<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q/A
(AMENDMENT NO. 1)
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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)
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 Offices) (Zip Code)
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 May 12, 1997 was 4,036,500 shares.
===============================================================================
<PAGE>
G&L REALTY CORP.
AMENDED REPORT ON FORM 10-Q
On August 15, 1997, G&L Realty Corp. (the "Company") acquired 100%
ownership of GL/PHP, LLC, a Delaware limited liability company ("GL/PHP") which
owns six primary health care facilities located in New Jersey. Prior to the
August 15, 1997 transaction, the Company accounted for its investment in GL/PHP
using the equity method as the Company did not have the requisite level of
voting control required by Financial Accounting Standard 94 to consolidate its
interests in GL/PHP.
The Company views each interim period as being an integral part of the
annual period, and, as a result of the August 15, 1997 transaction, the Company
will be required to report the activities of GL/PHP on a consolidated basis for
the year ending December 31, 1997. This Form 10-Q/A amends and restates the
previously reported activities of the Company for the quarter ended March 31,
1997, to show the activities of GL/PHP on a consolidated basis.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1997 (unaudited) and December 31,
1996 3
Condensed Consolidated Statements of
Operations for the Three Month Periods
Ended March 31, 1997 and 1996 (unaudited) 4
Condensed Consolidated Statements of Cash
Flows for the Three Month Periods Ended
March 31, 1997 and 1996 (unaudited) 5
Condensed Consolidated Statements of Cash
Flows: Supplemental Schedule of Noncash
Investing and Financing Activities for the
Three Month Periods Ended March 31, 1997 and
1996 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7 - 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 18
Part II Other Information
Item 1 Legal Proceedings 19
Item 2 Changes in Securities 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 on Form 8-K 19 - 20
Signature 21
</TABLE>
Page 2
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------------------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Rental properties:
Land $ 22,721,000 $ 17,096,000
Buildings and improvements, net 92,360,000 76,135,000
------------ ------------
Total rental properties 115,081,000 93,231,000
Cash and restricted cash 2,823,000 2,232,000
Other receivables, net 5,337,000 682,000
Tenant rent and reimbursements receivable, net 904,000 1,048,000
Unbilled rent receivable, net 1,594,000 1,477,000
Investments in unconsolidated affiliates 5,173,000 ---
Mortgage loans and bonds receivable, net 15,093,000 14,358,000
Assets available for sale 312,000 20,523,000
Deferred charges and other assets, net 2,378,000 2,445,000
------------ ------------
TOTAL ASSETS $148,695,000 $135,996,000
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Notes payable $120,981,000 $109,025,000
Accounts payable and other liabilities 1,697,000 1,462,000
Distributions payable 1,642,000 1,642,000
Tenant security deposits 1,034,000 1,034,000
------------ ------------
Total liabilities 125,354,000 113,163,000
Commitments and contingencies --- ---
Minority interest in consolidated affiliates (1,810,000) (2,718,000)
Minority interest in Operating Partnership 3,059,000 3,103,000
Stockholders' equity:
Preferred shares - $.01 par value, 10,000,000
shares authorized, no shares issued
and outstanding --- ---
Common shares - $.01 par value, 50,000,000
shares authorized, 4,062,500 shares issued
and outstanding as of 3/31/97 and 12/31/96
respectively 41,000 41,000
Additional paid-in capital 23,710,000 23,710,000
Distributions in excess of net income (1,659,000) (1,303,000)
------------ ------------
Total stockholders' equity 22,092,000 22,448,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $148,695,000 $135,996,000
</TABLE>
See accompanying notes to condensed Consolidated Financial Statements.
Page 3
<PAGE>
G & L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----------------------------
(Unaudited)
<S> <C> <C>
REVENUES:
Rental $4,510,000 $4,022,000
Tenant reimbursements 249,000 139,000
Parking 360,000 345,000
Interest, loan fees and related income 1,575,000 1,645,000
Other 109,000 86,000
---------- ----------
Total revenues 6,803,000 6,237,000
EXPENSES:
Property operations 1,666,000 1,260,000
Depreciation and amortization 951,000 817,000
Interest 2,469,000 2,216,000
General and administrative 478,000 401,000
---------- ----------
Total expenses 5,564,000 4,694,000
========== ==========
Income from operations before minority interests
and earnings from unconsolidated affiliates 1,239,000 1,543,000
Equity in earnings of unconsolidated affiliate 52,000 ---
Minority interest in consolidated affiliates (49,000) (37,000)
Minority interest in Operating Partnership (136,000) (153,000)
---------- ----------
Net income $1,106,000 $1,353,000
========== ==========
Net income per share $ 0.26 $0.33
Weighted average number of outstanding shares 4,175,000 4,062,000
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statement
Page 4
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,106,000 $ 1,353,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 951,000 817,000
Minority interests 185,000 190,000
Equity in income from affiliates (52,000) ---
Gain on sale of assets held for sale (556,000) ---
Unbilled rent receivable (117,000) 34,000
Allowance for doubtful notes and
accounts receivable 33,000 42,000
(Increase) decrease in:
Other receivables (30,000) 24,000
Tenant rent and reimbursements receivable 112,000 (213,000)
Prepaid expense and other assets (90,000) (304,000)
Accrued interest receivable and loan fees (1,027,000) (744,000)
Increase (decrease) in:
Accounts payable and other liabilities 235,000 (349,000)
Tenant security deposits --- 4,000
------------ -----------
Net cash provided by operating activities 750,000 854,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of rental properties (22,384,000) ---
Additions to rental properties (229,000) (400,000)
Proceeds from sale of assets available for sale 20,000 ---
Pre-acquisition costs (10,000) (208,000)
Return of pre-acquisition deposits --- 865,000
Leasing commissions (14,000) (33,000)
Investment in notes and bonds receivable --- (373,000)
Investments in affiliates (2,513,000) ---
------------ -----------
Net cash used in investing activities (25,130,000) (149,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 26,253,000 1,400,000
Repayment of notes payable (297,000) (172,000)
Deferred financing costs (201,000) (12,000)
Sale of common stock and partnership units --- 4,000
Minority interest equity contribution 858,000 ---
Distributions (1,642,000) (1,447,000)
------------ -----------
Net cash provided by (used in) financing activities 24,971,000 (227,000)
------------ -----------
NET INCREASE IN CASH AND RESTRICTED CASH 591,000 478,000
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD 2,232,000 1,280,000
------------ -----------
CASH AND RESTRICTED CASH AT END OF PERIOD $ 2,823,000 $ 1,758,000
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 2,450,000 $ 1,960,000
============ ===========
</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 INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---------------------------
(Unaudited)
<S> <C> <C>
During the period, the Company
sold Series A and B Bonds for
the following consideration:
Assignment of note payable $14,000,000
Increase in other receivables 4,500,000
Investment in affiliate 3,165,000
-----------
$21,665,000
===========
Distributions declared not yet paid $ 1,642,000 $1,447,000
=========== ==========
</TABLE>
See accompanying notes to condensed Consolidated Financial Statements.
Page 6
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
GENERAL
G & L Realty Corp. was formed as a Maryland corporation on September
15, 1993 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 conducted through, the following entities:
G&L Realty Partnership, L.P., a Delaware limited partnership
(the "Operating Partnership")
G&L Realty Financing Partnership II, L.P., a Delaware limited partnership
(the "Realty Financing Partnership")
G&L Medical Partnership, L.P., a Delaware limited partnership
(the "Medical Partnership")
435 North Roxbury Drive, Ltd., a California limited partnership
(the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")
The Company, as the sole general partner and as owner of an
approximately 89% ownership interest, controls the Operating Partnership. 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. 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.
The Operating Partnership and PHP Healthcare Corporation, a Delaware
corporation ("PHP") own 80.5% and 19.5% interests, respectively, in GL/PHP. The
Operating Partnership is the sole manager of GL/PHP and, subject to restrictions
in GL/PHP's operating agreement, controls GL/PHP. (See subsequent events in
Note 8 to these Condensed Consolidated Financial Statements).
References in these consolidated financial statements to the Company,
its operations, assets and liabilities include the operations, assets and
liabilities of its consolidated subsidiaries, the Operating Partnership, the
Realty Financing Partnership, the Medical Partnership, GL/PHP and the Roxbury
Partnership, in which the Operating Partnership owns a 61.75% partnership
interest and is the sole general partner.
The Company also owns an interest in GLN Capital Co., LLC ("GLN
Capital"), a Delaware limited liability company formed in 1996. GLN Capital, an
unconsolidated affiliate, is owned 49.9% by the Operating Partnership and 50.1%
by an affiliate of Nomura Asset Capital Corp. ("Nomura"). The purpose of GLN
Capital is to fund loans to the senior care industry.
Page 7
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business- The Company is a self-administered and self-managed real
estate investment trust ("REIT") that finances, acquires, develops, manages and
leases health care properties. The Company's business currently consists
primarily of investments, either directly or through joint ventures, in health
care properties (primarily through its Medical Office Building Division) and in
debt obligations secured by health care properties (primarily through its Senior
Care Division).
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. Prior period amounts have been reclassified
to conform to the current period's financial statement presentation.
The information for the three month periods ended March 31, 1997 and
1996 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 three months ended March 31, 1997
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 March 31, 1997 and 1996.
Cash and Restricted Cash - As of March 31, 1997, the Company had
$1,967,000 in segregated interest bearing accounts to be used for debt service
due in April 1997, 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. No
adjustment has been made to the cost basis of these assets as Management
believes that the net realizable value of the assets available for sale
approximate their original 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 Company's 1993 Stock
Incentive Plan. As of March 31, 1997, there were approximately 354,200 stock
options outstanding with a weighted average exercise price of $11.95. Using the
closing market price of $17.50 on March 31, 1997, the number of shares which may
be issued pursuant to the Plan is 112,300.
Page 8
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. BUILDINGS AND IMPROVEMENTS
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------------------
(Unaudited)
<S> <C> <C>
Buildings and improvements $ 98,539,000 $ 81,677,000
Tenant improvements 4,828,000 4,708,000
Furniture, fixtures and equipment 366,000 359,000
------------ ------------
103,733,000 86,744,000
Less accumulated depreciation and
amortization (11,373,000) (10,609,000)
------------ ------------
Total $ 92,360,000 $ 76,135,000
============ ============
</TABLE>
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
(Unaudited)
<S> <C> <C>
Deferred financing costs $1,997,000 $2,061,000
Pre-acquisition costs 27,000 17,000
Leasing commissions 476,000 462,000
Prepaid expense and other assets 362,000 272,000
---------- ----------
2,862,000 2,812,000
Less accumulated amortization (484,000) (367,000)
---------- ----------
Total $2,378,000 $2,445,000
========== ==========
</TABLE>
Page 9
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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 three month period ended March 31,
1997 and for the year ended December 31, 1996:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------------------------
(Unaudited)
<S> <C> <C>
Distributions in excess of net income
at beginning of period $(1,303,000) $(5,479,000)
Net income during period 1,106,000 9,701,000
Less: Distributions declared (1,462,000) (5,525,000)
----------- -----------
Distributions in excess of net income $(1,659,000) $(1,303,000)
=========== ===========
</TABLE>
6. INVESTMENTS IN UNCONSOLIDATED AFFILIATE
On November 25, 1996, the Company expanded its activities in the
Senior Care Division by entering into an unconsolidated operating venture, GLN
Capital. In January 1997, GLN Capital commenced operations, and in February, the
Company funded its first senior care loan through GLN Capital to CoreCare
Behavioral Management. The $6.4 million loan has a term of 18 months and is
secured by a first deed of trust on the Institute of Pennsylvania Hospital in
Philadelphia, Pennsylvania, which CoreCare acquired using the proceeds of the
loan by GLN Capital.
In addition, GMAC Commercial Mortgage ("GMAC-CM"), which has
previously funded four loans to the Company, has committed to provide a credit
line to GLN Capital of $50.0 million, which will be secured by loans originated
by GLN Capital.
7. DISPOSITION OF ASSETS
In March 1997, the Company sold Series A and B Industrial Revenue
Bonds issued by the Massachusetts Industrial Finance Agency to GLN Capital for
total consideration of $21.7 million. The bonds, which had a book value of
$20.6 million, were purchased in October 1995 for $19.9 million. At the time of
sale, the Series A and B Bonds had a combined outstanding balance of $27.7
million, including principal and accrued interest. Total consideration paid
included $4.5 million in cash (paid subsequent to March 31, 1997), a $3.2
million capital contribution to GLN Capital, and an assumption of the $14
million note payable to GMAC-CM.
Page 10
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Although the Company, with the approval of GMAC-CM, assigned the $14
million obligation to GLN Capital, the Company remains contingently liable to
GMAC-CM on the loan, which is due on June 6, 1997.
8. ACQUISITION OF RENTAL PROPERTIES
On February 26, 1997 the Company, through the Operating Partnership,
entered into a joint venture by forming GL/PHP with PHP. At the time of its
formation, the Operating Partnership and PHP contributed $4.4 million of equity
in proportion to their 80.5% and 19.5% respective interests in GL/PHP. Subject
to restrictions in the operating agreement, the Operating Partnership was the
sole manager of GL/PHP. On February 28, 1997, GL/PHP acquired six primary care
facilities in New Jersey, totaling 80,415 square feet, at a cost of
approximately $22.4 million. GL/PHP used the $4.4 million equity contribution
together with the proceeds of two new loans obtained from PHP to fund the
acquisition. The PHP loans were secured by first and second deeds of trust with
the greater of the two loans, at $15,735,000, due on August 28, 1997 and giving
PHP a right, upon default, to purchase the Company's 80.5% interest in GL/PHP.
The properties, which were acquired from Blue Cross/Blue Shield of New Jersey,
were initially leased to PHP pursuant to the terms of a 25-year net lease which
provided for fixed rent escalations during the term of the lease. Mr. Charles P.
Reilly, a director of the Company and chairman of the Compensation Committee of
the Company's Board of Directors, is Chairman of the Board of Directors of PHP.
On August 15, 1997, the Company acquired PHP's interest in GL/PHP for
a total consideration of $919,000. Concurrent with the transfer of ownership,
the following transactions were completed:
. GL/PHP redeemed PHP's 18.5% ownership interest in GL/PHP.
. The remaining 1% ownership interest was assigned to G&L Management
Delaware Corp., a newly formed Delaware corporation and wholly
owned subsidiary of the Company.
. G&L Management Delaware Corp. assumed responsibilities as the
managing member of GL/PHP from the Operating Partnership.
. GL/PHP obtained a new 10-year, $16.0 million fixed rate loan that
bears interest at 8.98% per annum and requires monthly principle
and interest payments of $155,000 per month.
. The Operating Partnership borrowed $2.0 million from PHP and
contributed the loan proceeds to GL/PHP. GL/PHP used the funds
to retire the $2.0 million second trust deed payable to PHP. The
Operating Partnership's new $2.0 million loan from PHP requires
quarterly interest only payments at 8.5% per annum with all
unpaid interest and principal due July 31, 2007.
. The original 25-year lease between GL/PHP and PHP was renegotiated,
effective as of August 15, 1997. Under the terms of the new 17-
year net operating lease, PHP is required to make monthly
payments of $221,500. The lease provides for rent increases
equal to the annual increase in the Consumer Price Index subject
to a maximum annual increase of 5%.
Page 11
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The following table sets forth certain information regarding each of
the New Jersey properties and the respective leases at August 15, 1997.
<TABLE>
<CAPTION>
YEAR
CONSTRUCTED RENTABLE TOTAL AVERAGE
OR SQUARE ANNUALIZED RENT PER
PROPERTY REHABILITATED FEET (1) RENT (2) SQ. FT. (3)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2103 Mt. Holly Rd.
Burlington, NJ 1994 12,560 $ 434,950 $34.63
150 Century Parkway
Mt. Laurel, NJ 1995 12,560 391,310 31.16
274 Highway 35, South
Eatontown, NJ 1995 12,560 481,030 38.30
80 Eisenhower Drive
Paramus, NJ 1994 12,675 421,800 33.28
16 Commerce Drive
Cranford, NJ 1963 17,500 491,670 28.10
4622 Black Horse Pike
Mays Landing, NJ 1994 12,560 437,490 34.83
-------- ----------
Total 80,415 $2,658,250 $33.06
======== ==========
</TABLE>
(1) Rentable square feet includes space used for management purposes but does
not include storage space.
(2) Rent is based on third-party leased space billed in February 1997; no rent
is assumed from management space.
(3) Average rent per square foot is calculated based upon third-party leased
space, excluding management space.
Prior to the Company's acquisition of PHP's 19.5% interest on August
15, 1997, the Company did not have the requisite level of voting control
required by Financial Accounting Standard 94 to account for its interests on a
consolidated basis. As a result of the terms of the August 15, 1997
acquisition, the Company gained voting control of GL/PHP and is therefore
required to include the assets, liabilities and operating activities of GL/PHP
in the Company's consolidated financial statements.
The Company views each interim period as being an integral part of the
annual period, and, as a result of the August 15, 1997 transaction, the Company
will be required to report the activities of GL/PHP on a consolidated basis for
the year ending December 31, 1997. Therefore, these interim financial
statements for the quarter ended March 31, 1997, have been restated to reflect
the activities of the Company, including the assets, liabilities and operating
activities of GL/PHP, on a consolidated basis.
9. COMMITMENTS AND CONTINGENCIES
Neither the Company, the Operating Partnership, the Realty Financing
Partnership, the Medical Partnership, the Roxbury Partnership, GL/PHP, GLN
Capital 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 12
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
10. SUBSEQUENT EVENT
In May 1997, the Company issued 1,300,000 shares of 10.25% Series A
Cumulative Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), exclusive of 195,000 which may in the future be purchased by the
underwriters pursuant to an over allotment option. Dividends on the Series A
Preferred Stock are cumulative from the date of issue and are payable monthly,
commencing on June 15, 1997, to shareholders of record on the first day of each
month at the rate of $2.5625 per share, a yield of 10.25% per annum based upon
the $25 per share liquidation preference. The Preferred Stock is not redeemable
prior to June 1, 2001; thereafter, the Company may redeem the Series A Preferred
Stock for cash at a redemption price of $25 per share plus any accumulated,
unpaid dividends.
Upon consummation of the offering, the Company received net proceeds
of $30.8 million. The Company contributed the net proceeds of the Series A
Preferred Stock offering to the Operating Partnership in exchange for a new
series of preferred partnership units having terms substantially similar to
those of the Series A Preferred Stock. Approximately $28.8 million of the
proceeds will be used by the Operating Partnership to repay indebtedness that
currently bears interest at rates ranging from 7.5% to 12%, as follows: (i)
$4.2 million under a note due June 17, 1997 that carries interest at the prime
lending rate (or approximately 8.5% as of May 12, 1997), (ii) $3.0 million
under a note due May 31, 1997 that carries interest at the prime lending rate
(or approximately 8.5% as of May 12, 1997), (iii) $3.7 million under a note due
August 28, 1997 that carries interest at 12% per annum, (iv) $1.0 million under
an unsecured credit line that carries interest at the prime lending rate plus
2.0% (or approximately 10.5% as of May 12, 1997), and (v) $16.9 million under a
credit line that carries interest at the rate of LIBOR plus 1.75% (or
approximately 7.5%) as of May 12, 1997). The indebtedness to be repaid has
maturities between 1997 and 1998 but can be prepaid without a prepayment charge
or penalty. Excess proceeds (approximately $2.0 million) will be invested by
the Operating Partnership in interest-bearing accounts and short-term, interest-
bearing securities.
Page 13
<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 March 31, 1997 versus the Three Month
Period Ended March 31, 1996
Net income for the quarter ended March 31, 1997 declined approximately
$247,000, or 18%, from the same period in 1996. Among other changes, the
decline was primarily a result of the following: (i) a $207,000 net increase in
property operations, which resulted from a $613,000 increase in rents, tenant
reimbursements and parking revenues which was offset by a $406,000 increase in
property operations expense, (ii) a $253,000 increase in interest expense, (iii)
a $134,000 increase in depreciation and amortization expense, and (iv) a $77,000
increase in general and administrative expense.
Rents, tenant reimbursements and parking revenues increased primarily
as a result of the GL/PHP acquisition of six New Jersey properties and the two
medical office buildings acquired in June 1996, in conjunction with the Tustin
Hospital acquisition. Property operations expense increased $406,000 in the
first quarter of 1997, or 31.7%, over the comparable period in 1996. The major
components of the $406,000 increase in property operations expense are increases
in real property taxes, the cost of earthquake insurance and the cost of
operating the medical office buildings acquired in June 1996 in conjunction with
the acquisition of Tustin Hospital in Tustin, California.
In June 1996, the Los Angeles County Assessor's Office notified the
Company that it was increasing its valuation on four of the Bedford Drive
properties as a result of a transfer of ownership in conjunction with the
Company's initial public offering (the "IPO") on December 16, 1993. The Company
retained consultants specializing in property valuation appeals and, as of March
31, 1997, obtained partial reductions in the increased assessments on two of the
four properties. Although there can be no assurances, management believes that
the Company will be able to obtain further reductions in these assessments.
The $134,000 increase in depreciation and amortization expense is
attributable to the GL/PHP acquisition of six New Jersey properties and the two
medical office buildings acquired in June 1996, in conjunction with the Tustin
Hospital acquisition.
Interest expense increased $253,000 from $2,216,000 for the three
months ended March 31, 1996 to $2,469,000 for the same period in 1997, an
increase of approximately 11%. Funding of the Company's investments in GL/PHP
was the primary reason for the increase.
Page 14
<PAGE>
Interest, loan fees and related revenues are primarily derived from
investments in short term loans secured by senior care facilities. Although the
senior care revenues declined $70,000 in the first quarter of 1997 as compared
to the first quarter of 1996, the decline was offset by the shift of activity to
GLN Capital.
General and administrative expenses increased approximately $77,000,
from approximately $401,000 for the quarter ended March 31, 1996, to
approximately $478,000 for the same period in 1997 as a result of personnel and
start-up costs associated with the Company's investment in GLN Capital. Except
for direct operating expenses, GLN Capital does not incur any personnel cost at
the entity level.
Liquidity and Capital Resources
- -------------------------------
The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of medical office
buildings and senior care lending activities and primarily consist of Funds From
Operations ("FFO") less dividends (see discussion below of FFO). Since the
Company's initial public offering, external sources have primarily consisted of
various secured loans and lines of credit. The Company's ability to expand its
medical office and senior care lending operations requires continued access to
capital to fund new acquisitions and loans. During the three months ended March
31, 1997, the Company's payout ratio was 82% of its FFO. Undistributed FFO were
used internally to fund maintenance capital expenditures necessary to maintain
the Company's existing properties.
The Company declared a quarterly distribution for the first quarter of
1997, in the amount of $0.36 per share, which was paid on April 16, 1997 to
stockholders of record on March 31, 1997. During the three month period ended
March 31, 1997 the Company invested approximately $229,000 to maintain its
rental properties and lease its vacant space.
During February 1997, the Company borrowed $21.5 million from PHP and
GLN Capital to fund its contributions to GL/PHP and the acquisition of the New
Jersey Properties at interest rates ranging from 8.5% to 12.0%. The Company
also invested approximately $2.4 million in GLN Capital with funds drawn from
various credit lines at rates ranging from 7.5% to 10.5%. The sale of the
Massachusetts Industrial Finance Agency Series A and B Bonds to GLN Capital
contributed to a $14.0 million reduction in debt at March 31, 1997.
In April 1997, the Company received a $1.0 million semiannual interest
payment due on the Massachusetts Industrial Finance Agency Series A Industrial
Revenue Bonds plus $4.5 million in proceeds due from the sale of the Series A
and B Bonds as discussed in Note 7 to the Unaudited Condensed Consolidated
Financial Statements. These proceeds were used to reduce the Company's
indebtedness at the time of their receipt.
As a result of the aforementioned Series A Preferred Stock offering,
the Company received approximately $30.8 million on May 13, 1997. These funds
were used to retire various debt obligations as described in Note 10 to the
Unaudited Condensed Consolidated Financial Statements. The table on the
following page sets forth the capitalization of the Company as of March 31, 1997
as adjusted to give effect to the sale by the Company of the Preferred Stock and
the use of the net proceeds therefrom. This information should be read in
conjunction with the Company's consolidated financial statements and related
notes included in the Company's annual report on Form 10-K as well as the
financial statements and related notes included in this Form 10-Q.
Page 15
<PAGE>
G&L REALTY CORP.
CAPITALIZATION
(Unaudited)
<TABLE>
<CAPTION>
As of March 31, 1997
Actual As Adjusted
----------------------------------
(amounts in thousands)
<S> <C> <C>
DEBT:
Borrowings under lines of credit........ $ 20,200 $ 293
Other notes payable..................... 100,781 89,938
-------- --------
Total debt........................... 120,981 90,231
Minority interest in consolidated
affiliates............................. (1,810) (1,810)
Minority interest in Operating
Partnership............................ 3,059 3,059
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value:
10,000,000 shares authorized, none
outstanding; 1,300,000 shares of
Series A Preferred Stock as adjusted... --- 13
Common Stock, $.01 par value:
50,000,000 shares authorized,
4,062,500 shares outstanding........... 41 41
Additional paid-in capital 23,710 54,447
Distributions in excess of net income... (1,659) (1,659)
-------- --------
Total stockholders' equity 22,092 52,842
-------- --------
TOTAL CAPITALIZATION $144,322 $144,322
======== ========
Ratio of total debt to total
capitalization (1) (2) 60.3%
Pro forma ratio of total debt to total
capitalization (1) (3) 44.5%
</TABLE>
- ---------------------
(1) Market value for the Company's Common Stock was $17.5 on March 31, 1997, and
the market value for the Series A Preferred Stock is assumed to be $25 per
share.
(2) Total capitalization as of the dates presented is total debt plus the
aggregate market value of the Company's Common Stock and Operating
Partnership Units not owned by the Company, assuming one Unit is equivalent
in value to one share of Common Stock.
(3) Pro forma ratio of total debt to total capitalization is computed as defined
in Note (2) except that the proceeds from the sale of the Series A Preferred
Stock have been reflected in stockholders' equity at market value and the
net proceeds of the Series A Preferred Stock have been used to reduce debt.
Page 16
<PAGE>
The proceeds of the Series A Preferred Stock offering were used to
extinguish variable rate debt bearing interest at various rates from 7.5% to
12%, thereby reducing the Company's exposure to such debt by approximately $27
million, from $35.3 million to $8.3 million. Since January 1, 1997, the Company
has reduced its overall exposure to variable rate debt by 88%, from a high of
$69 million at January 1, 1996 to approximately $8.3 million in May 1997.
Approximately $8.0 million of the remaining $8.3 million in variable rate debt
is attributable to the Roxbury Partnership, in which the Company owns a 61.75%
interest. At the conclusion of the offering and the debt repayments, the
Company's exposure to variable rate debt was reduced to $5.2 million, based on
the Operating Partnership's $4.9 million pro-rata share of the Roxbury
Partnership's debt and $300,000 due on one of the Company's credit lines.
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 and debt repayment 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.
Page 17
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS AND ADDITIONAL DATA
(Unaudited)
Funds from Operations
- ---------------------
Industry analysts generally consider 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 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 below present an analysis of FFO and certain additional
data for the quarters ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
FUNDS FROM OPERATIONS (1):
Net income $1,106 $1,353
Minority interest in Operating Partnership 136 153
Net income before minority interest in
Operating Partnership 1,242 1,506
ADD: Real estate related depreciation
and amortization 771 707
ADD: Depreciation from unconsolidated
affiliates --- ---
LESS: Adjustment for minority interest
in consolidated partnership (15) (7)
Funds from Operations (2) $1,998 $2,206
====== ======
Weighted averages shares outstanding (2) 4,561 4,522
======= ======
</TABLE>
Table and footnotes continue on the following page.
Page 18
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS AND ADDITIONAL DATA -- (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
--------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ADDITIONAL DATA
- ---------------
Cash Flows:
- -----------
Operating Activities 750 854
Investing Activities (25,130) (149)
Financing Activities 24,971 (227)
Capital Expenditures
- --------------------
Building improvements 102 70
Tenant improvements 120 328
Furniture, fixtures & equipment 7 2
Leasing commissions 14 33
Depreciation and Amortization
- -----------------------------
Depreciation of real estate assets 751 667
Depreciation of non-real estate assets 14 11
Amortization of deferred lease costs 20 40
Amortization of capitalized financing costs 166 99
Accrued rent in excess of billed rent 117 (34)
</TABLE>
_____________
(1) FFO represents net income (computed in accordance with generally
accepted accounting principles, consistently applied ("GAAP")), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation of real property, less preferred stock dividends and after
adjustments for consolidated and unconsolidated entities in which the
Company holds a partial interest. FFO is computed in accordance with the
definition adopted by NAREIT. FFO should not be considered as an
alternative to net income or any other indicator developed in compliance
with GAAP, including measures of liquidity such as cash flows from
operating, investing and financing activities. FFO is helpful in
evaluating the performance of a real estate portfolio considering the fact
that historical cost accounting assumes that the value of real estate
diminishes predictably over time. 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; therefore, FFO may be an invalid measure for purposes
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 Company implemented
the new method of calculating FFO effective as of the NAREIT-suggested
adoption date of January 1, 1996.
(2) Assumes that all outstanding Operating Partnership units have been
converted to common stock.
Page 19
<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, the Roxbury Partnership, GL/PHP, GLN Capital nor any of
their respective properties is currently a party to any material
litigation.
Item 2 Changes in Securities.
On May 13, 1997, the Company issued 1,300,000 shares of its
Series A Preferred Stock. The issuance of the Series A Preferred Stock
has the effect of modifying the rights of the holders of the Company's
Common Stock insofar as the holders of the Series A Preferred Stock
enjoy preferential rights as to dividends and proceeds upon
liquidation. See Note 9 to the Condensed Consolidated Financial
Statements included elsewhere in this Form 10-Q.
Item 3 Defaults Upon Senior Securities.
None.
Item 4 Submission of Matters to a Vote of Security Holders.
None.
Item 5 Other Information.
On May 7, 1997, Tokai Bank of California ("Tokai") and the
Operating Partnership entered into the First Amendment to Revolving
Loan Agreement (the "Amendment"), amending the existing Revolving Loan
Agreement, dated August 11, 1995 pursuant to which the Operating
Partnership can borrow up to an aggregate maximum amount of $20.0
million. Under the terms of the Amendment, Tokai and the Operating
Partnership agreed to modify certain restrictive covenants so as to
allow the Operating Partnership greater flexibility in making equity
investments and redeeming shares of capital stock of the Company. The
Amendment also imposes certain additional reporting requirements on
the Operating Partnership.
Item 6 Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
10.39/(1)/ Limited Liability Company Agreement by and
between G&L Realty Partnership, L.P., a Delaware
limited partnership, and PHP Healthcare
Corporation, a Delaware corporation, for the
purpose of creating a limited liability company
to be named GL/PHP, LLC, dated as of February
26, 1997.
10.40/(1)/ First Amendment To Limited Liability Company
Agreement entered into as of March 31, 1997 by
and between G&L Realty Partnership, L.P., a
Delaware limited partnership, and Property
Acquisition Trust I, a Delaware business trust,
for the purpose of amending that certain Limited
Liability Company Agreement of GLN Capital Co.,
LLC dated as of November 25, 1996.
10.41/(1)/ Bond Purchase Agreement dated as of March 31,
1997 by and between GLN Capital Co., LLC (as
Buyer) and G&L Realty Partnership, L.P. (as
Seller).
10.42/(2)/ Option Agreement, dated as of February 28, 1997,
by and among G&L Realty Partnership, L.P., GLN
Capital Co., LLC and PHP Healthcare Corporation.
</TABLE>
Page 20
<PAGE>
<TABLE>
<C> <S>
10.43/(3)/ First Amendment To Revolving Loan
Agreement by and between G&L Realty
Partnership, L.P., a Delaware limited
partnership ("Borrower") and Tokai Bank
of California, a California banking
corporation ("Lender"), dated as of May
7, 1997.
27 Financial Data Schedule.
</TABLE>
- ---------------------------
/(1)/ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by reference.
/(2)/ Previously filed as an exhibit to the Company's Registration Statement on
Form S-11 and amendments thereto (File No. 333-24911) and incorporated
herein by reference.
/(3)/ Previously filed as an exhibit to the Company's interim report on form 10-
Q for the period ended March 31, 1997.
(b) Reports on Form 8-K.
(i) The Company filed a Report on Form 8-K on March 31, 1997
concerning the sale of certain Series A and B Industrial
Revenue Bonds issued by the Massachusetts Industrial
Finance Agency (the "Bonds"). The Bonds had an aggregate
principal amount of $25,665,000 and carried accrued and
unpaid interest of approximately $2,000,000 at the time
of sale. The Operating Partnership sold the Bonds to GLN
Capital for $7,665,000 and, in connection therewith,
assigned $14,000,000 in indebtedness owed to GMAC-CM.
Page 21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
G&L REALTY CORP.
Dated: October 14, 1997 By: /s/ Quentin Thompson
--------------------
Quentin Thompson
Secretary, Treasurer
and Chief Accounting Officer
Page 22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ------------------------------------------
<C> <S>
10.39/(1)/ Limited Liability Company Agreement by and between G&L
Realty Partnership, L.P., a Delaware limited partnership,
and PHP Healthcare Corporation, a Delaware corporation, for
the purpose of creating a limited liability company to be
named GL/PHP, LLC, dated as of February 26, 1997.
10.40/(1)/ First Amendment To Limited Liability Company Agreement
entered into as of March 31, 1997 by and between G&L Realty
Partnership, L.P., a Delaware limited partnership, and
Property Acquisition Trust I, a Delaware business trust, for
the purpose of amending that certain Limited Liability
Company Agreement of GLN Capital Co., LLC dated as of
November 25, 1996.
10.41/(1)/ Bond Purchase Agreement dated as of March 31, 1997 by and
between GLN Capital Co., LLC (as Buyer) and G&L Realty
Partnership, L.P. (as Seller ).
10.42/(2)/ Option Agreement, dated as of February 28, 1997, by and
among G&L Realty Partnership, L.P., GLN Capital Co., LLC and
PHP Healthcare Corporation.
10.43/(3)/ First Amendment To Revolving Loan Agreement by and between
G&L Realty Partnership, L.P., a Delaware limited partnership
("Borrower") and Tokai Bank of California, a California
banking corporation ("Lender"), dated as of May 7, 1997.
27 Financial Data Schedule.
</TABLE>
- -----------------------------
/(1)/ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by reference.
/(2)/ Previously filed as an exhibit to the Company's Registration Statement on
Form S-11 and amendments thereto ( File No. 333-24911) and incorporated
herein by reference.
/(3)/ Previously filed as an exhibit to the Company's interim report on
form 10-Q for the period ended March 31, 1997.
Page 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,823,000
<SECURITIES> 0
<RECEIVABLES> 24,270,000
<ALLOWANCES> 1,342,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 126,454,000
<DEPRECIATION> 11,373,000
<TOTAL-ASSETS> 148,695,000
<CURRENT-LIABILITIES> 3,339,000
<BONDS> 120,981,000
0
0
<COMMON> 41,000
<OTHER-SE> 22,051,000
<TOTAL-LIABILITY-AND-EQUITY> 148,965,000
<SALES> 0
<TOTAL-REVENUES> 6,855,000
<CGS> 0
<TOTAL-COSTS> 1,666,000
<OTHER-EXPENSES> 1,429,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,469,000
<INCOME-PRETAX> 1,106,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,106,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,106,000
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0
</TABLE>
