<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
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<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
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 1-11918
------------------------
TRINET CORPORATE REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 94-3175659
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1114 AVENUE OF THE AMERICAS, 27TH FLOOR 10036
NEW YORK, NY (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 (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. Yes /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $-0-.
As of March 15, 2000, there were 100 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I (1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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<PAGE>
TABLE OF CONTENTS
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<CAPTION>
PAGE
--------
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PART I
Item 1. Business............................................ 3
Item 2. Properties.......................................... 4
Item 3. Legal Proceedings................................... 8
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 8
PART II
Item 5. Market for Registrant's Equity and Related Share
Matters................................................... 9
Item 6. Selected Financial Data............................. 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk............................................... 21
Item 8. Financial Statements and Supplemental Data.......... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 57
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 57
Item 11. Executive Compensation............................. 57
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 57
Item 13. Certain Relationships and Related Transactions..... 57
PART IV
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K....................................... 58
SIGNATURES.................................................. 60
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
TriNet Corporate Realty Trust, Inc. (the "Company") is a wholly-owned
subsidiary of Starwood Financial Inc. (together with its predecessors, "Starwood
Financial"), a New York Stock Exchange listed commercial finance company (NYSE:
SFI), which specializes in providing private and corporate real estate owners
with structured mortgage, mezzanine and lease financing. 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
December 31, 1999, the Company's portfolio consisted of 148 facilities, which
comprised 18.5 million square feet in 25 states and were 95.3% leased. The five
largest tenants collectively accounted for approximately 16.8% of the Company's
annualized lease revenue, and the Company's largest single tenant accounted for
approximately 3.7% of the Company's annualized lease revenue.
On November 4, 1999, Starwood Financial, a Maryland corporation, acquired
all of the Company's outstanding capital stock through a merger of the Company
with and into a wholly-owned subsidiary of Starwood Financial, with the Company
surviving as a wholly-owned subsidiary of Starwood Financial. Pursuant to the
merger, each issued and outstanding share of common stock of the Company was
converted into 1.15 shares of common stock of Starwood 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 Stock of Starwood
Financial. The Starwood Financial preferred stock issued to the Company's former
preferred stockholders have 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 merger was structured as a tax-free reorganization under federal tax law.
On November 4, 1999, shares of Starwood Financial's single class of common
stock began trading on the New York Stock Exchange under the symbol "SFI".
Prior to the merger, the Company elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). Starwood Financial has elected to be taxed as a REIT under the
Code and the Company is presently treated as a qualified REIT subsidiary.
The Company is incorporated under the laws of the State of Maryland and
commenced operations on June 3, 1993. The Company's principal executive and
administrative offices are located at 1114 Avenue of the Americas, 27(th) Floor,
New York, NY 10036. Its telephone number, general facsimile number and e-mail
address are (212) 930-9400, (212) 930-9494 and starwoodfinancial.com,
respectively. Starwood Financial maintains super-regional corporate offices in
San Francisco, California; Hartford, Connecticut; and Atlanta, Georgia; as well
as regional offices in Dallas, Texas; Denver, Colorado and New Orleans,
Louisiana.
The Company is engaged in a competitive business. In originating and
acquiring assets, the Company competes with public and private companies,
including finance companies, mortgage banks, pension funds, savings and loan
associations, insurance companies, institutional investors, investment banking
firms and other lenders and industry participants, as well as individual
investors. Existing industry participants and potential new entrants compete
with the Company for the available supply of investments suitable for
origination or acquisition, as well as for debt and equity capital. Certain of
the Company's competitors are larger than the Company, have longer operating
histories, may have access to greater capital and other resources, may have
management personnel with more experience than the officers of the Company, and
may have advantages over the Company in conducting certain businesses and
providing certain services.
3
<PAGE>
INVESTMENTS AND DISPOSITIONS
INVESTMENTS--During 1999, the Company acquired one property for a purchase
price of approximately $5.4 million, and exercised an option to purchase a
building for $28.7 million by funding an additional $0.9 million on an existing
convertible mortgage loan, resulting in a net increase in its portfolio of
approximately 209,570 square feet.
DISPOSITIONS--From January 1, 1999 through March 15, 2000, the Company sold
eight properties for net proceeds of approximately $103.9 million. The remaining
weighted average lease term was 5.1 years on these properties.
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER
PROPERTY OF
PROPERTY NAME/STREET ADDRESS CITY/STATE TYPE PROPERTIES SQUARE FEET MAJOR TENANTS
- ---------------------------- -------------------- ---------- ---------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
MID-ATLANTIC
7700-7720 Hubble Drive Lanham, MD Office 1 120,000 Computer Sciences
Corporation
Gatehall II Parsippany, NJ Office 1 420,000 Newcourt Financial USA
Inc.
2476 Swedesford Road(1) Paoli, PA Office 2 370,562 Unisys Corp.
7621 Energy Parkway Baltimore, MD Industrial 1 222,636 Sunbelt Beverage
Corporation
24-20 49th Street Astoria, NY Industrial 1 24,939 Caterair International
45-10 19th Avenue Astoria, NY Industrial 1 48,673 Caterair International
8401 Escort Street Philadelphia, PA Industrial 1 31,218 Caterair International
---------- ----------
8 1,238,028
MID-WEST
2611 Corporate W. Drive Lisle, IL Office 1 236,000 Unisys Central
Training Center
440 North Fairway Drive Vernon Hills, IL Office 1 102,208 PNC Mortgage
1275 Red Fox Road Arden Hills, MN Office 1 74,511 Land O Lakes Inc
3115 Centre Point Drive Roseville, MN Office 1 41,574 Northern States Power
Company
401 W.Michigan Street Milwaukee, WI Office 1 229,888 Blue Cross Blue Shield
United
4000 South Racine Avenue Chicago, IL Industrial 1 140,000 The Standard Register
Company
450 Barclay Boulevard Lincolnshire, IL Industrial 1 161,840 Volkswagen of America,
Inc.
2201 E. Loew Rd. Marion, IN Industrial 1 249,920 Dunham's Athleisure
3900 William Richardson Drive South Bend, IN Industrial 1 225,000 Tech Data Corporation
5015 S. Water Circle Wichita, KS Industrial 1 105,600 Case Swayne Co Inc
221 W. 79th Street Bloomington, MN Industrial 1 22,536 Caterair International
3501 E. Terra Drive O'Fallon, MO Industrial 1 402,192 Lever Brothers Co.
4150 Lockbourne Ind. Pkwy Columbus, OH Industrial 1 398,471 Sears Logistics
Services
2875 Needmore Road Dayton, OH Industrial 1 345,325 REX Stores Corporation
---------- ----------
14 2,735,065
NEW ENGLAND
100 Old River Road Andover, MA Office 1 122,000 Mast Industries, Inc.
Six Riverside Drive Andover, MA Office 1 77,048 MultiLink,
Incorporated
355 Wood Road Braintree, MA Office 1 43,708 Haemonetics
Corporation
60 Columbian Street Braintree, MA Office 1 108,085 GTECH Holdings Co.;
Massachusetts Lottery
30 Dan Road Canton, MA Office 1 80,000 Parsons Infrastructure
& Techn
85 Dan Road Canton, MA Office 1 78,026 Stream International
Services
Concord Farms Three Concord, MA Office 1 68,077 Welch Foods, Inc.
Concord Farms Four Concord, MA Office 1 62,062 Sybase, Inc.
Concord Farms Five Concord, MA Office 1 44,600 Sybase, Inc.
Concord Farms Six Concord, MA Office 1 60,250 Sybase, Inc.
300 Foxborough Blvd. Foxborough, MA Office 1 45,000 Pezrow New England
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER
PROPERTY OF
PROPERTY NAME/STREET ADDRESS CITY/STATE TYPE PROPERTIES SQUARE FEET MAJOR TENANTS
- ---------------------------- -------------------- ---------- ---------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
NEW ENGLAND (CONT'D)
105 Forbes Blvd. Mansfield, MA Office 1 15,625 Chrysler Motors
Corporation
RiverPark 400 North Reading, MA Office 1 150,000 Lotus Development
Corporation
100 Longwater Circle Norwell, MA Office 1 53,000 Serono Laboratories,
Inc.
101 Philip Drive Norwell, MA Office 1 32,500 Kluwer Boston
3000 Longwater Drive Norwell, MA Office 1 35,500 Mentor O & O, Inc.
700 Longwater Drive Norwell, MA Office 1 72,921 Guardian Life
Insurance Co.; AMS;
Serono Laboratories;
Massachusetts Lottery
One Longwater Circle Norwell, MA Office 1 27,100 GIGA Information Group
1100 Crown Colony Drive Quincy, MA Office 1 132,160 Arbella Capital
Corporation
1022 Hingham Street Rockland, MA Office 1 125,366 bioMerieux Vitek,
Inc.; Blue Cross Blue
Shield of MA
300 Friberg Parkway Westborough, MA Office 1 88,000 Bay State Gas Company
65 Dan Road Canton, MA Industrial 1 67,835 Avitar; Electro
Scientific Industries
260 Kenneth W. Welch Drive Lakeville, MA Industrial 1 104,723 Shaw's Supermarkets,
Inc.
RiverPark 200 North Reading, MA Industrial 1 92,000 Central National-
Gottesman
RiverPark 300 North Reading, MA Industrial 1 200,000 Lotus Development
Corporation
76 Pacella Park Drive Randolph, MA Industrial 1 47,586 Serono Laboratories,
Inc.
---------- ----------
26 2,033,172
PACIFIC
Warner Crossing 1120 Tempe, AZ Office 1 51,049 Wells Fargo Bank, N.A.
Warner Crossing 8320 Tempe, AZ Office 1 104,836 Vital Processing
Services, LLC
Warner Crossing/1130/1140/8440 Tempe, AZ Office 3 225,827 MaxServ, Inc.;
AlliedSignal, Inc.
Canyon Corporate Center 5515 Anaheim, CA Office 1 156,135 LA Cellular Telephone
Company
Canyon Corporate Center 5601 Anaheim, CA Office 1 100,049 First American RE
Solutions
5200 Sheila Street Commerce, CA Office 1 108,000 Certified Grocers of
CA
18880 Homestead Road Cupertino, CA Office 1 101,373 Rational Software
Corporation
6300 Dumbarton Circle Fremont, CA Office 1 44,000 Acosta Sales and
Marketing Co
475 Sycamore Dr.(2)(3) Milpitas, CA Office 1 51,514 Vacant
510 Cottonwood Dr.(2) Milpitas, CA Office 1 180,086 Maxtor Corporation
Charleston Place 1545 Mountain View, CA Office 1 55,800 Sun Microsystems, Inc.
Charleston Place 1565 & 1585 Mountain View, CA Office 2 131,580 US Robotics Access
Corp./3Com
2000 & 2100 Corporate Ctr. Dr. Newbury Park, CA Office 2 217,613 Wellpoint Health
Networks, Inc
1661 Page Mill Road Palo Alto, CA Office 1 62,155 Andersen Consulting
3701 Doolittle Drive Redondo Beach, CA Office 1 124,400 TRW Space &
Electronics Group
161 Inverness Drive West Englewood, CO Office 1 239,749 ICG Holdings, Inc
6162 S. Willow Drive Englewood, CO Office 1 158,146 Lucent Technologies
Inc
6901 S. Havana Street Englewood, CO Office 1 137,900 Galileo International
Partners
12110 North Pecos Street Westminster, CO Office 1 55,310 Frontier Corporation
1499 West 121st Street Westminster, CO Office 1 62,100 Frontier Corporation
Decker Lake Lane Center Salt Lake City, UT Office 4 173,107 First Health
Strategies Inc
3002 North 27th Avenue Phoenix, AZ Industrial 1 82,935 Universal Technical
Institute
Canyon Corporate Center 5605 Anaheim, CA Industrial 1 52,960 Programmed Composites,
Inc.
50 Adrian Court Burlingame, CA Industrial 1 35,375 Caterair International
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NUMBER
PROPERTY OF
PROPERTY NAME/STREET ADDRESS CITY/STATE TYPE PROPERTIES SQUARE FEET MAJOR TENANTS
- ---------------------------- -------------------- ---------- ---------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
PACIFIC (CONT'D)
500 South Seventh Avenue City of Industry, CA Industrial 1 286,822 Volkswagen of America,
Inc.
46702 Bayside Parkway Fremont, CA Industrial 1 44,941 Cirrus Logic
46831 Lakeview Boulevard Fremont, CA Industrial 1 76,641 Cirrus Logic
2652 E. Long Beach Avenue East Los Angeles, CA Industrial 1 272,236 Ralph s Grocery
Company
370 Adrian Road Millbrae, CA Industrial 1 20,019 Caterair International
1210 California Circle Milpitas, CA Industrial 1 120,576 LAM Research
Corporation
1504 McCarthy Drive(2) Milpitas, CA Industrial 1 34,954 Kulicke & Soffa, Inc.
1530 McCarthy Drive(2) Milpitas, CA Industrial 1 36,669 Harris Corporation
1565 Barber Lane Milpitas, CA Industrial 1 102,240 Polycom, Inc.
1804 McCarthy Blvd.(2) Milpitas, CA Industrial 1 46,416 SenSym, Inc.
1855 Barber Lane(2) Milpitas, CA Industrial 1 81,500 LSI Logic Corporation
345 Los Coches St.(2) Milpitas, CA Industrial 1 50,100 Read-Rite Corporation
501 Sycamore Dr.(2) Milpitas, CA Industrial 1 71,600 Quantum Corporation
525 Sycamore Dr.(2) Milpitas, CA Industrial 1 93,324 Quantum Corporation
560 Cottonwood Dr.(2) Milpitas, CA Industrial 1 67,968 Atari Games
Corporation
715--755 Sycamore Dr.(2) Milpitas, CA Industrial 2 197,608 Quantum Corporation
10054 Old Grove Road San Diego, CA Industrial 1 90,500 Koch Membrane Systems
475 Holger Way(2) San Jose, CA Industrial 1 19,550 California Dept. of
Transportation
5863 Rue Ferrari Drive San Jose, CA Industrial 1 286,330 Western Digital Corp.;
Xerox Corp.
Technology Center 110(2) San Jose, CA Industrial 1 40,320 Actived Touch, Inc.
Technology Center 130(2) San Jose, CA Industrial 1 60,480 Digital Microwave
Technology Center 150(2) San Jose, CA Industrial 1 92,448 Adept Technology
Technology Center 170(2) San Jose, CA Industrial 1 60,480 Digital Microwave
Technology Center 180(2) San Jose, CA Industrial 1 55,201 Digital Microwave; San
Jose State University
1260 Crossman Avenue(1) Sunnyvale, CA Industrial 1 174,600 Lockheed Martin
Aerospace
Sunnyvale Research Center(2) Sunnyvale, CA Industrial 4 215,481 FutureTel, Inc.;
Mitsubishi Electronics
America; Kanematsu
USA, Inc.
2625 Shadelands Drive Walnut Creek, CA Industrial 1 60,000 Teradyne, Inc.
2637 Shadelands Drive Walnut Creek, CA Industrial 1 85,000 Fresenius USA, Inc.
Capstone Building Aurora, CO Industrial 1 119,200 Arrow Electronics Inc
1085 Bible Way Reno, NV Industrial 1 20,066 Caterair International
18850--28th Avenue South Seattle, WA Industrial 1 30,750 Caterair International
---------- ----------
66 5,726,019
SOUTH ATLANTIC
Oakgrove Plaza 7575 Jacksonville, FL Office 1 135,000 Unison Industries
Oakgrove Plaza 7585 Jacksonville, FL Office 1 49,344 Vacant
Oakgrove Plaza 7595 Jacksonville, FL Office 1 46,002 Universal Card
Services
Windward Forest I Alpharetta, GA Office 1 63,783 SOFSYS, Inc.; Conseco
Finance Corp.; GTE
Communications
Corporation; EMC
Engineers, Inc.
RiverEdge Summit Atlanta, GA Office 1 444,362 Siemens Communications
Systems; International
Business Machine;
A.D.A.M. Software,
Inc.; The Amend Group
Interests, Inc
3120 Breckinridge Blvd. Duluth, GA Office 1 190,000 Primerica Life
Insurance Co
11493 Sunset Hills Road Reston, VA Office 1 177,415 The Mitre Corporation
11650 Central Parkway Jacksonville, FL Industrial 1 180,054 Volkswagen of America,
Inc.
2800 Collingswood Drive Orlando, FL Industrial 1 49,148 Caterair International
3500 N.W. 24th Street Miami, FL Industrial 1 108,534 Caterair International
3630 N.W. 25th Street Miami, FL Industrial 1 55,610 Caterair International
4101 N.W. 25th Street Miami, FL Industrial 1 46,749 Caterair International
Gateway Lakes II--1527 St. Petersburg, FL Industrial 1 87,500 Modern Graphics Arts
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER
PROPERTY OF
PROPERTY NAME/STREET ADDRESS CITY/STATE TYPE PROPERTIES SQUARE FEET MAJOR TENANTS
- ---------------------------- -------------------- ---------- ---------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
SOUTH ATLANTIC (CONT'D)
Gateway Lakes II--1551 St. Petersburg, FL Industrial 1 91,500 Jabil Circuit, Inc.
5675 North Blackstock Road Spartanburg, SC Industrial 1 563,210 adidas AMERICA, Inc.
---------- ----------
15 2,288,211
SOUTH CENTRAL
Poydras Plaza/Parking Garage New Orleans, LA Parking 1 n/a Allright New Orleans,
Garage Inc.
Poydras Plaza/Entergy Building New Orleans, LA Office 1 522,883 Entergy Services, Inc.
Poydras Plaza/Mobil Building New Orleans, LA Office 1 422,582 Entergy Services,
Inc.; Mobil Oil
Exploration; Frontier
Communication Service
NonConnah Corporate Center Memphis, TN Office 3 241,927 Federal Express
Corporation
17201 Waterview Parkway Dallas, TX Office 1 61,750 ADS Alliance Data
Systems Inc
Sierra I at Las Colinas Irving, TX Office 1 164,970 GTE Communications
Corporation
1321 Greenway Drive Irving, TX Office 1 88,066 Microsoft Corporation
2901 Kinwest Parkway Irving, TX Office 1 174,421 Nissan Motor
Acceptance Corp
6000 Connection Drive Irving, TX Office 1 293,890 Nokia Inc
2021 Lakeside Blvd. Richardson, TX Office 1 60,000 Northern Telecom, Inc.
3000 Waterview Parkway Richardson, TX Office 1 300,820 Hewlett Packard
Company
8400 Winchester Road Memphis, TN Industrial 1 812,697 Nike Distribution
Warehouse
105 W. Bethany Drive Allen, TX Industrial 1 261,700 Pinacor, Inc.
100 Donwick Drive Conroe, TX Industrial 1 251,850 Goodman Manufacturing
Company
500 Airline Drive Coppell, TX Industrial 1 510,654 Vacant
13800 Diplomat Drive Farmers Branch, TX Industrial 1 222,267 International Business
Machine
Cardinal Commerce Center Richardson, TX Industrial 1 121,068 Northern Telecom, Inc.
---------- ----------
19 4,511,545
---------- ----------
148 18,532,040
========== ==========
</TABLE>
EXPLANATORY NOTES:
- ------------------------------
(1) Property was disposed during March 2000.
(2) The Company has a joint venture interest in the property.
(3) Leased to EmpowerTel Networks, Inc. commencing April 1, 2000.
7
<PAGE>
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,
1999:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF ANNUALIZED ANNUAL RENTS
LEASES OPERATING LEASE REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING PAYMENTS(1) EXPIRING LEASES
- ------------------------ --------- --------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
2000.................................. 16 $ 7,477 4.24%
2001.................................. 23 18,774 10.65%
2002.................................. 27 21,861 12.40%
2003.................................. 22 23,149 13.13%
2004.................................. 29 24,669 13.99%
2005.................................. 11 9,520 5.40%
2006.................................. 19 22,840 12.95%
2007.................................. 8 12,149 6.89%
2008.................................. 9 8,544 4.85%
2009.................................. 8 8,896 5.04%
2010 and thereafter................... 21 18,451 10.46%
--- --------- ------
Total............................... 193 $ 176,330 100.00%
=== ========= ======
Weighted average maturity........... 5.7 years
=========
</TABLE>
EXPLANATORY NOTES:
- ------------------------------
(1) Reflects annualized monthly base lease rates in effect on December 31, 1999.
PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's properties
as of December 31, 1999:
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF TOTAL
NUMBER OPERATING ANNUAL RENTS NET PERCENTAGE OF
OF LEASE REPRESENTED BY RENTABLE NET RENTABLE
TYPE PROPERTIES PAYMENTS PROPERTY TYPE SQUARE FEET SQUARE FEET
- ---- ---------- -------------- ---------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Office........................... 77 $118,180 67.0% 9,093,715 49.1%
Industrial....................... 70 56,699 32.2% 9,438,325 50.9%
Parking Garage................... 1 1,451 0.8% -- --
--- -------- ----- ---------- -----
Total.......................... 148 $176,330 100.0% 18,532,040 100.0%
=== ======== ===== ========== =====
</TABLE>
EXPLANATORY NOTES:
- ------------------------------
(1) Reflects annualized monthly base lease rates in effect on December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED SHARE MATTERS
MARKET INFORMATION
Prior to the merger, the Company's Common Stock was 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>
1998
March 31.......................................... $40 1/2 $37 1/8 $0.64
June 30........................................... $38 3/8 $32 11/16 $0.64
September 30...................................... $36 1/2 $28 5/8 $0.64
December 31....................................... $32 7/8 $25 3/4 $0.65
1999
March 31.......................................... $27 7/16 $24 1/2 $0.65
June 30........................................... $29 3/8 $25 $0.65
September 30...................................... $27 1/2 $23 1/2 $0.65
December 31(1).................................... $24 $20 13/16 (2)
</TABLE>
EXPLANATORY NOTES:
- ------------------------------
(1) In connection with the merger, the Company's common stock was cancelled and
delisted on the NYSE as of the close of business on November 3, 1999, and
there is currently no public trading of the Company's Common Stock.
(2) For the quarter ended December 31, 1999, a dividend of $0.57 was declared by
Starwood Financial payable to all shareholders of Starwood Financial. This
dividend was equivalent to a $0.65 dividend for all shareholders of the
Company who received shares of Starwood Financial common stock after
consideration of the 1.15 exchange ratio.
HOLDERS
Effective on the date of the merger, Starwood Financial is the shareholder
of record for all 100 shares of the Company's issued and outstanding common
stock.
DIVIDENDS
Prior to the merger, 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, 1999, the Company declared dividends of $1.7578 per
share on its Series A Preferred Stock, $1.725 per share on its Series B
Preferred Stock and $1.50 per share on its Series C Preferred Stock. In the
merger, 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 Stock of Starwood Financial.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I(2)(a) of Form 10-K.
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
9
<PAGE>
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 facilities 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.
GENERAL
As a wholly-owned subsidiary of Starwood Financial, the Company specializes
in providing investment 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. The Company uses its real estate and credit underwriting
expertise to structure investments that seek to generate consistent, predictable
cash flow growth and residual value. As of December 31, 1999, the Company's
portfolio consisted of 148 properties principally subject to net leases to more
than 160 tenants, comprising 18.5 million square feet in 25 states. Of the 148
total properties, there are 22 properties held in five joint venture
partnerships. In addition, there are four properties under development in one of
the joint venture partnerships.
On November 3, 1999, consistent with previously announced terms, the
Company's stockholders and the shareholders of Starwood Financial approved the
merger of the Company with a wholly-owned subsidiary of Starwood Financial. The
shareholders of Starwood Financial also approved: (i) the acquisition by
Starwood 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 Starwood Financial, with the Company surviving as a wholly-owned subsidiary
of Starwood 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
Starwood 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 Stock of Starwood Financial. The Starwood 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 Starwood Financial's Series A
Preferred Stock received Series A Preferred Stock 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
Starwood Financial's single class of common shares began trading on the New York
Stock Exchange under the symbol "SFI".
10
<PAGE>
The merger was accounted for as a purchase of the Company by Starwood
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 assets and liabilities of the Company based on their
relative fair values and resulted in no allocation to goodwill.
The schedule below sets forth the Company's consolidated results of
operations. The period from January 1, 1999 to November 3, 1999 represents the
Company's operations prior to the date of the merger on an historical basis. The
period from November 4, 1999 to December 31, 1999 reflects the operations of the
Company after the merger and therefore reflects the operating impact of 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 has been impacted by the new
cost basis of the corresponding assets and liabilities on the balance sheet.
The combined 1999 pre- and post-merger periods has been compared to the year
ended December 31, 1998 for purposes of management's discussion and analysis of
the results of operations. Any references, below, to the year ended 1999 shall
refer to the combined periods. Material fluctuations in operations resulting
from the effect of purchase accounting have been highlighted.
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
NOVEMBER 4, 1999 TO JANUARY 1, 1999 TO TOTAL YEAR ENDED
DECEMBER 31, 1999 NOVEMBER 3, 1999 1999 DECEMBER 31, 1998
------------------- ------------------ -------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Interest income...................... $ 1,360 $ 6,731 $ 8,091 $ 3,176
Operating lease income............... 26,444 130,153 156,597 153,155
Joint venture income................. 373 2,330 2,703 2,299
Other income......................... 715 8,281 8,996 2,572
------- ------- ------- -------
Total revenues..................... 28,892 147,495 176,387 161,202
COSTS AND EXPENSES:
Interest expense..................... 8,462 37,184 45,646 40,535
Property operating costs............. 2,246 5,590 7,836 5,853
General and administrative........... 1,608 10,364 11,972 12,720
Depreciation and amortization........ 4,880 24,069 28,949 28,035
Provision for asset impairment....... -- 3,400 3,400 --
Special charge....................... -- -- -- 2,990
------- ------- ------- -------
Income before minority interest,
transaction costs, gain/(loss) on
sales of real estate, extraordinary
items and cumulative effect........ 11,696 66,888 78,584 71,069
Minority interest.................... (41) (123) (164) (128)
Merger related transaction costs..... -- (11,197) (11,197) --
Provision for asset held for sale.... -- -- -- (5,662)
Gain/(loss) on sales of real
estate............................. -- 2,471 2,471 (1,436)
------- ------- ------- -------
Income before extraordinary items and
cumulative effect.................. 11,655 58,039 69,694 63,843
Extraordinary charge from early
extinguishment of debt............. -- (665) (665) (1,272)
Cumulative effect of a change in
accounting principle............... -- (1,810) (1,810) --
------- ------- ------- -------
Net income......................... 11,655 55,564 67,219 62,571
Preferred dividend requirement..... -- (11,758) (11,758) (15,678)
------- ------- ------- -------
Earnings available to common
shares........................... $11,655 $43,806 $55,461 $46,893
======= ======= ======= =======
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
COMBINED PRE- AND POST-MERGER PERIODS FOR 1999 COMPARED TO YEAR ENDED
DECEMBER 31, 1998
INTEREST INCOME--Interest income increased by $4.9 million from
$3.2 million in 1998 to $8.1 million in 1999. Interest income includes
$5.0 million of interest income earned on the mezzanine loan investments made to
the Corporate Technology Centre Associates II LLC ("CTC II") and W9/TriNet
Poydras, LLC ("Poydras") joint ventures. This represents a $2.3 million and
$200,000 increase for CTC II and Poydras, respectively, compared to 1998 due to
the loans being in place for the full 12-month period. Additionally, interest
income increased by $1.7 million from interest earned on the March 1999
origination of a convertible mortgage loan to Alcatel, in the amount of
$14.3 million, after appropriate purchase accounting adjustments, $211,000 of
interest earned on the Company's December 1998 investment in G. Accion, a
Mexican real estate company, and $464,000 of interest earned on cash balances
during 1999.
Effective November 22, 1999, the joint venture partners in Poydras, the
Whitehall Group, elected to exercise its right under the partnership agreement,
which was accelerated as a result of the Starwood Financial merger, to exchange
all of its membership units for 350,746 common shares of Starwood Financial,
together with a $767,000 distribution of available cash. The Company now owns
100% of Poydras and, has consolidated its investment, including eliminating its
mezzanine loan investment, in the financial statements. Interest income has not
been recognized after November 4, 1999 relating to this mezzanine loan.
Also on November 4, 1999, the effective date of the merger, the required APB
16 purchase accounting adjustments were made to the Company's notes receivable,
including the mezzanine loan to the CTC II joint venture, to reflect the present
value of amounts to be received based on market interest rates for similar
loans. This adjustment resulted in a discount which will be amortized into
interest income over the remaining term of the loan, which matures in
August 2003. For the period November 4, 1999 to December 31, 1999, $283,000 was
amortized into interest income relating to the discount.
OPERATING LEASE INCOME--In 1999, operating lease income increased
$3.4 million or 2.2%, to $156.6 million from $153.2 million, for the same period
in 1998. An increase of $11.0 million was generated by the full 12 month
operations of 17 properties acquired in 1998 and the partial year operation from
one property acquired in 1999. Income from properties owned for 12 months in
1998 and 1999 contributed a $580,000 increase to 1999 operating lease income.
Additional operating lease income of $1.1 million was recognized during 1999 in
connection with an agreement with AT&T Capital/Newcourt Credit Group. This
agreement permits the tenant to remain in the Gatehall Corporate Center office
property in Parsippany, N.J. for approximately seven months following the
July 2000 expiration of its current lease.
Operating lease income increased $2.2 million as a result of the
consolidation of the operations of the Company's Poydras joint venture beginning
November 4, 1999, as described above.
As a result of the merger, and the required purchase accounting adjustments,
the terms of all of the underlying operating leases were reset with a starting
date of November 4, 1999. This resulted in an increase in straight-line lease
revenue of approximately $340,000.
The increases in lease revenue are offset by a $9.6 million decrease from
nine properties sold during 1998 and six properties sold during 1999. The
bankruptcy of one of the Company's tenants, MJ Designs, and the termination of
the Company's lease to Hitachi PC Corporation resulted in a decrease to
operating lease income of $2.2 million. The Company earned a lease termination
fee from Hitachi and collected a settlement from MJ Designs (See "Other Income"
below).
JOINT VENTURE INCOME--Joint venture income from equity joint ventures
increased $400,000 to $2.7 million in 1999, compared to $2.3 million for 1998.
Of this increase, approximately $150,000 is attributable to an increase in
revenues from the Sunnyvale joint venture formed in June 1996. The Milpitas
joint venture, formed in the second half of 1998, increased joint venture income
by $1.7 million during 1999 as compared
12
<PAGE>
to the same period of 1998. Additionally, the Company recognized $607,000 of
joint venture income from TMOC, a taxable decontrolled subsidiary of the
Company. The $607,000 of joint venture income is primarily attributable to a
one-time fee earned in connection with amending the partnership agreement with
TMOC's partner, G. Accion, a Mexican real estate company.
These increases were offset by a decrease in joint venture income of
approximately $1.2 million from Poydras and a $983,000 loss from the CTC II
joint venture, which was not acquired until the third quarter of 1998. The
decrease in Poydras joint venture income results from interest expense on the
debt of the venture which was outstanding for a full ten-month period during
1999, compared to one quarter during 1998. The Company earns interest income,
advisory fees and management fees from certain joint ventures in addition to its
income from equity investments in joint ventures (see "Interest Income" and
"Other Income").
OTHER INCOME--Other income for the year ended December 31, 1999 totaled
$9.0 million. This consists primarily of a $6.8 million lease termination fee
from Hitachi PC Corporation, the sole tenant of a property in Milpitas,
California, a $250,000 non-compete fee on a property sold in 1998, a $328,000
credit enhancement fee, $512,000 of dividend income and a $56,000 letter of
credit fee.
Other income also includes $910,000 received in connection with the default
and bankruptcy of one of the Company's tenants, MJ Designs. The Company applied
the proceeds from a $3.0 million letter of credit held as collateral, primarily
to uncollected lease revenue and operating expenses for the period of
January 1, 1999 through June 18, 1999 when the tenant terminated occupancy. Of
this $3.0 million, $385,000 represents the remaining excess collateral after the
payment of lease revenue and operating expenses for the period. Additionally,
the Company received $525,000 in December 1999 granted by the bankruptcy court
representing other damages arising from the tenant's default. The Company is
currently marketing the property for sale.
Other income of $2.6 million for the year ended December 31, 1998, consisted
primarily of $1.4 million in fees from the Company's advisory services provided
in connection with the formation of the Poydras, CTC I and Milpitas joint
ventures and one build-to-suit property. 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 of
dividend income and $218,000 of net proceeds for the assignment of a purchase
option on a build-to-suit property.
INTEREST EXPENSE--Interest expense increased by $5.1 million to
$45.6 million for the year ended December 31, 1999, from $40.5 million for the
same period in 1998. The increase is primarily due to a greater weighted average
debt balance of $632.2 million for the year ended December 31, 1999, compared to
$581.2 million for the same period in 1998. The increase in the debt balance is
primarily attributable to a higher average balance outstanding on the Company's
revolving unsecured credit facility. In addition, with the conversion of the
Poydras joint venture into a 100% owned property during 1999, the $78.6 million
Poydras mortgage loan is now consolidated on the Company's balance sheet and
$1.1 million of related interest expense was recognized in the period from
November 4, 1999 to December 31, 1999. This increase excludes $1.8 million of
capitalized interest costs associated with investments in certain development
projects held in joint venture partnerships.
On November 4, 1999, purchase accounting adjustments were made to the
Company's debt instruments to reflect the present value of amounts to be paid
based on market interest rates for obligations with similar terms. These
adjustments, whether discounts or premiums, are amortized into interest expense
over the remaining term of the loan to reflect an estimated market interest rate
as of the merger date. In the aggregate, the estimated annual impact of the
amortization of these discounts and premiums will result in an increase to
interest expense. For the period November 4, 1999 to December 31, 1999, $529,000
was amortized into interest expense relating to these discounts and premiums.
13
<PAGE>
The Company's weighted average interest rates for the years ended
December 31, 1999, 1998, and 1997 were 7.05%, 7.05%, and 7.18%, respectively.
Cash interest paid in 1999, 1998, and 1997 was $44.2 million, $38.4 million, and
$19.9 million, respectively. Interest costs incurred, capitalized interest and
amortization of loan costs for the years ended December 31, 1999, 1998, and 1997
were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest costs incurred.......................... $45,312 $41,609 $23,332
Capitalized interest............................. (1,820) (3,292) --
Amortization of:
Loan origination costs and loan discounts...... 1,228 1,238 1,528
Interest rate protection agreements............ 926 980 985
------- ------- -------
$45,646 $40,535 $25,845
======= ======= =======
</TABLE>
PROPERTY OPERATING COSTS--For 1999, property operating costs increased to
$7.8 million from $5.9 million for the same period in 1998. The increase in
property operating costs is due to the costs associated with the net growth in
the Company's asset base during 1998. The 17 properties acquired during 1998 and
the one property acquired during 1999 contributed to the increase in property
operating costs in 1999.
GENERAL AND ADMINISTRATIVE--For the year ended December 31, 1999, general
and administrative expenses decreased to $12.0 million compared to
$12.7 million for the same period in 1998. This decrease is primarily a result
of stable operations during 1999 and the Company's strategy adopted during the
second half of 1998 to moderate the volume of its investment activities. This
strategy resulted in the downsizing of an investment office, an overall
reduction in employee headcount and other cost cutting measures relating to the
special charge discussed below.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased by
3.3% for 1999, when compared to 1998. Since the beginning of 1998, the Company
has acquired 18 properties and sold 15 properties, resulting in a net increase
to the Company's asset base and its corresponding depreciation expense.
As a result of the merger, purchase accounting adjustments were made to the
basis of real estate. Accordingly, Starwood Financial's purchase price was
allocated to land and buildings based on current fair market values of the
properties. Adjustments were also made to eliminate prior periods accumulated
depreciation and the properties depreciation expense was recomputed over a
useful life of 40 years beginning November 4, 1999.
The future impact of these purchase accounting adjustments will increase
depreciation expense. Depreciation expense for the period November 4, 1999 to
December 31, 1999 was $4.9 million.
PROVISION FOR ASSET IMPAIRMENT--In connection with the recognition of the
lease termination fee from Hitachi PC Corporation, the sole tenant of a property
located in Milpitas, California, the Company recognized a $3.4 million provision
for asset impairment in accordance with SFAS 121. This statement requires assets
to be recorded at the lower of their carrying value or fair value when
circumstances indicate that the carrying value of an asset may not be
recoverable.
SPECIAL CHARGE--During the third quarter of 1998, the Company recognized a
one-time charge of approximately $3.0 million in connection with the expected
reduction of its investment activity and accordingly, the Company recorded a
liability for the estimated costs resulting from this change. The costs
associated with this charge related to severance and related compensation,
office closures, and abandonment of investments. As of December 31, 1999, there
was no remaining liability for the special charge. At December 31, 1998, the
remaining liability was $1.8 million of which $1.1 million represented a
non-cash charge in connection with the extension of the exercise date for
certain former employees' stock options.
14
<PAGE>
MINORITY INTEREST--Minority interest of $164,000 for the year ended 1999
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.
TriNet Property Partners, L.P. purchased nine office/R&D properties in
December 1997 and five additional office/ R&D properties in 1998 from a group of
private partnerships.
MERGER RELATED TRANSACTION COSTS--In connection with the merger with
Starwood Financial, the Company incurred pursuit costs as part of its due
diligence. In accordance with APB 16, $11.2 million of pursuit costs were
expensed. These cost relate primarily to professional fees for financial
advisors, attorneys and accountants.
PROVISION FOR ASSET HELD FOR SALE--In January 1999, the Company sold a
vacant building located in Metairie, Louisiana, for its December 31, 1998
carrying value of $3.5 million. At December 31, 1998 the Company recorded a
$5.7 million provision for asset held for sale recognized in accordance with
SFAS 121. 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.
GAIN / (LOSS) ON SALE OF REAL ESTATE--In 1998, the Company initiated a
strategy of disposing selected properties with the intention of using the
proceeds to reduce debt and to fund future investments. During 1999, the Company
disposed of six properties resulting in a net gain of $2.5 million as follows
(in thousands):
<TABLE>
<CAPTION>
NET BOOK GAIN /
PORTFOLIO/PROPERTY DATE OF SALE PROCEEDS VALUE (LOSS)
- ------------------ ------------- -------- -------- --------
<S> <C> <C> <C> <C>
Louisiana Retail Portfolio ......................... Jan. 6, 1999 $ 3,254 $ 3,254 $ --
3900 Airline Highway(1)
Peerless Group, Inc. ............................... Mar. 12, 1999 10,980 9,826 1,154
Enterprise Business Center
Olympus America Inc. ............................... July 22, 1999 30,855 29,603 1,252
2 Corporate Center
GATX Logistics, Inc. ............................... Aug. 2, 1999 8,482 8,944 (462)
200 Dunn Road
2900 McLane Drive
Lockheed Martin Corp. .............................. Oct. 22, 1999 4,924 4,397 527
935 1st St.
------- ------- ------
Total............................................. $58,495 $56,024 $2,471
======= ======= ======
</TABLE>
EXPLANATORY NOTE:
- ------------------------------
(1) Book value of property is less the $5.7 million provision for asset held for
sale recognized in December 1998. See "Provision for Asset Held for Sale."
EXTRAORDINARY CHARGE FROM EARLY EXTINGUISHMENT OF DEBT--The proceeds from
the disposition of two industrial properties, leased to GATX Logistics, Inc.,
along with additional cash reserves were used to partially repay $10.6 million
of the 1994 Mortgage Loan. In connection with this partial paydown, the Company
incurred certain prepayment penalties and wrote off a proportionate amount of
unamortized loan costs which resulted in an extraordinary charge of $665,000.
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
15
<PAGE>
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 recorded a $1.8 million charge to
net income during the first quarter of 1999 as a cumulative effect of a change
in accounting principle.
PREFERRED DIVIDEND REQUIREMENT--For the period January 1, 1999 to November
3, 1999, the dividends paid to the Company's preferred stockholders were
$11.8 million, representing three quarters, compared to $15.7 million,
representing four quarters, in 1998. In connection with the merger, the
Company's preferred stockholders exchanged their shares for preferred shares of
Starwood Financial. Therefore, the Company had no preferred equity outstanding
after November 4, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
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 mezzanine loan to the
Poydras joint venture which was originated in June 1998. The remaining increase
of $1.4 million is attributable to a $28.7 million subordinated loan issued to
the CTC II joint venture in August 1998.
OPERATING LEASE INCOME--For the year ended December 31, 1998, operating
lease income 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 remaining increase 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.
JOINT VENTURE INCOME--Joint venture income from equity joint ventures
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 II and Milpitas joint ventures formed during 1998. 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").
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.
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 excludes $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
revolving unsecured credit facility.
16
<PAGE>
PROPERTY OPERATING COSTS--For the year ended December 31, 1998, property
operating costs increased to $5.9 million from $3.1 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 asset base 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.
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, the Company recognized a
one-time charge of approximately $3.0 million in connection with the expected
reduction of its investment 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 investment.
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. The Company 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.
PROVISION FOR ASSET HELD FOR SALE--In January 1999, the Company 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 SFAS 121. 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.
17
<PAGE>
LOSS ON SALE OF REAL ESTATE--As part of the Company's strategy to dispose of
selected properties and use the proceeds to reduce debt levels and fund future
investments, the Company sold nine properties in 1998, resulting in a net loss
of $1.4 million as follows (in thousands):
<TABLE>
<CAPTION>
NET BOOK GAIN /
PORTFOLIO/PROPERTY DATE OF SALE PROCEEDS VALUE (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>
EXTRAORDINARY CHARGE--In connection with the refinancing of the Company's
revolving unsecured credit facility on June 1, 1998, the Company recognized a
$1.3 million extraordinary charge for the write off of the related unamortized
loan costs.
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 Series C preferred stock issued in
October 1997.
LIQUIDITY AND CAPITAL RESOURCES
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ADJUSTED EARNINGS
Adjusted earnings represents net income computed in accordance with
generally accepted accounting principles ("GAAP"), before gain/loss,
extraordinary items and cumulative effect, plus depreciation and amortization,
less merger related transaction costs, provision for impairment, special
charges, preferred stock dividends, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect adjusted earnings on the same
basis.
The Company believes that to facilitate a clear understanding of the
historical operating results of the Company, adjusted earnings should be
examined in conjunction with net income as presented in the Consolidated
Statements of Operations. Adjusted earnings should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indicator
of the Company's performance, cash
18
<PAGE>
flows from operating activity (determined in accordance with GAAP) as a measure
of the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs.
<TABLE>
<CAPTION>
QUARTER ENDED:
------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 TOTAL
----------- ------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Adjusted Earnings:
Income before gain/loss, extraordinary items
and cumulative effect....................... $ 5,130 $22,523 $19,698 $19,873 $ 67,224
Real estate depreciation...................... 7,525 6,925 7,015 6,971 28,436
Joint venture depreciation.................... 647 851 852 831 3,181
Amortization.................................. 795 711 625 610 2,741
Merger related transaction costs.............. 11,197 -- -- -- 11,197
Provision for asset impairment................ -- 3,400 -- -- 3,400
Preferred dividend requirement................ -- (3,919) (3,920) (3,919) (11,758)
------- ------- ------- ------- --------
Adjusted Earnings--Basic.................... $25,294 $30,491 $24,270 $24,366 $104,421
======= ======= ======= ======= ========
Adjusted Earnings--Diluted.................. $25,294 $31,756 $25,265 $24,586 $106,921
======= ======= ======= ======= ========
Common dividends declared..................... $ -- $16,293 $16,261 $16,201 $ 48,755
======= ======= ======= ======= ========
1998
Adjusted Earnings:
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
Amortization.................................. 618 540 595 650 2,403
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)
------- ------- ------- ------- --------
Adjusted Earnings........................... $23,703 $22,967 $22,393 $21,280 $ 90,343
======= ======= ======= ======= ========
Common dividends declared..................... $16,167 $15,918 $15,918 $15,463 $ 63,466
======= ======= ======= ======= ========
1997
Adjusted Earnings:
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
Amortization.................................. 718 719 685 661 2,783
Preferred dividend requirement................ (3,764) (1,919) (1,920) (1,919) (9,522)
------- ------- ------- ------- --------
Adjusted Earnings........................... $18,696 $17,608 $16,915 $13,138 $ 66,357
======= ======= ======= ======= ========
Common dividends declared..................... $13,346 $13,131 $12,774 $12,773 $ 52,024
======= ======= ======= ======= ========
</TABLE>
19
<PAGE>
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 lease rate adjustments during their initial lease terms
and during any option periods. Because net leases require tenants to pay for
some or all operating expenses, property taxes, property repair and maintenance
costs and insurance, some or all of the inflationary impact of these expenses
will be borne by the tenants and not by the Company. An increase in inflation,
however, could result in an increase in the Company's borrowing costs and its
general and administrative costs.
YEAR 2000
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.
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 term "Year 2000
compliant" is used in this discussion to mean that the system or device in
question will perform its essential functions in the Year 2000 without
significant operational problems.
The Company recognized that the Year 2000 may result in risk and implemented
a plan in 1998 to prepare for potential Year 2000 issues. The Company's efforts
to address potential Year 2000 issues were focused in the following three areas:
(i) reviewing and taking any necessary steps 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; (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; and
(iv) developing contingency plans for business interruptions after the date
rollover. The Company's Year 2000 compliance program is substantially complete.
The cost involved in performing this internally-managed plan were not
significant to the Company's financial position or results of operations. The
Company expects that a substantial portion of these costs will be passed back to
tenants through recoveries of operating expense and that the remaining costs of
addressing the Year 2000 issues will be funded through operating cash flows.
20
<PAGE>
Since the date rollover on January 1, 2000, the Company has not experienced
any material adverse impact due to the Year 2000 issue. While the primary risk
to the Company, with respect to the Year 2000 issue, is the ability of certain
third party service providers to continue to provide services in a timely and
accurate manner, to date, the Company is not aware of any such disruption. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. In
pursuing its business plan, the primary market risk to which the Company is
exposed is interest rate risk. The Company's operating results will depend in
part on the interest expense incurred in connection with its variable rate
interest bearing liabilities.
Interest rates are highly sensitive to many factors, including governmental
monetary and tax policies, domestic and international economic and political
conditions, and other factors beyond the control of the Company. As more fully
discussed in Notes 2 and 7 to the Company's Consolidated Financial Statements,
the Company hedges to limit the effects of changes in interest rates on its
operations by engaging in interest rate caps and swaps.
While a REIT, or its qualified REIT subsidiary, may freely utilize certain
types of derivative instruments to hedge interest rate risk on its liabilities,
the use of derivatives for other purposes could generate income which is not
qualified income for purposes of maintaining REIT status. As a qualified REIT
subsidiary, the Company may only engage in such instruments to hedge such risk
on a limited basis and does not enter into derivative contracts for speculative
purposes.
There can be no assurance that the Company's profitability will not be
adversely affected during any period as a result of changing interest rates. In
addition, hedging transactions using derivative instruments involve certain
additional risks such as counterparty credit risk, legal enforceability of
hedging contracts and the risk that unanticipated and significant changes in
interest rates will cause a significant loss of basis in the contract. With
regard to loss of basis in a hedging contract, indices upon which contracts are
based may be more or less variable than the indices upon which the hedged
liabilities are based, thereby making the hedge less effective. The
counterparties to these contractual arrangements are major financial
institutions with which the Company and its affiliates may also have other
financial relationships. The Company is potentially exposed to credit loss in
the event of nonperformance by these counterparties. However, because of their
high credit ratings, the Company does not anticipate that any of the
counterparties will fail to meet their obligations. There can be no assurance
that the Company will be able to adequately protect against the foregoing risks
and that the Company will ultimately realize an economic benefit from any
hedging contract it enters into which exceeds the related costs incurred in
connection with engaging in such hedges.
The following table quantifies the potential changes in net investment
income and net fair value of financial instruments should interest rates
increase or decrease 200 basis points, assuming no change in the shape of the
yield curve (i.e., relative interest rates). Net investment income is calculated
as revenue from loans and other lending investments and operating leases, less
related interest expense and property operating costs for the year ended
December 31, 1999. Net fair value of financial instruments is calculated as the
sum of the value of off-balance sheet instruments and the present value of cash
in-flows generated from interest-earning assets, less cash out-flows in respect
of interest-bearing liabilities as of December 31, 1999. The cash flows
associated with the Company's liabilities are calculated based on management's
best estimate of expected payments of each loan based on loan characteristics
such as loan-to-value ratio, term
21
<PAGE>
and property type. The base interest rate scenario assumes interest rates as of
December 31, 1999. Actual results could differ significantly from those
estimated in the table.
ESTIMATED PERCENTAGE CHANGE IN
<TABLE>
<CAPTION>
NET FAIR VALUE OF
FINANCIAL
NET INVESTMENT INCOME INSTRUMENTS(1)
INTEREST RATES INCREASE/(DECREASE) INCREASE/(DECREASE)
- ---------------------------- --------------------- -------------------
<S> <C> <C>
- -200 Basis Points........... 4.11% (6.00%)
- -100 Basis Points........... 2.05% (2.90%)
Base Interest Rate.......... 0.00% 0.00%
+100 Basis Points........... (2.05%) 2.70%
+200 Basis Points........... (3.90%) 5.30%
</TABLE>
EXPLANATORY NOTE:
- ------------------------------
(1) Amounts exclude values relating to non-financial invesments, primarily
assets under long-term operating leases and preferred limited partnership
interests.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Financial Statements:
Report of Independent Accountants......................... 24
Consolidated Balance Sheets at December 31, 1999 and
1998.................................................... 25
Consolidated Statements of Operations for the Periods
November 4, 1999 to December 31, 1999, January 1, 1999
to November 3, 1999 and for the Years Ended December 31,
1998 and 1997........................................... 26
Consolidated Statements of Changes in Shareholders' Equity
for the Periods November 4, 1999 to December 31, 1999,
January 1, 1999 to November 3, 1999 and for the Years
Ended December 31, 1998 and 1997........................ 27
Consolidated Statements of Cash Flows for the Periods
November 4, 1999 to December 31, 1999, January 1, 1999
to November 3, 1999 and for the Years Ended December 31,
1998 and 1997........................................... 28
Notes to Consolidated Financial Statements................ 29
Financial Statement Schedule:
Report of Independent Accountants on Financial Statement
Schedule................................................ 48
Schedule III--Real Estate and Accumulated Depreciation.... 49
Notes to Schedule III..................................... 56
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
of TriNet Corporate Realty Trust, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' 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, 1999 and 1998, and the results of their operations and their cash
flows for the periods November 4, 1999 to December 31, 1999 and January 1, 1999
to November 3, 1999 and for each of the two years in the period ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in the
United States 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 28, 2000, except for Note 16, as to which the date is March 2, 2000
24
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Loans and other lending investments, net.................... $ 39,244 $ 73,126
Real estate subject to operating leases, net................ 1,529,804 1,355,713
Cash and cash equivalents................................... 12,011 19,323
Restricted cash............................................. 6,697 17,768
Deferred rent receivable.................................... 1,147 27,235
Loan costs, net............................................. 3,022 12,238
Other assets, net........................................... 8,719 21,164
---------- ----------
Total assets............................................ $1,600,644 $1,526,567
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities.... $ 44,556 $ 56,655
Dividends payable........................................... -- 16,167
Debt obligations............................................ 691,591 647,720
---------- ----------
Total liabilities....................................... 736,147 720,542
---------- ----------
Commitments and contingencies (Notes 3, 9, and 13).......... -- --
Minority interest in consolidated entities.................. 2,565 2,565
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized:
Series A: 2,000,000 shares issued and outstanding at
December 31, 1998 (aggregate liquidation preference
$50,000)................................................ -- 20
Series B: 1,300,000 shares issued and outstanding at
December 31, 1998 (aggregate liquidation preference
$32,500)................................................ -- 13
Series C: 4,000,000 shares issued and outstanding at
December 31, 1998 (aggregate liquidation preference
$100,000)............................................... -- 40
Common stock, $0.01 par value, 40,000,000 shares authorized:
100 and 24,872,429 shares issued and outstanding at
December 31, 1999 and 1998, respectively.................. -- 249
Additional paid in capital.................................. 890,271 855,568
Retained earnings (deficit)................................. 11,655 (52,430)
Common stock of Starwood Financial held in treasury (at
cost)..................................................... (39,994) --
---------- ----------
Total shareholders' equity.............................. 861,932 803,460
---------- ----------
Total liabilities and shareholders' equity.............. $1,600,644 $1,526,567
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
FOR THE PERIOD FOR THE PERIOD DECEMBER 31,
NOVEMBER 4, 1999 TO JANUARY 1, 1999 TO -------------------
DECEMBER 31, 1999 NOVEMBER 3, 1999 1998 1997
------------------- ------------------ -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Interest income.................................... $ 1,360 $ 6,731 $ 3,176 $ 550
Operating lease income............................. 26,444 130,153 153,155 106,862
Joint venture income............................... 373 2,330 2,299 812
Other income....................................... 715 8,281 2,572 361
------- ------- -------- --------
Total revenues................................... 28,892 147,495 161,202 108,585
COSTS AND EXPENSES:
Interest expense................................... 8,462 37,184 40,535 25,845
Property operating costs........................... 2,246 5,590 5,853 3,121
General and administrative......................... 1,608 10,364 12,720 6,589
Depreciation and amortization...................... 4,880 24,069 28,035 19,781
Provision for asset impairment..................... -- 3,400 -- --
Special charge..................................... -- -- 2,990 --
------- ------- -------- --------
Income before minority interest, transaction costs,
gain/ (loss) on sales of real estate, extraordinary
items and cumulative effect........................ 11,696 66,888 71,069 53,249
Minority interest.................................... (41) (123) (128) --
Merger related transaction costs..................... -- (11,197) -- --
Provision for asset held for sale.................... -- -- (5,662) --
Gain/(loss) on sales of real estate.................. -- 2,471 (1,436) 985
------- ------- -------- --------
Income before extraordinary items and cumulative
effect............................................. 11,655 58,039 63,843 54,234
Extraordinary charge from early extinguishment of
debt............................................... -- (665) (1,272) --
Extraordinary gain on expropriation.................. -- -- -- 98
Cumulative effect of a change in accounting
principle.......................................... -- (1,810) -- --
------- ------- -------- --------
Net income........................................... 11,655 55,564 62,571 54,332
Preferred dividend requirements...................... -- (11,758) (15,678) (9,522)
------- ------- -------- --------
Earnings available to common shares.................. $11,655 $43,806 $ 46,893 $ 44,810
======= ======= ======== ========
Earnings available per common share:
Income available before extraordinary items........ n/a $ 1.85 $ 1.97 $ 2.30
Earnings available................................. n/a $ 1.75 $ 1.92 $ 2.31
Earnings available per common share, assuming
dilution:
Income available before extraordinary items........ n/a $ 1.85 $ 1.96 $ 2.27
Earnings available................................. n/a $ 1.75 $ 1.91 $ 2.28
Weighted average number of common shares outstanding:
Basic.............................................. n/a 24,978 24,387 19,435
Diluted............................................ n/a 25,060 24,504 19,626
Dividends declared per common share.................. n/a $ 1.95 $ 2.57 $ 2.53
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
------------------- ------------------- PAID-IN EARNINGS TREASURY
ISSUED AMOUNT ISSUED AMOUNT CAPITAL (DEFICIT) STOCK TOTAL
-------- -------- -------- -------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Exercise of common stock options.... -- -- 142 1 3,601 -- -- 3,602
Issuance of stock under management
purchase plan..................... -- -- 53 1 1,161 -- -- 1,162
Incentive stock compensation........ -- -- -- -- 1,146 -- -- 1,146
Net income.......................... -- -- -- -- -- 55,564 -- 55,564
Common stock dividends declared..... -- -- -- -- -- (48,756) -- (48,756)
Preferred stock dividends
declared.......................... -- -- -- -- -- (11,758) -- (11,758)
------ ---- ------- ----- --------- -------- -------- ---------
Balance, November 3, 1999............. 7,300 73 25,067 251 861,476 (57,380) -- 804,420
- ---------------------------------------------------------------------------------------------------------------------------------
Merger related purchase accounting
adjustments....................... (7,300) (73) (25,067) (251) (861,476) 57,380 -- (804,420)
Investment by parent into
subsidiary........................ -- -- -- -- 890,271 -- -- 890,271
------ ---- ------- ----- --------- -------- -------- ---------
Balance, November 4, 1999............. -- -- -- -- 890,271 -- -- 890,271
Purchase of Starwood Financial
common stock...................... -- -- -- -- -- -- (39,994) (39,994)
Net income.......................... -- -- -- -- -- 11,655 -- 11,655
------ ---- ------- ----- --------- -------- -------- ---------
Balance, December 31, 1999............ -- $ -- -- $ -- $ 890,271 $ 11,655 $(39,994) $ 861,932
====== ==== ======= ===== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE PERIOD FOR THE PERIOD DECEMBER 31,
NOVEMBER 4, 1999 TO JANUARY 1, 1999 TO ---------------------
DECEMBER 31, 1999 NOVEMBER 3, 1999 1998 1997
------------------- ------------------ --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 11,655 $ 55,564 $ 62,571 $ 54,332
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss/(gain)........................... -- 665 1,272 (98)
Minority interest................................... 41 123 128 --
Depreciation and amortization....................... 4,880 24,069 28,035 19,781
Special charge, non-cash component.................. -- -- 1,146 --
Amortization of loan costs and discounts............ 351 1,645 2,218 2,513
Straight-line rent adjustments...................... (1,597) (4,441) (8,490) (6,529)
(Gain)/loss on sales of real estate................. -- (2,471) 1,436 (985)
Joint venture income................................ (373) (2,330) (2,299) (812)
Distributions from operating joint venture.......... 470 4,708 1,442 1,139
Cumulative effect of a change in accounting
principle......................................... -- 1,810 -- --
Provision for asset impairment...................... -- 3,400 -- --
Provision for asset held for sale................... -- -- 5,662 --
Merger related transaction costs.................... -- 11,197 -- --
Cash (used in)/provided by operating assets and
liabilities
Other assets........................................ (321) 2,344 (8,661) (2,852)
Other liabilities................................... (97) (7,483) 23,062 4,783
-------- --------- --------- ---------
Net cash provided by operating activities......... 15,009 88,800 107,522 71,272
-------- --------- --------- ---------
Cash flows from investing activities:
Real estate operating lease investments............... -- (6,361) (233,863) (453,572)
Origination of convertible mortgage................... -- (15,898) (27,725) --
Net proceeds from sale of real estate................. -- 56,690 48,222 5,156
Merger related transaction costs...................... (19,865) (4,628) -- --
Cash acquired in merger transaction................... 3,729 -- -- --
Net investments in and advances to unconsolidated
joint ventures...................................... (377) (1,127) (112,220) 963
Other capital expenditures and investments............ (1,271) (6,434) (11,409) (712)
-------- --------- --------- ---------
Net cash (used in) provided by investing
activities...................................... (17,784) 22,242 (336,995) (448,165)
-------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings/(repayments) on revolving credit
facility............................................ 46,600 (48,800) 70,600 16,100
Mortgage note principal payments...................... (150) (11,307) (612) --
Preferred dividends paid.............................. -- (11,758) (15,678) (9,189)
Common dividends paid................................. -- (64,922) (60,645) (47,477)
Purchase of treasury stock............................ (39,994) -- -- --
Proceeds from issuance of common stock, net of
offering costs...................................... -- 4,763 142,946 219,482
Proceeds from issuance of preferred stock, net of
offering costs...................................... -- -- -- 96,574
Proceeds from senior unsecured debt offering.......... -- -- 124,633 99,606
Minority interest contributions, net of
distributions....................................... -- (164) 1,672 --
Decrease/(increase) in restricted cash................ 723 10,348 (12,725) (284)
Early termination fees associated with REMIC
paydown............................................. -- (440) -- --
Increase in loan costs................................ -- (478) (1,698) (2,600)
-------- --------- --------- ---------
Net cash provided by (used in) financing
activities...................................... 7,179 (122,758) 248,493 372,212
-------- --------- --------- ---------
Increase/(decrease) in cash and cash equivalents........ 4,404 (11,716) 19,020 (4,681)
Cash and cash equivalents, at beginning of period....... 7,607 19,323 303 4,984
-------- --------- --------- ---------
Cash and cash equivalents, at end of period............. $ 12,011 $ 7,607 $ 19,323 $ 303
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
ORGANIZATION--TriNet Corporate Realty Trust, Inc., a Maryland Corporation,
(the "Company") is a wholly-owned subsidiary of Starwood Financial Inc., a
Maryland Corporation, ("Starwood Financial"). As a wholly-owned subsidiary of
Starwood 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").
Starwood Financial filed its annual report Form 10-K for the year ended
December 31, 1999 with the Securities and Exchange Commission on March 30, 2000.
BUSINESS--As a wholly-owned subsidiary of Starwood Financial, the Company
specializes in providing private and corporate real estate owners with
structured mortgage, mezzanine and lease financing. 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
December 31, 1999, the Company's portfolio consisted of 148 properties
principally subject to net leases to more than 160 tenants, comprising
18.5 million square feet in 25 states. Of the 148 total properties, there are 22
properties held in five joint venture partnerships. In addition, there are four
properties under development in one of the joint venture partnerships.
MERGER TRANSACTION--On November 3, 1999, consistent with previously
announced terms, the Company's stockholders and the shareholders of Starwood
Financial approved the merger of the Company with a wholly-owned subsidiary of
Starwood Financial. The shareholders of Starwood Financial also approved:
(i) the acquisition by Starwood 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 Starwood Financial, with the Company surviving as
a wholly-owned subsidiary of Starwood 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 Starwood 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 Stock of Starwood Financial. The
Starwood 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
Starwood Financial's Series A Preferred Stock received Series A Preferred Stock
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
Starwood Financial's single class of common shares began trading on the New York
Stock Exchange under the symbol "SFI".
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--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.
BASIS OF PRESENTATION--The merger was accounted for as a purchase of the
Company by Starwood Financial and the balance sheet of the Company on
November 4, 1999 was adjusted to reflect the purchase
29
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 assets and liabilities 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 period from
January 1, 1999 to November 3, 1999 reflect the historical operating results
prior to the merger. The Company's consolidated results of operations for the
period from November 4, 1999 to December 31, 1999 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.
The consolidated financial statements for 1998 and 1997 represent the
historical results of operations of the Company.
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.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all cash and
liquid investments with an original maturity of three months or less.
NON-CASH ACTIVITY--The following schedule summarizes the significant
non-cash activity for the combined pre- and post-merger periods for 1999. During
the period from November 4, 1999 to December 31, 1999, the Company had non-cash
activity including: (i) the impact to the Company's financial position resulting
from the merger; and (ii) the consolidation of Poydras which was an
unconsolidated joint venture prior to the merger.
<TABLE>
<CAPTION>
<S> <C>
Impact on assets (Increase) Decrease:
Loans and other lending investments..................... $ 9,703
Real estate subject to operating leases................. (187,773)
Deferred rent receivable................................ 29,643
Loan costs.............................................. 10,913
Other assets............................................ 1,833
Impact on liabilities and equity Increase (Decrease):
Debt obligations........................................ 56,932
Accounts payable, accrued expenses and other
liabilities........................................... (3,373)
Shareholders' equity.................................... 85,851
--------
Net cash impact of merger transaction..................... $ 3,729
========
</TABLE>
In addition, the Company assumed existing mortgage notes of $18.9 million
and $11.4 million in conjunction with investments acquired during 1998 and 1997,
respectively. Also during 1998, the Company issued $1.9 million common shares in
conjunction with the investments acquired.
30
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Starwood Financial's
purchase price and to eliminate prior period accumulated depreciation. The
December 31, 1999 real estate balances reflect these adjustments.
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 for buildings and improvements.
Additionally, depreciation is computed using the straight-line method of cost
recovery over the estimated useful lives of seven 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
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 joint ventures and unconsolidated subsidiaries that
are not majority-owned and controlled by the Company are accounted for on the
equity method.
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--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
rent receivable on the balance sheet.
On November 4, 1999, certain purchase accounting adjustments were made to
eliminate the deferred rent 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 ending December 31, 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 Starwood Financial. Accordingly, no provision has
been made for federal income taxes in the accompanying consolidated financial
statements. Prior to the merger, the Company was taxed as a REIT under the Code.
Starwood 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.
ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company applied Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its stock-based compensation plans.
31
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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 counterparties is not deemed to be significant.
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 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 December 31, 1999, the Company's
five largest tenants collectively accounted for approximately 16.8% of the
Company's annualized lease revenue. The Company's largest single tenant
accounted for approximately 3.7% of the Company's annualized lease revenue.
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 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 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 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. 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 a cumulative effect of a change in accounting
principle and is recorded to net income in the period of change. Accordingly,
the Company charged unamortized start-up costs of approximately $1.8 million to
net income during the first quarter of 1999.
32
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS--Certain prior year amounts have been reclassified in the
consolidated financial statements and the related notes to conform to the 1999
presentation.
NOTE 3--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>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Buildings and improvements........................... $1,223,015 $1,119,425
Improved land........................................ 251,794 230,401
Real estate held for sale, net....................... -- 3,500
Less accumulated depreciation...................... (5,111) (71,950)
---------- ----------
1,469,698 1,281,376
Investments in unconsolidated joint ventures......... 60,106 74,337
---------- ----------
Real estate subject to operating leases, net....... $1,529,804 $1,355,713
========== ==========
</TABLE>
On November 4, 1999, the effective date of the merger, the purchase
accounting adjustments required under APB 16 were made to increase the costs of
the land and buildings and to eliminate prior periods accumulated depreciation.
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES--At
December 31, 1999, the Company had investments in five 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 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; and (v)
TriNet Milpitas Associates, LLC ("Milpitas") whose external member is The
Prudential Insurance Company of America, for the purpose of operating, acquiring
and in certain cases, developing properties. Effective November 22, 1999, the
joint venture partners, who are affiliates of Whitehall Street Real Estate
Limited Partnership, IX and The Goldman Sachs Group L.P. (the "Whitehall Group")
in W9/TriNet Poydras, LLC ("Poydras") elected to exercise their right under the
partnership agreement, which was accelerated as a result of the TriNet
acquisition, to exchange all of their membership units for 350,746 shares of
common stock of Starwood Financial and a $767,000 distribution of available
cash. As a consequence, Poydras is now wholly owned and is reflected on a
consolidated basis in these financial statements.
At December 31, 1999, the Company's equity and notes receivable investments
in joint ventures have been adjusted to reflect the impact of the required APB
16 purchase accounting adjustments resulting from the merger. The Company's
share of joint venture income and interest income are recorded on an historical
basis through November 3, 1999, and for the period from November 4, 1999 through
December 31, 1999, joint venture income and interest income include the required
purchase accounting adjustments.
At December 31, 1999, the joint ventures comprised 22 net leased facilities
totaling 1.5 million square feet, four properties under development totaling
312,400 square feet and 40.4 acres of land held for
33
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--REAL ESTATE SUBJECT TO OPERATING LEASES (CONTINUED)
development and sale. The Company's combined investment, including advances, in
these joint ventures at December 31, 1999 was $84.8 million. In the aggregate,
the joint ventures had total assets of $332.8 million, total liabilities of
$251.9 million, and net income of $4.2 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 its portion of aggregate third
party debt as of December 31, 1999 are presented below (in thousands). For
purposes of this schedule, Poydras is included to show the Company's portion of
income for the period January 1, 1999 to November 3, 1999.
<TABLE>
<CAPTION>
ACCRUED JOINT
UNCONSOLIDATED OWNERSHIP EQUITY NOTES INTEREST TOTAL VENTURE INTEREST TOTAL
JOINT VENTURE: % INVESTMENT RECEIVABLE RECEIVABLE INVESTMENT INCOME INCOME INCOME
- -------------- ---------- ---------- ---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating:
Sunnyvale............. 44.7% $13,589 $ -- $ -- $13,589 $1,123 $ -- $1,123
Poydras............... 100.0% -- -- -- -- (246) 1,364 1,118
CTC II................ 50.0% 4,594 20,674 4,098 29,366 (983) 3,879 2,896
Milpitas.............. 50.0% 20,729 -- -- 20,729 2,518 -- 2,518
Development:
Sierra................ 50.0% 5,136 -- -- 5,136 (351) -- (351)
CTC I................. 50.0% 15,936 -- -- 15,936 35 -- 35
------- ------- ------ ------- ------ ------ ------
$59,984 $20,674 $4,098 $84,756 $2,096 $5,243 $7,339
======= ======= ====== ======= ====== ====== ======
<CAPTION>
PRORATA
SHARE OF
UNCONSOLIDATED THIRD PARTY
JOINT VENTURE: DEBT
- -------------- -----------
<S> <C>
Operating:
Sunnyvale............. $ 7,447
Poydras............... --
CTC II................ 8,288
Milpitas.............. 41,130
Development:
Sierra................ 2,588
CTC I................. 31,923
-------
$91,376
=======
</TABLE>
At December 31, 1999, the Company was the guarantor for 50% of CTC I's
$63.8 million construction loan. Additionally, if the Company agrees with its
joint venture partner to commence the development of phase II of the project, it
will have additional commitments to fund further development costs. The amount
of these additional commitments are estimated to be $11.1 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 Common Shares of Starwood 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 Common Shares of Starwood Financial.
INVESTMENTS IN DECONTROLLED SUBSIDIARY--In addition to the above joint
ventures, the Company has an investment in TriNet Management Operating
Company, Inc. ("TMOC"), a taxable decontrolled subsidiary of the Company. TMOC
was created for the purpose of investing in net lease assets through G. Accion,
S.A. de C.V., ("G. Accion"), a Mexican real estate company. TMOC is capitalized
by an equity and debt contribution from the Company. The equity investment in
TMOC is included in other investments in and advances to unconsolidated joint
ventures on the consolidated balance sheet of the Company. As of December 31,
1999, the Company's investment was $122,000.
On July 17, 1999, TMOC collected a $750,000 fee pursuant to an agreement by
TMOC to amend its partnership agreement dated December 4, 1998 with G. Accion.
Under the agreement, G. Accion was allowed to enter a comprehensive funding
arrangement with another party and TMOC relinquished certain governance rights
it had with G. Accion. The Company's income from its investment in TMOC is
recorded in joint venture income on the consolidated statement of operations.
For the periods January 1, 1999 to November 3, 1999 and November 4, 1999 to
December 31, 1999, the Company earned joint venture income of $607,000 from its
investment in TMOC.
34
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--REAL ESTATE SUBJECT TO OPERATING LEASES (CONTINUED)
ASSET HELD FOR SALE--In January 1999, the Company 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 Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). 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.
NOTE 4--RESTRICTED CASH
Under the terms of one of its mortgage loan liabilities, the Company is
required to maintain restricted cash reserves for debt service and leasing cost
obligations. At December 31, 1999 and 1998, the Company had $6.1 million and
$6.4 million respectively, of restricted cash related to these obligations. The
remaining balance of $11.3 in 1998 is comprised primarily of a $10.5 million
cash deposit securing one tenant's obligation under its lease.
NOTE 5--LOAN COSTS AND INTEREST EXPENSE
On November 4, 1999, purchase accounting adjustments were made to eliminate
loan origination costs and revalue interest rate protection agreements to fair
market value. These costs are amortized over the remaining term of the related
debt. The following table summarizes the costs and accumulated amortization
associated with the loan origination costs and interest rate protection
agreements (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Loan origination costs..................................... $ -- $ 8,564
Interest rate protection agreements........................ 3,127 9,686
------ -------
3,127 18,250
------ -------
Accumulated amortization................................... (105) (6,012)
------ -------
Loan costs, net........................................ $3,022 $12,238
====== =======
</TABLE>
During 1999, 1998 and 1997, interest expense was $45.6 million,
$40.5 million, and $25.8 million, respectively, which was net of capitalized
interest in 1999 and 1998 of $1.8 million and $3.3 million, respectively.
Amortization of loan origination costs and interest rate protection agreements
included in interest expense was $2.3 million, $2.2 million, and $2.5 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
Cash paid for interest, net of amounts capitalized, during 1999, 1998 and
1997 was $44.2 million, $38.4 million and $19.9 million, respectively.
NOTE 6--OTHER ASSETS AND OTHER LIABILITIES
Included in other assets at December 31, 1999 is an investment of
$4.0 million consisting of 250,000 shares of the corporate stock of Fortress
Investment Corp., a private real estate investment company. The Company records
this investment at cost and periodically reviews the asset for any permanent
impairment in value. In management's opinion, at December 31, 1999, the cost of
the investment represents its fair value.
35
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--OTHER ASSETS AND OTHER LIABILITIES (CONTINUED)
Also included in other assets at December 31, 1999 is the Company's debt
investment in TMOC of approximately $1.9 million.
Accumulated amortization related to other assets aggregated approximately
$16,000 and $877,000 at December 31, 1999 and 1998, respectively.
Included in other liabilities is $9.9 million in interest payable,
$10.8 million in security deposits from tenants, $9.4 million of unearned lease
income, $12.1 million of accounts payable and accrued liabilities and
$2.3 million of deferred liabilities which primarily relate to tenant
improvements.
NOTE 7--DEBT OBLIGATIONS
On November 4, 1999, purchase accounting adjustments were made to the
Company's debt balances to reflect the present value of amounts to be paid based
on market interest rates for obligations with similar terms. These adjustments,
whether discounts or premiums, are amortized into interest expense over the
remaining term of the loan to reflect an estimated market interest rate as of
the merger date.
The table below summarizes the contract amount, the carrying value, the
contract interest rate and the effective interest rate on the various debt
instruments as of December 31, 1999. The carrying value represents the debt
balance after taking into consideration the discounts or premiums. The effective
interest rate represents the estimated market interest rate as of the merger
date for similar term debt instruments.
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31,
------------------------------------------------------------------------------------
CONTRACT CARRYING CONTRACT CONTRACT INTEREST EFFECTIVE INTEREST SCHEDULED
AMOUNT VALUE AMOUNT RATE RATE MATURITY
LOAN 1999 1999 1998 1999 1999 DATE
- ---- -------- -------- -------- ----------------- ------------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revolving Credit Facility................. $186,700 $186,700 $188,900 LIBOR + 1.55% LIBOR + 1.55% 05/31/2001
7.30% Notes due 2001...................... 100,000 98,001 100,000 7.30% 8.75% 05/15/2001
1994 Mortgage Loan........................ 44,426 44,426 55,013 LIBOR + 1.00% LIBOR + 1.00% 12/01/2004
7.95% Notes due 2006...................... 50,000 47,655 50,000 7.95% 9.04% 05/15/2006
7.70% Notes due 2017...................... 100,000 86,171 100,000 7.70% 9.51% 07/15/2017
6.75% Drs. due 2013(1).................... 125,000 121,693 125,000 6.75% 8.81% 03/01/2013
Poydras Mortgage Loan(3).................. 78,610 77,369 -- LIBOR + 1.375% LIBOR + 2.50% 06/18/2001
Other Mortgage Loans...................... 28,856 29,576 29,726 6.00%--11.375% 7.29%--8.50% (2)
-------- -------- --------
713,592 691,591 648,639
Less: net discount........................ (22,001) (919)
-------- -------- --------
$691,591 $691,591 $647,720
======== ======== ========
</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.
(3) The Poydras Mortgage Loan was held in the Poydras joint venture at December
31, 1998. In connection with the joint venture partner's conversion of its
partnership interest to common shares of Starwood Financial, Poydras is 100%
consolidated in the Company's financial statements.
36
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS (CONTINUED)
The 30-day LIBOR rate as of December 31, 1999 was 5.82%. 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. 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%.
CREDIT 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 $350.0 million unsecured revolving credit facility (the
"Credit Facility"). The $350.0 million Credit Facility matures on May 31, 2001
and has an automatic one-year extension option. Borrowing rates under the
facility are based on the Company's credit ratings. The Credit Facility also has
a $225.0 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 Credit Facility may be borrowed for general
corporate and working capital needs, as well as for investment purposes. The
Credit 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 Company's former
$200.0 million revolving credit facility were recognized as an extraordinary
charge.
On November 5, 1999, the Credit Facility was amended, and a waiver was
obtained from the bank group to provide for its continuation following the
Company's acquisition by Starwood Financial. In connection with the amendment,
the Company appointed Bank of America, N.A. as administrative agent and Banc
One, N.A. as syndication agent, and increased borrowing rates under the Credit
Facility to reflect current market borrowing rates. The current LIBOR-based
borrowing rate, which is based on the Company's credit rating, is LIBOR plus
1.55%. The Company incurred $1.2 million of fees related to this amendment. The
Credit Facility's covenants include limitations on corporate leverage, unsecured
debt and minimum cash flow coverage tests against debt service and fixed
charges. The amendment revised the limitation on the Company's dividend payments
from 95% of funds from operations, to 85% of cash flow from operations for any
12-month period.
LONG-TERM DEBT--On February 24, 1998, the Company sold to the public
$125.0 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
issuance costs from the Drs. were approximately $123.7 million, of which
$120.6 million was used to pay down the balance on the Company's Credit
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 the Company. 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
term of the Drs. The all-in effective
37
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS (CONTINUED)
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 senior 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 senior 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.
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 warehouse/distribution
facility located in New Orleans, Louisiana. This prepayment resulted in an
extraordinary charge of $1.0 million. On August 2, 1999, the Company prepaid
approximately $10.6 million of the 1994 Mortgage Loan primarily with proceeds
from the disposition of two properties located in the greater Syracuse, New York
area. This prepayment resulted in an extraordinary charge of $665,000.
In June 1998, Poydras, an entity which currently is 100% owned by the
Company, entered into a $78.6 million mortgage loan (the "Poydras Mortgage
Loan"). The Poydras Mortgage Loan currently bears interest at a variable rate
equal to the 30-day LIBOR plus 1.375%. However, $75.0 million of the Poydras
Mortgage Loan is subject to an interest rate cap which limits LIBOR to 7.50% and
is in effect until June 2001. The Poydras Mortage Loan requires monthly
interest-only payments until its maturity in June 2001, at which time the
outstanding principal is due and payable. The Company has an option to extend
the loan for a one-year period. The loan is provided by a group of five
commercial banks led by Dresdner Bank. The Company provides a guarantee for 25%
of the principal balance outstanding. The collateral for the loan is the Poydras
Plaza property located in New Orleans, Louisiana.
38
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS (CONTINUED)
Prior to the merger, the Company owned a 50% interest in Poydras and the
Whitehall Group and its affiliates owned the remaining 50% of the interest in
the entity. The interest in Poydras was accounted for on the equity method, and
as a result, the Poydras Plaza property and the Poydras Mortgage Loan were not
reflected on the face of the Company's balance sheet. Effective November 22,
1999, the Company obtained ownership of 100% of Poydras, and the entity was
consolidated in the financial statements of the Company. See
Note 3--"Investments in and Advances to Unconsolidated Joint Ventures".
In conjunction with the acquisition of a portfolio of nine net leased
properties on December 31, 1997, and five net leased properties in the first six
months of 1998, the Company's majority-owned consolidated partnership, TriNet
Property Partners, assumed six mortgages from a group of private partnerships
which total $15.6 million as of December 31, 1999. Additionally, the Company
assumed an outstanding mortgage with the acquisition of a property on June 18,
1998. The outstanding balance on this mortgage as of December 31, 1999 was
$13.3 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 with a financial institution which, together with
certain existing interest rate cap agreements, effectively fix the interest rate
on $75.0 million of the Company's LIBOR-based borrowings at 5.58% plus the
applicable margin through December 1, 2004. Management expects that it will have
aggregate LIBOR based borrowings in excess of the notional amount for the
duration of the swap. 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. In addition, $75.0 million of the Poydras
Mortgage Loan is subject to an interest rate cap which limits LIBOR to 7.50% and
is in effect until June 2001. At December 31, 1999, the fair value of the
Company's interest rate swaps and caps was $4.6 million.
RATES AND FUTURE MATURITIES--The weighted average effective interest rate
was 7.05%, 7.05% and 7.18% for the years ended December 31, 1999, 1998 and 1997,
respectively.
Future maturities of outstanding long-term debt and mortgages stated in
terms of the contractual obligation are as follows (in thousands):
<TABLE>
<S> <C>
2000..................................................... $ 4,683
2001..................................................... 366,164
2002..................................................... 15,135
2003(1).................................................. 125,568
2004..................................................... 45,044
Thereafter............................................... 156,998
---------
Total principal maturities............................... 713,592
Net unamortized debt (discounts)/premiums................ (22,001)
---------
Total debt obligations................................... $ 691,591
=========
</TABLE>
EXPLANATORY NOTE:
- ------------------------------
(1) On February 24, 1998, the Company sold to the public $125 million of 6.75%
Drs. Notes. Upon certain terms and conditions, the Drs. are subject to
mandatory tender on March 1, 2003, to either the Dealer or the Company. If
tendered to the Dealer, the Drs. must be remarketed by the Dealer.
39
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--SPECIAL CHARGE
During the third quarter of 1998, the Company recognized a one-time charge of
approximately $3.0 million in connection with the expected reduction of its
investment 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 1998 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. As of December 31, 1999, there
was no liability remaining related to this charge.
NOTE 9--COMMITMENTS AND CONTINGENCIES
The Company is subject to option agreements with six existing tenants which
could require the Company to fund tenant improvements on approximately 25,000
square feet and to construct up to 589,000 square feet of additional adjacent
space on which the Company would receive additional lease revenue under the
terms of the option agreements.
On November 3, 1998, the Company entered into an agreement with TN-CP
Venture One ("TN-CP"), a Texas joint venture between the Company and Sierra
Office Venture Three, Ltd. ("SOVT"), whereby the Company 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, net leased
office building, located in Irving, Texas, which is currently 100% leased under
a 10-year lease arrangement. The Company's obligation to make such 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 and the tenant's occupancy of
the building. The Company 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 currently expects to fund only $7.6 million of the
$40.4 million conditional obligation and market the property for sale to a third
party by October 2000.
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).
NOTE 10--DIVIDENDS
As described in Note 2, prior to the merger with Starwood Financial, the
Company qualified as a REIT for federal income tax purposes. Subsequent to the
merger, the Company will be included as a QRS in Starwood Financial's
consolidated tax return. The following summarizes the tax components of common
dividends paid by the Company in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Per common share:
Ordinary income................................. $1.59 $1.81 $1.82
Capital gain.................................... -- -- 0.01
Return of capital............................... 1.01 0.75 0.06
----- ----- -----
Total......................................... $2.60 $2.56(1) $1.89(2)
===== ===== =====
</TABLE>
40
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--DIVIDENDS (CONTINUED)
EXPLANATORY NOTES:
- ------------------------------
(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 this column of 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 this column of the above table.
All 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,
1999, 1998 and 1997 represented ordinary income for income tax purposes.
NOTE 11--STOCK INCENTIVE PLANS AND EMPLOYEE BENEFITS
IMPACT OF MERGER--The Company's stock incentive plans were terminated
effective with the merger, at which time each holder of a stock option, with the
exception of the Company's directors and certain senior executives described
below, elected to receive one of the following for each stock option: (i) cash
equal to the difference between the market price and the exercise price of the
stock option, whether vested or unvested; or (ii) a number of options to
purchase Starwood Financial common stock on substantially the same terms, in
each case giving effect to the 1.15 exchange ratio. Unvested options were
exchanged for unvested Starwood Financial options and resumed the same vesting
schedules.
Certain senior executives of the Company elected to receive one of the
following for each stock option: (i) cash equal to the difference between the
market price and the exercise price of the stock option, whether vested or
unvested; (ii) a number of options to purchase Starwood Financial common stock
on substantially the same terms, in each case giving effect to the 1.15 exchange
ratio, except that both vested and unvested stock options were exchanged for
vested Starwood Financial options.
The Company's directors received a number of Starwood Financial options to
purchase Starwood Financial common stock vested substantially the same as their
options in the Company, in each case giving effect to the 1.15 exchange ratio
for their options in the Company.
Also as a result of the merger, the Company terminated its dividend
equivalent rights program. The program called for immediate vesting of all
dividend equivalent rights upon a change of control of 50% or more of the
Company's voting common stock. Coincident with the merger, all dividend
equivalent rights were vested and amounts due to employees of approximately
$8.3 million were paid by the Company. Such payments were included as part of
the purchase price paid by Starwood Financial to acquire the Company for
financial reporting purposes.
STOCK INCENTIVE PLANS--PRE-MERGER--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 provided for
administration by the Compensation Committee (the "Committee") of the Board of
Directors. A maximum of 500,000 common shares were reserved for issuance under
the 1993 Stock Plan. The 1993 Stock Plan authorized: (i) the grant of stock
options that qualified 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
41
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK INCENTIVE PLANS AND EMPLOYEE BENEFITS (CONTINUED)
restrictions. Options granted under the 1993 Stock Plan vested ratably over four
years for employees and after one year for non-employee directors.
In addition, in connection with the Company's initial public 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 public offering
vested ratably over three years.
During 1995, the Company adopted the 1995 Stock Incentive Plan (the "1995
Stock Plan"). The 1995 Stock Plan provided 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 were ISOs or Non-Qualified Options. Options granted under the
1995 Stock Plan vested 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 provided for the issuance of, or grant of
options to purchase, up to 800,000 shares of common stock. Options under the
1997 Stock Plan were ISOs or Non-Qualified Options. No options were granted
under the 1997 plan.
Also during 1997, the Company adopted the dividend equivalent rights program
as part of its long-term incentive compensation plans. Dividend equivalent
rights were issued to employees and directors in conjunction with option grants
to purchase Company stock and vested in equal annual installments over a period
of four years for employees and one year for directors. Dividend equivalent
rights expired after five years or when the underlying stock option was
exercised, forfeited or canceled. Payments on the dividend equivalent rights
units awarded accrued and accumulated in amounts equal to the dividends declared
and paid on the underlying options, and the actual payments on vested dividend
equivalent rights were made in annual installments on the vesting dates.
Dividend equivalent rights units were issued in tandem with all options granted
to directors and officers of the Company in 1997 and employees in 1998 (with the
exception of two grants in December 1998 in the aggregate amount of 130,000
options).
42
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK INCENTIVE PLANS AND EMPLOYEE BENEFITS (CONTINUED)
Changes during 1997, 1998 and 1999 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, 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
Granted, 1999.......................... 277,000 16,000 $27.00
Exercised, 1999........................ (141,666) -- $25.43
Canceled, 1999......................... (1,351,059) (146,000) $29.49
---------- --------
OPTIONS OUTSTANDING, DECEMBER 31, 1999... -- -- $ --
========== ========
</TABLE>
The Company applied 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 was 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 $557,000 or $0.02 per common share, for the period
from January 1, 1999 to November 3, 1999, by approximately $618,000, or $0.03
per common share, for the year ended December 31, 1998, and by approximately
$523,000, or $0.03 per common share, for the year ended December 31, 1997
The fair value of the options granted during 1999 is estimated as $2.31 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 10.0%, volatility of 25%, risk free interest rate of 5.50%, actual
forfeitures, and an expected life of approximately five years. 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 20.0%, 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 20.0%, risk-free interest rates of 5.75% to 6.5%, 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
43
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK INCENTIVE PLANS AND EMPLOYEE BENEFITS (CONTINUED)
the Company. Each participant may contribute on a pretax basis between 2% and
15% of such participant's compensation. At the discretion of the Board of
Directors, the Company may make matching contributions on the participant's
behalf up to 50% of the first 10% of the participant's annual contribution. The
Company made contributions of approximately $210,000, $183,000, and $102,000 to
the 401(k) Plan for the years ended December 31, 1999, 1998, and 1997,
respectively.
Effective January 1, 2000, the 401(k) Plan was expanded to include employees
of, and adopted by, Starwood Financial and was renamed the Starwood Financial
Inc. Savings and Retirement Plan.
NOTE 12--OPERATING LEASES
The Company's properties are leased to tenants under operating leases with
current expiration dates ranging from 2000 to 2018. Future lease revenues under
non-cancelable operating leases, excluding tenant reimbursements of expenses, in
effect at December 31, 1999, are approximately as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ----------
<S> <C>
2000............................................ $ 157,527
2001............................................ 148,431
2002............................................ 131,753
2003............................................ 119,423
2004............................................ 102,044
Thereafter...................................... 382,501
----------
$1,041,679
==========
</TABLE>
No single tenant represented more than 4% of lease revenues received for the
periods January 1, 1999 to November 3, 1999 and November 4, 1999 to
December 31, 1999.
44
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 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>
FOR THE PERIOD YEARS ENDED DECEMBER 31,
JANUARY 1, 1999 TO -------------------------
NOVEMBER 3, 1999 1998 1997
------------------ -------- --------
<S> <C> <C> <C>
NUMERATOR
Basic:
Income before extraordinary items and cumulative
effect........................................... $58,039 $63,843 $54,234
Extraordinary items................................ (665) (1,272) 98
Cumulative effect of a change in accounting
principle........................................ (1,810) -- --
------- ------- -------
Net income......................................... 55,564 62,571 54,332
Preferred dividend requirement..................... (11,758) (15,678) (9,522)
------- ------- -------
Earnings available to common shares................ $43,806 $46,893 $44,810
======= ======= =======
DENOMINATOR
Basic:
Weighted average common shares outstanding......... 24,978 24,387 19,435
======= ======= =======
Diluted:
Weighted average common shares outstanding......... 24,978 24,387 19,435
Shares issuable from assumed conversion of common
stock options.................................... 8 117 191
Shares issuable in exchange for land............... 74 -- --
------- ------- -------
Weighted average common shares outstanding, as
adjusted......................................... 25,060 24,504 19,626
======= ======= =======
EARNINGS AVAILABLE PER COMMON SHARE--BASIC:
Income available before extraordinary items........ $ 1.85 $ 1.97 $ 2.30
Extraordinary items................................ (0.10) (0.05) 0.01
------- ------- -------
Earnings available................................. $ 1.75 $ 1.92 $ 2.31
======= ======= =======
EARNINGS AVAILABLE PER COMMON SHARE--DILUTED:
Income available before extraordinary items........ $ 1.85 $ 1.96 $ 2.27
Extraordinary items................................ (0.10) (0.05) 0.01
------- ------- -------
Earnings available................................. $ 1.75 $ 1.91 $ 2.28
======= ======= =======
</TABLE>
For the period January 1, 1999 to November 3, 1999 and for the years ended
December 31, 1998 and 1997, there were 1,357,043, 995,303 and 297,728 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.
Earnings per share is not calculated for the period November 4, 1999 through
December 31, 1999 since all 100 shares outstanding are held entirely by Starwood
Financial.
45
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The summarized consolidated quarterly information for December 31 represents
the combined pre-and post-merger periods.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Revenues.......................................... $43,289 $48,107 $42,566 $42,425
Income before extraordinary item and cumulative
effect.......................................... $ 5,657 $23,313 $19,698 $21,026
Extraordinary loss................................ $ -- $ (665) $ -- $ --
Cumulative effect................................. $ -- $ -- $ -- $(1,810)
Net income........................................ $ 5,657 $22,648 $19,698 $19,216
Earnings available to common shares:
Basic........................................... $ 5,657 $18,729 $15,778 $15,297
Diluted......................................... $ 5,657 $18,732 $15,909 $15,389
Earnings available per common share--Basic:
Extraordinary loss per share.................... n/a $ (0.02) $ -- $ (0.07)
Earnings available per common share............. n/a $ 0.75 $ 0.63 $ 0.61
Earnings available per common share--Diluted:
Extraordinary loss per share.................... n/a $ (0.02) $ -- $ (0.07)
Earnings available per common share............. n/a $ 0.73 $ 0.63 $ 0.61
Weighted average number of shares outstanding:
Basic........................................... n/a 25,067 24,957 24,876
Diluted......................................... n/a 25,768 25,449 25,294
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
</TABLE>
46
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SHAREHOLDERS' EQUITY
Starwood Financial initiated a share repurchase program to buy back up to
5.0 million shares of its common stock. As of December 31, 1999, the Company has
repurchased 2.26 million shares of Starwood Financial's common stock for
$40.0 million resulting in an average per share cost of $17.66.
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.
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 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 was 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.
NOTE 16--SUBSEQUENT EVENTS
ASSET DISPOSITIONS--As part of its announced disposition plan, on March 1,
2000, the Company sold an industrial property located in Sunnyvale, California
for $13.4 million. The Company originally acquired the 174,600 square foot
building, which is leased to Lockheed Martin Corporation, in April of 1994. The
proceeds from this sale were used to partially repay $8.1 million of the 1994
Mortgage Loan which has a current principal balance of $36.3 million. In
connection with this partial paydown, the Company incurred certain prepayment
penalties which resulted in an extraordinary charge of $317,000 during the first
quarter.
On March 2, 2000, the Company disposed of a Paoli, Pennsylvania office
property for $32.6 million. The Company originally acquired the 370,562 square
foot building, which is leased to Unisys, in June 1993. The net proceeds were
used to pay down the Company's revolving unsecured credit facility.
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
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 28, 2000, except for Note 16, as to which the date is
March 2, 2000 appearing on page 24 of this Form 10-K of TriNet Corporate Realty
Trust, Inc. also included an audit of the financial statement schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents 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 28, 2000
48
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST COSTS
-------------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
UNISYS CORPORATION
1 - 2 2476 Swedesford Road ...... $ -- $ 4,678 $ 27,195 $ --
Paoli, PA
UNISYS CORPORATION
3 2611 Corporate West Drive ..... 6,676 6,693 16,308 --
Lisle, IL
REX STORES CORPORATION
4 2875 Needmore Road ............ 2,174 1,083 6,127 --
Dayton, OH
THE STANDARD REGISTER COMPANY
5 4000 South Racine Avenue ...... -- 426 3,008 --
Chicago, IL
RALPHS GROCERY COMPANY
6 2652 East Long Beach Avenue ... -- 9,347 12,518 --
Los Angeles, CA
UNIVERSAL TECHNICAL INSTITUTE
7 3002 North 27th Avenue ........ -- 1,099 2,193 --
Phoenix, AZ
CATERAIR INTERNATIONAL CORPORATION
8 50 Adrian Court ............... -- 1,207 3,435 --
Burlingame, CA
9 370 Adrian Road ............... -- 734 2,085 --
Millbrae, CA
10 3500 N.W. 24th Street ........ -- 3,017 8,589 --
Miami, FL
11 3630 N.W. 25th Street ........ -- 1,596 4,540 --
Miami, FL
12 4101 N.W. 25th Street ........ -- 1,379 3,927 --
Miami, FL
13 221 West 79th Street ......... -- 399 1,135 --
Bloomington, MN
14 1085 Bible Way ............... -- 246 699 --
Reno, NV
15 18850 28th Avenue, South ..... -- 820 2,331 --
Seattle, WA
16 2800 Collingswood Drive ...... -- 1,461 4,156 --
Orlando, FL
17 45 - 10 19th Avenue .......... -- 1,778 5,057 --
Astoria, NY
18 24 - 20 49th Street .......... -- 888 2,529 --
Astoria, NY
19 8401 Escort Street ............. -- 613 1,747 --
Philadelphia, PA
SEARS LOGISTICS SERVICES
20 4150 Lockbourne Industrial 2,748 390 7,478 --
Parkway........................
Columbus, OH
NORTHERN STATES POWER COMPANY
21 3115 Centre Point Drive ...... 1,385 1,102 4,407 --
Roseville, MN
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------- DEPRECIABLE
BUILDING AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
- ----------- ---------- ------------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
UNISYS CORPORATION
1 - 2 2476 Swedesford Road ...... $ 4,678 $ 27,195 $31,873 $ (96) 1999 40.0
Paoli, PA
UNISYS CORPORATION
3 2611 Corporate West Drive ..... 6,693 16,308 23,001 (70) 1999 40.0
Lisle, IL
REX STORES CORPORATION
4 2875 Needmore Road ............ 1,083 6,127 7,210 (27) 1999 40.0
Dayton, OH
THE STANDARD REGISTER COMPANY
5 4000 South Racine Avenue ...... 426 3,008 3,434 (12) 1999 40.0
Chicago, IL
RALPHS GROCERY COMPANY
6 2652 East Long Beach Avenue ... 9,347 12,518 21,865 (53) 1999 40.0
Los Angeles, CA
UNIVERSAL TECHNICAL INSTITUTE
7 3002 North 27th Avenue ........ 1,099 2,193 3,292 (12) 1999 40.0
Phoenix, AZ
CATERAIR INTERNATIONAL CORPORATION
8 50 Adrian Court ............... 1,207 3,435 4,642 (15) 1999 40.0
Burlingame, CA
9 370 Adrian Road ............... 734 2,085 2,819 (8) 1999 40.0
Millbrae, CA
10 3500 N.W. 24th Street ........ 3,017 8,589 11,606 (37) 1999 40.0
Miami, FL
11 3630 N.W. 25th Street ........ 1,596 4,540 6,136 (19) 1999 40.0
Miami, FL
12 4101 N.W. 25th Street ........ 1,379 3,927 5,306 (17) 1999 40.0
Miami, FL
13 221 West 79th Street ......... 399 1,135 1,534 (5) 1999 40.0
Bloomington, MN
14 1085 Bible Way ............... 246 699 945 (3) 1999 40.0
Reno, NV
15 18850 28th Avenue, South ..... 820 2,331 3,151 (10) 1999 40.0
Seattle, WA
16 2800 Collingswood Drive ...... 1,461 4,156 5,617 (18) 1999 40.0
Orlando, FL
17 45 - 10 19th Avenue .......... 1,778 5,057 6,835 (22) 1999 40.0
Astoria, NY
18 24 - 20 49th Street .......... 888 2,529 3,417 (11) 1999 40.0
Astoria, NY
19 8401 Escort Street ............. 613 1,747 2,360 (7) 1999 40.0
Philadelphia, PA
SEARS LOGISTICS SERVICES
20 4150 Lockbourne Industrial 390 7,478 7,868 (34) 1999 40.0
Parkway........................
Columbus, OH
NORTHERN STATES POWER COMPANY
21 3115 Centre Point Drive ...... 1,102 4,407 5,509 (19) 1999 40.0
Roseville, MN
</TABLE>
49
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST COSTS
-------------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
PNC MORTGAGE CORPORATION OF
AMERICA, INC.
22 440 North Fairway Drive ...... -- 1,386 12,470 --
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC.
23 450 Barclay Boulevard ........ 2,596 3,160 7,432 --
Lincolnshire, IL
24 500 South Seventh Avenue ..... 3,330 4,952 11,647 --
City of Industry, CA
25 11650 Central Parkway ........ 1,864 2,287 5,380 --
Jacksonville, FL
LOCKHEED MARTIN AEROSPACE
CORPORATION
26 1260 Crossman Avenue ......... 2,687 1,827 11,368 12
Sunnyvale, CA
LAND O LAKES
27 1275 Red Fox Road ............ 1,791 711 6,475 --
Arden Hills, MN
MICROSOFT CORPORATION
28 1321 Greenway ................ 1,435 2,258 7,276 52
Irving, TX
UNIVERSAL CARD SERVICES
29 7595 Oak Grove Plaza ......... 2,346 1,370 3,872 --
Jacksonville, FL
VACANT
30 7585 Oak Grove Plaza ......... 1,214 868 2,215 39
Jacksonville, FL
UNISON INDUSTRIES, L.P.
31 7575 Oak Grove Plaza ......... 3,985 2,342 6,011 --
Jacksonville, FL
GOODMAN MANUFACTURING
32 100 Donwick Drive ............ -- 1,231 4,059 49
Conroe, TX
NIKE, INC.
33 8400 Winchester Road ......... 6,113 1,471 23,045 --
Memphis, TN
CIRRUS LOGIC, INC.
34 46702 Bayside Parkway ........ 1,203 647 4,545 --
Fremont, CA
35 46831 Lakeview Blvd. ......... -- 1,075 7,884 --
Fremont, CA
CERTIFIED GROCERS OF CALIFORNIA,
LTD.
36 5200 Sheila Street ........... 2,879 3,447 12,889 --
Commerce, CA
FIRST HEALTH STRATEGIES, INC.
37-40 Decker Lake Lane Center ... -- 1,179 12,862 --
Salt Lake City, UT
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------- DEPRECIABLE
BUILDING AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
- ----------- ---------- ------------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
PNC MORTGAGE CORPORATION OF
AMERICA, INC.
22 440 North Fairway Drive ...... 1,386 12,470 13,856 (53) 1999 40.0
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC.
23 450 Barclay Boulevard ........ 3,160 7,432 10,592 (32) 1999 40.0
Lincolnshire, IL
24 500 South Seventh Avenue ..... 4,952 11,647 16,599 (43) 1999 40.0
City of Industry, CA
25 11650 Central Parkway ........ 2,287 5,380 7,667 (23) 1999 40.0
Jacksonville, FL
LOCKHEED MARTIN AEROSPACE
CORPORATION
26 1260 Crossman Avenue ......... 1,827 11,380 13,207 (39) 1999 40.0
Sunnyvale, CA
LAND O LAKES
27 1275 Red Fox Road ............ 711 6,475 7,186 (27) 1999 40.0
Arden Hills, MN
MICROSOFT CORPORATION
28 1321 Greenway ................ 2,258 7,328 9,586 (27) 1999 40.0
Irving, TX
UNIVERSAL CARD SERVICES
29 7595 Oak Grove Plaza ......... 1,370 3,872 5,242 (14) 1999 40.0
Jacksonville, FL
VACANT
30 7585 Oak Grove Plaza ......... 868 2,254 3,122 (8) 1999 40.0
Jacksonville, FL
UNISON INDUSTRIES, L.P.
31 7575 Oak Grove Plaza ......... 2,342 6,011 8,353 (33) 1999 40.0
Jacksonville, FL
GOODMAN MANUFACTURING
32 100 Donwick Drive ............ 1,231 4,108 5,339 (15) 1999 40.0
Conroe, TX
NIKE, INC.
33 8400 Winchester Road ......... 1,471 23,045 24,516 (98) 1999 40.0
Memphis, TN
CIRRUS LOGIC, INC.
34 46702 Bayside Parkway ........ 647 4,545 5,192 (18) 1999 40.0
Fremont, CA
35 46831 Lakeview Blvd. ......... 1,075 7,884 8,959 (31) 1999 40.0
Fremont, CA
CERTIFIED GROCERS OF CALIFORNIA,
LTD.
36 5200 Sheila Street ........... 3,447 12,889 16,336 (55) 1999 40.0
Commerce, CA
FIRST HEALTH STRATEGIES, INC.
37-40 Decker Lake Lane Center ... 1,179 12,862 14,041 (55) 1999 40.0
Salt Lake City, UT
</TABLE>
50
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST COSTS
-------------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
TRW, INC.
41 3701 Doolittle Drive ......... -- 2,572 9,119 --
Redondo Beach, CA
DUNHAM'S ATHLEISURE CORPORATION
42 2201 E. Loew Road ............ -- 142 4,598 --
Marion, IN
NEWCOURT FINANCIAL USA INC.
43 Gatehall Corporate Center -- 4,131 42,146 --
II ............................
Parsippany, NJ
ACOSTA SALES & MARKETING CO.
44 6300 Dumbarton Circle ........ -- 871 4,798 --
Fremont, CA
CASE SWAYNE CO INC.
45 5015 South Water Circle ...... -- 222 3,316 --
Wichita, KS
TECH DATA CORPORATION
46 3900 William Richardson -- 189 6,242 --
Drive .........................
South Bend, IN
PRIMERICA LIFE INSURANCE COMPANY
47 3120 Breckinridge -- 1,638 14,339 38
Boulevard .....................
Duluth, GA
ARROW ELECTRONICS, INC.
48 Capstone Building ............ -- 449 3,029 --
Aurora, CO
KOCH MEMBRANE SYSTEMS
49 10054 Old Grove Road ......... -- 1,514 3,030 --
San Diego, CA
NISSAN MOTOR ACCEPTANCE CORPORATION
50 2901 Kinwest Parkway ......... -- 1,350 10,521 --
Irving, TX
LEVER BROTHERS COMPANY
51 3501 E. Terra Drive .......... -- 1,374 12,573 --
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
52 - 54 NonConnah Corporate -- 3,197 29,727 --
Center ........................
Memphis, TN
VACANT
55 500 Airline Drive ............ -- 1,647 12,345 10
Coppell, TX
FRESENIUS USA, INC.
56 2637 Shadelands Drive ........ -- 742 7,624 --
Walnut Creek, CA
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------- DEPRECIABLE
BUILDING AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
- ----------- ---------- ------------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
TRW, INC.
41 3701 Doolittle Drive ......... 2,572 9,119 11,691 (38) 1999 40.0
Redondo Beach, CA
DUNHAM'S ATHLEISURE CORPORATION
42 2201 E. Loew Road ............ 142 4,598 4,740 (22) 1999 40.0
Marion, IN
NEWCOURT FINANCIAL USA INC.
43 Gatehall Corporate Center 4,131 42,146 46,277 (179) 1999 40.0
II ............................
Parsippany, NJ
ACOSTA SALES & MARKETING CO.
44 6300 Dumbarton Circle ........ 871 4,798 5,669 (20) 1999 40.0
Fremont, CA
CASE SWAYNE CO INC.
45 5015 South Water Circle ...... 222 3,316 3,538 (16) 1999 40.0
Wichita, KS
TECH DATA CORPORATION
46 3900 William Richardson 189 6,242 6,431 (27) 1999 40.0
Drive .........................
South Bend, IN
PRIMERICA LIFE INSURANCE COMPANY
47 3120 Breckinridge 1,638 14,377 16,015 (61) 1999 40.0
Boulevard .....................
Duluth, GA
ARROW ELECTRONICS, INC.
48 Capstone Building ............ 449 3,029 3,478 (13) 1999 40.0
Aurora, CO
KOCH MEMBRANE SYSTEMS
49 10054 Old Grove Road ......... 1,514 3,030 4,544 (12) 1999 40.0
San Diego, CA
NISSAN MOTOR ACCEPTANCE CORPORATION
50 2901 Kinwest Parkway ......... 1,350 10,521 11,871 (52) 1999 40.0
Irving, TX
LEVER BROTHERS COMPANY
51 3501 E. Terra Drive .......... 1,374 12,573 13,947 (55) 1999 40.0
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
52 - 54 NonConnah Corporate 3,197 29,727 32,924 (115) 1999 40.0
Center ........................
Memphis, TN
VACANT
55 500 Airline Drive ............ 1,647 12,355 14,002 (62) 1999 40.0
Coppell, TX
FRESENIUS USA, INC.
56 2637 Shadelands Drive ........ 742 7,624 8,366 (29) 1999 40.0
Walnut Creek, CA
</TABLE>
51
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST COSTS
-------------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
TERADYNE, INC.
57 2625 Shadelands Drive ........ -- 488 5,021 --
Walnut Creek, CA
LAM RESEARCH CORPORATION
58 1210 California Circle ....... -- 4,053 8,240 --
Milpitas, CA
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
59 401 West Michigan Street ..... -- 2,357 17,486 --
Milwaukee, WI
NORTHERN TELECOM INC.
60 2021 Lakeside Boulevard ...... -- 1,217 5,604 --
Richardson, TX
adidas AMERICA, INC.
61 5675 North Blackstock Road ... -- 934 16,667 --
Spartanburg, SC
FRONTIER CORPORATION
62 12110 North Pecos Street ..... -- 304 3,489 --
Westminster, CO
RATIONAL SOFTWARE
63 18880 Homestead Road ......... -- 7,614 18,132 --
Cupertino, CA
GALILEO INTERNATIONAL PARTNERSHIP
64 6901 S. Havana Street ........ -- 2,937 14,858 --
Englewood, CO
LUCENT TECHNOLOGIES, INC.
65 6162 S. Willow Drive ......... -- 1,756 16,919 6
Englewood, CO
IBM CORPORATION--DALLAS
66 13800 Diplomat Drive ......... -- 1,301 8,814 --
Farmers Branch, TX
RIVEREDGE SUMMIT
67 1500-1600 RiverEdge -- 5,652 48,598 15
Parkway .......................
Atlanta, GA
NORTHERN TELECOM INC.
68 Cardinal Commerce Center ..... -- 850 8,470 --
Richardson, TX
CANYON CORPORATE CENTER
69 5515 East La Palma Avenue .... -- 3,476 13,245 45
Anaheim, CA
70 5601 East La Palma Avenue .... -- 2,205 8,434 --
Anaheim, CA
71 5605 East La Palma Avenue .... -- 653 2,463 --
Anaheim, CA
RIVERPARK
72 200 Riverpark Drive .......... -- 548 5,595 --
North Reading, MA
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------- DEPRECIABLE
BUILDING AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
- ----------- ---------- ------------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
TERADYNE, INC.
57 2625 Shadelands Drive ........ 488 5,021 5,509 (19) 1999 40.0
Walnut Creek, CA
LAM RESEARCH CORPORATION
58 1210 California Circle ....... 4,053 8,240 12,293 (35) 1999 40.0
Milpitas, CA
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
59 401 West Michigan Street ..... 2,357 17,486 19,843 (69) 1999 40.0
Milwaukee, WI
NORTHERN TELECOM INC.
60 2021 Lakeside Boulevard ...... 1,217 5,604 6,821 (23) 1999 40.0
Richardson, TX
adidas AMERICA, INC.
61 5675 North Blackstock Road ... 934 16,667 17,601 (71) 1999 40.0
Spartanburg, SC
FRONTIER CORPORATION
62 12110 North Pecos Street ..... 304 3,489 3,793 (15) 1999 40.0
Westminster, CO
RATIONAL SOFTWARE
63 18880 Homestead Road ......... 7,614 18,132 25,746 (71) 1999 40.0
Cupertino, CA
GALILEO INTERNATIONAL PARTNERSHIP
64 6901 S. Havana Street ........ 2,937 14,858 17,795 (62) 1999 40.0
Englewood, CO
LUCENT TECHNOLOGIES, INC.
65 6162 S. Willow Drive ......... 1,756 16,925 18,681 (72) 1999 40.0
Englewood, CO
IBM CORPORATION--DALLAS
66 13800 Diplomat Drive ......... 1,301 8,814 10,115 (37) 1999 40.0
Farmers Branch, TX
RIVEREDGE SUMMIT
67 1500-1600 RiverEdge 5,652 48,613 54,265 (215) 1999 40.0
Parkway .......................
Atlanta, GA
NORTHERN TELECOM INC.
68 Cardinal Commerce Center ..... 850 8,470 9,320 (36) 1999 40.0
Richardson, TX
CANYON CORPORATE CENTER
69 5515 East La Palma Avenue .... 3,476 13,290 16,766 (56) 1999 40.0
Anaheim, CA
70 5601 East La Palma Avenue .... 2,205 8,434 10,639 (36) 1999 40.0
Anaheim, CA
71 5605 East La Palma Avenue .... 653 2,463 3,116 (11) 1999 40.0
Anaheim, CA
RIVERPARK
72 200 Riverpark Drive .......... 548 5,595 6,143 (22) 1999 40.0
North Reading, MA
</TABLE>
52
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST COSTS
-------------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
73 300 Riverpark Drive ......... -- 1,689 17,224 --
North Reading, MA
74 400 Riverpark Drive ......... -- 1,701 17,346 --
North Reading, MA
SUNBELT BEVERAGE CORP.
75 7621 Energy Parkway ......... -- 1,520 9,230 10
Baltimore, MD
FRONTIER CORPORATION
76 1499 West 121st. Street ..... -- 610 7,217 --
Westminister, CO
CHARLESTON PLACE
77 1545 Charleston Road ........ -- 5,594 12,274 --
Mountain View, CA
78-79 1565-1585 Charleston -- 12,374 27,147 --
Road .........................
Mountain View, CA
BAY STATE GAS
80 300 Friberg Parkway ......... -- 1,634 10,650 --
Westborough, MA
WARNER CROSSING
81 1120 West Warner Road ....... -- 694 4,295 --
Tempe, AZ
82 1130 West Warner Road ....... -- 1,023 6,585 --
Tempe, AZ
83 1140 West Warner Road ....... -- 1,023 6,585 --
Tempe, AZ
84 8440 South Hardy Drive ...... -- 1,023 6,585 --
Tempe, AZ
85 8320 South Hardy Drive ...... -- 1,497 9,634 --
Tempe, AZ
GATEWAY LAKES
86 1551 102nd Avenue ........... -- 715 3,030 --
St. Petersburg, FL
87 1527 102nd Avenue ........... -- 627 2,659 --
St. Petersburg, FL
EDENVALE BUSINESS PARK
88 5853-5863 Rue Ferrari -- 9,579 23,054 --
Drive ........................
San Jose, CA
PINACOR, INC.
89 105 West Bethany Drive ...... -- 1,225 9,131 --
Allen, TX
COMPUTER SCIENCES CORP
90 7700-7720 Hubble Drive ...... -- 2,461 11,926 20
Lanham, MD
POLYCOM, INC.
91 1565 Barber Lane ............ -- 4,831 12,243 --
Milpitas, CA
ALLIANCE DATA SYSTEMS
92 17201 Waterview Parkway ..... -- 1,899 4,586 --
Dallas, TX
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
--------------------------------------- DEPRECIABLE
BUILDING AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
- ----------- ---------- ------------- ---------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
73 300 Riverpark Drive ......... 1,689 17,224 18,913 (64) 1999 40.0
North Reading, MA
74 400 Riverpark Drive ......... 1,701 17,346 19,047 (65) 1999 40.0
North Reading, MA
SUNBELT BEVERAGE CORP.
75 7621 Energy Parkway ......... 1,520 9,240 10,760 (37) 1999 40.0
Baltimore, MD
FRONTIER CORPORATION
76 1499 West 121st. Street ..... 610 7,217 7,827 (30) 1999 40.0
Westminister, CO
CHARLESTON PLACE
77 1545 Charleston Road ........ 5,594 12,274 17,868 (50) 1999 40.0
Mountain View, CA
78-79 1565-1585 Charleston 12,374 27,147 39,521 (111) 1999 40.0
Road .........................
Mountain View, CA
BAY STATE GAS
80 300 Friberg Parkway ......... 1,634 10,650 12,284 (45) 1999 40.0
Westborough, MA
WARNER CROSSING
81 1120 West Warner Road ....... 694 4,295 4,989 (18) 1999 40.0
Tempe, AZ
82 1130 West Warner Road ....... 1,023 6,585 7,608 (28) 1999 40.0
Tempe, AZ
83 1140 West Warner Road ....... 1,023 6,585 7,608 (29) 1999 40.0
Tempe, AZ
84 8440 South Hardy Drive ...... 1,023 6,585 7,608 (29) 1999 40.0
Tempe, AZ
85 8320 South Hardy Drive ...... 1,497 9,634 11,131 (41) 1999 40.0
Tempe, AZ
GATEWAY LAKES
86 1551 102nd Avenue ........... 715 3,030 3,745 (11) 1999 40.0
St. Petersburg, FL
87 1527 102nd Avenue ........... 627 2,659 3,286 (12) 1999 40.0
St. Petersburg, FL
EDENVALE BUSINESS PARK
88 5853-5863 Rue Ferrari 9,579 23,054 32,633 (94) 1999 40.0
Drive ........................
San Jose, CA
PINACOR, INC.
89 105 West Bethany Drive ...... 1,225 9,131 10,356 (38) 1999 40.0
Allen, TX
COMPUTER SCIENCES CORP
90 7700-7720 Hubble Drive ...... 2,461 11,946 14,407 (51) 1999 40.0
Lanham, MD
POLYCOM, INC.
91 1565 Barber Lane ............ 4,831 12,243 17,074 (52) 1999 40.0
Milpitas, CA
ALLIANCE DATA SYSTEMS
92 17201 Waterview Parkway ..... 1,899 4,586 6,485 (19) 1999 40.0
Dallas, TX
</TABLE>
53
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST COSTS
-------------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
HEWLETT PACKARD
93 3000 Waterview Parkway ....... -- 2,903 30,921 --
Richardson, TX
MULTILINK
94 Six Riverside Drive .......... -- 637 7,150 --
Andover, MA
WELLPOINT HEALTH NETWORK, INC.
95-96 2000 Corporate Center -- 4,518 24,660 --
Drive .........................
Newbury Park, CA
TRINET PROPERTY PARTNERS, L.P.
97 1022 Hingham Street .......... -- 1,990 11,643 --
Rockland, MA
98 65 Dan Road .................. -- 907 3,856 --
Canton, MA
99 One Longwater Circle ......... -- 1,128 1,641 --
Norwell, MA
100 100 Longwater Circle ........ 3,910 964 3,766 --
Norwell, MA
101 101 Philip Drive ............ 2,356 501 2,254 --
Norwell, MA
102 30 Dan Road ................. -- 1,395 3,851 --
Canton, MA
103 85 Dan Road ................. -- 1,066 2,718 55
Canton, MA
104 300 Foxborough Boulevard .... 3,285 1,206 3,719 --
Foxborough, MA
105 105 Forbes Boulevard ........ 1,071 578 1,428 --
Mansfield, MA
106 60 Columbian Street ......... -- 2,203 7,328 --
Braintree, MA
107 76 Pacella Park Drive ....... 2,893 609 3,436 --
Randolph, MA
108 260 Kenneth W. Welch -- 1,002 4,007 --
Drive .........................
Lakeville, MA
109 700 Longwater Drive ......... -- 1,344 5,374 --
Norwell, MA
110 3000 Longwater Drive ........ 2,061 1,144 1,634 --
Norwell, MA
ICG HOLDINGS, INC.
111 161 Inverness Drive West .... -- 11,456 36,657 --
Englewood, CO
CONCORD FARMS
112 Three Concord Farms ......... -- 1,405 7,461 91
Concord, MA
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
------------------------------------- DEPRECIABLE
BUILDING AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
- ----------- ---------- ------------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
HEWLETT PACKARD
93 3000 Waterview Parkway ....... 2,903 30,921 33,824 (129) 1999 40.0
Richardson, TX
MULTILINK
94 Six Riverside Drive .......... 637 7,150 7,787 (30) 1999 40.0
Andover, MA
WELLPOINT HEALTH NETWORK, INC.
95-96 2000 Corporate Center 4,518 24,660 29,178 (94) 1999 40.0
Drive .........................
Newbury Park, CA
TRINET PROPERTY PARTNERS, L.P.
97 1022 Hingham Street .......... 1,990 11,643 13,633 (49) 1999 40.0
Rockland, MA
98 65 Dan Road .................. 907 3,856 4,763 (16) 1999 40.0
Canton, MA
99 One Longwater Circle ......... 1,128 1,641 2,769 (7) 1999 40.0
Norwell, MA
100 100 Longwater Circle ........ 964 3,766 4,730 (16) 1999 40.0
Norwell, MA
101 101 Philip Drive ............ 501 2,254 2,755 (11) 1999 40.0
Norwell, MA
102 30 Dan Road ................. 1,395 3,851 5,246 (16) 1999 40.0
Canton, MA
103 85 Dan Road ................. 1,066 2,773 3,839 (12) 1999 40.0
Canton, MA
104 300 Foxborough Boulevard .... 1,206 3,719 4,925 (16) 1999 40.0
Foxborough, MA
105 105 Forbes Boulevard ........ 578 1,428 2,006 (6) 1999 40.0
Mansfield, MA
106 60 Columbian Street ......... 2,203 7,328 9,531 (31) 1999 40.0
Braintree, MA
107 76 Pacella Park Drive ....... 609 3,436 4,045 (16) 1999 40.0
Randolph, MA
108 260 Kenneth W. Welch 1,002 4,007 5,009 (17) 1999 40.0
Drive .........................
Lakeville, MA
109 700 Longwater Drive ......... 1,344 5,374 6,718 (21) 1999 40.0
Norwell, MA
110 3000 Longwater Drive ........ 1,144 1,634 2,778 (8) 1999 40.0
Norwell, MA
ICG HOLDINGS, INC.
111 161 Inverness Drive West .... 11,456 36,657 48,113 (157) 1999 40.0
Englewood, CO
CONCORD FARMS
112 Three Concord Farms ......... 1,405 7,552 8,957 (32) 1999 40.0
Concord, MA
</TABLE>
54
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST COSTS
-------------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
113 Four Concord Farms ......... -- 1,297 7,590 39
Concord, MA
114 Five Concord Farms ......... -- 1,014 4,323 48
Concord, MA
115 Six Concord Farms .......... -- 1,292 7,387 39
Concord, MA
Two Concord Farms .............. -- 1,640 -- --
Concord, MA
Seven Concord Farms ............ -- 1,254 -- --
Concord, MA
ARBELLA CAPITAL CORP.
116 1100 Crown Colony Drive .... 13,280 3,275 21,537 --
Quincy, MA
MAST INDUSTRIES
117 100 Old River Road ......... -- 1,769 8,401 --
Andover, MA
HAEMONETICS CORP.
118 355 Wood Road .............. -- 784 4,880 --
Braintree, MA
NOKIA
119 6000 Connection Drive ...... -- 6,022 41,594 --
Irving, TX
ANDERSEN CONSULTING
120 1661 Page Mill Road ........ -- -- 18,975 --
Palo Alto, CA
WINDWARD FOREST
121 960 Northpoint Parkway ..... -- 896 6,676 --
Alpharetta, GA
THE MITRE CORPORATION
122 11493 Sunset Hills Road .... -- 4,391 22,137 --
Fairfax, VA
GTE COMMUNICATIONS CORP
123 Sierra I at Los Colinas .... -- 3,329 21,162 --
Irving, TX
POYDRAS PLAZA
124 Entergy Building ........... 78,610 2,064 35,092 2
New Orleans, LA
125 Mobil Building ............. -- 2,408 24,095 --
New Orleans, LA
126 Parking Garage ............. -- 6,134 9,350 5
New Orleans, LA
-------- ---------- ---------- --------
Total real estate subject to $151,892 $ 251,794 $1,222,440 $ 575
operating leases
======== ========== ========== ========
<CAPTION>
GROSS AMOUNT AT CLOSE OF PERIOD
--------------------------------------- DEPRECIABLE
BUILDING AND ACCUMULATED DATE LIFE
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED (YEARS)
- ----------- ---------- ------------- ---------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
113 Four Concord Farms ......... 1,297 7,629 8,926 (31) 1999 40.0
Concord, MA
114 Five Concord Farms ......... 1,014 4,371 5,385 (19) 1999 40.0
Concord, MA
115 Six Concord Farms .......... 1,292 7,426 8,718 (30) 1999 40.0
Concord, MA
Two Concord Farms .............. 1,640 -- 1,640 -- 1999 n/a
Concord, MA
Seven Concord Farms ............ 1,254 -- 1,254 -- 1999 n/a
Concord, MA
ARBELLA CAPITAL CORP.
116 1100 Crown Colony Drive .... 3,275 21,537 24,812 (92) 1999 40.0
Quincy, MA
MAST INDUSTRIES
117 100 Old River Road ......... 1,769 8,401 10,170 (38) 1999 40.0
Andover, MA
HAEMONETICS CORP.
118 355 Wood Road .............. 784 4,880 5,664 (21) 1999 40.0
Braintree, MA
NOKIA
119 6000 Connection Drive ...... 6,022 41,594 47,616 (177) 1999 40.0
Irving, TX
ANDERSEN CONSULTING
120 1661 Page Mill Road ........ -- 18,975 18,975 (74) 1999 40.0
Palo Alto, CA
WINDWARD FOREST
121 960 Northpoint Parkway ..... 896 6,676 7,572 (29) 1999 40.0
Alpharetta, GA
THE MITRE CORPORATION
122 11493 Sunset Hills Road .... 4,391 22,137 26,528 (90) 1999 40.0
Fairfax, VA
GTE COMMUNICATIONS CORP
123 Sierra I at Los Colinas .... 3,329 21,162 24,491 (88) 1999 40.0
Irving, TX
POYDRAS PLAZA
124 Entergy Building ........... 2,064 35,094 37,158 (151) 1999 40.0
New Orleans, LA
125 Mobil Building ............. 2,408 24,095 26,503 (105) 1999 40.0
New Orleans, LA
126 Parking Garage ............. 6,134 9,355 15,489 (41) 1999 40.0
New Orleans, LA
---------- ---------- ---------- -------
Total real estate subject to $ 251,794 $1,223,015 $1,474,809 $(5,111)
operating leases
========== ========== ========== =======
</TABLE>
55
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO SCHEDULE III
DECEMBER 31, 1999
(IN THOUSANDS)
1. Reconciliation of Real Estate:
The following table reconciles Real Estate from January 1, 1997 to December 31,
1999:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1........................................ $1,353,326 $1,158,295 $ 697,517
Additions................................................... 40,296 256,331 466,186
Dispositions................................................ (59,129) (55,638) (5,408)
Provision for asset held for sale........................... -- (5,662) --
Provision for asset impairment.............................. (3,400) -- --
Impact of purchase accounting adjustments................... 143,716 -- --
---------- ---------- ----------
Balance at December 31...................................... $1,474,809 $1,353,326 $1,158,295
========== ========== ==========
</TABLE>
2. Reconciliation of Accumulated Depreciation:
The following table reconciles Accumulated Depreciation from January 1, 1997
to December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1........................................ $71,950 $54,152 $36,360
Additions................................................... 29,004 27,628 19,347
Dispositions................................................ (4,007) (9,830) (1,555)
Impact of purchase accounting adjustments................... (91,836) -- --
------- ------- -------
Balance at December 31...................................... $ 5,111 $71,950 $54,152
======= ======= =======
</TABLE>
56
<PAGE>
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
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial statements--see Index to Financial Statements and Schedule
included in Item 8.
(a)(2) Financial statement schedule--see Index to Financial Statements and
Schedule included in Item 8.
(a)(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation.
3.2 Amended and Restated Bylaws.
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 and
including the form of the 7.70% Notes due 2006.
(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.)
4.4 Remarketing Agreement, dated February 27, 1998 (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 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 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.)
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.)
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
10.4 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.)
10.5 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.)
10.6 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.)
10.7 Registration Rights Agreement dated March 16, 1998 between
TriNet Corporate Realty Trust, Inc. and Whitehall Street
Real Estate Limited Partnership IX. (Incorporated by
reference to Exhibit 4.3 to Form S-3 dated March 21, 2000 of
Starwood Financial Inc.)
10.8 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, dated June 19, 1998,
of TriNet Corporate Realty Trust, Inc.)
10.9 First Amendment to Revolving Credit Agreement among TriNet
Corporate Realty Trust, Inc., as borrower, Morgan Guaranty
Trust Company of New York, as administrative agent, Bank of
America N.A. and certain banks dated November 5, 1999.
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
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Current Report on Form 8-K filed November 9, 1999 reporting a change of
control pursuant to Item 1, the acquisition or disposition of assets
pursuant to Item 2, and financial statements, pro-forma financial
information and exhibits pursuant to Item 7 of Form 8-K.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report covering the registrant's last fiscal year has been sent to
security holders, nor has any proxy soliciting material been sent to
security holders.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
TRINET CORPORATE REALTY TRUST, INC.
REGISTRANT
Date: March 30, 2000 /s/ JAY SUGARMAN
---------------------------------------------
Jay Sugarman
CHAIRMAN OF THE BOARD DIRECOTRS, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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> <C>
Date: March 30, 2000 /s/ BARRY S. STERNLICHT
---------------------------------------------
Barry S. Sternlicht,
CHAIRMAN OF THE BOARD OF DIRECTORS
Date: March 30, 2000 /s/ JAY SUGARMAN
---------------------------------------------
Jay Sugarman
CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR
Date: March 30, 2000 /s/ SPENCER B. HABER
---------------------------------------------
Spencer B. Haber
CHIEF FINANCIAL OFFICER, SECRETARY AND DIRECTOR
(EXECUTIVE VICE PRESIDENT--FINANCE)
Date: March 30, 2000 /s/ JEFFREY G. DISHNER
---------------------------------------------
Jeffrey G. Dishner
DIRECTOR
Date: March 30, 2000 /s/ JONATHAN D. EILIAN
---------------------------------------------
Jonathan D. Eilian
DIRECTOR
Date: March 30, 2000 /s/ MERRICK R. KLEEMAN
---------------------------------------------
Merrick R. Kleeman
DIRECTOR
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C>
Date: March 30, 2000 /s/ ROBIN JOSEPHS
---------------------------------------------
Robin Josephs
DIRECTOR
Date: March 30, 2000 /s/ WILLIAM M. MATTHES
---------------------------------------------
William M. Matthes
DIRECTOR
Date: March 30, 2000 /s/ KNEELAND C. YOUNGBLOOD
---------------------------------------------
Kneeland C. Youngblood
DIRECTOR
Date: March 30, 2000 /s/ WILLIS ANDERSEN, JR.
---------------------------------------------
Willis Andersen, Jr.
DIRECTOR
Date: March 30, 2000 /s/ BETSY Z. COHEN
---------------------------------------------
Betsy Z. Cohen
DIRECTOR
Date: March 30, 2000 /s/ MADISON F. GROSE
---------------------------------------------
Madison F. Grose
DIRECTOR
Date: March 30, 2000 /s/ ROBERT W. HOLMAN, JR.
---------------------------------------------
Robert W. Holman, Jr.
DIRECTOR
Date: March 30, 2000 /s/ JOHN G. MCDONALD
---------------------------------------------
John G. McDonald
DIRECTOR
</TABLE>
61
<PAGE>
<TABLE>
<S> <C> <C>
Date: March 30, 2000 /s/ STEPHEN B. ORESMAN
---------------------------------------------
Stephen B. Oresman
DIRECTOR
Date: March 30, 2000 /s/ GEORGE R. PUSKAR
---------------------------------------------
George R. Puskar
DIRECTOR
Date: March 30, 2000 /s/ MICHAEL G. MEDZIGIAN
---------------------------------------------
Michael G. Medzigian
DIRECTOR
</TABLE>
62
<PAGE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
Exhibit 12.1
<TABLE>
For the year ended December 31,
1999 1998 1997 1996 1995
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Income before transaction costs,
gain/loss on sales of real estate,
extraordinary charges and cumulative effect $ 78,420 $ 70,941 $53,249 $24,835 $20,234
Add:
Interest expense 45,646 40,535 25,845 23,623 20,924
Interest expense from joint ventures 10,113 4,955 - - -
-------- -------- ------- ------- -------
Earnings as adjusted $134,179 $116,431 $79,094 $48,458 $41,158
======== ======== ======= ======= =======
Fixed charges:
Interest expense $ 45,646 $ 40,535 $25,845 $23,623 $20,924
Interest expense from joint ventures 10,113 4,955 - - -
Capitalized interest 1,820 3,292 - - -
Capitalized interest from joint ventures 2,839 2,850 - - -
-------- -------- ------- ------- --------
Total fixed charges $ 60,418 $ 51,632 $25,845 $23,623 $20,924
======== ======== ======= ======= =======
Ratio of earnings to fixed charges 2.22 2.26 3.06 2.05 1.97
======== ======== ======= ======= =======
</TABLE>
<PAGE>
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,
1999 1998 1997 1996 1995
--------- -------- ------- ------- -------
<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 $ 78,420 $ 70,941 $53,249 $24,835 $20,234
Add:
Interest expense 45,646 40,535 25,845 23,623 20,924
Interest expense from joint ventures 10,113 4,955 - - -
--------- -------- ------- ------- -------
Earnings as adjusted $ 134,179 $116,431 $79,094 $48,458 $41,158
========= ======== ======= ======= =======
Combined fixed charges and
preferred stock dividends:
Interest expense $ 45,646 $ 40,535 $25,845 $23,623 $20,924
Interest expense from joint ventures 10,113 4,955 - - -
Capitalized interest 1,820 3,292 - - -
Capitalized interest from joint ventures 2,839 2,850 - - -
--------- -------- ------- ------- -------
Total fixed charges 60,418 51,632 25,845 23,623 20,924
Preferred stock dividends 11,758 15,678 9,552 3,646 -
--------- -------- ------- ------- -------
Combined fixed charges and
preferred stock dividends $ 72,176 $ 67,310 $35,397 $27,269 $20,924
========= ======== ======= ======= =======
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.86 1.73 2.23 1.78 1.97
========= ======== ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE 12 MONTHS ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,011
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,474,809
<DEPRECIATION> (5,111)
<TOTAL-ASSETS> 1,600,644
<CURRENT-LIABILITIES> 0
<BONDS> 691,591
0
0
<COMMON> 0
<OTHER-SE> 890,271
<TOTAL-LIABILITY-AND-EQUITY> 1,600,644
<SALES> 156,597
<TOTAL-REVENUES> 176,387
<CGS> 0
<TOTAL-COSTS> 52,157
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,646
<INCOME-PRETAX> 57,936
<INCOME-TAX> 0
<INCOME-CONTINUING> 57,936
<DISCONTINUED> 0
<EXTRAORDINARY> (665)
<CHANGES> (1,810)
<NET-INCOME> 55,461
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
