million was attributable
to additional operating lease income from assets owned in both quarters. These
increases were partially offset by a $5.8 million decrease from asset
dispositions in 1999 and 2000 and by a reduction from vacancies at certain
facilities.
JOINT VENTURE INCOME--For the six months ended June 30, 2000, joint venture
income increased to $2.6 million from $1.5 million for the same period in 1999.
The first phase of the CTC I development was completed and four of the first
five buildings were occupied which resulted in an increase in joint venture
income of $487,000. Joint venture income at Milpitas and Sunnyvale increased by
$195,000 and $191,000, respectively. These increases resulted from new leases
and lease modifications at the underlying properties. Sierra's joint venture
income increased by $162,000 due to the sale of land in the second quarter, and
TN-CP purchased property in the second quarter which contributed an additional
$263,000 of joint venture income. These increases were offset by $184,000 due to
the consolidation of Poydras.
15
<PAGE>
INTEREST EXPENSE--The Company's interest expense increased by $4.6 million,
or 20.8% for the six-month period ended June 30, 2000 over the same period in
the prior year. This increase is primarily due to a greater weighted average
debt balance of $663.8 million for the six months ended June 30, 2000, compared
to $632.7 million for the same period of 1999. This increase is primarily the
result of the consolidation of the $78.6 million Poydras mortgage, which added
$3.0 million to interest expense. The weighted average debt balance under the
revolving credit facility decreased from $173.2 million for the 1999 period to
$142.5 million for the 2000 period. However, the weighted average interest rate
on the revolver increased from 6.16% to 8.18%, resulting in an increase of
$533,000 in interest expense. Additional non-cash interest expense in the amount
of $1,733,000 was recognized through amortization of the net premiums and
discounts recorded during the fourth quarter of 1999 as a result of the merger.
Interest expense increased by $724,000 as a result of completing construction
projects and a reduction in capitalized interest. Interest expense was reduced
by $650,000 during the first six months of 2000 from the write off of loan fees
and interest rate protection agreement costs in connection with the merger.
PROPERTY OPERATING COSTS--For the six months ended June 30, 2000, property
operating costs increased $3.7 million, from $2.6 million in 1999 to
$6.3 million in 2000. The increase is primarily due to the consolidation of
Poydras, which contributed $3.0 million to property operating costs in 2000
compared to 1999.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
approximately $791,000 for the six-month period ended June 30, 2000 over the
same period in the prior year. Depreciation and amortization were impacted by
the purchase accounting adjustments recorded during the fourth quarter of 1999.
Accordingly, the cost basis of the depreciable assets increased from the 1999
amount, resulting in greater depreciation expense. This increase was partially
offset by reduced depreciation as a result of property dispositions since
June 30, 1999.
GENERAL AND ADMINISTRATIVE--For the six months ended June 30, 2000, general
and administrative expenses decreased by $467,000, or 7.4%, to $5.8 million
compared to $6.3 million for the same period in 1999. This decrease is primarily
a result of a reduction in personnel and related overhead costs in 2000 as
compared in 1999.
MINORITY INTEREST--Minority interest expense of $82,000 for the first six
months of 2000 represents the limited partners' share of net income from TriNet
Property Partners, L.P., a partnership formed in December 1997. The Company has
a 96.5% interest in TriNet Property Partners, L.P. and is the sole general
partner.
GAIN ON SALE OF NET LEASE ASSETS--On March 1, 2000, the Company sold a
174,600 square foot industrial building located in Sunnyvale, California for
$13.4 million and recognized a gain of $238,000. On March 2, 2000, the Company
sold a 370,562 square foot office property located in Paoli, Pennsylvania for
$32.6 million and recognized a gain of $295,000. On April 25, 2000, the Company
sold a 251,850 square foot industrial building located in Conroe, Texas for
$5.5 million and recognized a gain of $11,000. On May 22, 2000, the Company sold
a 442,000 square foot industrial property located in North Reading,
Massachusetts for $47.0 million and recognized a gain of $222,000. On June 1,
2000, the Company sold a 420,000 square foot office building located in
Parsippany, New Jersey for $49.8 million and recognized a gain of $207,000.
On March 12, 1999, the Company sold an 82,600 square foot office building
located in Allen, Texas for $11.2 million and recognized a gain of
$1.2 million. The Company also disposed of its last retail property in the first
quarter of 1999 for $3.5 million. The retail property was classified as held for
sale at December 31, 1998, and a provision for asset held for sale of
$5.7 million was previously recognized in 1998.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT--Certain of the proceeds
from an asset disposition were used to partially repay $8.1 million of the 1994
Mortgage Loan. In connection with this partial paydown, the Company incurred
certain prepayment penalties, which resulted in an extraordinary loss of
$317,000 during the first quarter of 2000.
16
<PAGE>
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE--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 requires
all costs of start-up activities, including organization costs, to be charged to
operations as incurred for fiscal years beginning after December 15, 1998. The
initial application of SOP 98-5 requires that prior years' unamortized start-up
costs be charged to income as a cumulative effect of a change in accounting
principle. Accordingly, the Company reported a $1.8 million charge to net income
during the first quarter of 1999 as a cumulative effect of a change in
accounting principle.
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, in future SEC filings or in press releases or
other written or oral communications, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "project" or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
cautions that such forward looking statements speak only as of the date made and
that various factors including regional and national economic conditions,
changes in levels of market interest rates, credit and other risks of lending
and investment activities, and competitive and regulatory factors could affect
the Company's financial performance and could cause actual results for future
periods to differ materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements except as required by law.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM-8-K
a. EXHIBITS
27.1 Financial Data Schedule.
b. REPORTS ON FORM 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C>
TriNet Corporate Realty Trust, Inc.
----------------------------------------
REGISTRANT
Date: August 14, 2000
/s/ Jay Sugarman
----------------------------------------
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Date: August 14, 2000
/s/ Spencer B. Haber
----------------------------------------
EXECUTIVE VICE PRESIDENT--FINANCE,
CHIEF FINANCIAL OFFICER, DIRECTOR AND SECRETARY
</TABLE>
19
