<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 1-12566
-------------
G&L REALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
439 N. BEDFORD DRIVE
BEVERLY HILLS, CALIFORNIA 90210
(Address of Principal Executive (Zip Code)
Offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 273-9930
-------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No ___.
---
The number of shares outstanding of the Registrant's Common Stock, as
of November 12, 1996, was 4,062,500 shares.
Page 1
<PAGE>
G&L REALTY CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<C> <S> <C>
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1996 (unaudited) and December 31, 1995 3
Condensed Consolidated Statements of Operations for
the Three Month and the Nine Month Periods Ended
September 30, 1996 and 1995 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended September 30, 1996 and
1995 (unaudited) 5
Condensed Consolidated Statements of Cash Flows:
Supplemental Schedule of Noncash Financing Activities
for the Nine Month Periods Ended September 30, 1996
and 1995 (unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7-11
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-16
Part II Other Information
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
Signature 18
Exhibit Index 19
</TABLE>
Page 2
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------------------------
<S> <C> <C>
ASSETS
- ------
Rental properties:
Land $ 16,730,674 $ 15,262,221
Buildings and improvements, net 74,374,113 76,884,946
------------ ------------
Total rental properties 91,104,787 92,147,167
Cash and restricted cash 2,461,795 1,280,191
Accounts receivable, net 230,588 129,265
Tenant rent and reimbursements receivable, net 486,138 709,436
Unbilled rent receivable, net 1,350,161 2,581,756
Mortgage loans and bonds receivable 15,216,558 33,633,635
Assets available for sale 23,153,688
Deferred charges and other assets, net 2,399,354 2,865,707
------------ ------------
TOTAL ASSETS $136,403,069 $133,347,157
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Notes payable $108,935,621 $111,626,872
Accounts payable and other liabilities 1,669,263 1,766,718
Distributions payable 1,641,970 1,401,607
Tenant security deposits 1,043,098 1,032,437
------------ ------------
Total liabilities 113,289,952 115,827,634
Minority interest in consolidated partnership (2,743,170) (2,846,777)
Minority interest in Operating Partnership 3,141,141 2,099,204
Stockholders' equity:
Common shares - $.01 par value, 50,000,000 shares
authorized, 4,062,500 and 4,062,000 shares issued and
outstanding as of 9/30/96 and 12/31/95 respectively 40,625 40,620
Preferred shares - $.01 par value, 10,000,000
shares authorized, no shares issued and outstanding 0 0
Additional paid-in capital 23,710,054 23,705,496
Distributions in excess of net income (1,035,533) (5,479,020)
------------ ------------
Total stockholders' equity 22,715,146 18,267,096
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $136,403,069 $133,347,157
============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
Page 3
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
1996 1995 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental $3,722,981 $4,189,117 $11,396,150 $12,689,371
Tenant reimbursements 124,049 235,271 381,144 549,230
Parking 288,585 339,508 921,537 1,056,361
Interest, loan fees and related income 2,070,907 194,303 5,342,128 218,481
Other 92,415 382,407 316,763 752,103
---------- ---------- ----------- -----------
Total revenues 6,298,937 5,340,606 18,357,722 15,265,546
---------- ---------- ----------- -----------
EXPENSES:
Property operations 1,369,061 1,332,237 3,832,993 3,945,845
Earthquake costs (reimbursements) (133,162)
Depreciation and amortization 776,840 903,689 2,434,175 2,970,586
Interest 2,276,470 1,516,191 6,573,173 4,190,771
General and administrative 498,631 338,516 1,421,472 1,174,662
Loss on disposition of rental property 4,873,788
---------- ---------- ----------- -----------
Total expenses 4,921,002 4,090,633 19,135,601 12,148,702
---------- ---------- ----------- -----------
Income (loss) from operations 1,377,935 1,249,973 (777,879) 3,116,844
Minority interest in consolidated partnership (31,872) (36,952) (103,607) (107,403)
Minority interest in Operating Partnership (150,611) (123,229) 76,743 (303,218)
---------- ---------- ----------- -----------
Income (loss) before extraordinary gain (loss) 1,195,452 1,089,792 (804,743) 2,706,223
Extraordinary gain (loss) on retirement of debt (393,401) 9,310,730 (393,401)
----------- ---------- ----------- -----------
Net income $1,195 ,452 $ 696,391 $ 8,505,987 $ 2,312,822
=========== ========== =========== ===========
Per share data:
Before extraordinary gain (loss) $ 0.29 $ 0.27 $ (0.20) $ 0.66
Extraordinary gain (loss) (0.10) 2.29 (0.10)
----------- ---------- ----------- -----------
Net income $ 0.29 $ 0.17 $ 2.09 $ 0.56
=========== ========== =========== ===========
Weighted average number of outstanding shares 4,062,500 4,062,000 4,062,480 4,100,359
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
Page 4
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,505,987 $ 2,312,822
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary (gain) loss on retirement of debt (9,310,730) 393,401
Minority interests 26,864 410,621
Loss on disposition of rental property 4,873,788
Depreciation and amortization 2,434,175 2,970,586
Unbilled rent receivable, net 122,313 (187,194)
(Increase) decrease in:
Deferred charges and other assets (352,859) (898,222)
Accounts receivable (101,323) 564,363
Tenant rent and reimbursements receivable (116,926) (250,171)
Increase (decrease) in:
Accounts payable and other liabilities (773,993) 306,513
Tenant security deposits 10,661 54,818
------------ ------------
Net cash provided by operating activities 5,317,957 5,677,537
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental properties (1,500,197) (1,358,466)
Purchase of rental properties (19,977,279) (800,000)
Acquisition of assets available for sale (3,272,951)
Pre-acquisition costs (49,882) (542,985)
Return of pre-acquisition deposits 1,115,104
Leasing commissions (98,746) (134,136)
Decrease (increase) in notes and bonds receivable (1,463,660) (8,462,256)
------------ ------------
Net cash used in investing activities (25,247,611) (11,297,843)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 47,000,000 44,426,447
Deferred fees and financing costs (1,113,860) (812,746)
Repayments of notes payable (21,020,339) (27,287,443)
Sale (Purchase) of common stock and partnership units 553,573 (812,050)
Distributions (4,308,116) (4,832,035)
------------ ------------
Net cash provided by financing activities 21,111,258 10,682,173
------------ ------------
NET INCREASE IN CASH AND RESTRICTED CASH 1,181,604 5,061,867
BEGINNING CASH AND RESTRICTED CASH 1,280,191 1,168,983
------------ ------------
ENDING CASH AND RESTRICTED CASH $ 2,461,795 $ 6,230,850
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 6,636,137 $ 4,129,072
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
Page 5
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
For the Nine Month Periods Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Net cost of assets transferred to lien holder:
Land $ 2,046,547
Buildings and improvements 21,600,736
Tenant improvements 477,245
Accumulated depreciation (3,557,101)
-----------
Total rental property 20,567,427
Unbilled rent receivable, net 1,109,282
Tenant and other accounts receivable 340,224
Leasing commissions, net 180,782
Deferred charges and other assets 87,424
Accounts payable and other liabilities 588,649
-----------
Net cost of assets transferred to lien holder 22,873,788
Nonrecourse debt extinguished 28,500,000
-----------
Excess of nonrecourse debt over net cost of
assets surrendered $ 5,626,212
===========
Noncash gain from transfer of property to
lien holder:
Extraordinary gain on retirement of debt $ 9,310,730
Minority interest share of extraordinary gain 1,055,650
-----------
Extraordinary gain on retirement of debt 10,366,380
Extraordinary loss related to other
refinancing transactions 133,620
-----------
Extraordinary gain on transfer of
property to lien holder 10,500,000
Loss on disposition of rental property (4,873,788)
-----------
Noncash gain from transfer of property to
lien holder $ 5,626,212
===========
Distributions declared not yet paid $ 1,641,970 $1,401,607
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
Page 6
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
G&L Realty Corp. (the "Company") was formed as a Maryland corporation on
September 15, 1993 by Daniel M. Gottlieb and Steven D. Lebowitz to continue the
ownership, management, acquisition and development operations of medical office
buildings conducted previously by G&L Development, the Company's predecessor.
All of the Company's assets are held by, and all of its operations are, or were,
conducted through the following Delaware limited partnerships:
G&L Realty Partnership, L.P. (the "Operating Partnership")
G&L Financing Partnership, L.P. (the "Financing Partnership")
(liquidated on August 17, 1995)
G&L Realty Financing Partnership II, L.P. (the "Realty Financing
Partnership")
G&L Medical Partnership, L.P. (the "Medical Partnership")
The Company, as the sole general partner and as owner of an
approximately 90% ownership interest, controls the Operating Partnership. The
Company controlled the Financing Partnership through its wholly owned
subsidiary, G&L Financing, Inc., a Delaware corporation, which was the sole
general partner and 1% owner of the Financing Partnership. The Operating
Partnership was the sole limited partner and 99% owner of the Financing
Partnership. As a result of the refinancing of debt, the Financing Partnership
was liquidated effective August 17, 1995 and the assets it owned were
transferred to its partners. The Company also controls the Realty Financing
Partnership through its wholly owned subsidiary G&L Realty Financing II,
Inc., a Delaware corporation, which is the sole general partner and 1% owner
of the Realty Financing Partnership. The sole limited partner and 99% owner of
the Realty Financing Partnership is the Operating Partnership. In May 1996
and in conjunction with a financing transaction, the Company transferred three
buildings into a newly formed limited partnership, the Medical Partnership, a
Delaware limited partnership. The sole limited partner and 99% owner of the
Medical Partnership is the Operating Partnership. The Company controls the
Medical Partnership through its wholly owned subsidiary, G&L Medical, Inc., a
Delaware corporation, which is the sole general partner and 1% owner of the
Medical Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is a growth-oriented health care Real Estate
Investment Trust ("REIT") with two major areas of operation: the Medical Office
Building Division, which owns, develops and manages high-quality, strategically
located properties, and the Senior Care Division, which facilitates the sale of
skilled nursing and assisted care facilities to not-for-profit organizations
throughout the United States.
Basis of Presentation - The accompanying condensed consolidated
financial statements include the accounts of the Company. The interests in 435
North Roxbury Drive, Ltd. not owned by the Company have been reflected in
minority interests. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Page 7
<PAGE>
The information for the three month and the nine month periods ended
September 30, 1996 and 1995 has not been audited by independent accountants,
but includes all adjustments (consisting of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
results for such periods. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of results that might be
expected for the full fiscal year.
Certain information and footnote disclosures normally included in annual
financial statements have been omitted. The Company believes that the
disclosures included in these financial statements are adequate for a fair
presentation and conform to reporting requirements established by the
Securities and Exchange Commission (SEC). The condensed consolidated financial
statements as presented herein should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K as filed with the SEC.
The Condensed Consolidated Balance Sheets reflect the combined assets
and liabilities of the Company. The Condensed Consolidated Statements of
Operations and Cash Flows have been prepared to reflect the operations of the
Company for the periods ended September 30, 1996 and 1995.
Cash and Restricted Cash - As of September 30, 1996, the Company had
$2,184,259 in a segregated interest bearing account to be used for debt service
due in October 1996, current property taxes, insurance and property
improvements.
Assets Available for Sale - The Company is currently involved in
negotiations to sell certain assets. The associated cost of these assets is
included in the Company's balance sheet as assets available for sale. The net
realizable value of the assets available for sale approximates cost.
Per Share Data - Earnings per share are computed based upon the weighted
average number of common shares outstanding during the period. The treasury
stock method is used to determine the number of incremental common equivalent
shares resulting from options granted under the incentive and non-qualified
share options plans. The effect of such incremental common equivalent shares is
considered to be non-dilutive.
3. BUILDINGS AND IMPROVEMENTS
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-----------------------------
(Unaudited)
<S> <C> <C>
Buildings and improvements $79,704,623 $84,638,984
Tenant improvements 4,227,711 3,450,249
Furniture, fixtures and equipment 337,464 296,070
----------- -----------
84,269,798 88,385,303
Less accumulated depreciation and
amortization (9,895,685) (11,500,357)
----------- -----------
Total $74,374,113 $76,884,946
=========== ===========
</TABLE>
Page 8
<PAGE>
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-----------------------------
(Unaudited)
<S> <C> <C>
Loan fees $1,950,620 $1,459,051
Pre-acquisition costs 1,065,222
Leasing commissions 675,215 1,115,595
Prepaid expense and other assets 450,694 185,259
---------- ----------
3,076,529 3,825,127
Less accumulated amortization (677,175) (959,420)
---------- ----------
Total $2,399,354 $2,865,707
========== ==========
</TABLE>
5. STOCKHOLDERS' EQUITY
As described in Note 2, the Company has elected to be treated, for
federal income tax purposes, as a REIT. As such, the Company is required to
distribute annually, in the form of distributions to its stockholders, at least
95% of its taxable income. In reporting periods in which distributions exceed
net income, stockholders' equity will be reduced by the distributions in excess
of net income in such period and will be increased by the excess of net income
over distributions in reporting periods in which net income exceeds
distributions. For tax reporting purposes, a portion of the dividends declared
represents a return of capital. The following table reconciles net income and
distributions in excess of net income for the nine month period ended September
30, 1996 and for the year ended December 31, 1995:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-----------------------------
(Unaudited)
<S> <C> <C>
Distributions in excess of net
income at beginning of period ($5,479,020) ($3,753,475)
Net income during period 8,505,987 3,341,405
Less: Distributions declared (4,062,500) (5,066,950)
----------- -----------
Distributions in excess of net
income ($1,035,533) ($5,479,020)
=========== ===========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
None of the Company, the Operating Partnership, the former Financing
Partnership, the Realty Financing Partnership, the Medical Partnership, nor any
of the assets within their portfolios of medical office buildings, parking
facilities, and retail space (the "Properties") is currently a party to any
material litigation.
Page 9
<PAGE>
7. ACQUISITION OF ASSETS
On August 30, 1996, the Medical Partnership acquired the property
located at 436 North Bedford Drive in Beverly Hills, California (the
"Property") for approximately $18.1 million funded by a $15.2 million loan from
Nomura Asset Capital Corporation, $2.65 million in cash (of which approximately
$1.8 million was drawn against the Company's credit line) and an assumption of
obligations totaling $250,000. The Property consists of a three story medical
office building totaling 78,799 square feet of net rentable area and a 100,000
square foot parking garage. As of August 30, 1996, the Property was 98.4% leased
with an effective average annual rent of $38.90 per square foot. The Property
was purchased from Loan Asset Structured Trust I, a Delaware trust (the
"Seller"), an affiliate of Nomura Asset Capital Corporation. The Seller is not
affiliated with the Company, any director or officer of the Company, or any
associate of any such director or officer.
The Property, originally owned by the Operating Partnership, was subject
to a $28.5 million non-recourse loan (the "Loan"). The Loan came due in August
1995, at which time the Company's management estimated that the value of the
Property was less than the amount of the Loan and began discussions with the
lien holder regarding a possible loan restructure. On May 24, 1996, ownership of
the Property was transferred to the Seller, which held the $28.5 million lien
on the Property, in satisfaction of the Loan. Pursuant to the terms of the
transaction, the Operating Partnership funded the security deposit obligations,
paid $250,000 for a right of first refusal in the event the Seller sought to
sell the Property, and was retained to manage the Property. On August 30, 1996,
the Company, through the Medical Partnership, reacquired the Property from the
Seller.
Additional information with respect to the aforementioned transaction
may be found in the Pro Forma Condensed Consolidated Statements of Operations
for the periods ended December 31, 1995 and June 30, 1996, filed as financial
exhibits to the Company's Form 8-K/A on November 4, 1996.
8. RELATED PARTY TRANSACTION
On June 14, 1996 the Operating Partnership and 445 Bedford, a California
limited liability company ("445 LLC"), acquired undivided tenant-in-common
interests in a hospital facility, two medical office buildings and a parcel of
vacant land in Tustin, California (the "Tustin Properties"). The Tustin
Properties were acquired for a sum of $4,514,154, of which $1,357,020 was
contributed in cash by 445 LLC. Daniel M. Gottlieb and Steven D. Lebowitz, both
directors and officers of the Company, and Reese L. Milner II, a director of
the Company, have financial interests in 445 LLC.
The Company acquired Mr. Milner's interest in 445 LLC for $808,000,
after which 445 LLC redeemed the Company's interest in 445 LLC for an increased
interest in the Tustin Properties. On June 28, 1996, 445 LLC contributed its
remaining interest in the Tustin Properties to the Company in exchange for
39,215 newly issued Operating Partnership units. The newly issued Operating
Partnership units are convertible into Company stock one year from the date of
issuance on a one-for-one basis. These new units were issued at an effective
rate of $14.00 per unit which included a premium over the $13.00 closing price
of the Company's common stock on May 1, 1996, the commitment date.
The funds contributed by 445 LLC were obtained as part of a tax deferred
exchange involving the sale of real estate held by 445 LLC to an unrelated
third party as previously disclosed in the Company's Form 10-Q for the quarter
ended March 31, 1996 filed on May 14, 1996.
Page 10
<PAGE>
9. SUBSEQUENT EVENT
The Company reached an agreement in principle with Nomura Asset Capital
Corp. in October 1996 to enter into a joint venture which would fund $200
million in loans to the senior care industry. The joint venture is expected to
allow the Company to expand its Senior Care loan program without diluting
shareholders' equity. Management anticipates that this venture will provide the
Company an opportunity to use a low cost financing structure to build long term
growth in funds from operations. No definitive documentation has been executed
to date, and there can be no assurance that this transaction will occur.
Page 11
<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
Company's Unaudited Condensed Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-Q.
Except for the historical information contained herein, the matters
discussed in this form 10-Q are forward-looking statements which involve risk
and uncertainties. The risk and uncertainties include but are not limited to
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices, and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
Results of Operations
- ---------------------
Comparison of the Three Month Period Ended September 30, 1996 versus the Three
Month Period Ended September 30, 1995.
Revenues increased by $958,331 from $5,340,606 in the third quarter of
1995 to $6,298,937 for the same period in 1996. Interest, loan fees and related
revenues derived from the new Senior Care Division contributed to the increase.
Rents, tenant reimbursements and parking revenues were down from the third
quarter of 1995. This decline is attributed to the absence of July and August,
1996 revenues resulting from the May 24, 1996 transfer of the 436 North Bedford
Drive property to the lien holder. Average occupancy at the Company's properties
is currently at 96 percent.
Expenses increased by $830,369 from $4,090,633 in the third quarter of
1995 to $4,921,002 for the same period in 1996. The primary component of this
increase was the added interest expense incurred in conjunction with the Senior
Care loan program. Interest costs increased $760,279 from $1,516,191 in the
third quarter of 1995 to $2,276,470 in the third quarter of 1996. The Senior
Care loan program has also contributed to a $160,115 increase in general and
administrative expense from $338,516 in the third quarter of 1995 to $ 498,631
in the same quarter of 1996.
Comparison of the Nine Month Period Ended September 30, 1996 versus the Nine
Month Period Ended September 30, 1995
Revenues increased by approximately $3.09 million from $15,265,546 in
the nine months ended September 30, 1995 to $18,357,722 for the same period in
1996. The new Senior Care Division was responsible for the increase, which
resulted from a $5.12 million increase in interest, loan fees and related
revenues from $218,481 in the nine months ended September 30, 1995 to $5,342,128
for the same period in 1996. Similar to the third quarter results discussed
above, rents, tenant reimbursements and parking revenues were down as a result
of the impact on June, July and August revenues of the May 24, 1996 transfer of
the 436 North Bedford Drive property to the lien holder.
Page 12
<PAGE>
Expenses increased approximately $6.99 million from $12,148,702 in the
nine months ended September 30, 1995 to $19,135,601 for the same period in
1996. The majority of this increase is attributed to a $4.87 million loss on
disposition of the property located at 436 North Bedford Drive. As mentioned
above, the additional debt needed to finance the Senior Care loan program
resulted in an increase in interest expense. Interest costs increased
approximately $2.38 million from $4,190,771 in the nine months ended September
30, 1995 to $6,573,173 in the same period in 1996.
During the second quarter of 1996, the Operating Partnership recorded a
$4.8 million loss on disposition of the aforementioned property combined with a
$10.5 million extraordinary gain on retirement of the associated debt. The
combination of these two items contributed approximately $4.9 million to the
Company's net income for 1996. During the time the Company managed the property
for Loan Asset Structured Trust I, the seller, the property generated cash
rents of $779,000 and cash operating expenses of $299,000.
Increased activity in the Senior Care and Medical Office divisions has
contributed to an overall rise in general and administrative costs. During
1995, general and administrative expense ran approximately $1.6 million for the
year. In 1996, that amount is expected to grow to an annual rate of $1.9 to $2.0
million.
Liquidity and Capital Resources
- -------------------------------
The Company declared a quarterly distribution for the second quarter of
1996 in the amount of $0.36 per share which was paid on October 16, 1996 to
stockholders of record on September 30, 1996. During the third quarter, the
dividend was increased 12 percent from an annual rate of $1.28 to $1.44. This is
the second dividend increase this year. Previously, the dividend was increased
from $1.24 to $1.28. During the nine month period ended September 30, 1996 the
Company generated $5.3 million in cash from operating activities. During the
same period, the Company distributed $4.5 million to limited partners and
stockholders and invested an additional $1.5 million to maintain its rental
properties.
During the fourth quarter of 1995, the Company invested approximately
$19.8 million to acquire $21 million in tax exempt bonds (The "Tax Exempt
Bonds") and $5 million in subordinated bonds (the "Subordinated Bonds")
collateralized by three nursing homes in Massachusetts. The Company's management
is working with the nursing home owner to reduce the combined cost of debt
service on the Tax Exempt Bonds and the Subordinated Bonds. In that regard, GMAC
Commercial Mortgage Corporation was retained to obtain mortgage insurance
through the Federal Housing Administration (the "FHA"). Management anticipates
that FHA mortgage insurance will be obtained in the first quarter of 1997; and
thereafter, the unrated Tax Exempt Bonds can be "credit enhanced" and reissued
with an expected decrease in the current 9.75 percent interest rate.
In conjunction with the restructuring of the Tax Exempt Bonds, the
Company obtained a $14 million loan from GMAC Commercial Mortgage Corporation
which is collateralized by the Tax Exempt Bonds. On December 5, 1996, the
Company's $14 million note payable will come due. The Company has the option to
extend the loan for an additional six months.
As discussed in the Subsequent Event Note to the Company's financial
statements, management is currently in negotiations with Nomura Asset Capital
Corp. on a possible joint venture. In order to raise additional capital, the
Company is considering a sale or other financing transaction involving the Tax
Exempt Bonds which could generate an estimated $19 million in cash. The proceeds
of such a sale or financing transaction would be used to retire the $14 million
note payable and provide some of the capital needed to fund the proposed joint
venture. The Company intends to retain ownership of the $5 million Subordinated
Bonds as a long-term investment. Management believes that a sale or financing
transaction involving the Tax Exempt Bonds will not affect efforts currently
underway to obtain credit enhancement and restructure these Tax Exempt Bonds.
Based upon current operations at the Massachusetts nursing homes, the Company's
management believes the properties will continue to generate sufficient cash
flow to meet the reduced debt service requirements on the restructured Tax
Exempt Bonds and to begin servicing the nursing homes' obligation on the
Subordinated Bonds, including the $2 million in accrued and unpaid interest
currently due.
Page 13
<PAGE>
In general, the Company expects to continue meeting its short term
liquidity requirements through its working capital and cash flow provided by
operations. The Company considers its ability to generate cash to be good and
expects to continue meeting all operating requirements as well as providing
sufficient funds to maintain stockholder distributions in accordance with REIT
requirements. Long-term liquidity requirements such as refinancing mortgages,
financing acquisitions and financing capital improvements will be accomplished
through long-term borrowings, the issuance of debt securities and the offering
of additional equity securities.
Funds from Operations
- ---------------------
Industry analysts generally consider Funds From Operations (FFO) to be
an appropriate measure of the performance of a REIT. The Company presents FFO
based upon the new guidelines established by the Board of Governors of the
National Association of Real Estate Investment Trusts ("NAREIT"). FFO is
calculated to include the minority interest's share of income since the
Operating Partnership's net income is allocated proportionately among all owners
of Operating Partnership units. The number of Operating Partnership units held
by the Company is identical to the number of outstanding shares of the Company's
common stock, and owners of Operating Partnership units may, at their
discretion and subject to certain restrictions, exchange their units into shares
of common stock on a one-for-one basis.
The Company believes that in order to facilitate a clear understanding
of the operating results of the Company, FFO should be examined in conjunction
with the Company's net income as presented in the Condensed and Consolidated
Financial Statements and Notes thereto included elsewhere in this Form 10-Q and
the additional data presented below. FFO is only one of a range of indicators
which should be considered in determining a company's operating performance. The
methods of calculating FFO among different companies are subject to variation,
and FFO therefore may be an invalid measure of comparing companies. Also, the
elimination of depreciation and gains and losses on sales of property may not
be a true indication of an entity's ability to recover its investment in
properties. The tables on the following pages present an analysis of FFO and
Additional Data for the quarters ended September 30, 1996 and 1995 and the nine
month periods ended September 30, 1996 and 1995.
Page 14
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS AND ADDITIONAL DATA
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
1996 1995 1996 1995
-------------------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Funds from Operations/1/
- ------------------------
Net income $1,195 $696 $8,506 $2,313
Extraordinary gain 394 (9,311) 394
Minority interest in Operating Partnership 151 123 (77) 303
------ ---- ------ -----
Income (loss) for Operating Partnership
before extraordinary gain 1,346 1,213 (882) 3,010
Earthquake costs (net) (133)
Loss on disposition of real property 4,874
Depreciation of real estate assets 610 798 1,919 2,430
Amortization of deferred lease costs 17 50 87 143
Adjustment for minority interest in
consolidated partnership (7) (7) (21) (22)
------ ---- ------ -----
Operating Partnership
Funds from Operations 1,966 2,054 5,977 5,428
Minority Interest in Operating Partnership (215) (209) (622) (548)
------ ---- ------ -----
FUNDS FROM OPERATIONS $1,751 $1,845 $5,355 $4,880
====== ====== ====== ======
Weighted averages:
- ------------------
Units outstanding 4,561 4,521 4,535 4,560
Shares outstanding 4,063 4,062 4,063 4,100
</TABLE>
_____________
(1) On March 1995, the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT") issued a report (the "White Paper")
which outlined the method to be used to compute Funds from Operations. The
White Paper defines Funds from Operations as net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company computes Funds from
Operations in accordance with standards established by the White Paper
which may differ from the methodology for calculating Funds from
Operations utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Funds from Operations should not be
considered as an alternative to net income (determined in accordance with
GAAP) as an indicator of the Company's financial performance or to cash
flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
distributions.
Table continues on the following page.
Page 15
<PAGE>
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
1996 1995 1996 1995
-----------------------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
ADDITIONAL DATA
- ---------------
Cash Flows:
- -----------
Operating Activities 1,378 1,850 5,318 5,678
Investing Activities (9,109) (8,358) (25,248) (11,298)
Financing Activities 7,447 11,950 21,111 10,682
Capital Expenditures
- --------------------
Building improvements 168 132 366 410
Tenant improvements 372 144 1,091 880
Furniture, fixtures & equipment 15 42 41 68
Leasing commissions 31 38 99 134
Depreciation and Amortization
- -----------------------------
Depreciation of real estate assets 610 798 1,919 2,430
Depreciation of non-real estate assets 11 8 33 18
Amortization of deferred lease costs 17 50 87 142
Amortization of capitalized financing costs 139 49 395 380
</TABLE>
Page 16
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings.
None of the Company, the Operating Partnership, the Financing
Partnership, the Realty Financing Partnership, the Medical
Partnership, nor the Properties is currently a party to any material
litigation.
Item 2 Changes in Securities.
None.
Item 3 Defaults Upon Senior Securities.
None.
Item 4 Submission of Matters to a Vote of Security Holders.
None.
Item 5 Other Information.
None.
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits
10.36 Agreement of Purchase and Sale by and between Loan Asset
Structured Trust I, a Delaware trust ("Seller"), and G&L
Medical Partnership, L.P., a Delaware limited partnership
("Buyer"), dated August 29, 1996. (Incorporated herein by
reference to Exhibit 10.36 to the Company's Form 8-K, dated
August 30, 1996.)
10.37 Grant Deed from Loan Asset Structured Trust I, a Delaware
trust ("Grantor"), to G&L Medical Partnership, L.P., a
Delaware limited partnership ("Grantee"), recorded August 30,
1996. (Incorporated herein by reference to Exhibit 10.37 to
the Company's Form 8-K, dated August 30, 1996.)
27 Financial Data Schedule
(b) Reports on Form 8-K.
(i) The Company filed a report on Form 8-K/A on November 4,
1996 concerning the acquisition of a certain rental
property located at 436 North Bedford Drive from Loan
Asset Structured Trust I, a Delaware trust.
Page 17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
G&L REALTY CORP.
Date: November 12, 1996 By: /s/ Quentin Thompson
------------------------------
Quentin Thompson
Secretary, Treasurer
and Chief Accounting Officer
Page 18
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- ---------------------------------------------------------------
10.36 Agreement of Purchase and Sale by and between Loan Asset
Structured Trust I, a Delaware trust ("Seller"), and G&L Medical
Partnership, L.P., a Delaware limited partnership ("Buyer"),
dated August 29, 1996. (Incorporated herein by reference to
Exhibit 10.36 to the Company's Form 8-K, dated August 30,
1996.)
10.37 Grant Deed from Loan Asset Structured Trust I, a Delaware trust
("Grantor"), to G&L Medical Partnership, L.P., a Delaware
limited partnership ("Grantee"), recorded August 30, 1996.
(Incorporated herein by reference to Exhibit 10.37 to the
Company's Form 8-K, dated August 30, 1996.)
27 Financial Data Schedule
Page 19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER
31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,461,795
<SECURITIES> 0
<RECEIVABLES> 17,849,882
<ALLOWANCES> (566,437)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 101,000,472
<DEPRECIATION> (9,895,685)
<TOTAL-ASSETS> 136,403,069
<CURRENT-LIABILITIES> 3,311,233
<BONDS> 108,935,621
0
0
<COMMON> 40,625
<OTHER-SE> 22,674,521
<TOTAL-LIABILITY-AND-EQUITY> 136,403,069
<SALES> 0
<TOTAL-REVENUES> 6,298,937
<CGS> 0
<TOTAL-COSTS> 1,369,061
<OTHER-EXPENSES> 1,275,471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,276,470
<INCOME-PRETAX> 1,195,452
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,195,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,195,452
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0
</TABLE>
