<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-11918
------------------------
TRINET CORPORATE REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 94-3175659
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
1114 AVENUE OF THE AMERICAS, 27(TH) FLOOR
NEW YORK, NY 10036
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 930-9400
------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of May 5, 2000, there were 100 shares of Common Stock outstanding.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I (1) (a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE.
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<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION.......................... 3
Item 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2000 AND DECEMBER
31, 1999.................................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS--FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999............................... 4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY--FOR THE THREE MONTHS ENDED MARCH 31, 2000........... 5
CONSOLIDATED STATEMENTS OF CASH FLOWS--FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999............................... 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 16
PART II. OTHER INFORMATION........................................... 19
Item 1. LEGAL PROCEEDINGS........................................... 19
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................... 19
Item 3. DEFAULTS UPON SENIOR SECURITIES............................. 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 19
Item 5. OTHER INFORMATION........................................... 19
Item 6. EXHIBITS AND REPORTS OF FORM 8-K............................ 19
SIGNATURES.................................................. 20
</TABLE>
2
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Loans and other lending investments, net.................... $ 40,482 $ 39,244
Real estate subject to operating leases, net................ 1,479,353 1,529,804
Cash and cash equivalents................................... 14,570 12,011
Restricted cash............................................. 7,672 6,697
Deferred operating lease income receivable.................. 3,429 1,147
Loan costs, net............................................. 2,864 3,022
Other assets, net........................................... 13,240 8,719
---------- ----------
Total assets.............................................. $1,561,610 $1,600,644
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities.... $ 42,090 $ 44,556
Debt obligations............................................ 641,990 691,591
---------- ----------
Total liabilities......................................... 684,080 736,147
---------- ----------
Commitments and contingencies (note 6)...................... -- --
Minority interest in consolidated entities.................. 2,565 2,565
Shareholders' equity:
Common stock, $0.01 par value, 100 shares authorized: 100
shares issued and outstanding at March 31, 2000 and
December 31, 1999......................................... -- --
Additional paid in capital.................................. 886,059 890,271
Retained earnings........................................... 29,006 11,655
Common stock of IStar Financial held in treasury (at
cost)..................................................... (40,100) (39,994)
---------- ----------
Total shareholders' equity................................ 874,965 861,932
---------- ----------
Total liabilities and shareholders' equity................ $1,561,610 $1,600,644
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
2000 1999
--------- -------------
(PREDECESSOR)
<S> <C> <C>
REVENUE:
Interest income........................................... $ 2,095 $ 1,690
Operating lease income.................................... 42,094 39,361
Joint venture income...................................... 456 927
Other income.............................................. 149 447
------- -------
Total revenue........................................... 44,794 42,425
------- -------
COSTS AND EXPENSES:
Interest expense.......................................... 13,811 11,162
Property operating costs.................................. 3,325 1,167
Depreciation and amortization............................. 7,623 7,104
General and administrative................................ 2,859 3,078
------- -------
Total costs and expenses................................ 27,618 22,511
------- -------
Net income before minority interest, gain on sale,
extraordinary loss and cumulative effect.................. 17,176 19,914
Minority interest in consolidated entities.................. (41) (41)
Gain on sale of net lease assets............................ 533 1,153
------- -------
Net income before extraordinary loss and cumulative
effect.................................................... 17,668 21,026
Extraordinary loss on early extinguishment of debt.......... (317) --
Cumulative effect of a change in accounting principle....... -- (1,810)
------- -------
Net income.................................................. 17,351 19,216
Preferred dividend requirement.............................. -- (3,919)
------- -------
Net income allocable to common shareholders................. $17,351 $15,297
======= =======
Basic earnings per common share............................. N/A $ 0.61
=======
Diluted earnings per common share........................... N/A $ 0.61
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED TREASURY
CAPITAL EARNINGS STOCK TOTAL
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1999......................... $890,271 $11,655 $(39,994) $861,932
Purchase of IStar Financial shares held in
treasury........................................... -- -- (106) (106)
Dividends paid to IStar Financial.................... (5,500) -- -- (5,500)
Dividends received on IStar Financial shares held in
treasury........................................... 1,288 -- -- 1,288
Net income for the period............................ -- 17,351 -- 17,351
-------- ------- -------- --------
Balance at March 31, 2000............................ $886,059 $29,006 $(40,100) $874,965
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
2000 1999
---------- -------------
(PREDECESSOR)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 17,351 $ 19,216
Adjustments to reconcile net income to cash flows provided
by operating activities:
Minority interest......................................... 41 41
Equity in earnings of unconsolidated joint ventures....... (456) (919)
Depreciation and amortization............................. 8,638 7,104
Amortization of discounts/premiums and costs on lending
investments............................................. (481) 485
Distributions from operating joint ventures............... 952 1,372
Straight-line operating lease income adjustments.......... (2,282) (1,439)
Gain on sale of net lease assets.......................... (533) (1,153)
Extraordinary loss on early extinguishment of debt........ 317 --
Cumulative effect of a change in accounting principle..... -- 1,810
Changes in assets and liabilities:
(Increase) decrease in other assets..................... (2,117) 4
(Decrease) increase in accounts payable, accrued
expenses and other liabilities........................ (5,527) 439
---------- -------------
Cash flows provided by operating activities............... 15,903 26,960
---------- -------------
Cash flows from investing activities:
New investment acquisitions................................. -- (15,898)
Net proceeds from sale of net lease assets.................. 45,291 14,480
Net investments in and advances to unconsolidated joint
ventures.................................................. (668) (644)
Capital expenditures on real estate subject to operating
leases.................................................... (1,858) (633)
---------- -------------
Cash flows provided by/(used in) investing activities..... 42,765 (2,695)
---------- -------------
Cash flows from financing activities:
Net repayments under revolving credit facility.............. (42,100) (12,900)
Repayments under term loans................................. (8,358) (211)
Preferred dividends paid.................................... -- (3,919)
Common dividends paid....................................... -- (16,167)
Minority interest........................................... (41) (41)
Extraordinary loss on early extinguishment of debt.......... -- --
Payment for deferred financing costs........................ (317) (69)
Proceeds from issuance of common stock...................... -- 1,161
Increase in restricted cash and investments................. (975) (750)
Purchase of IStar Financial shares held in treasury......... (106) --
Dividends paid to IStar Financial........................... (5,500) --
Dividends received on IStar Financial shares held in
treasury.................................................. 1,288 --
---------- -------------
Cash flows used in financing activities................... (56,109) (32,896)
---------- -------------
Increase/(decrease) in cash and cash equivalents............ 2,559 (8,631)
Cash and cash equivalents at beginning of period............ 12,011 19,323
---------- -------------
Cash and cash equivalents at end of period.................. $ 14,570 $ 10,692
========== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 14,865 $ 12,480
========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
ORGANIZATION--TriNet Corporate Realty Trust, Inc., a Maryland Corporation,
(the "Company"), became a wholly-owned subsidiary of IStar Financial Inc., a
Maryland Corporation ("IStar Financial") through a merger on November 4, 1999.
IStar Financial Inc. changed its name from Starwood Financial Inc. on April 30,
2000. As a wholly-owned subsidiary of IStar Financial, a real estate investment
trust ("REIT"), the Company intends to operate as a qualified real estate
investment trust subsidiary ("QRS") under the Internal Revenue Code of 1986, as
amended (the "Code").
BUSINESS--IStar Financial and its subsidiaries, including the Company,
specialize 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 March 31, 2000, the Company's
portfolio consisted of 145 properties principally subject to net leases to
approximately 158 tenants, comprising 18.3 million square feet in 25 states. Of
the 145 total properties, there are 26 properties, one of which is under
development, held in five joint venture partnerships.
MERGER TRANSACTION--On November 3, 1999, the Company's stockholders and the
shareholders of IStar Financial approved the merger of the Company with a
wholly-owned subsidiary of IStar Financial. The shareholders of IStar Financial
also approved: (i) the acquisition by IStar Financial, through a merger and
contribution of interests, of 100% of the ownership interests in its external
advisor; and (ii) the change in form of its organization from a business trust
to a corporation ("Incorporation Merger"). Pursuant to the merger, the Company
merged with and into a subsidiary of IStar Financial, with the Company surviving
as a wholly-owned subsidiary of IStar Financial. In the merger, each issued and
outstanding share of the Company's common stock was converted into 1.15 shares
of common stock of IStar Financial. Each issued and outstanding share of
Series A, Series B and Series C Cumulative Redeemable Preferred Stock of the
Company was converted into a share of Series B, Series C, and Series D
(respectively) Cumulative Redeemable Preferred Share of IStar Financial. The
IStar Financial preferred stock issued to the Company's former preferred
stockholders has substantially the same terms as the Company's preferred stock,
except that the new shares of Series B, C and D preferred stock have additional
voting rights not associated with the Company's preferred stock. The holders of
IStar Financial's Series A Preferred Shares received Series A Preferred Shares
in the Incorporation Merger with the same rights and preferences as existed
prior to the merger. The merger was structured as a tax-free reorganization
under federal tax law.
These transactions were consummated as of November 4, 1999, at which time
IStar Financial's single class of common shares began trading on the New York
Stock Exchange under the symbol "SFI".
NOTE 2--BASIS OF PRESENTATION
The accompanying 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.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the
7
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
Company's consolidated financial position and results of operations for the
interim period. The results of operations for the three months ended March 31,
2000, are not necessarily indicative of the results to be expected for the
entire year.
The merger was accounted for as a purchase of the Company by IStar Financial
and the balance sheet of the Company on November 4, 1999 was adjusted to reflect
the purchase price as required by Accounting Principles Board Opinion 16 ("APB
16"), "Accounting for Business Combinations." The purchase price was
approximately $1.5 billion, which included the assumption of the outstanding
preferred stock, debt and other liabilities of the Company. This purchase price
was allocated to the net assets of the Company based on their relative fair
values and resulted in no allocation to goodwill.
The Company's consolidated results of operations for the three months ended
March 31, 1999 reflect the historical operating results prior to the merger. The
Company's consolidated results of operations for the three months ended
March 31, 2000 reflect the operations of the Company after the merger and the
impact of the required APB 16 purchase accounting adjustments, as previously
described. In general, the recognition of straight-line lease revenue,
depreciation, interest income and interest expense have been impacted by the new
cost basis of the assets and liabilities reflected on the balance sheet.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOAN AND OTHER LENDING INVESTMENTS, NET--Loans and other lending investments
includes a partnership loan and a convertible mortgage. In general, management
considers its investments in this category as held-to-maturity and, accordingly,
reflects such items at amortized historical cost.
REAL ESTATE SUBJECT TO OPERATING LEASES AND DEPRECIATION--Real estate
subject to operating leases is generally recorded at cost. On November 4, 1999,
the effective date of the merger, adjustments were made to increase the book
value of real estate assets in the aggregate to reflect IStar Financial's
purchase price and to eliminate prior period accumulated depreciation. The
March 31, 2000 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. 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.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all cash and
liquid investments with an original maturity of three months or less.
8
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
operating lease income receivable on the balance sheet.
On November 4, 1999, the effective date of the merger, certain purchase
accounting adjustments were made to eliminate the deferred operating lease
income receivable. Additionally, for purposes of calculating the average lease
rates over the remaining lives of the leases, the term of all leases in place at
the time of the merger has been adjusted to reflect a new start date beginning
November 4, 1999.
INCOME TAXES--For the period from January 1, 1999 to November 4, 1999, the
Company elected to be taxed as a REIT under the Code. Subsequent to November 4,
1999, the Company will be taxed as a QRS under the Code. As a QRS, the Company
is included in the consolidated tax return of IStar Financial. IStar Financial
elected to be taxed as a REIT for the tax year ended December 31, 1998 under the
Code, and believes its current organization and method of operation will enable
it to maintain its status as a REIT. Accordingly, no provision has been made for
federal income taxes in the accompanying consolidated financial statements.
INTEREST RATE RISK MANAGEMENT--The Company has entered into various interest
rate protection agreements that, together with a swap agreement, fix the
interest rate on the Company's 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. The
Company enters into interest rate risk management arrangements with financial
institutions meeting certain minimum financial criteria, and the related credit
risk of non-performance by counter-parties is not deemed to be significant.
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 March 31, 2000, the Company's five
largest tenants collectively accounted for approximately 15.7% of the Company's
annualized lease revenue. The Company's largest single tenant accounted for
approximately 3.6% of the Company's annualized lease revenue.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
9
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 operation of the Company.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified in the
consolidated financial statements and the related notes to conform to the 2000
presentation.
NOTE 4--REAL ESTATE SUBJECT TO OPERATING LEASES
The Company's investments in real estate subject to operating leases, at
cost, were as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Buildings and improvements.......................... $1,186,280 $1,223,015
Improved land....................................... 245,289 251,794
Less accumulated depreciation..................... (12,372) (5,111)
---------- ----------
1,419,197 1,469,698
Investments in unconsolidated joint ventures........ 60,156 60,106
---------- ----------
Real estate subject to operating leases, net...... $1,479,353 $1,529,804
========== ==========
</TABLE>
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES--At March 31,
2000, 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 Centre
Associates LLC ("CTC I") whose external member is Corporate Technology Centre
Partners LLC; (iii) Sierra Land Ventures ("Sierra") whose external joint venture
partner is Sierra-LC Land, Ltd.; (iv) Corporate Technology Centre Associates II
LLC ("CTC II") whose external joint venture member is Corporate Technology
Centre Partners II LLC; 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.
10
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--REAL ESTATE SUBJECT TO OPERATING LEASES (CONTINUED)
At March 31, 2000, the ventures comprised 25 net leased facilities totaling
1.7 million square feet, 18.3 acres of land under development and 28.4 acres of
land held for development and sale. The Company's combined investment in these
joint ventures at March 31, 2000 was $60.2 million. The joint ventures' purchase
price for the 25 operating facilities owned at March 31, 2000 was
$269.9 million. The purchase price of the land, both under development, or held
for development, was approximately $38.6 million. In the aggregate, the joint
ventures had total assets of $343.3 million, total liabilities of
$261.4 million, and net income of $712,000. The Company accounts for these
investments under the equity method, because its joint venture partners have
certain participating rights which limit the Company's control. The Company's
investments in and advances to unconsolidated joint ventures, its percentage
ownership interests, its respective income and pro-rata share of third-party
debt as of March 31, 2000 are presented below (in thousands):
<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% $13,616 $ -- $ -- $13,616 $ 310 $ -- $ 310
CTC II................... 50.0% 4,320 21,205 4,790 30,315 (273) 1,312 1,039
Milpitas................. 50.0% 20,647 -- -- 20,647 629 -- 629
Development:
Sierra................... 50.0% 5,354 -- -- 5,354 (155) -- (155)
CTC I.................... 50.0% 16,219 -- -- 16,219 (55) -- (55)
------- ------- ------- ------- ------ ------ -------
Total................ $60,156 $21,205 $ 4,790 $86,151 $ 456 $1,312 $ 1,768
======= ======= ======= ======= ====== ====== =======
<CAPTION>
PRORATA
SHARE OF
UNCONSOLIDATED THIRD-PARTY
JOINT VENTURE DEBT
- --------------------------- -----------
<S> <C>
Operating:
Sunnyvale................ $ 7,416
CTC II................... 8,240
Milpitas................. 41,011
Development:
Sierra................... 2,588
CTC I.................... 35,390
-------
Total................ $94,645
=======
</TABLE>
At March 31, 2000, the Company was the guarantor for 50% of CTC I's
$70.8 million construction loan. The Company has agreed with its joint venture
partner to commence the development of phase II of the project. As a result, it
has an additional commitment to fund further development costs in the amount of
approximately $10.0 million. This amount will vary depending upon the amount of
senior third-party financing obtained.
Currently, the limited partners of the Sunnyvale partnership have the option
to convert their partnership interest into cash; however, the Company may elect
to deliver 297,728 shares of common stock of IStar Financial in lieu of cash.
Additionally, commencing in February 2002, subject to acceleration under certain
circumstances, partnership units held by certain partners of Milpitas may be
converted into 984,476 shares of common stock of IStar Financial.
11
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DEBT OBLIGATIONS
As of March 31, 2000 and December 31, 1999, the Company has debt obligations
under various arrangements with financial institutions as follows (in
thousands):
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL STATED SCHEDULED
BALANCE AS OF BALANCE AS OF INTEREST MATURITY
LOAN MARCH 31, 2000 DECEMBER 31, 1999 RATE DATE
- ---- -------------- ----------------- ----------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revolving Credit Facility........ $144,600 $186,700 LIBOR + 1.55% 05/31/2001
7.30% Notes due 2001............. 100,000 100,000 7.300% 05/15/2001
1994 Mortgage Loan............... 36,297 44,426 LIBOR + 1.000% 12/01/2004
7.95% Notes due 2006............. 50,000 50,000 7.950% 05/15/2006
7.70% Notes due 2017............. 100,000 100,000 7.700% 07/15/2017
6.75% Drs. Due 2013(1)........... 125,000 125,000 6.750% 03/01/2013
Poydras Mortgage Loan............ 78,610 78,610 LIBOR + 1.375% 06/18/2001
Other Mortgage Loans............. 28,627 28,856 6.000% - 11.375% (2)
-------- --------
663,134 713,592
Less debt discount............... (21,144) (22,001)
-------- --------
$641,990 $691,591
======== ========
</TABLE>
Explanatory notes:
- --------------------------
(1) Subject to mandatory tender on 3/1/2003. Initial coupon of 6.75% applies to
first five-year term only.
(2) Other Mortgage Loans mature at various dates through 2010.
12
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DEBT OBLIGATIONS (CONTINUED)
The 30-day LIBOR rate as of March 31, 2000 was 6.1325%. The Company has
entered into interest rate protection agreements which, together with certain
existing interest rate cap agreements, effectively fixes the interest rate on
$75.0 million of the Company's LIBOR-based borrowings at 5.58% plus the
applicable margin. The actual borrowing cost to the Company with respect to
indebtedness covered by the protection agreements will depend upon the
applicable margin over LIBOR for such indebtedness, which will be determined by
the terms of the relevant debt instruments. In addition, $75.0 million of the
outstanding balance of the Poydras Mortgage Loan is subject to an interest rate
cap which limits LIBOR to 7.50%.
The following table sets forth the components of interest expense for the
periods presented (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Interest incurred.................................. $ 13,134 $ 11,222
Capitalized interest............................... (338) (545)
Amortization of loan costs, interest rate
protection agreements, and loan discounts........ 1,015 485
----------- -----------
$ 13,811 $ 11,162
=========== ===========
</TABLE>
Cash interest paid for the three months ended March 31, 2000 and 1999 was
$14.9 million and $12.5 million, respectively.
NOTE 6--COMMITMENTS AND CONTINGENCIES
The Company is subject to option agreements with four existing tenants which
could require the Company to fund tenant improvements on approximately 25,000
square feet and to construct approximately 541,000 square feet of additional
adjacent space on which the Company would receive additional rent under the
terms of the option agreements. The option agreements commence and expire at
various dates through 2012.
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 was obligated to loan
TN-CP up to $38.5 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% net leased under a ten year lease
arrangement. The Company funded TN-CP $7.6 million, of its $38.5 million
commitment and TN-CP assumed the mortgage loan and acquired the asset. See
"Subsequent Events" Note 8.
13
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EARNINGS PER SHARE
The following table presents the basic and diluted earnings per share
calculations for the three months ended March 31, 1999 (dollars in thousands,
except per share amounts). Effective November 4, 1999, the Company became a
wholly-owned subsidiary of IStar Financial. IStar Financial is the sole
shareholder of the Company; therefore, the basic and diluted earnings per share
amounts for the three months ended March 31, 2000 have been omitted.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999
--------------------
(UNAUDITED)
<S> <C>
NUMERATOR
Basic:
Income before cumulative effect......................... $ 21,026
Cumulative effect of a change in accounting principle... (1,810)
-----------
Net income.............................................. 19,216
Preferred dividend requirement.......................... (3,919)
-----------
Earnings available to common shares..................... 15,297
-----------
Diluted:
Earnings available to common shares..................... 15,297
Equity earnings in joint ventures attributable to
convertible partnership units......................... 92
-----------
Earnings available to common shares, as adjusted........ $ 15,389
===========
DENOMINATOR
Basic:
Weighted average common shares outstanding.............. 24,876
===========
Diluted:
Weighted average common shares outstanding.............. 24,876
Shares issuable from assumed conversion of common stock
options............................................... 10
Shares issuable in exchange for land.................... 103
Partnership units as if converted....................... 305
-----------
Weighted average common shares outstanding, as
adjusted.............................................. 25,294
===========
EARNINGS AVAILABLE PER COMMON SHARE--BASIC:
Income available before cumulative effect................. $ 0.68
Cumulative effect......................................... (0.07)
-----------
Earnings available........................................ $ 0.61
===========
EARNINGS AVAILABLE PER COMMON SHARE--DILUTED:
Income available before cumulative effect................. $ 0.68
Cumulative effect......................................... (0.07)
-----------
Earnings available........................................ $ 0.61
===========
</TABLE>
For the quarter ended March 31, 1999, there were 1,180,037 weighted average
partnership units outstanding, on an as converted basis, that were not assumed
converted into common shares because they were antidilutive to earnings per
share.
14
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--SUBSEQUENT EVENTS
INVESTMENT IN JOINT VENTURE--On April 6, 2000, the Company, through TN-CP,
acquired Sierra III for $38.2 million. The 247,254 square foot build-to-suit,
net leased office building, located in Irving, Texas, is currently 100% net
leased under a ten year lease arrangement. The Company is the managing partner
of TN-CP and has an option to acquire Sierra III from TN-CP, based upon a
pre-determined agreement. TN-CP assumed $30.5 million of the original
construction loan outstanding on the property. The construction loan was
extended for one year and now matures in April 2001. The Company funded TN-CP
$7.6 million to TN-CP to acquire the asset.
PROPERTY DISPOSITION--As part of its intention to dispose of non-core
assets, on April 25, 2000, the Company sold a 251,850 square foot industrial
property located in Conroe, Texas for $5.5 million. The net proceeds were used
to pay down the Company's unsecured revolving credit facility.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report and
also with the Company's Annual Report for 1999 filed on Form 10-K. Unless
otherwise defined in this report, or unless the context otherwise requires, the
capitalized words or phrases referred to in this section have the meaning
ascribed to them in such financial statements and the notes thereto.
GENERAL
As a wholly-owned subsidiary of IStar Financial, the Company 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 March 31, 2000, the Company's
portfolio consisted of 145 properties principally subject to net leases to
approximately 158 tenants, comprising 18.3 million square feet in 25 states. Of
the 145 total properties, there are 26 properties, one of which is under
development, held in five joint venture partnerships.
On November 3, 1999, the Company's stockholders and the shareholders of
IStar Financial approved the merger of the Company with a wholly-owned
subsidiary of IStar Financial. The shareholders of IStar Financial also
approved: (i) the acquisition by IStar Financial, through a merger and
contribution of interests, of 100% of the ownership interests in its external
advisor; and (ii) the change in form of its organization from a business trust
to a corporation ("Incorporation Merger"). Pursuant to the merger, the Company
merged with and into a subsidiary of IStar Financial, with the Company surviving
as a wholly-owned subsidiary of IStar Financial. In the merger, each issued and
outstanding share of the Company's common stock was converted into 1.15 shares
of common stock of IStar Financial. Each issued and outstanding share of
Series A, Series B and Series C Cumulative Redeemable Preferred Stock of the
Company was converted into a share of Series B, Series C, and Series D
(respectively) Cumulative Redeemable Preferred Share of IStar Financial. The
IStar Financial preferred stock issued to the Company's former preferred
stockholders has substantially the same terms as the Company's preferred stock,
except that the new shares of Series B, C and D preferred stock have additional
voting rights not associated with the Company's preferred stock. The holders of
IStar Financial's Series A Preferred Shares received Series A Preferred Shares
in the Incorporation Merger with the same rights and preferences as existed
prior to the merger. The merger was structured as a tax-free reorganization
under federal tax law.
These transactions were consummated as of November 4, 1999, at which time
IStar Financial's single class of common shares began trading on the New York
Stock Exchange under the symbol "SFI".
The merger was accounted for as a purchase of the Company by IStar Financial
and the balance sheet of the Company on November 4, 1999 was adjusted to reflect
the purchase price as required by Accounting Principles Board Opinion 16 ("APB
16"), "Accounting for Business Combinations." The purchase price was
approximately $1.5 billion, which included the assumption of the outstanding
preferred stock, debt and other liabilities of the Company. This purchase price
was allocated to the net assets of the Company based on their relative fair
values and resulted in no allocation to goodwill.
Effective November 22, 1999, the joint venture partners of W9/Poydras, LLC
("Poydras") elected to exercise their right under the partnership agreement,
which was accelerated as a result of the merger, to exchange all of their
membership units for 350,746 shares of Common Stock of IStar Financial and
$767,000 of cash.
The three months ended March 31, 1999 represents the historical basis of the
Company's operations prior to the date of the merger. The three months ended
March 31, 2000 reflects the operations of the Company after the merger and
includes the consolidated results of Poydras as a wholly-owned subsidiary, and
therefore reflects the operating impact of purchase accounting adjustments made
to the assets and
16
<PAGE>
liabilities as previously described. In general, the recognition of
straight-line lease revenue, depreciation, interest income and interest expense
have been impacted by the new cost basis of the corresponding assets and
liabilities on the balance sheet.
The following discussion of the results of operations will focus on
comparisons between the pre-merger period in 1999 and the post-merger period for
2000. Material fluctuations in operations resulting from the effect of purchase
accounting are highlighted.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTH PERIOD ENDED
MARCH 31, 1999
INTEREST INCOME--Interest income increased to $2.1 million for the three
months ended March 31, 2000 from $1.7 million for the same period in 1999.
Interest income earned on the loan made to the Alcatel property increased by
$303,000 over the prior year as a result of a full three months of income on the
the loan, which was originated in March of 1999. As a result of purchase
accounting, $481,000 of discount amortization from CTC II and Alcatel was earned
in 2000. Interest earned on cash balances increased $46,000 over the 1999
amount. These increases are offset by a decrease of $404,000 in interest income
on the Poydras mezzanine loan made by the Company to a previously unconsolidated
partnership. This loan was consolidated subsequent to the merger because the
joint venture partner converted its interest into shares of common stock of
IStar Financial.
OPERATING LEASE INCOME--Operating lease income increased to $42.1 million
for the three months ended March 31, 2000 from $39.4 million for the same period
in 1999. An increase of $3.9 million was attributable to the consolidation of
Poydras in the Company's financial statements. Operating lease income from
assets owned during the first quarter of 1999 compared to the first quarter of
2000 increased $572,000. These increases were offset by a $1.8 million decrease
in operating lease income from asset dispositions during 1999 and 2000.
JOINT VENTURE INCOME--For the three months ended March 31, 2000, joint
venture income decreased by $471,000, from $927,000 in 1999 to $456,000 in 2000.
The Poydras consolidation resulted in a decrease of $92,000. CTC II joint
venture income decreased $180,000 as the result of a one-time fee earned by the
partnership in 1999, and Sierra income decreased $158,000 as it no longer was
under development during 2000 and incurred operating expenses.
OTHER INCOME--Other income for the three months ended March 31, 2000
consisted of $125,000 of dividend income and a $27,500 letter of credit fee
earned on CTC II. Other income for the three months ended March 31, 1999
consisted of a $250,000 non-compete fee on an asset sold in 1998, a $98,000
credit enhancement fee, and $135,000 of dividend income.
INTEREST EXPENSE--For the three months ended March 31, 2000, interest
expense increased by $2.6 million, or 23.7%, to $13.8 million from
$11.2 million for the same period of 1999. This increase is due to a greater
weighted average debt balance of $694.0 million for the three months ended
March 31, 2000, compared to $636.3 million for the same period of 1999. This
increase is primarily the result of the consolidation of the $78.6 million
Poydras mortgage which added $1.5 million to interest expense. The revolving
credit facility balance decreased from $176.0 million at March 31, 1999 to
$144.6 million on March 31, 2000. The weighted average interest rate on the
revolver increased from 6.67% to 8.00%, resulting in an increase of $718,000 in
interest expense. Additional non-cash interest expense in the amount of $857,000
was recognized on the notes payable discounts recorded during the fourth quarter
of 1999 as a result of the merger. Interest expense was reduced by $220,000
during the first quarter of 2000 from the write-off of loan fees in connection
with the merger.
PROPERTY OPERATING COSTS--For the three months ended March 31, 2000,
property operating costs increased to $3.3 million from $1.2 million for the
same period of 1999. The increase is primarily due to the consolidation of
Poydras, which contributed $1.5 million to property operating costs in 2000
compared to 1999.
17
<PAGE>
GENERAL AND ADMINISTRATIVE--For the three months ended March 31, 2000,
general and administrative expenses decreased by $219,000, or 7.1%, to
$2.9 million compared to $3.1 million for the same period in 1999. This decrease
is primarily a result of a reduction in personnel and related overhead costs in
2000 as compared to 1999.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased by
7.3% for the three months ended March 31, 2000, when compared to the first three
months of 1999. Depreciation and amortization were impacted by the purchase
accounting adjustments during the fourth quarter of 1999. The basis of the
depreciable assets increased from the 1999 amount resulting in greater
depreciation expense.
MINORITY INTEREST--Minority interest expense of $41,000 for the first three
months of 2000 represents the limited partners' share of net income from TriNet
Property Partners, L.P., a partnership formed in December 1997. The Company has
a 96.5% interest in TriNet Property Partners, L.P. and is the sole general
partner.
GAIN ON SALE OF NET LEASE ASSETS--During the first quarter of 2000, the
Company disposed of two assets. On March 1, 2000, the Company sold a 174,600
square foot industrial building in Sunnyvale, California for $13.4 million,
realizing a gain of $238,000. Also, on March 2, 2000, the Company sold a 370,562
square foot office property in Paoli, Pennsylvania for $32.6 million and
recognized a gain of $295,000.
On March 12, 1999, the Company sold an 82,600 square foot office building
located in Allen, Texas for $11.2 million and recognized a gain of $1.2 million
on the transaction. The Company also disposed of its last retail property in the
first quarter of 1999 for $3.5 million. The retail property was classified as
held for sale at December 31, 1998, and a provision for asset held for sale of
$5.7 million was recognized in 1998.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT--Certain of the proceeds
from an asset disposition were used to partially repay $8.1 million of the 1994
Mortgage Loan. In connection with this partial paydown, the Company incurred
certain prepayment penalties, which resulted in an extraordinary loss of
$317,000 during the first quarter.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE--In April 1998, the
Accounting Standards Executive Committee issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires
all costs of start-up activities, including organization costs, to be charged to
operations as incurred for fiscal years beginning after December 15, 1998. The
initial application of SOP 98-5 requires that prior years' unamortized start-up
costs be charged to income as a cumulative effect of a change in accounting
principle. Accordingly, the Company reported a $1.8 million charge to net income
during the first quarter of 1999 as a cumulative effect of a change in
accounting principle.
FORWARD LOOKING INFORMATION
When used in this Form 10-Q, in future SEC filings or in press releases or
other written or oral communications, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "project" or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
cautions that such forward looking statements speak only as of the date made and
that various factors including regional and national economic conditions,
changes in levels of market interest rates, credit and other risks of lending
and investment activities, and competitive and regulatory factors could affect
the Company's financial performance and could cause actual results for future
periods to differ materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements except as required by law.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Omitted pursuant to General Instruction H (2) of Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Omitted pursuant to General Instruction H (2) of Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction H (2) of Form 10-Q.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27.1 Financial Data Schedule.
B. REPORTS ON FORM 8-K
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
TRINET CORPORATE REALTY TRUST, INC.
---------------------------------------------
REGISTRANT
Date: May 15, 2000 /s/ JAY SUGARMAN
---------------------------------------------
Jay Sugarman
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Date: May 15, 2000 /s/ SPENCER B. HABER
---------------------------------------------
Spencer B. Haber
EXECUTIVE VICE PRESIDENT--FINANCE
CHIEF FINANCIAL OFFICER, DIRECTOR AND
SECRETARY
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 14,570
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,431,570
<DEPRECIATION> (12,372)
<TOTAL-ASSETS> 1,561,610
<CURRENT-LIABILITIES> 0
<BONDS> 641,990
0
0
<COMMON> 0
<OTHER-SE> 886,059
<TOTAL-LIABILITY-AND-EQUITY> 1,561,610
<SALES> 42,094
<TOTAL-REVENUES> 44,794
<CGS> 0
<TOTAL-COSTS> 3,325
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,811
<INCOME-PRETAX> 17,668
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,668
<DISCONTINUED> 0
<EXTRAORDINARY> (317)
<CHANGES> 0
<NET-INCOME> 17,351
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
