<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, 1998
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 November 13, 1998 was 4,048,500 shares.
================================================================================
<PAGE>
G&L REALTY CORP.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION NUMBER
<C> <S> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1997............................................................ 3
Condensed Consolidated Statements of Operations for the Three Month and
Nine Month Periods Ended September 30, 1998 and 1997 (unaudited)............. 4
Condensed Consolidated Statements of Cash Flows for the Nine Month Periods
Ended September 30, 1998 and 1997 (unaudited)................................ 5 - 6
Notes to Condensed Consolidated Financial Statements (unaudited)............... 7 - 15
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 16 - 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................................. 21
Item 2 Changes in Securities.......................................................... 21
Item 3 Defaults Upon Senior Securities................................................ 21
Item 4 Submission of Matters to a Vote of Security Holders............................ 21
Item 5 Other Information.............................................................. 21
Item 6 Exhibits and Reports on Form 8-K............................................... 21
Signature ............................................................................... 22
</TABLE>
Page 2
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------------------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Rental properties (Note 3):
Land $ 32,095 $ 27,470
Building and improvements, net 126,589 111,312
-------- --------
Total rental properties 158,684 138,782
Cash and cash equivalents 4,513 13,609
Restricted cash 4,650 7,745
Tenant rent and reimbursements receivable, net 1,723 1,333
Unbilled rent receivable, net 2,147 1,815
Other receivables, net 474 972
Mortgage loans and notes receivable, net 16,178 14,098
Investments in unconsolidated affiliates (Note 6) 11,304 8,591
Investment in marketable securities 1,222 ---
Deferred charges and other assets, net (Note 4) 6,881 2,435
-------- --------
TOTAL ASSETS $207,776 $189,380
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable $117,950 $ 95,172
Accounts payable and other liabilities 1,557 1,920
Distributions payable 1,776 1,801
Tenant security deposits 1,196 1,046
-------- --------
Total liabilities 122,479 99,939
Commitments and Contingencies (Note 8) --- ---
Minority interest in consolidated affiliates (2,080) (2,399)
Minority interest in Operating Partnership 2,554 2,916
STOCKHOLDERS' EQUITY (Note 5):
Preferred shares - $.01 par value, 10,000,000 shares authorized,
liquidation preference of $25.00 per share
. Series A Preferred - 1,495,000 shares issued and outstanding
as of September 30, 1998 and December 31, 1997 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding
as of September 30, 1998 and December 31, 1997 14 14
Common shares - $.01 par value, 50,000,000 shares authorized,
4,055,600 and 4,120,100 shares issued and outstanding as of
September 30, 1998 and December 31, 1997, respectively 41 41
Additional paid-in capital 90,532 91,656
Distributions in excess of net income (5,779) (2,802)
-------- --------
Total stockholders' equity 84,823 88,924
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $207,776 $189,380
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
Page 3
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Period Ended September 30, Period Ended September 30,
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental $6,386 $5,201 $18,381 $14,614
Tenant reimbursements 219 189 557 584
Parking 378 330 1,111 1,048
Interest, loan fees and related income 1,095 1,059 3,418 3,444
Other 33 84 204 221
------ ------ ------- -------
Total revenues 8,111 6,863 23,671 19,911
------ ------ ------- -------
EXPENSES:
Property operations 1,628 1,490 4,545 4,657
Depreciation and amortization 1,213 890 3,356 2,505
Interest 2,210 2,115 6,219 7,191
General and administrative 545 502 1,968 1,509
------ ------ ------- -------
Total expenses 5,596 4,997 16,088 15,862
------ ------ ------- -------
Income from operations 2,515 1,866 7,583 4,049
Equity in earnings of unconsolidated affiliates 43 294 196 866
Minority interest in consolidated affiliates (46) (40) (161) (135)
Minority interest in Operating Partnership (78) (129) (221) (400)
------ ------ ------- -------
Net income $2,434 $1,991 $ 7,397 $ 4,380
====== ====== ======= =======
Per share data:
Basic $ 0.15 $ 0.26 $ 0.48 $ 0.72
====== ====== ======= =======
Fully diluted $ 0.15 $ 0.25 $ 0.48 $ 0.71
====== ====== ======= =======
Weighted average shares outstanding:
Basic 4,090 4,006 4,112 4,025
====== ====== ======= =======
Fully diluted 4,125 4,128 4,162 4,135
====== ====== ======= =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
Page 4
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
----------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,397 $ 4,380
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,356 2,505
Amortization of deferred loan costs 139 442
Minority interests 382 535
Equity in income from affiliates (196) (700)
Gain on sale of assets held for sale --- (556)
Unbilled rent receivable, net (332) (307)
Allowance for doubtful notes and accounts receivable --- (134)
(Increase) decrease in:
Other receivables 498 (206)
Tenant rent and reimbursements receivable (390) (362)
Prepaid expense and other assets (82) (146)
Accrued interest receivable and loan fees (1,120) (939)
Increase (decrease) in:
Accounts payable and other liabilities (363) (32)
Tenant security deposits 150 10
-------- --------
Net cash provided by operating activities 9,439 4,490
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of rental properties (21,926) (22,452)
Additions to rental properties (1,220) (724)
Proceeds from sale (acquisition) of assets available for sale --- 4,475
Pre-acquisition costs (326) (46)
Return of pre-acquisition deposits --- ---
Construction-in-progress (3,410) ---
Leasing commissions (401) (114)
Investment in notes and bonds receivable (net) (5,531) (19,656)
Investment in marketable securities (1,222) ---
Principal reductions received on notes receivable 4,571 ---
Investments in affiliates, net of cash distributions received (2,517) (2,038)
-------- --------
Net cash used in investing activities (31,982) (40,555)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 31,507 42,878
Repayment of notes payable (8,729) (33,964)
Deferred financing costs (478) (301)
Decrease (increase) in restricted cash 3,095 (599)
Sale (purchase) of preferred stock and preferred partnership units --- 35,415
Sale (purchase) of common stock and partnership units (1,124) (925)
Minority interest equity contribution 196 ---
Distributions (11,020) (6,134)
-------- --------
Net cash provided by financing activities 13,447 36,370
-------- --------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 5
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
-------------------------------
(Unaudited)
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,096) 305
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,609 265
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,513 $ 570
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 6,770 $ 6,647
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the period, the Company sold Series A and B Bonds for the
following consideration:
Assignment of note payable $ --- $14,000
Investment in affiliate 3,165
-------
$17,165
=======
Property acquired in satisfaction of note receivable $ 4,650
=======
Distributions declared not yet paid $ 1,776 $ 1,601
======= =======
</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 to
continue the ownership, management, acquisition and development activities
previously conducted by G&L Development, a California general partnership, 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")*
G&L Gardens, LLC, an Arizona limited liability company
("Maryland Gardens")*
435 North Roxbury Drive, Ltd., a California limited partnership
(the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
G&L Hampden, LLC, a Delaware limited liability company ("Hampden")*
G&L Valencia, LLC, a California limited liability company
("Valencia")
G&L Tustin, LLC, a California limited liability company ("Tustin")*
G&L Holy Cross, LLC, a California limited liability company ("Holy
Cross")*
G&L Burbank, LLC, a California limited liability company
("Burbank")*
GLH Pacific Gardens, LLC, a California limited liability company
("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company ("Hoquiam")
* The Realty Financing Partnership, the Medical Partnership, Maryland
Gardens, GL/PHP, Hampden, Tustin, Holy Cross, and Burbank are herein
collectively referred to as the "Financing Entities" and individually as a
"Financing Entity."
The Company, as the sole general partner and as owner of an approximately 89%
ownership interest, controls the Operating Partnership. The Company controls
the Financing Entities through wholly owned subsidiaries incorporated either in
the State of Delaware or the State of California (collectively, the
"Subsidiaries" and individually, a "Subsidiary"). Each Subsidiary either (i)
owns, as sole general partner or sole managing member, a 1% ownership interest
in its related Financing Entity or (ii) owns no interest and acts as the manager
of the Financing Entity. The remaining 99% ownership interest in each Financing
Entity which is owned 1% by a Subsidiary is owned by the Operating Partnership,
acting as sole limited partner or member. Financing Entities in which a
Subsidiary owns no interest are 100% owned by the Operating Partnership.
References in these consolidated financial statements to the Company include
its operations, assets and liabilities including the operations, assets and
liabilities of the Operating Partnership, the Subsidiaries, the Financing
Entities, the Roxbury Partnership (in which the Operating Partnership owns a
61.75% partnership interest and is the sole general partner), Valencia (in which
the Operating Partnership owns an 80% membership interest and is the sole
managing member), Pacific Gardens (in which the Operating Partnership owns a 93%
membership interest and is the sole managing member) and Hoquiam (in which the
Operating Partnership owns a 100% interest).
In addition to the Subsidiaries, the Company also owns interests in various
unconsolidated affiliates. Although the Company's investment represents a
significant portion of the capital of such unconsolidated affiliates and the
Page 7
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(UNAUDITED)
Company exercises significant influence over the activities of these entities,
the Company does not have the requisite level of voting control to include the
assets, liabilities and operating activities of these entities in the
consolidated financial statements of the Company. The entities in which the
Company has unconsolidated financial interests are as follows:
. GLN Capital Co., LLC ("GLN Capital"), a Delaware limited liability
company formed in 1996. GLN Capital 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.
. Valley Convalescent, LLC ("Valley Convalescent") is a California
limited liability company formed by the Company, through the Operating
Partnership, and Continuum Health Incorporated, a Delaware corporation
("Continuum"). Both the Operating Partnership and Continuum hold a 50%
ownership interest in Valley Convalescent. Continuum is the managing
member of Valley Convalescent, which was formed for the purpose of
acquiring Valley Convalescent Center located in El Centro, California.
. AV Medical Associates, LLC ("AV Medical") is a California limited
liability company formed by the Company through the Operating
Partnership, and M&Z Aliso Associates, LLC, a California limited
liability company ("M&Z Aliso"). Both the Operating Partnership and
M&Z Aliso hold a 50% ownership interest in AV Medical. M&Z Aliso is
the managing member of AV Medical which was formed for the purpose of
acquiring a vacant parcel of land in Aliso Viejo, California upon
which AV Medical is currently constructing a 33,000 square foot, three
story medical office building ("MOB") which has been preleased to an
investment grade hospital owner/operator.
. G&L/M&Z Aliso Partners ("Aliso Partners") is a California general
partnership formed by the Company through the Operating Partnership,
and M&Z Aliso Associates, LLC, a California limited liability company.
Both the Operating Partnership and M&Z Aliso hold a 50% ownership
interest in Aliso Partners. M&Z Aliso is the managing member of Aliso
Partners which was formed for the purpose of acquiring a vacant parcel
of land in Aliso Viejo, California upon which the partners are
currently constructing a 52,000 square foot retail building.
. G&L - Grabel, San Pedro, LLC ("San Pedro") is a California limited
liability company, formed on March 10, 1998 by the Company through the
Operating Partnership, and Gary Grabel, an experienced MOB manager.
Both the Operating Partnership and Gary Grabel, who is the managing
member, hold a 50% interest in San Pedro. San Pedro was formed for the
purpose of acquiring four MOBs located at 1360 West 6th street in San
Pedro, California.
. G&L Penasquitos, LLC ("Penasquitos LLC") is a California limited
liability company, formed by the Company on April 24, 1998, through
the Operating Partnership, and Parsons House, LLC, a California
limited liability company ("Parsons"). The Company and Parsons
contributed to Penasquitos LLC 75% and 25% of the equity,
respectively. However, the initial ownership interests of the parties
will be adjusted to 50% as each partner receives a return of its
initial capital contribution through preferred distributions.
Penasquitos LLC was formed for the purpose of acquiring and converting
a building located in Rancho Penasquitos, California into a senior
care facility.
. G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California corporation
formed on April 21, 1998 by the Company, through the Operating
Partnership, and Parsons House, LLC, a California limited liability
company . The Company owns 75% of the total equity in Penasquitos Inc.
in the form of non-voting preferred stock. Parsons holds 25% of the
total equity and all of the voting common stock. Penasquitos Inc. was
formed for the purpose of operating a senior care facility to be built
in Rancho Penasquitos, California.
. GLH Pacific Gardens Corp. ("Pacific Gardens Corp.") is a California
corporation formed on June 25, 1998 by the Company, through the
Operating Partnership, and American Senior Care, Inc., a California
corporation ("American"). The Company owns 93% of the total equity in
Pacific Gardens Corp. in the form of non-voting preferred stock.
American Senior Living holds 7% of the total equity and all of the
Page 8
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
voting common stock. Pacific Gardens Corp. was formed for the purpose
of operating a senior care facility located in Santa Monica,
California, which was purchased by the Company.
GLN Capital, Valley Convalescent, AV Medical, Aliso Partners, San Pedro,
Penasquitos Inc., Penasquitos LLC and Pacific Gardens Corp. are herein
collectively referred to as the "Unconsolidated Affiliates" and individually as
"Unconsolidated Affiliate".
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 of
investments in healthcare properties and in debt obligations secured by
healthcare properties. Investments in healthcare property consists of
acquisitions, made either directly or through joint ventures, in MOBs or senior
care facilities which are leased to healthcare providers. The Company's lending
activities consist of providing short-term secured loans to facilitate third
party acquisitions either directly or through GLN Capital.
Basis of Presentation - The accompanying condensed consolidated financial
statements include the accounts of the Company. The interests in the Roxbury
Partnership, Valencia and Pacific Gardens not owned by the Company have been
reflected as 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 presented as of and for the three month and nine month
periods ended September 30, 1998 and 1997 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 and nine months ended September 30, 1998 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
include the operating results of the Company for the three months and nine
months ended September 30, 1998 and 1997. The Condensed Consolidated Statements
of Cash Flows have been prepared to reflect the operations of the Company for
the nine months ended September 30, 1998 and 1997.
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 to purchase shares of common stock granted under
the Company's 1993 Stock Incentive Plan, as amended. As of September 30, 1998
and 1997 there were approximately 217,000 and 341,500 stock options outstanding
with weighted average exercise prices of $14.61 and $11.85, respectively. Based
upon the number and amounts of vested and unvested options outstanding, the
dilutive effect on the Company's outstanding shares for the three months ended
September 30, 1998 and 1997 is 34,959 and 122,755 shares, respectively.
Page 9
<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>
September 30, December 31,
1998 1997
----------------------------------------------
(in thousands)
<S> <C> <C>
Buildings and improvements.............................................. $135,759 $118,799
Tenant improvements..................................................... 5,639 4,946
Furniture, fixtures and equipment....................................... 2,496 1,628
-------- --------
143,894 125,373
Less accumulated depreciation and amortization.......................... (17,305) (14,061)
-------- --------
Total................................................................ $126,589 $111,312
======== ========
</TABLE>
Rental property is recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements................ 40 years
Tenant improvements....................... Life of lease
Furniture, fixtures and equipment......... 5 to 7 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and all external costs directly related to
acquisitions are capitalized.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-----------------------------------------------
(in thousands)
<S> <C> <C>
Deferred financing costs................................................ $2,123 $1,669
Construction-in-progress................................................ 3,710 300
Pre-acquisition costs................................................... 326 ---
Leasing commissions..................................................... 982 581
Prepaid expense and other assets........................................ 355 273
------ ------
7,496 2,823
Less accumulated amortization........................................... (615) (388)
------ ------
Total................................................................. $6,881 $2,435
====== ======
</TABLE>
Page 10
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
5. STOCKHOLDERS' EQUITY AND DEBT OUTSTANDING
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 months ended September 30, 1998 and for the year ended December 31,
1997:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------------------
(in thousands)
<S> <C> <C>
Distributions in excess of net income
at beginning of period.................................................... $ (2,802) $(1,303)
Net income during period................................................... 7,397 6,561
Less: Distributions declared............................................... (10,374) (8,060)
-------- -------
Distributions in excess of net income...................................... $ (5,779) $(2,802)
======== =======
</TABLE>
At various times during the nine months ended September 30, 1998 the
Company repurchased a total of 91,000 shares of the Company's Common Stock at
an average price of approximately $16.62 per share.
Page 11
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in various unconsolidated affiliates as described in
Note 1. The following table provides a summary of the Company's investment in
each of these entities as of September 30, 1998. (In thousands).
<TABLE>
<CAPTION>
GLN Valley AV Aliso San Penasquitos Penasquitos
Capital Convalescent Medical Partners Pedro LLC Inc.
<S> -----------------------------------------------------------------------------------------
Opening balance at beginning <C> <C> <C> <C> <C> <C> <C>
of period.................... $ 2,730 $ 311 $ 600 $550 $ --- $ --- $---
Equity in earnings of
affiliates................... 129 51 --- --- 32 --- ---
Cash contributions............. --- --- 6,300 966 270
Cash distributions............. (2,170) (328) --- --- (5,175) --- ---
------- ------ ------ ---- ------- ------ ----
Equity, before inter-company
adjustments.................. 689 34 600 550 1,157 966 270
------- ------ ------ ---- ------- ------ ----
Intercompany transactions:
Adjustments/eliminations..... (63)
Receivable, net.............. 111 3,003 3,545 315 --- 143 ---
------- ------ ------ ---- ------- ------ ----
Investment in unconsolidated
affiliates................... $ 800 $3,037 $4,145 $865 $ 1,094 $1,109 $270
======= ====== ====== ==== ======= ====== ====
<CAPTION>
Pacific
Gardens
Corp. Total
---------------------------
<S> <C> <C>
Opening balance at beginning
of period.................... $--- $ 4,191
Equity in earnings of
affiliates................... (16) 196
Cash contributions............. --- 7,536
Cash distributions............. --- (7,673)
---- -------
Equity, before inter-company
adjustments.................. (16) 4,250
---- -------
Intercompany transactions:
Adjustments/eliminations..... (63)
Receivable, net.............. --- 7,117
---- -------
Investment in unconsolidated
affiliates................... $(16) $11,304
==== =======
</TABLE>
Page 12
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the nine months ended September 30,
1998. (In thousands).
<TABLE>
<CAPTION>
GLN Valley AV Aliso San
Capital Convalescent Medical Partners Pedro
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Land............................... $ --- $ 382 $ 1,751 $ 3,116 $ 1,882
Buildings.......................... --- 2,696 --- --- 4,358
Notes and bonds receivable, net.... 1,440 --- --- --- ---
Other assets....................... 37 198 2,601 1,464 317
Notes payable...................... --- (2,799) (3,417) (3,205) (4,912)
Other liabilities.................. (98) (102) (135) (275) (238)
------ ------- ------- ------- -------
Net assets........................... $1,379 $ 375 $ 800 $ 1,100 $ 1,407
====== ======= ======= ======= =======
Partner's equity:
- -----------------
G&L Realty Partnership, L.P........ $ 689 $ 34 $ 600 $ 550 $ 1,157
Others............................. 690 341 200 550 250
------ ------- ------- ------- -------
Total equity......................... $1,379 $ 375 $ 800 $ 1,100 $ 1,407
====== ======= ======= ======= =======
Operations:
- -----------
Revenues........................... $ 315 $ 450 $ --- $ --- $ 649
Expenses........................... 57 348 --- --- 585
------ ------- ------- ------- -------
Net income........................... $ 258 $ 102 $ --- --- $ 64
====== ======= ======= ======= =======
Allocation of net income:
- -------------------------------------
G&L Realty Partnership, L.P........ $ 129 $ 51 $ --- $ --- $ 32
Others............................. 129 51 --- --- 32
------ ------- ------- ------- -------
Net income........................... $ 258 $ 102 $ --- $ --- $ 64
====== ======= ======= ======= =======
<CAPTION>
Pacific
Penasquitos Penasquitos Gardens
LLC Inc. Corp. Total
------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Position:
- -------------------
Land............................... $ --- $--- $--- $ 7,131
Buildings.......................... --- --- --- 7,054
Notes and bonds receivable, net.... --- --- --- 1,440
Other assets....................... 3,985 360 64 9,026
Notes payable...................... (2,617) --- --- (16,950)
Other liabilities.................. (80) --- (96) (1,024)
------- ---- ---- --------
Net assets........................... $ 1,288 $360 $(32) $ 6,677
======= ==== ==== ========
Partner's equity:
- -----------------
G&L Realty Partnership, L.P........ $ 966 $270 $(16) $ 4,250
Others............................. 322 90 (16) 2,427
------- ---- ---- --------
Total equity......................... $ 1,288 $360 $(32) $ 6,677
======= ==== ==== ========
Operations:
- -----------
Revenues........................... $ --- $--- $581 $ 1,995
Expenses........................... --- --- 613 1,603
------- ---- ---- --------
Net income........................... --- --- $(32) $ 392
======= ==== ==== ========
Allocation of net income:
- -------------------------
G&L Realty Partnership, L.P........ $ --- $--- $(16) $ 196
Others............................. --- --- (16) 196
------- ---- ---- --------
Net income........................... $ --- $--- $(32) $ 392
======= ==== ==== ========
</TABLE>
Page 13
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. SEGMENT INFORMATION
The Company's business currently consists of investments in healthcare
properties and in debt obligations secured by healthcare properties. Investments
in healthcare property consists of acquisitions, made either directly or
indirectly through joint ventures, of MOBs or senior care facilities which are
leased to healthcare providers. The Company's lending activities consist of
providing short-term secured loans to facilitate acquisitions of MOBs or senior
care facilities by third parties, made either directly or through GLN Capital.
The tables on the following pages reconcile the Company's income and expense
activity for the nine months ended September 30, 1998 and 1997 and balance sheet
data as of September 30, 1998.
1998 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION
For the nine months ended September 30, 1998
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
-------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking... $20,049 $ --- $ --- $20,049
Interest, loan fees and related revenues... 140 2,499 779 3,418
Other...................................... 185 4 15 204
------- ------ ------- -------
Total revenues........................... $20,374 $2,503 $ 794 $23,671
------- ------ ------- -------
Expenses:
Property operations........................ 4,494 51 --- 4,545
Depreciation and amortization.............. 3,356 --- --- 3,356
Interest................................... --- --- 6,219 6,219
General and administrative................. --- --- 1,968 1,968
------- ------ ------- -------
Total expenses........................... 7,850 51 8,187 16,088
------- ------ ------- -------
Income from operations before minority
interests................................... $12,524 $2,452 $(7,393) $ 7,583
======= ====== ======= =======
</TABLE>
1997 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION
For the nine months ended September 30, 1997
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
-------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking... $16,246 $ --- $ --- $16,246
Interest, loan fees and related revenues... 82 3,294 68 3,444
Other...................................... 194 --- 27 221
------- ------ ------- -------
Total revenues........................... 16,522 3,294 95 $19,911
------- ------ ------- -------
Expenses:
Property operations........................ 4,564 93 --- 4,657
Depreciation and amortization.............. 2,505 --- --- 2,505
Interest................................... --- --- 7,191 7,191
General and administrative................. --- --- 1,509 1,509
------- ------ ------- -------
Total expenses........................... 7,069 93 8,700 15,862
------- ------ ------- -------
Income from operations before minority
interests................................... $ 9,453 $3,201 $(8,605) $ 4,049
======= ====== ======= =======
</TABLE>
Page 14
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
1998 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION
As of September 30, 1998
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Rental properties...................... $158,684 $ --- $ --- $158,684
Mortgage loans and bonds
receivable, net...................... --- 16,178 --- 16,178
Other assets........................... 13,445 227 19,242 32,914
-------- ------- ------- --------
Total assets....................... $172,129 $16,405 $19,242 $207,776
======== ======= ======= ========
Other assets:
Cash and cash equivalents............ $ --- $ --- $ 4,513 $ 4,513
Restricted cash...................... 4,650 --- --- 4,650
Tenant rent and reimbursements
receivable, net.................... 1,723 --- --- 1,723
Unbilled rent receivable, net........ 2,147 --- --- 2,147
Other receivables, net............... 197 227 50 474
Investment in unconsolidated
affiliates......................... --- --- 11,304 11,304
Investment in marketable securities.. --- --- 1,222 1,222
Deferred financing costs, net........ --- --- 1,792 1,792
Pre-acquisition costs................ --- --- 326 326
Construction in progress............. 3,710 --- --- 3,710
Deferred lease costs, net............ 698 --- --- 698
Prepaid expense and other............ 320 --- 35 355
-------- ------- ------- --------
Total other assets................. $ 13,445 $ 227 $19,242 $ 32,914
======== ======= ======= ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Neither the Company, any of its consolidated or unconsolidated affiliates,
nor any of the assets within their respective portfolios of MOBs, senior care
facilities, parking facilities, and retail space is currently a party to any
material litigation.
Page 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 Company's
Unaudited Condensed Consolidated Financial Statements and Notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1997 Annual
Report on Form 10-K as previously filed with the SEC.
Information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, as amended.
These statements can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other comparable terminology. Any one factor or combination
of factors could cause the Company's actual operating performance or financial
results to differ substantially from those anticipated by management. Factors
influencing the Company's operating performance and financial results include,
but are not limited to, changes in the general economy, the supply of, and
demand for, healthcare related real estate in markets in which the Company has
investments, the availability of financing, governmental regulations concerning,
but not limited to, new construction and development, environmental issues,
healthcare services and government participation in the financing thereof, and
other risks and unforeseen circumstances affecting the Company's investments
which may be discussed elsewhere in this Quarterly Report on Form 10-Q and the
Company's 1997 Annual Report on Form 10-K as previously filed with the SEC.
Results of Operations
- ---------------------
Comparison of the Nine Month Period Ended September 30, 1998 versus the Nine
Month Period Ended September 30, 1997.
Total revenues increased by $3.8 million, or 19%, from $19.9 million for the
nine months ended September 30, 1997, to $23.7 million for the same period in
1998. Rents, tenant reimbursements and parking revenues increased an aggregate
$3.8 million, or 23%, from a combined total of $16.2 million for the nine months
ended September 30, 1997, to $20.0 million for the same period in 1998. Two and
a half million of the aggregate increase in rents, tenant reimbursements and
parking revenues was related to the acquisition of $23.2 million in rental
properties and the remaining 19.5% interest in six New Jersey medical office
buildings ("MOBs") since June 30, 1997. The acquisition of five MOBs located in
Valencia, California in March 1998 accounted for an additional $0.5 million of
this increase and the purchase of two senior care facilities located in Santa
Monica, California and Hoquiam, Washington during 1998 resulted in the remaining
$0.3 million increase. Interest, loan fees and related revenues derived from
loans secured by senior care facilities were relatively unchanged for the nine
months ended September 30, 1997 compared to the same period in 1998, primarily
due to the $0.6 million gain from the sale of bonds on March 31, 1997.
Excluding this gain on the sale of bonds, interest, loan fees and related
revenue increased $0.6 million, or 21%, from $2.8 million for the nine months
ended September 30, 1997 to $3.4 million for the same period in 1998. Of this
increase, $0.3 million related to interest earned on excess cash from the
November 1997 Series B Preferred Stock offering and the April 1998 debt
refinancing and $0.6 million was attributable to interest and loan fees earned
on a $4.6 million senior care loan funded by the Company in December 1997.
These increases were offset by a $0.3 million decrease in interest income due to
the repayment of $4.6 million in notes receivable during the nine months ended
September 30, 1998.
Total expenses increased by $0.2 million, or 1%, from $15.9 million for the
nine months ended September 30, 1997, to $16.1 million for the same period in
1998. Property operating expenses decreased $0.1 million, or 2%, from $4.7
million for the nine months ended September 30, 1997, to $4.6 million for the
same period in 1998, despite a $0.2 million increase in operating costs related
to the five MOBs acquired in March 1998. This reduction is part of management's
ongoing efforts to reduce property operating costs and includes a $0.1 million
reduction of property taxes as a result of the Company's successful efforts in
appealing the assessed value of its properties. Furthermore, the $18.8 million
in properties acquired between June 30 and December 31, 1997 and the two senior
care facilities
Page 16
<PAGE>
acquired during 1998 were leased on a triple-net basis, thus the Company
incurred no operating costs related to these buildings. Depreciation and
amortization increased $0.9 million, or 36%, from $2.5 million for the nine
months ended September 30, 1997 to $3.4 million for the same period in 1998. Of
this increase, $0.6 million was attributable to property acquisitions made by
the Company since June 30, 1997. The remaining $0.3 million increase consisted
of depreciation on building and tenant improvements, non-real estate assets and
the amortization of leasing commissions. Interest expense decreased $1.0
million, or 14%, from $7.2 million for the nine months ended September 30, 1997,
to $6.2 million for the same period in 1998. This decrease in interest expense
was attributable to the reduction of $40 million of the Company's notes payable
and $19 million of borrowings on a line of credit which were paid down with the
net proceeds of $71.9 million from the two preferred stock offerings in 1997
resulting in a $1.3 million decrease in interest expense. Interest expense also
decreased due to the write-off of $0.4 million in loan costs in 1997 associated
with these notes payable and the capitalization of $0.5 million of interest
related to development projects in 1998. This decrease was offset by interest
incurred of $1.0 million on $31.5 million of new borrowings in 1998. General and
administrative expense increased by $0.5 million, or 33%, from $1.5 million for
the nine months ended September 30, 1997 to $2.0 million in for the same period
in 1998. This increase is related to the Company's addition of acquisition,
development and support personnel.
Net income increased $3.0 million, or 68%, from $4.4 million for the nine
months ended September 30, 1997 to $7.4 million for the same period in 1998.
This change is primarily due to the $3.8 million increase in rental revenues
offset by a decrease in equity in earnings from unconsolidated affiliates of
$0.7 million and an increase in general and administrative costs of $0.5
million.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1998, the Company's net investment in real estate assets
totaled approximately $158.7 million, $11.3 million in joint ventures and $16.2
million invested in notes. Of the $16.2 million of notes receivable, $14.1
million are secured by healthcare facilities located in California and Maryland.
The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of MOBs and senior
care lending activities and primarily consist of Funds from Operations ("FFO")
less dividends (see discussion below of FFO). In addition to the preferred
stock offerings completed in 1997, the Company's external sources of capital
consist of various secured loans. All of the Company's secured loans bear
interest at fixed rates ranging from 7.05% to 8.98%., except for an $8.5 million
loan which bears interest at LIBOR plus 2.35%. The loans have maturities
ranging from 2001 to 2014. The Company's ability to expand its MOB and senior
care lending operations requires continued access to capital to fund new
investments.
The Company declared a quarterly distribution payable to holders of the
Company's Common Stock for the first, second and third quarters of 1998 in the
amount of $0.39 per share which was paid on April 15, July 15 and October 15,
1998 to stockholders of record on March 31, June 30 and September 30, 1998,
respectively. The Company also paid monthly dividends totaling $0.6 million to
holders of the Company's Preferred Stock on the fifteenth day of each month
during the year to stockholders of record on the first day of each month. The
dividend paid to holders of the Company's Series B Preferred Stock on January
15, 1998 was approximately $0.33 per share which represents the cumulative
dividend due Series B shareholders from the offering date on November 12, 1997
through December 31, 1997. The Company declared dividends of $5.4 million to
holders of the Company's Common Stock in the first nine months of 1998 while the
Company earned $4.9 million in FFO. However, for the three months ended
September 30, 1998, the Company declared dividends of $1.8 million while earning
FFO of $1.8 million. The Company is actively seeking additional investments for
the purpose of increasing FFO. However, there can be no assurances that the
Company will be able to acquire such assets or if such assets are acquired and
combined with the Company's other investments,
Page 17
<PAGE>
will enable the Company to consistently produce a level of FFO at least equal to
the current level of distributions.
In general, the Company expects to continue meeting its short-term liquidity
requirements through its working capital, cash flow provided by operations and,
if necessary, from its lines of credit. 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.
Historical Cash Flows
- ---------------------
The Company's net cash from operating activities increased $4.9 million, or
109%, from $4.5 million for the nine months ended September 30, 1997 to $9.4
million for the same period in 1998. The increase of $4.9 million is due
primarily to a $3.0 million increase in net income, a $0.9 million increase in
depreciation and amortization and a $0.6 million decrease in gain on sale of
assets held for sale for the nine months ended September 30, 1998 compared to
the same period in 1997.
Net cash used in investing activities decreased $8.6 million, or 21%, to
$32.0 million for the nine months ended September 30, 1998 from $40.6 million
for the same period in 1997. The decrease was primarily due to a $14.2 million
decrease in investments in notes receivable and $4.6 million in payments
received on notes receivable offset by a $4.5 million decrease in proceeds
received from the sale of assets available for sale, a $3.4 million increase in
expenditures on construction in progress and a $1.2 million increase in
investment in marketable securities.
Cash flows provided by financing activities decreased $23.0 million, or 63%,
to $13.4 million for the nine months ended September 30, 1998 from $36.4 million
for the same period in 1997. The decrease is due primarily to a decrease in
proceeds received from notes payable of $11.4 million, a decrease in restricted
cash of $3.7 million, an increase in distributions of $4.9 million, a decrease
in the sale of preferred stock of $35.4 million and a decrease in the repayment
of notes payable of $25.3 million.
Year 2000 Readiness Disclosure
- ------------------------------
The information provided below contains Year 2000 statements and is a Year
2000 Readiness Disclosure pursuant to Pub.L.No.105-271.
Many computers, software programs and other equipment which utilize
microprocessors (collectively referred to as "Systems" and individually as a
"System"), process date sensitive data in the normal course of operations. Some
of these Systems use a 2-digit field to designate the year. As the year 2000
approaches, these Systems may not be capable of distinguishing between events
occurring in the year 1900 and the year 2000, and therefore these Systems may
become inoperable or produce information that is unreliable.
Information Technology Systems
The Company's critical information technology Systems consist of its Windows
NT operating systems and related Windows software as well as its accounting,
property management and fixed assets software. The Company relies on third
party vendors for its computer hardware and software. Based upon management's
communications with the Company's Systems vendors and an outside consultant,
management believes that the Company's hardware and software Systems are, or
will be Year 2000 compliant and that the Company's internal computer hardware
and software Systems will not be materially impacted by this issue. Currently,
the Company's accounting and property management
Page 18
<PAGE>
software has not yet been deemed Year 2000 compliant. However, the Company plans
to upgrade to the next version of this software which is Year 2000 compliant
during the first six months of 1999. The cost of this upgrade will not be
material to the Company.
Non-Information Technology Systems
The Company's critical non-information technology building Systems consist of
utilities, security, and elevators. The Company has not yet determined whether
all of these systems are Year 2000 compliant. The Company relies on third party
vendors to service most of these systems and is currently in communication with
these vendors to determine if these building systems are or will be Year 2000
compliant by December 31, 1999. The Company's property managers have contacted
the Company's vendors and made inquiries about the Year 2000 readiness of these
systems. Many of the Company's vendors have confirmed in writing that these
systems are Year 2000 compliant. The Company has also received confirmation in
writing from certain vendors that the systems will be Year 2000 compliant by
December 31, 1999. The Company is still following up with those vendors who
have only verbally confirmed Year 2000 compliance or who have not responded to
the Company's inquiries.
Risks
While the Company does not expect Year 2000 issues related to the Company's
internal systems to have a serious impact on the Company's operations, the
Company receives most of its revenues in the form of rental payments. If any of
the Company's tenants suffer a severe disruption of their business due to a Year
2000 problem, it could affect the ability of those tenants to pay their rent.
If multiple tenants were to suffer a severe disruption of their business, the
Company can provide no assurance that its operations would not be materially
affected.
Costs
The cost to the Company to make its internal Systems Year 2000 compliant is
not anticipated to be material to the Company's financial position. However,
management is not able to adequately assess the extent to which the Company is
vulnerable to System failures of any of its tenants or other companies providing
utilities or other services to its properties. Management plans to continue
conversations with other companies with which the Company does significant
business to minimize, to the extent possible, the potential impact of Year 2000
compliance failures. A contingency plan has not been developed for dealing with
the "most reasonably likely worst case scenario" because the Company is unable
at this time to identify such a scenario. The Company will continue to evaluate
these and other potential areas of risk and develop contingency plans, as
appropriate.
Funds from Operations
- ---------------------
Industry analysts generally consider FFO to be an appropriate measure of the
performance of a REIT. The Company's financial statements use the concept of
FFO as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO is calculated to include the minority
interests' share of income from the Operating Partnership 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, convert 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 this Form 10-Q, the Selected Financial
Data and Consolidated Financial Statements and Notes thereto included in the
Company's 1997 Annual Report on Form 10-K and the additional data presented
below. The table on the following page presents an analysis of FFO and
additional data for the three and nine month periods ended September 30, 1998
and 1997.
Page 19
<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,
1998 1997 1998 1997
-----------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS/(1)/
- --------------------------
Net income.................................................... $ 2,434 $ 1,991 $ 7,397 $ 4,380
Minority interest in Operating Partnership.................... 78 129 221 400
Income (loss) for Operating Partnership....................... 2,512 2,120 7,618 4,780
Depreciation of real estate assets............................ 1,057 853 2,988 2,400
Amortization of deferred lease costs.......................... 42 21 112 61
Depreciation from unconsolidated affiliates 39 --- 52 ---
Adjustment for minority interest in consolidated affiliates... (19) (19) (42) (61)
Dividends on preferred stock.................................. (1,803) (958) (5,578) (1,150)
------- ------- -------- --------
FUNDS FROM OPERATIONS/(1)/.................................... $ 1,828 $ 2,017 $ 5,150 $ 6,030
======= ======= ======== ========
PER SHARE/UNIT FUNDS FROM OPERATIONS:
- -------------------------------------
Basic $ 0.40 $ 0.45 $ 1.12 $ 1.33
======= ======= ======== ========
Fully diluted $ 0.40 $ 0.44 $ 1.11 $ 1.30
======= ======= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING/(2)/
- ----------------------------------------
Basic 4,588 4,504 4,610 4,523
======= ======= ======== ========
Fully diluted 4,623 4,626 4,660 4,633
======= ======= ======== ========
ADDITIONAL DATA
- ---------------
Cash flows:
- -----------
Operating activities........................................ 3,505 1,526 9,439 4,490
Investing activities........................................ (6,180) (5,807) (31,982) (40,555)
Financing activities........................................ (3,487) 4,564 13,447 36,370
Capital expenditures
- --------------------
Building improvements....................................... 236 62 330 331
Tenant improvements......................................... 224 49 666 386
Furniture, fixtures & equipment............................. 109 --- 224 7
Leasing commissions......................................... 112 72 401 114
Depreciation and amortization
- -----------------------------
Depreciation of real estate assets.......................... 1,057 853 2,988 2,400
Depreciation of non-real estate assets...................... 114 16 256 44
Amortization of deferred lease costs........................ 42 21 112 61
Amortization of capitalized financing costs................. 53 41 139 442
</TABLE>
1) Funds from operations ("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 paid to holders of preferred stock during the period and after
adjustments for consolidated and unconsolidated entities in which the
Company holds a partial interest. 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
operations, 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, and FFO therefore 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 NAREIT's new method of calculating FFO effective as of the
NAREIT-suggested adoption date of January 1, 1996. FFO has been restated
for all prior periods under the new method.
2) Assumes that all outstanding Operating Partnership units have been
converted to common stock.
Page 20
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company or any of its consolidated or unconsolidated
affiliates nor any of the assets within their portfolios of MOBs,
senior care facilities, parking facilities, and retail space 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
None.
(b) REPORTS ON FORM 8-K
There have been no reports filed on Form 8-K during the quarter ended
September 30, 1998.
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.
Date: November 13, 1998 By: /s/ David E. Hamer
------------------------
David E. Hamer
Chief Accounting Officer
Page 22
<PAGE>
Exhibit 11
G&L Realty Corp
Computation of Per Share Earnings
Quarterly Report on Form 10-Q
September 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income $2,434 $1,991 $7,397 $4,380
Less: Preferred Dividends
10.25% Series A Cumulative Preferred 958 958 2,874 1,469
9.8% Series B Cumulative Preferred 845 ---- 2,535 ----
------ ------ ------ ------
Net income available to $ 631 $1,033 $1,988 $2,911
common shareholders ====== ====== ====== ======
Options outstanding 217 342 217 342
====== ====== ====== ======
Weighted average exercise price 14.61 11.85 14.61 11.85
====== ====== ====== ======
Proceeds upon exercise of options $3,170 $4,053 $3,170 $4,053
====== ====== ====== ======
Treasury stock shares 182 220 167 232
====== ====== ====== ======
Common share equivalents 35 122 50 110
Average shares outstanding 4,090 4,006 4,112 4,025
------ ------ ------ ------
Total common and common
share equivalents outstanding 4,125 4,128 4,162 4,135
====== ====== ====== ======
Per share earnings data:
Basic $ 0.15 $ 0.26 $ 0.48 $ 0.72
Fully diluted $ 0.15 $ 0.25 $ 0.48 $ 0.71
</TABLE>
<PAGE>
Exhibit 21
G&L Realty Corp.
List of Subsidiaries
October 31, 1998
1. AV Medical Associates, LLC, a California limited liability company
2. G&L Hampden, Inc., a Delaware corporation
3. G&L Hampden, LLC a Delaware limited liability company
4. G&L Realty Partnership, L.P., a Delaware limited partnership
5. G&L Realty Financing II, Inc., a Delaware corporation
6. G&L Realty Financing Partnership II, L.P., a Delaware limited partnership
7. G&L Medical, Inc., a Delaware corporation
8. G&L Gardens, LLC, an Arizona limited liability company
9. G&L Management Delaware Corp., a Delaware corporation
10. G&L Senior Care, Inc., a Delaware corporation
11. G&L Medical Partnership, L.P., a Delaware limited partnership
12. GLN Capital Co. LLC, a Delaware limited liability company
13. GL/PHP, LLC a Delaware limited liability company
14. Theme World, L.P., a New Jersey limited partnership
15. Valley Convalescent, LLC, a California limited liability company
16. 435 N. Roxbury Drive, Ltd., a California limited partnership
17. G&L/M&Z Aliso Partners, a California general partnership
18. G&L - Grabel San Pedro, LLC
19. G&L Burbank, LLC
20. G&L Burbank Managers Corp., a California corporation
21. G&L Holy Cross, LLC
22. G&L Holy Cross Managers Corp., a California corporation
23. G&L Tustin, LLC
24. G&L Tustin Managers Corp., a California corporation
25. G&L Valencia, LLC
26. G&L Penasquitos, LLC
27. G&L Penasquitos, Inc.
28. GLH Pacific Gardens, LLC
29. GLH Pacific Gardens Corp., a California corporation
30. G&L Hoquiam, LLC
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