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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transaction period from _____________ to _____________
Commission file number 1-12566
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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
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $.01 par value New York Stock Exchange
Series A Preferred Stock, $.01 par value New York Stock Exchange
Series B Preferred Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price of such stock, as reported on the New
York Stock Exchange, on March 19, 1999) was $39,897,000.
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value (the "Common Stock"), as of March 19, 1999, was 3,971,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference portions of the Registrant's Proxy
Statement relating to the 1999 Annual Meeting of Stockholders (the "Proxy
Statement").
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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PART I
<C> <S> <C>
ITEM 1. BUSINESS......................................................... 1
ITEM 2. PROPERTIES....................................................... 7
ITEM 3. LEGAL PROCEEDINGS................................................ 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................. 28
ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA............................. 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................ 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA....................... 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE......................................... 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 42
ITEM 11. EXECUTIVE COMPENSATION........................................... 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 43
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PART I
ITEM 1. BUSINESS
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that owns, acquires, develops, manages, leases and finances
health care properties. The Company's business currently consists of
investments, made either directly or through joint ventures, in health care
properties and in debt obligations secured by health care properties. The
Company's operations focus primarily on opportunities to own or develop medical
office buildings ("MOB") through its MOB operations, or own or finance senior
care facilities ("Senior Care Facilities") through its senior care operations.
The Company was incorporated in Maryland on September 15, 1993.
The MOB business strategy is to acquire, develop, manage and lease a
portfolio of medical office buildings. The Company currently seeks growth
opportunities mainly in Southern California through acquisition or development
of additional MOBs directly or through strategic joint ventures. The MOB
portfolio, including projects under development, currently consists of
approximately 985,000 rentable square feet. The Company directly owns 25 high
quality MOBs, an adjacent parking facility and two retail facilities and
indirectly owns three additional MOBs (collectively, the "MOB Properties").
Twenty-five of the MOB Properties are located in California and six of the MOB
Properties are located in New Jersey. Several of the MOB Properties include
retail space on the ground level. As of January 31, 1999, the MOB Properties
were approximately 92.8% leased to over 410 tenants.
The senior care business strategy is to capitalize on consolidation
opportunities in the senior care industry by making selected equity investments
in Senior Care Facilities and by providing short-term secured loans to
facilitate third-party acquisitions. The Company directly owns 8 Senior Care
Facilities consisting of a skilled nursing facility and a senior resident
apartment complex located in Arizona, a Senior Care Facility in California,
three nursing homes in Massachusetts, a hospital located in California and a
skilled nursing facility in Washington (the "Senior Care Properties"). The
Senior Care Properties have an aggregate of 894 beds or units. The Company also
has a 50% interest in Valley Convalescent, LLC ("Valley Convalescent"), a joint
venture with Continuum Health Incorporated ("Continuum") which owns a 123-bed
skilled nursing facility in El Centro, California.
The Company, directly and through GLN Capital Co. ("GLN"), an unconsolidated
operating venture with Nomura Asset Capital Corporation ("Nomura"), also
provides short-term financing and participating loans secured by health care
properties throughout the United States. Many of the loans are intended to
serve as bridge or interim financing (generally 6 to 24 months) for the
acquisition of such facilities by joint ventures in which the Company
participates or by third parties. Loans made by the Company generally bear
interest at fixed rates. As of December 31, 1998, the Company had ten loans
outstanding which total approximately $15.6 million before reserves of $3.5
million. As of March 19, 1999, GLN's portfolio consists of one secured loan
with an outstanding balance of approximately $1.6 million including principal
(at face value) and accrued, unpaid interest.
As part of its overall business strategy, the Company also develops both MOBs
and Senior Care Facilities, either directly or through joint ventures. The
Company has a long history of successful developments and believes that it can
maximize growth through a combination of development and acquisition. The
Company currently has five development projects in progress consisting of a
33,000 square foot MOB and a 22,000 square foot MOB both located in Aliso Viejo,
California, a 44,000 square foot MOB located in Valencia, California and two
assisted living facilities located in Rancho Penasquitos, California and Omaha,
Nebraska. These developments are expected to be occupied within the next three
to eighteen months. In addition, the Company also owns two vacant parcels of
land in California which it intends to use to develop Senior Care Facilities or
to sell to third parties for development of Senior Care Facilities.
The Company intends to continue to grow by enhancing the operating
performance of its existing properties, selectively acquiring and developing
MOBs and Senior Care Facilities and originating loans secured by Senior Care
Facilities that meet the Company's underwriting criteria. Among the key elements
of the Company's growth
1
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strategy are improving rental income by aggressively marketing available space
and applying rigorous investment analysis to proposed acquisitions and short-
term loans.
The Company's primary business objective is to maximize the total return to
stockholders through increases in dividends and appreciation in the value of the
Company's capital stock through long-term investment in MOBs and Senior Care
Facilities, either directly or through affiliates, and short-term investments in
loans secured by Senior Care Facilities located throughout the United States,
either directly or through affiliates. The Company seeks to achieve these
objectives by enhancing the operating performance of its existing properties as
well as through the selective acquisition of MOBs and Senior Care Facilities and
originating loans secured by Senior Care Facilities in which the Company has an
investment interest. Key elements of the Company's MOB operating strategy
include: (i) improving rental income and cash flow by aggressively marketing
available space; (ii) designing and renovating tenant space to meet the unique
needs of medical practitioners; (iii) actively managing renovation costs and
minimizing other operating expenses such as leasing commissions by conducting
management, leasing, maintenance and marketing activities internally; (iv)
maintaining a diversified tenant base consisting of a cross section of medical
specialties; and (v) emphasizing regular maintenance, periodic renovation and
capital improvements to maximize long-term returns. Key elements of the
Company's Senior Care operating strategy include: (i) making short-term secured
loans, typically to nonprofit entities; (ii) monitoring the issuance of tax-
exempt bonds by a political subdivision with which a nonprofit entity has
contracted; (iii) negotiating the repayment of the Company's loans through a
combination of cash payments and permanent loan replacement; and (iv) locating
high-quality operators who will effectively and efficiently operate the Senior
Care Facilities in which the Company has an investment interest to maximize
their value.
Medical Office Building Operations. In its acquisition analysis, management
reviews certain factors including: (i) location, particularly proximity to major
hospitals; (ii) construction quality and design; (iii) historical, current and
projected cash flow; (iv) potential for increased cash flow and capital
appreciation; (v) tenant mix and terms of the tenant leases, including the
potential for rent increases; (vi) occupancy rates and demand for medical office
properties in the vicinity; and (vii) prospects for liquidity through sale,
financing or refinancing. The Company anticipates that G&L Realty Partnership,
L.P. (the "Operating Partnership"), the subsidiary through which the Company
conducts its business, will continue to purchase fee interests in MOB
Properties; however, the Company may participate, on a selective basis, in joint
venture transactions, or acquire partnership interests as the Board of Directors
may determine from time to time to be in the best interests of the Company.
Such investments may be subject to existing mortgage financing and other
indebtedness that have priority over the equity interest of the Company and may
not afford the Company with the operating control it has with respect to the MOB
Properties.
Senior Care Operations. In connection with its acquisition of Senior Care
Facilities and funding of short-term mortgage loans, management analyzes and
reviews certain factors including: (i) operating and financial history of the
entity and the managers who will be responsible for operating the Senior Care
Facility; (ii) value of the property; (iii) location of the property,
particularly proximity to shops, markets and other health care facilities; and
(iv) anticipated potential for short-term gain and long-term profits from
investment in the property. In its mortgage loans analysis, management also
reviews, among other factors, the investment history of the organization
acquiring the Senior Care Facility. The Company anticipates that it will
continue to acquire ownership interests in, and provide financing for, Senior
Care Facilities.
Development Activities. In connection with its development projects,
management analyzes and reviews certain factors including: (i) location,
particularly proximity to major medical centers; (ii) demand for MOBs or Senior
Care Facilities in the area; (iii) cost of construction in relation to direct
acquisition; (iv) potential for capital appreciation; (v) potential for
financing or sale; (vi) operating and development capabilities of potential
partners; and (vii) estimated return on investment. The Company considers
development to be a vital part of its operations and anticipates that it will
continue to seek development opportunities in the future.
See Item 14 for financial information about the Company's two main business
segments: investments in (i) healthcare properties and (ii) debt obligations
secured by Senior Care Properties.
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Competitive Strengths
In addition to the Company's investments in existing MOB properties, the
Company also seeks to make selective acquisitions of MOBs. From time to time
hospital owners sell their MOBs to raise capital. These sales create
opportunities for the Company to acquire MOBs on attractive terms. Because
hospitals will often seek a buyer with the operating skills necessary to meet
the needs of the medical practitioners located in the building, the Company
believes that its successful history of operating MOBs provides it with a
competitive advantage in the acquisition, development and management of MOBs.
Through its senior care operations, and indirectly through GLN, the Company
initially provided short-term financing (typically 6-24 months) secured by
Senior Care Facilities. The Company has expanded its senior care operations and
currently also seeks to selectively acquire ownership interests in Senior Care
Facilities which have characteristics consistent with the Company's growth
strategy. The Company believes that the aging population in the United States
has increased the demand for efficiently operated Senior Care Facilities. The
Company believes that it is in a position to capitalize on this increased demand
by selectively acquiring ownership interests in attractively situated Senior
Care Facilities as well as by funding secured short-term mortgage loans to
facilitate the acquisition of Senior Care Facilities by third-party investors.
The Company also believes that there is potential for the Company to make
additional acquisitions of Senior Care Facilities and to fund new secured short-
term loans for the acquisition of Senior Care Facilities by third parties.
Financing for new acquisitions of MOB properties and Senior Care Facilities
and investments may be provided through existing or new joint ventures with
third parties, third-party financing in the form of secured or unsecured debt or
equity or from the sale of securities. The Company's access to the public
capital markets and its capacity to obtain debt financing facilitates its
ability to acquire ownership interests in additional MOBs and Senior Care
Facilities and to invest in loans secured by Senior Care Facilities. However,
notwithstanding any business policies or objectives of the Company, no assurance
can be given that the Company, or its investment affiliates, will be able to
make acquisitions on favorable terms, that such properties will be profitably
operated or that the Company, or its investment affiliates, will continue to
make favorable investments in mortgages secured by Senior Care Facilities. In
addition, the Company and its investment affiliates will likely incur additional
indebtedness in connection with future acquisitions.
Property Management
The Company provides a full range of management services for the operation of
MOBs. The ability of the Company to manage MOBs to meet the unique needs of
medical practitioners has been critical to its success to date. The Company has
experienced lease renewal rates of approximately 91.1%, 87.3% and 86.7% for the
years ended December 31, 1996, 1997 and 1998, respectively, with respect to
medical office space in the MOB Properties based on the medical office space
leases available for renewal in these periods. Developing and managing MOBs
differs from developing and managing general office properties due to the
special requirements of the tenants and their patients. MOBs generally have
higher maintenance requirements in the public areas due to heavy foot traffic,
many short appointments which increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more stringent
restrictions on the disposal of medical waste. The management of MOBs also
generally requires experience in specialized tenant improvements and higher
levels of responsiveness required by medical practitioners. Additional
important management functions include the placement of tenants within MOBs to
accommodate increased space needs and managing the tenant mix at properties so
that referrals by practitioners with different specialties within the building
are facilitated. The Company stresses meeting these and other special demands
of medical property tenants.
3
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Tax Status
The Company believes that it has operated in such a manner as to qualify for
taxation as a REIT under Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended (the "Code"), commencing with its taxable year ended
December 31, 1993, and the Company intends to continue to operate in such a
manner. As long as the Company qualifies for taxation as a REIT under the Code,
the Company generally will not be taxed at the corporate level. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property and to federal income and excise taxes on its
undistributed income.
Employees
As of March 19, 1999, the Company (including the Operating Partnership)
employed 39 persons, 10 of whom are on-site building employees who provide
maintenance services for the MOB Properties and 8 of whom are professional
employees engaged in leasing, asset management and administration.
Dependence on Key Tenants
The Company's MOBs typically consist of several smaller tenants rather than
one or two large tenants. During 1998, only one MOB tenant accounted for more
than 10% of the Company's total rental revenues. During 1998, a subsidiary of
PHP Healthcare, Inc. ("PHP"), occupied 100% of the six MOB Properties located in
New Jersey, which accounted for approximately 10.8% of the Company's total
rental revenues. In November 1998, PHP and the subsidiary filed petitions under
Chapters 7 and 11, respectively, of the U.S. Bankruptcy Code. The subsidiary's
Chapter 11 proceeding was subsequently converted to Chapter 7. After the
bankruptcy filing, the facilities were operated by HIP of New Jersey, Inc.
("HIP"). HIP's operations were taken over by the Commissioner of the New Jersey
Department of Banking and Insurance (the "Commissioner") in December 1998. The
State of New Jersey continued to occupy and lease the buildings through March 5,
1999. By the end of March 1999, the Commissioner vacated the buildings. If the
Company is unable to re-lease these buildings in a timely manner, the earnings
of the Company may be adversely affected.
The Senior Care Facilities are leased 100% to senior care companies that
operate the facilities. Although all of the Company's Senior Care Facilities
are currently leased, finding experienced senior care operators is a time-
consuming and difficult task. As of March 19, 1999, Lenox Healthcare, Inc.
("Lenox") operated the three nursing homes in Massachusetts, which accounted for
approximately 10.8% of the Company's total rental revenues in 1998. If Lenox,
or any of the Company's other senior care operators, experience financial
difficulties and the Company is unable to re-lease the affected Senior Care
Properties in a timely manner, the earnings of the Company may be adversely
affected.
Government Regulation
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in its property. These laws impose liability without regard to whether the
owner knew of, or was responsible for, the presence of any hazardous or toxic
substances. The presence of such substances, or the failure to properly
remediate these substances, may adversely affect the owner's ability to borrow
using the real estate as collateral and may subject the owner to material
remediation costs. All of the MOB Properties and Senior Care Properties have
been subject to Phase I environmental assessments (which involve inspection of
the subject property, but no soil sampling or groundwater analysis) by
independent environmental consultants. Although restricted in scope, these
independent assessments revealed no material evidence of existing environmental
liability, and the Company has
4
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not been notified by any governmental authority of any noncompliance by,
liability for, or other claim against the Company in connection with
environmental matters related to the MOB Properties or Senior Care Properties.
While the Company is not aware of any environmental liability that it believes
would have a material adverse effect on its business, assets or results of
operations, no assurance can be given that the environmental assessments
revealed all potential environmental liabilities or that a prior owner did not
create any material environmental condition not known to the Company or that
future uses or conditions (including changes in applicable environmental laws
and regulations) will not result in imposition of environmental liability.
The independent environmental assessments include selective sampling for
asbestos where the age of the buildings or the types of materials warranted such
sampling. Limited quantities of non-friable asbestos were present in the
Sherman Oaks Medical Plaza. The Company removed the asbestos in 1994 in
connection with the renovation of this building. Limited quantities of non-
friable asbestos were also discovered in the Maryland Gardens facility and
Riverdale Gardens Nursing Home. Management believes that it has undertaken
adequate measures to ensure that the asbestos will remain undisturbed and that
it does not pose a current health risk. Management plans to continue to monitor
this situation.
Physicians generate medical waste in the normal course of their practice. The
Company's leases require the individual tenants to make arrangements for the
disposal of medical waste and requires all tenants to provide proof that they
have contracted with a third party service to remove waste from the premises
each night. The handling and disposal of this waste is the responsibility of the
tenants; however, the Company remains responsible as the owner of the property.
There can be no assurance that all such medical waste will be properly handled
and disposed of or that the Company will not incur costs in connection with
improper disposal of medical waste by its tenants.
Healthcare Industry Regulation. Physicians and senior care operators are
subject to heavy government regulation including the determination of the level
of reimbursements for medical costs incurred and services provided under
government programs. Changes in government regulations regarding medical
reimbursements and other regulations affecting the healthcare industry can have
a dramatic impact on the operations of medical practitioners or senior care
operators under government programs. Both the federal government and many state
governments are exploring numerous reforms concerning the healthcare industry
that could have a significant impact on many healthcare-related businesses. If
legislation were enacted that decreased the level of government medical
reimbursements or increased the degree of regulatory oversight, thereby
increasing the expenses of healthcare businesses, the Company's tenant base
could be adversely affected. This, in turn, could negatively impact the ability
of the Company to make distributions.
Americans with Disabilities Act. All of the MOB Properties and Senior Care
Properties are required to comply with the Americans with Disabilities Act
("ADA"). The ADA generally requires that buildings be made accessible to people
with disabilities. Compliance with the ADA requirements could require removal
of access barriers and noncompliance could result in imposition of fines by the
federal government or an award of damages to private litigants. The Company
believes it is in substantial compliance with the ADA and that it will not be
required to make substantial capital expenditures to address the requirements of
the ADA. If required changes involve a greater expenditure than the Company
currently anticipates, the Company's ability to make distributions could be
adversely affected.
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[G&L REALTY CORPORATION ORGANIZATIONAL CHART APPEARS HERE]
1) The Company, a Maryland corporation, was formed to continue the ownership,
management, acquisition and development activities previously conducted by
G&L Development, a California general partnership.
2) The Company is the sole general partner and 86% owner of the Operating
Partnership. Of its 86% interest, 1% is held as general partner and 85% is
held as a limited partner. Individual limited partners own the Operating
Partnership's remaining 14% partnership interest.
3) G&L Realty Financing II, Inc. a Delaware corporation and a wholly owned
subsidiary of the Company, is the sole general partner and 1% owner of the
Realty Financing Partnership.
4) G&L Medical, Inc. a Delaware corporation and a wholly owned subsidiary of
the Company, is the sole general partner and 1% owner of the Medical
Partnership.
5) The Operating Partnership is the sole general partner and 61.75% owner of
the Roxbury Partnership. Individual limited partners own the remaining
38.25% limited partnership interest.
6) G&L Management Delaware Corp., a Delaware corporation and a wholly owned
subsidiary of the Company, is the managing member and the owner of a 1%
membership interest of the GL/PHP.
7) G&L Senior Care Inc., a Delaware corporation and a wholly owned subsidiary
of the Company, is the managing member and the owner of a 1% membership
interest of G&L Gardens.
8) G&L Hampden, Inc., a Delaware corporation and a wholly owned subsidiary of
the Company, is the sole managing member and 1% owner of Hampden.
9) G&L Holy Cross Managers Corp., a California corporation and a wholly owned
subsidiary of the Company, is the managing member of G&L Holy Cross.
10) G&L Burbank Managers Corp., a California corporation and a wholly owned
subsidiary of the Company, is the managing member of G&L Burbank.
11) G&L Tustin Managers Corp., a California corporation and a wholly owned
subsidiary of the Company, is the managing member of G&L Tustin.
12) The Operating Partnership is sole managing member and 80% owner of
Valencia. The remaining 20% is owned by Landmark Healthcare Facilities,
LLC.
13) The Operating Partnership is co-managing member and 93% owner of Pacific
Gardens. The remaining 7% is owned by ASL Santa Monica, Inc.
14) Hoquiam, Lyons and Coronado are owned 100% by the Operating Partnership.
15) GLN Capital is a Delaware limited liability company owned 49.9% by the
Operating Partnership and 50.1% by Nomura.
16) Valley Convalescent is a California limited liability company owned 50% by
the Operating Partnership and 50% by Continuum Healthcare, Inc.
17) San Pedro is a California limited liability company owned 50% by the
Operating Partnership and 50% by Gary Grabel.
18) Penasquitos LLC is a California limited liability company owned 50% by the
Operating Partnership and 50% by Parsons House, LLC.
19) Penasquitos Inc. is a California Corporation owned 50% by the Operating
Partnership and 50% by Parsons House, LL
20) Pacific Gardens Corp. is a California corporation owned 93% by the
Operating Partnership in the form of non-voting preferred stock and 7% by
ASL Santa Monica, Inc.
21) Eagle Run is a California limited liability company owned 50% by the
Operating Partnership and 50% by Parsons House, LLC.
6
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ITEM 2. PROPERTIES
The MOB Properties consist of 25 high quality MOBs, an adjacent parking
facility and two retail facilities and three MOBs indirectly-owned by the
Company. The Senior Care Properties consist of 7 Senior Care Facilities and one
hospital. As of January 31, 1999, the MOBs were approximately 92.8% leased to
over 390 tenants and the Senior Care Properties were approximately 76.4%
occupied. The Company's MOB tenants are primarily established medical
practitioners representing a cross section of medical practices.
Description of the MOB Properties and Senior Care Properties
MOB Properties
The Company, through its MOB operations, acquires, develops, manages and
leases MOBs, a parking facility and two retail facilities. Developing and
managing MOBs differs from developing and managing conventional office buildings
due to the special requirements of physicians and their patients. Because
doctors now perform a variety of medical procedures in their offices, many MOBs
have become sophisticated ambulatory centers that allow for outpatient surgery
and procedures. In addition, MOBs generally have higher maintenance
requirements in the public areas due to heavy foot traffic, many short
appointments that increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more stringent
restrictions on the disposal of medical waste. The management of MOBs also
generally requires experience in specialized tenant improvements and higher
levels of responsiveness required by medical practitioners. Additional
important management functions include the placement of tenants to accommodate
increased space needs and managing the tenant mix at properties to facilitate
referrals by practitioners with different specialties within the building. The
Company stresses meeting these and other special demands of MOB tenants.
Senior Care Properties
The Company, as part of its overall strategy, acquires, develops and leases
Senior Care Facilities. The Company leases its Senior Care Properties to third
party senior care operators. The operation of Senior Care Facilities requires a
high level of experience and expertise due to the specific needs of the
residents and the complex administrative functions surrounding the admission and
care of residents and the administering of government programs. The operators
of Senior Care Facilities must also maintain a positive relationship with local
hospitals and other medical providers in order to attract new residents. The
Company considers all of the above factors when leasing its facilities to third
party operators.
The health care industry is facing various challenges, including increased
government and private payor pressure to reduce medical delivery costs.
Substantially all of the Company's tenants are in the medical profession and
could be adversely affected by the new Medicare prospective payment system, cost
containment and other health care reform proposals. Proposals that limit access
to medical care or reduce reimbursement for physicians' services may impact the
ability of the Company's tenants to pay rent. However, the Company believes
that the aging population in the United States, combined with other recent
trends in the health care industry, such as the performance of non-acute
procedures outside of hospitals, could spur increased demand for space in full
service MOBs that contain surgery centers and out-patient facilities, such as
those owned by the Company.
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The following tables set forth certain information regarding each of the MOB
Properties and Senior Care Properties as of January 31, 1999. All of the MOB
Properties and Senior Care Properties are held in fee by the Company or, in the
case of jointly-owned properties, by the joint venture property partnership or
limited liability company.
MOB Properties--Summary Data
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Number Year Rentable Rented Total Average
of Constructed or Square Square Annualized Rent per
Property Buildings Rehabilitated Feet(1) Feet(2) Occupancy(2) Rent(3) Sq. Ft.(4)
------------------------------------ --------- -------------- --------- ------- ------------ ------------ ----------
Southern California
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405 N. Bedford, Beverly Hills,.......... 1 1947/1987 43,002 36,770 85.5% $1,554,000 $42.27
415 N. Bedford, Beverly Hills(5)........ 1 1955 5,720 5,720 100.0 224,000 39.10
416 N. Bedford, Beverly Hills........... 1 1946/1986 40,571 36,581 90.2 1,380,000 37.72
435 N. Bedford, Beverly Hills........... 1 1950/63/84 54,936 52,609 95.8 1,683,000 31.99
435 N. Roxbury, Beverly Hills........... 1 1956/1983 42,455 41,059 96.7 1,486,000 36.21
436 N. Bedford, Beverly Hills........... 1 1990 73,685 73,685 100.0 3,030,000 41.12
Holy Cross Medical Plaza
11550 Indian Hills Road
Mission Hills......................... 1 1985 72,146 64,080 88.8 1,822,000 28.44
St. Joseph's Medical Office Bldg.
2031 West Alameda Ave.
Burbank (6)........................... 1 1987 25,684 24,869 96.8 667,000 26.82
Sherman Oaks Medical Plaza
4955 Van Nuys Blvd.
Sherman Oaks.......................... 1 1969/1993 68,806 66,941 97.3 1,364,000 20.37
Regents Medical Center
4150 Regents Park Row , La Jolla...... 1 1989 65,313 65,313 100.0 1,618,000 24.77
Cigna HealthCare Building
12701 Schabarum Ave.
Irwindale............................. 1 1992 47,604 47,604 100.0 1,097,000 23.04
Tustin--Medical Office I
14591 Newport Avenue, Tustin.......... 1 1969 18,092 9,959 55.0 151,000 15.13
Tustin--Medical Office II
14642 Newport Avenue, Tustin.......... 1 1985 47,745 38,432 80.5 636,000 16.54
1095 Irvine Boulevard, Tustin........... 1 1995 10,125 10,125 100.0 206,000 20.30
San Pedro Medical Plaza
1360 West 6/th/ Street, San Pedro..... 3 1963/1979 58,435 50,687 86.7 1,199,000 23.65
Santa Clarita Valley Medical Center
23861 McBean Pkwy, Santa Clarita...... 5 1981 42,335 40,238 95.0 834,000 20.72
Pier One Retail Center
26771 Aliso Creek Road, Aliso Viejo .. 1 1998 9,100 9,100 100.0 182,000 20.00
Lyons Avenue Medical Building
24355 Lyons Avenue, Santa Clarita..... 1 1990 48,953 41,737 85.3 851,000 20.39
Coronado Plaza
1330 Orange Ave, Coronado............. 1 1977/1985 39,854 35,552 89.2 983,000 27.65
</TABLE>
- ----------------------------------
See footnotes on following page Continued....
8
<PAGE>
<TABLE>
<CAPTION>
New Jersey (7)
- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
2103 Mt. Holly Rd, Burlington......... 1 1994 12,560 12,560 100.0 435,000 34.63
150 Century Parkway, Mt. Laurel....... 1 1995 12,560 12,560 100.0 391,000 31.16
274 Highway 35, South Eatontown....... 1 1995 12,560 12,560 100.0 481,000 38.30
80 Eisenhower Drive, Paramus.......... 1 1994 12,675 12,675 100.0 422,000 33.28
16 Commerce Drive, Cranford........... 1 1963 17,500 17,500 100.0 492,000 28.10
4622 Black Horse Pike, May Landing.... 1 1994 12,560 12,560 100.0 438,000 34.83
-- ------- ------- -----------
Total/Weighted average of
MOB Properties........................ 31 885,876 822,376 92.8% $23,442,000 $28.51
== ======= ======= ===========
Developments (8)
- ---------------
Santa Clarita Valley Medical Center
23861 McBean Pkwy, Santa Clarita 1 1998/1999 43,911 26,768 62.3% 668,168 24.96
Hoag Hospital MOB
26671 Aliso Creek Road, Aliso
Viejo 1 1998/1999 33,000 33,000 100.0 750,000 22.73
Pacific Park
5 Journey Road, Aliso Viejo 1 1998/1999 22,300 16,950 76.0 427,140 25.20
-- ------- ------- ----------- ------
Total/Weighted average of
Developments 3 99,211 76,558 77.2% $ 1,845,000 $24.10
-- ------- ------- -----------
Total/Weighted average of all 34 985,087 898,934 91.3% $25,287,000 $28.12
MOB Properties (including == ======= ======= ===========
Developments)
</TABLE>
1) Rentable square feet includes space used for management purposes but does
not include storage space.
2) Occupancy includes occupied space and space used for management purposes.
Rented square feet includes space that is leased but not yet occupied.
Occupancy figures have been rounded to the nearest tenth of one percent.
3) Rent is based on third-party leased space billed in January 1999; no rent
is assumed from management space.
4) Average rent per square foot is calculated based upon third-party leased
space as of January 31, 1999.
5) This property consists of retail space and parking facilities.
6) The St. Joseph's Professional Building was acquired from the Sisters of
Providence, who guaranteed up to an annual gross rent of $765,000 per year
through October 31, 1998; however, the guarantee was limited to a maximum
annual reimbursement of $225,000.
7) All six facilities were acquired in February 1997. Prior to acquisition the
previous owner operated the facilities as an acute care MOB. Due to the PHP
bankruptcy discussed below, all six facilities were vacant as of March 31,
1999.
8) Developments consist of MOB properties under construction as of January 31,
1999. Occupancy and rental information is based on pre-leased space as of
January 31, 1999.
9
<PAGE>
Senior Care Properties--Summary Data
<TABLE>
<CAPTION>
Number Year Total
of Constructed or Date Number of Purchase Annualized
Property Buildings Rehabilitated Leased Beds/Units Occupancy(1) Price Rent
--------------------------- --------- -------------- ------- ---------- ------------ ----------- ----------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pacific Gardens
1437 Seventh Street,
Santa Monica................ 1 1990 6/30/98 92 96.2% $11,210,000 $ 960,000
Tustin Hospital
14662 Newport Avenue,
Tustin.(3).................. 1 1969 5/1/97 183 19.0 2,545,000 421,000
Arizona
- -------
Maryland Gardens (4)
31 West Maryland Avenue,
Phoenix .................... 1 1951-1957 2/1/98 98 91.9 4,647,000 408,000
Maryland Gardens II
39 West Maryland Avenue,
Phoenix..................... 1 1968 N/A 20 95.0 1,024,000 101,000
Massachusetts
- -------------
Riverdale Gardens
42 Prospect Avenue,
West Springfield ........... 1 1957-1975 10/1/97 168 88.7 5,655,000 762,000
Chestnut Hill
32 Chestnut Street,
East Longmeadow............. 1 1984 10/1/97 123 91.2 10,627,000 1,433,000
Mary Lyon
34 Main Street,
Hampden..................... 1 1986 10/1/97 100 91.0 3,744,000 505,000
Washington
- ----------
Pacific Care Center
3035 Cherry Street,
Hoquiam..................... 1 1954 7/31/98 110 89.8 3,316,000 600,000
- --- ---- ----------
Total/Weighted average of all
Senior Care Properties........ 8 894 76.4% $5,190,000
= === ==== ==========
Developments
- -----------------------------
Southern California
- -------------------
The Arbors
12979 Rancho Penasquitos
Boulevard,
San Diego .................. 1 1998/1999 N/A N/A N/A 4,200,000 N/A
Nebraska
- --------
14325 Eagle Run Drive,
Omaha ...................... 1 1999/2000 N/A N/A N/A 1,100,000 N/A
<CAPTION>
Average
Annual
Rent per
Property Bed/Unit (2)
--------------------------- ------------
<S> <C>
Southern California
- -------------------
Pacific Gardens
1437 Seventh Street,
Santa Monica..................... $10,435
Tustin Hospital
14662 Newport Avenue,
Tustin.(3)....................... 2,300
Arizona
- -------
Maryland Gardens (4)
31 West Maryland Avenue,
Phoenix ......................... 4,163
Maryland Gardens II
39 West Maryland Avenue,
Phoenix.......................... 5,050
Massachusetts
- -------------
Riverdale Gardens
42 Prospect Avenue,
West Springfield ................ 4,536
Chestnut Hill
32 Chestnut Street,
East Longmeadow.................. 11,650
Mary Lyon
34 Main Street,
Hampden.......................... 5,050
Washington
- ----------
Pacific Care Center
3035 Cherry Street,
Hoquiam.......................... 5,455
-------
Total/Weighted average of all
Senior Care Properties............. $ 5,805
=======
Developments
- -----------------------------
Southern California
- -------------------
The Arbors
12979 Rancho Penasquitos
Boulevard,
San Diego ....................... N/A
Nebraska
- --------
14325 Eagle Run Drive,
Omaha ........................... N/A
</TABLE>
_______________________
1) Occupancy is on a per-bed or unit basis.
2) Average rent per bed is calculated based upon annualized rents as of
January 31, 1999.
3) Tustin Hospital is leased 100% to Pacific Health Corporation. Occupancy
percentage of 19.0% represents average hospital census for January 1999.
4) Lease expired on January 31, 1999. Tenant is currently month-to-month.
10
<PAGE>
MOB Properties
Southern California Properties
- ------------------------------
Six of the MOB Properties are located on North Bedford and North Roxbury
Drives in the "Golden Triangle" area of Beverly Hills, California, near three
major hospitals--Cedars Sinai Medical Center, Century City Hospital and UCLA
Medical Center. The buildings feature high quality interior improvements,
including rich wood paneling and brass hardware appointments, both in the common
areas and in most of the doctors' offices. These six MOB Properties include ten
operating rooms. The 405, 416 and 436 North Bedford Drive buildings each have
emergency back-up generators. Parking for these six MOB Properties is provided
in the 415 North Bedford garage and in subterranean parking at 436 North Bedford
and 435 North Roxbury Drives. Each of these MOBs has copper insulated pipe with
sufficient capacity for medical use, electrical systems designed for extra load
requirements and extensive security systems.
405 North Bedford Drive, Beverly Hills
The 405 North Bedford Drive MOB, built in 1947 and extensively remodeled in
1987, consists of four stories plus a penthouse and a basement. The reinforced
brick building, with ground floor retail space, features cherry wood paneled
walls and brass hardware in the common areas and decorative concrete trim on the
exterior.
On March 31, 1998, St. John's Hospital lease expired. St. John's Hospital
occupied approximately 37,000 square feet, or 75% of the building. St. John's
Hospital had subleased much of its space to doctors affiliated with the
hospital. Upon expiration of the lease, management began to sign leases with
the sub-tenants of St. John's Hospital. Management has been successful in
signing the majority of these sub-tenants or finding new occupants. Currently,
two tenants occupy more than 10% of the rentable square footage in the 405 North
Bedford property. A surgery center occupies 6,019 square feet (approximately
14%) of the rentable square footage pursuant to a lease that provides for
monthly rent of $22,000. The lease expires on August 31, 2004 and provides for
a five-year renewal option. An obstetrician occupies 5,374 square feet
(approximately 12.5%) of the rentable square footage pursuant to a lease that
provides for monthly rent of $23,000.
415 North Bedford Drive, Beverly Hills
The 415 North Bedford Drive building is a four-level parking structure with
approximately 5,720 square feet of ground floor retail space for seven tenants.
The parking structure contains 316 tandem-striped spaces and is valet operated.
416 North Bedford Drive, Beverly Hills
The 416 North Bedford Drive property is a four-story reinforced brick MOB
with a basement and ground floor retail space. Built in 1946 and extensively
remodeled in 1986, the building features oak paneled walls and moldings, brass
hardware, tinted concrete borders on the exterior, and fourth floor skylights
that provide an open, airy atmosphere in the hallway and in some of the suites.
A plastic surgeon occupies 4,622 square feet or 11.3% of the rentable square
footage of the building, pursuant to a lease which provides for monthly rent of
$19,000. The lease expires on November 30, 2002 and contains a five-year
renewal option.
11
<PAGE>
435 North Bedford Drive, Beverly Hills
The 435 North Bedford Drive property is a four-story, reinforced brick and
masonry MOB with a penthouse, basement, and ground floor retail space. Built in
1950 and extensively remodeled in 1984, the building features oak molding, wall
sconces and paneling in the hallways plus stained runner boards and built-in
stained hardwood cabinets in some of the medical office suites.
435 North Roxbury Drive, Beverly Hills
The 435 North Roxbury Drive property is a four-story MOB with a penthouse,
subterranean parking and retail space on the ground floor. The building, which
was built in 1956 and extensively remodeled in 1983, features a reinforced brick
and masonry exterior and raised, oak-stained paneling and molding in the
hallways.
Two tenants in 435 North Roxbury each occupy more than 10% of the rentable
square footage. A dermatologist occupies 5,291 square feet (12.5% of the
rentable square footage) pursuant to a lease which provides for a monthly rental
of $17,000. The lease expires September 30, 2001 and contains a provision for a
five-year renewal option. An internist occupies 6,183 square feet (14.6% of the
rentable square footage) pursuant to a lease which provides for a monthly rental
of $19,000. The lease expires on November 30, 1999.
436 North Bedford Drive, Beverly Hills
The 436 North Bedford Drive property is a three-story MOB with three levels
of subterranean parking. Built in 1990, the building features ground floor
retail and office space surrounding a central courtyard and balconies at
selected locations on the second and third floors. The exterior is clad in rose
color sandstone with cast stone and granite trim. The central courtyard
features a cascading waterfall sculpture and stone pavers with intricate marble
and stone patterns. Cherry wood paneled walls also line the elevator lobbies on
all floors and portions of the hallways.
Holy Cross Medical Plaza, Mission Hills
The Holy Cross Medical Plaza is situated on approximately 2.6 acres of the
15-acre campus of Holy Cross Medical Plaza, a 316-bed hospital. The campus also
includes the Villa de la Santa Cruz skilled nursing facility, another MOB, a
magnetic resonance imaging center, and an outpatient diagnostic center. Built
in 1984, the Holy Cross Medical Plaza is a three-story office building occupied
primarily by medical and dental practitioners. A two-story parking structure
and an open asphalt-paved lot can accommodate a total of 333 vehicles. The
surrounding site is landscaped with grass, trees, shrubs and planter boxes.
Two tenants occupy more than 10% of the rentable square footage in the Holy
Cross Medical Plaza property. Holy Cross Surgical Center occupies 12,456 square
feet (17.2% of the rentable square footage) pursuant to a lease that provides
for monthly rent of $41,000. The lease expires October 31, 2006 and provides
for a ten-year renewal option. Dialysis Center occupies 10,639 square feet
(14.7% of the rentable square footage) pursuant to a lease that provides for
monthly rent of $20,000. The lease expires March 31, 2006 and provides for two,
five-year renewal options.
St. Joseph's Professional Building, Burbank
The St. Joseph's Professional Building is a steel frame, brick-facade
building, constructed in 1987, that features two floors of office space over
three levels of subterranean parking which can accommodate up to 100 vehicles.
The building is located one-quarter of a mile from St. Joseph's Hospital and is
directly across the street from the
12
<PAGE>
Walt Disney Company's world headquarters campus. Saint Joseph's Hospital
includes 658 beds and is owned by the Sisters of Providence, an organization
which owns other hospitals throughout North America. The St. Joseph's
Professional Building was acquired from the Sisters of Providence, who
guaranteed up to an annual gross rent of $765,000 per year through October 31,
1998; however, the guarantee was limited to a maximum annual reimbursement of
$225,000. Currently, the office building is fully leased. Since the acquisition,
the Company has negotiated with the existing tenants to extend their leases
beyond the rent guarantee period.
Two tenants in the St. Joseph's Professional Building occupy more than 10% of
the rentable square footage. Total Renal Care occupies 9,067 square feet (35.3%
of the rentable square footage) pursuant to a lease which provides for a monthly
rental of $22,000 plus expense reimbursements for excess utility consumption.
This lease expires October 31, 2000 and provides for one five-year renewal
option. Two internists occupy 3,707 square feet (14.4%) of the rentable square
footage pursuant to two leases which provide for aggregate monthly rents of
$8,000. The leases expire on October 31, 2001 and have five-year renewal
options.
Sherman Oaks Medical Plaza, Sherman Oaks
The Sherman Oaks Medical Plaza is a seven-story office building, constructed
in 1969, that is adjacent to the Sherman Oaks Hospital and Health Center, a 156-
bed hospital which includes the major burn center for the San Fernando Valley.
A $1 million capital improvement program renovating the building systems and
common areas of the Sherman Oaks Medical Plaza was completed in 1993. The
Company also owns the adjacent air rights and three-level parking structure
behind the property which provides a total of 426 parking spaces. The land
beneath the parking structure is owned by Sherman Oaks Hospital which also
leases 150 parking spaces in the structure.
Regents Medical Center, La Jolla
The Regents Medical Center is a three-story building situated on
approximately 2.6 acres in the University Town Center area of San Diego, near
the University of California, San Diego. The building, which was constructed in
1989, has ground level retail spaces, two upper floors of medical offices, and
subterranean and ground level parking that can accommodate a total of 285
vehicles.
UCSD Orthomed, an affiliate of the University of California, occupies 11,166
square feet (approximately 16.8%) of the rentable area of the building pursuant
to leases which provide for an aggregate monthly rental of $26,000. The leases
expire at various dates between January 31, 2000 and January 31, 2002.
Cigna Health Care Building, Irwindale
The Cigna Health Care Building in Irwindale, California is a two-story MOB,
constructed in 1992, on a site that provides two parking areas with a total of
244 spaces. This property is 100% leased to Friendly Hills Healthcare Network,
Inc. Rent obligations under the lease are guaranteed by Cigna Health Care,
Inc., the previous lessee of the property. The lease, which provides for
monthly rent of $91,000 triple net, expires November 30, 2004 and provides for
two, five-year options.
Tustin--MOB I
The 14591 Newport Avenue building in Tustin, California is a two-story MOB
that was constructed in 1969 on a 1.2-acre site. The site is landscaped with
grass lawns, shrubs, and trees and includes an asphalt-paved parking lot with
approximately 105 parking spaces, representing a parking ratio of 5.8 parking
spaces per 1,000 square feet of building area.
Two tenants occupy more than 10% of the rentable square footage of the
building. A general practice physician occupies 1,881 square feet
(approximately 10.4%) of the rentable area of the building pursuant to a lease
13
<PAGE>
which provides for monthly rental revenue of $2,000. The lease expires on May
31, 2003. A neurologist occupies 2,954 square feet (approximately 16.3%) of the
rentable area of the building pursuant to leases which provide for monthly rent
of $4,000. The leases expire on January 31, 2001.
Tustin--MOB II
The 14642 Newport Avenue building in Tustin, California is a four-story MOB,
developed in 1985, that features a surgery center with three operating rooms, a
pharmacy, and an industrial clinic on the first floor. Medical offices are
located on all of the other floors.
Three tenants occupy more than 10% of the rentable square footage in the
14642 Newport Avenue Building. Pacific Health Corporation leases the surgery
center and occupies 7,444 square feet (approximately 15.6%) of the rentable area
of the building pursuant to a lease that provides for a monthly rental of
$18,000. The lease expires on November 30, 2001 and provides for one, five-year
renewal option. Prospect Medical Systems, Inc. occupies 6,004 square feet
(approximately 12.6%) of the rentable area pursuant to leases which provide for
monthly rent of $10,000. The leases expire on September 30, 2003. A general
practice physician occupies 4,951 square feet (approximately 10.4%) of the
rentable area pursuant to a lease which provides for monthly rent of $2,000.
The lease expires on October 31, 1999.
1095 Irvine Boulevard, Tustin
The 1095 Irvine Boulevard building in Tustin, California was redeveloped in
1995 as a primary health care center for physicians who are part of the St.
Joseph Hospital of Orange health care network. The property is leased to St.
Joseph Hospital, Inc. under a net lease with a 15-year term, which began in
August 1995, and provides for annual cost of living rent escalations. The lease
provides for a monthly rental of $17,000 and expires on July 31, 2010.
San Pedro Medical Plaza
The San Pedro Medical Plaza in San Pedro, California is a 58,000 square foot
complex consisting of three MOBs. The buildings are located across the street
from the San Pedro Peninsula Hospital and are situated on 7.85 acres
incorporating a 383 space surface parking lot.
One tenant occupies more than 10% of the rentable square footage of the
building. Cor Healthcare Medical Associates occupies 6,470 square feet
(approximately 11.1%) of the rentable area pursuant to a lease that provides for
monthly rent of $12,000. The lease expires on July 31, 1999.
Santa Clarita Valley Medical Center
The Santa Clarita Valley Medical Center in Valencia, California is a 42,000
square foot complex consisting of four one-story MOBs and one two-story MOB.
The buildings are located on the Henry Mayo Newhall Memorial Hospital Campus,
the only regional hospital in the area. The campus includes a 241-bed medical
center and another MOB. An open-air asphalt parking lot can accommodate up to
435 vehicles. The buildings are subject to a 60-year ground lease which
includes payments of $11,000 per month.
14
<PAGE>
Lyon Avenue Medical Building
The Lyon Avenue Medical Building is a two-story, 49,000 square foot MOB
located in Valencia, California only 1/2 mile from the Santa Clarita Valley
Medical Center. The building has subterranean parking and a two-story atrium
entry. The building's excellent market position provides first class medical
space for those doctors that do not need an association with the hospital.
Two tenants occupy more than 10% of the rentable square footage of the
building. Valencia Surgical Center occupies 7,212 square feet (approximately
14.7%) of the rentable area pursuant to a lease that provides for monthly rent
of $14,000. The lease expires on September 1, 2005. Two orthopedists occupy
6,233 square feet (approximately 12.7%) of the rentable area pursuant to leases
which provide for monthly rent of $10,000. The leases expire on December 31,
2001 and provide for one, five-year renewal option.
Coronado Plaza
Coronado Plaza is a three-story, 40,000 square foot office and retail complex
located in Coronado, California. The building is located on the beach across
the street from the Hotel Del Coronado and the majority of the second and third
floor suites have unobstructed ocean views. The building has subterranean
parking for 96 vehicles plus street parking surrounding the entire property.
Two tenants occupy more than 10% of the rentable square footage in Coronado
Plaza. Wendy's San Diego Restaurant occupies 3,684 square feet (approximately
10.2%) of the rentable area pursuant to a lease that provides for monthly rent
of $9,000. The lease expires on May 31, 2007 and provides for one, five-year
renewal option. Marie Calendar's Restaurant occupies 6,163 square feet
(approximately 15.7%) of the rentable area pursuant to leases which provide for
monthly rent of $12,000. The leases expire on September 30, 2008 and provide
for two, five-year renewal options.
New Jersey Properties
- ---------------------
As of August 15, 1997, a subsidiary of PHP Healthcare Corporation ("PHP")
leased 100% of the following properties from GL/PHP under the terms of a 17-year
net operating lease that provided for rent increases equal to the annual
increase in the Consumer Price Index, subject to a 5% maximum annual increase.
PHP guaranteed the obligations of its subsidiary under the lease. On November
20, 1998, PHP and its subsidiary each filed a petition under Chapters 7 and 11,
respectively, of the U.S. Bankruptcy Code. The subsidiary's Chapter 11
proceeding was converted to a Chapter 7 on November 23, 1998. The facilities
were being operated by HIP. HIP's operations were taken over by the
Commissioner on or about December 2, 1998. The Commissioner continued to occupy
and lease the buildings and paid all rent owing for the period from November 20,
1998 through March 5, 1999. By the end of March 1999, the Commissioner had
vacated the buildings. The Company holds a $2.0 million security deposit in the
form of a $2.0 million note payable to PHP. The Company is actively seeking to
re-lease the buildings and has already obtained a rental commitment from a
tenant for one of the buildings.
150 Century Parkway, Mount Laurel Township
The property is located in Burlington County and consists of a one-story MOB
containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 2.50 acres.
15
<PAGE>
80 Eisenhower Drive, Paramus Borough
The property is located in Bergen County and consists of a one-story MOB
containing a net rentable area of approximately 12,675 square feet. The
building is situated on approximately 2.27 acres.
16 Commerce Drive, Cranford Township
The property is located in Union County and consists of a two level MOB
containing a net rentable area of approximately 17,500 square feet. The
building is situated on approximately 3.06 acres.
4622 Black Horse Pike, Hamilton Township
The property is located in Atlantic County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 2.73 acres.
2103 Mount Holly Road, Burlington Township
The property is located in Burlington County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 2.43 acres.
274 Route 35, Eaton Town Borough
The property is located in Monmouth County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 4.66 acres.
Senior Care Properties
Southern California Properties
- ------------------------------
Pacific Gardens
Pacific Gardens is a 92-unit, 61,000 square foot, four-story Senior Care
Facility located in Santa Monica, California just two blocks from the beach.
The building contains a 3-story, subterranean parking garage for 112 vehicles.
GLH Pacific Gardens Corp., a joint venture with ASL Santa Monica, Inc. in which
the Company owns 93% of the equity in the form of non-voting preferred stock,
leases the facility for triple net base rental payments of $80,000 per month as
of January 31, 1999. On January 1, 2000, the monthly base rent increases to
$105,000. The lease expires on June 30, 2003, although either landlord or
tenant can terminate the lease without cause upon at least 90 days written
notice after June 30, 2001.
Tustin Hospital
The 14662 Newport Avenue building in Tustin, California is a single-story,
183-bed, 101,000 square foot hospital that was developed in two phases beginning
in 1969 and ending in 1974. The hospital includes a full service emergency
room, five operating rooms, an intensive care ward, administrative offices,
conference rooms, kitchen and cafeteria, pharmacy facilities, gift shop, x-ray
facilities and a basement service area. The hospital has an emergency back-up
generator with a 10,000-gallon underground fuel tank that complies with current
environmental requirements. The hospital was vacant when the Company acquired
the property on June 14, 1996. As of May 1, 1997, the hospital was 100% leased
to Pacific Health Corporation. The lease provides for triple net
16
<PAGE>
rental payments which commenced in January 1998. Rental payments for the months
of October through December 1997 were deferred until July 1998, at which time
the monthly rent was increased from $33,000 to approximately $35,000. The lease
expires June 30, 2002 and provides for three, five-year renewal options. In July
1997, the Company granted Pacific Health Corporation an option, which expires on
July 1, 2001, to purchase the hospital for $5.0 million.
Arizona Properties
- ------------------
Maryland Gardens
Maryland Gardens is a 98-bed skilled nursing facility located in Phoenix.
The facility is situated on approximately 1.84 acres and is leased to Stefan
Healthcare, Inc. ("Stefan") under terms of a lease which provides for triple net
rental payments in the amount of $34,000 per month. The lease was for one year
and ended on January 31, 1999. Stefan is currently operating the facility on a
month-to-month basis.
Maryland Gardens II
Maryland Gardens II is a 20-unit, 30,000 square foot apartment complex
acquired by the Company in May 1998. The building is located on a 1.0 acre lot
adjacent to the Maryland Gardens skilled nursing facility. The building, named
the Winter Gardens Apartments, currently consists of residential tenants. The
property also includes a 1.0 acre vacant parcel of land and a duplex building.
Massachusetts Properties
- ------------------------
Hampden Properties
In October 1997, the Company acquired three Massachusetts nursing home
facilities (collectively, "the Hampden Properties") from Hampden Nursing Homes,
Inc. ("Hampden") for total consideration of approximately $20.0 million. Of
this amount, the Company borrowed $6.0 million from Nomura at an interest rate
of 8.62% per annum. (See discussion of $6.0 million note payable below in "Debt
Structure"). In conjunction with the acquisition of the Hampden Properties, the
Company entered into a 15-year net-operating lease with Iatros Health Networks,
Inc. ("Iatros"), a skilled nursing care operator. The operating lease provides
for monthly lease payments of $225,000 and fixed annual increases of 2.0% per
year at the end of each of the first seven years. Thereafter, annual increases
are based upon the greater of 2.0% of the previous year's rent or 2.5% of the
increase in gross receipts derived from the operation of the Hampden Properties
in excess of $17,750,000. On October 8, 1998, Iatros voluntarily gave up
possession of the facilities because of severe financial problems. Lenox
Healthcare, Inc. ("Lenox") replaced Iatros as the operator of the nursing homes
for an initial term ending on March 31, 1999. A proposed amendment extending
the term until December 31, 1999 is currently being negotiated.
Riverdale Gardens
Riverdale Gardens Nursing Home, located in West Springfield, Massachusetts,
is a 168-bed nursing facility currently licensed for 84 skilled care and 84
intermediate care beds with 16 private and 76 double occupancy rooms.
Constructed in various stages between 1957 and 1975, the property consists of a
single story 54,451 square foot building on approximately 3.85 acres as well as
a 3,366 square foot single family residence on an adjacent 30,000 square foot
lot.
17
<PAGE>
Chestnut Hill
Chestnut Hill Nursing Home, located in East Longmeadow, Massachusetts, is a
123 bed nursing home consisting of 82 skilled nursing and 41 intermediate care
beds with 15 private and 54 double occupancy rooms. The facility is a 49,198
square foot single story building constructed in 1984 on approximately 11.9
acres of land.
Mary Lyon
Mary Lyon Nursing Home, located in Hampden, Massachusetts, occupies a 28,940
square foot building situated on 3.7 acres and was originally constructed in
1959 and renovated in 1986. The facility is licensed for 100 beds of which 40
are skilled nursing and 60 are intermediate care beds with ten private rooms, 39
double occupancy rooms and three quadruple occupancy rooms.
Washington Property
- -------------------
Pacific Care Center
Pacific Care Center is a 110-bed skilled nursing facility located in Hoquiam.
The facility is leased on a triple net basis to Stefan for $50,000 per month.
The lease expires on July 31, 2003.
Leases
MOB Properties
As of January 31, 1999, the MOB Properties were approximately 92.8% leased.
New leases and extensions are normally granted for a minimum of five years and
provide for annual rent increases. Office tenants generally have gross leases
whereby rents may be adjusted for a tenant's proportionate share of any
increases in the cost of operating the building. Most retail tenants have net
leases and pay their share of all operating expenses including property taxes
and insurance. The following is a lease expiration table setting forth the
number, square feet and associated annual rent for those leases expiring in
future years.
MOB Properties--Lease Expirations
<TABLE>
<CAPTION>
Number of Approximate % of
Leases Total Rented Total Annual
Year of Lease Expiration Expiring(1) Square Feet (1) Annual Rent Rent
------------------------------------- ------------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
1999................................. 49 79,977 $ 2,184,000 10.4%
2000................................. 61 87,193 2,668,000 12.7%
2001................................. 70 122,779 3,403,000 16.1%
2002................................. 47 80,262 2,294,000 10.9%
2003................................. 41 66,665 1,810,000 8.6%
2004................................. 12 70,579 1,786,000 8.5%
2005................................. 13 28,376 819,000 3.9%
2006................................. 16 46,398 1,461,000 6.9%
2007................................. 8 30,766 1,094,000 5.2%
2008................................. 5 16,105 524,000 2.5%
2009 or later........................ 9 96,621 3,024,000 14.3%
--- ------- ----------- -----
Total 331 725,721 $21,067,000 100.0%
=== ======= =========== =====
</TABLE>
18
<PAGE>
_______________________________________________
1) Does not include month-to-month leases or vacant space. There are 86
month-to-month tenants who occupy approximately 93,000 square feet of
space and pay approximately $185,000 per month in rent.
The Company was successful in obtaining lease renewals, achieving a weighted
average renewal rate of approximately 86.7% on MOB leases that expired during
1998. Although there can be no assurance that this renewal level will be
maintained, the Company believes this high renewal rate is due in part to the
tendency of medical practitioners to continue to practice in the same space over
a number of years. Also, the Company's tenants frequently invest large sums of
money in equipment and fixtures for their offices. Furthermore, relocating a
doctor's office can be disruptive to the patients who are familiar with the
doctor's office location.
The following table sets forth the scheduled annual rent increases for the
leases with respect to the MOB Properties in effect at December 31, 1998.
MOB Properties--Rent Increases
<TABLE>
<CAPTION>
% of Total Rented
Scheduled Annual Rent Increases Square Feet(1) Square Feet(1)(2)
------------------------------- ----------------- -------------------
<S> <C> <C>
None (3)..................................... 116,171 14.2%
Consumer Price Index......................... 353,610 43.3%
2.00%........................................ 7,532 0.9%
2.50%........................................ 22,880 2.8%
2.75% ....................................... 3,251 0.4%
3.00% ....................................... 87,000 10.6%
3.20% ....................................... 1,201 0.1%
3.50% ....................................... 4,450 0.5%
4.00%........................................ 34,167 4.2%
5.00%........................................ 181,914 22.3%
8.00%........................................ 5,440 0.7%
------- -----
Total 817,616 100.0%
======= =====
</TABLE>
______________________________
1) Does not include 1.4% and 6.2% of the total rented square feet, which is
management and vacant space, respectively.
2) Percent of total rented square feet that has been rounded to the nearest
tenth of one percent.
3) Approximately 21% of these leases are month-to-month.
19
<PAGE>
The historical occupancy, rounded to the nearest tenth of one percent, of the
MOB Properties is shown in the following table:
MOB Properties--Historical Occupancy
<TABLE>
<CAPTION>
MOB Property 1998 1997 1996 1995 1994
- ------------ --------- --------- --------- --------- ---------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C>
405 N. Bedford ......................................... 85.5% 97.4% 100.0% 100.0% 96.2%
415 N. Bedford(1)........................................ 100.0 100.0 100.0 100.0 100.0
416 N. Bedford ......................................... 90.2 90.7 97.6 100.0 100.0
435 N. Bedford ......................................... 95.8 93.9 93.1 89.2 85.3
435 N. Roxbury ......................................... 96.7 93.5 93.6 95.6 91.7
436 N. Bedford ......................................... 100.0 100.0 98.4 90.0 92.8
Holy Cross Medical Plaza(2).............................. 88.8 92.2 93.1 94.7 87.7
St. Joseph's Medical Building(3)......................... 96.8 100.0 100.0 100.0 100.0
Sherman Oaks Medical Plaza(2)............................ 97.3 93.9 86.7 90.0 79.8
Regents Medical Center(2)................................ 100.0 100.0 100.0 90.9 87.6
Cigna Health Care Building(2)............................ 100.0 100.0 100.0 100.0 100.0
1095 Irvine Boulevard(4)................................. 100.0 100.0 100.0 100.0 N/A
14591 Newport Avenue, Medical Office I(5)................ 55.0 52.4 49.6 N/A N/A
14642 Newport Avenue, Medical Office II(5)............... 80.5 71.5 85.1 N/A N/A
San Pedro Medical Plaza (6).............................. 86.7 N/A N/A N/A N/A
Santa Clarita Valley Medical Center (6).................. 95.0 N/A N/A N/A N/A
26771 Aliso Creek Road (7)............................... 100.0 N/A N/A N/A N/A
24355 Lyons Avenue (6)................................... 85.3 N/A N/A N/A N/A
1330 Orange Avenue (6)................................... 100.0 N/A N/A N/A N/A
New Jersey (8)
- --------------
2103 Mt. Holly Rd., Burlington........................... 100.0 N/A N/A N/A N/A
150 Century Parkway, Mt. Laurel.......................... 100.0 N/A N/A N/A N/A
274 Highway 35, South Eatontown.......................... 100.0 N/A N/A N/A N/A
80 Eisenhower Drive, Paramus............................. 100.0 N/A N/A N/A N/A
16 Commerce Drive, Cranford.............................. 100.0 N/A N/A N/A N/A
4622 Black Horse Pike, May Landing....................... 100.0 N/A N/A N/A N/A
----- ----- ----- ----- --------
Weighted average 92.8% 93.7% 94.2% 90.9% 97.9%
===== ===== ===== ===== =====
</TABLE>
______________________________
1) Retail space.
2) Acquired in 1994.
3) Acquired in December 1993.
4) Placed in service in 1995.
5) Acquired in June 1996 from a creditors committee. Previous operating
statistics were not available.
6) Property acquired in 1998.
7) Property was built in 1998.
8) All six facilities were acquired in February 1997. Prior to acquisition the
previous owner operated the facilities as an acute care MOB. Due to the PHP
bankruptcy discussed above, all six facilities were vacant as of March 31,
1999.
20
<PAGE>
The following tables set forth the annualized base rent per square foot and
annualized base rent for the MOB Properties for the past five years.
MOB Properties--Annualized Average Base Rent Per Square Foot
<TABLE>
<CAPTION>
MOB Property 1998 1997 1996 1995 1994
- ------------ --------- --------- --------- --------- ---------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C>
405 N. Bedford ......................................... $42.24 $47.58 $44.51 $41.64 $42.01
415 N. Bedford(1)........................................ 39.10 38.35 36.28 36.21 36.79
416 N. Bedford ......................................... 37.72 38.05 36.89 37.04 40.88
435 N. Bedford ......................................... 31.99 37.74 33.49 34.35 39.25
435 N. Roxbury ......................................... 36.21 35.64 36.50 37.11 38.39
436 N. Bedford ......................................... 41.12 42.08 39.84 42.13 44.71
Holy Cross Medical Plaza(2).............................. 28.44 28.04 28.07 25.91 28.77
St. Joseph's Medical Building(3)......................... 26.82 27.19 27.03 29.12 29.92
Sherman Oaks Medical Plaza(2)............................ 20.37 20.19 22.90 23.32 23.57
Regents Medical Center(2)................................ 24.77 24.18 24.93 27.11 28.38
Cigna Health Care Building(2)............................ 23.04 23.04 23.04 23.04 23.01
1095 Irvine Boulevard(4)................................. 20.30 19.87 19.46 17.14 N/A
14591 Newport Avenue, Medical Office I(5)................ 15.13 13.39 14.66 N/A N/A
14642 Newport Avenue, Medical Office II(5)............... 16.54 13.19 12.34 N/A N/A
San Pedro Medical Plaza (6).............................. 23.65 N/A N/A N/A N/A
Santa Clarita Valley Medical Center (6).................. 20.72 N/A N/A N/A N/A
26771 Aliso Creek Road (7)............................... 20.00 N/A N/A N/A N/A
24355 Lyons Avenue (6)................................... 20.39 N/A N/A N/A N/A
1330 Orange Avenue (6)................................... 27.01 N/A N/A N/A N/A
New Jersey (8)
- --------------
2103 Mt. Holly Rd., Burlington........................... 34.63 34.63 N/A N/A N/A
150 Century Parkway, Mt. Laurel.......................... 31.16 31.16 N/A N/A N/A
274 Highway 35, South Eatontown.......................... 38.30 38.30 N/A N/A N/A
80 Eisenhower Drive, Paramus............................. 33.28 33.28 N/A N/A N/A
16 Commerce Drive, Cranford.............................. 28.10 28.10 N/A N/A N/A
4622 Black Horse Pike, May Landing....................... 34.83 34.83 N/A N/A N/A
Weighted average.................................... $28.51 $30.69 $29.81 $31.70 $34.01
</TABLE>
- --------------------------------
1) Retail space.
2) Acquired in 1994.
3) Acquired in December 1993.
4) Placed in service in 1995.
5) Acquired in June 1996 from a creditors committee. Previous operating
statistics were not available.
6) Property acquired in 1998
7) Property was built in 1998.
8) All six facilities were acquired in February 1997. Prior to acquisition the
previous owner operated the facilities as an acute care MOB. Due to the PHP
bankruptcy discussed above, all six facilities were vacant as of March 31,
1999
21
<PAGE>
MOB Properties--Annualized Base Rent
(Amounts in Thousands)
<TABLE>
<CAPTION>
MOB Property 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ---------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C>
405 N. Bedford ......................................... $ 1,554 $ 2,125 $ 2,183 $ 2,033 $ 1,904
415 N. Bedford(1)........................................ 224 219 217 216 210
416 N. Bedford ......................................... 1,380 1,399 1,468 1,511 1,658
435 N. Bedford ......................................... 1,683 1,630 1,718 1,690 1,660
435 N. Roxbury ......................................... 1,487 1,412 1,450 1,507 1,495
436 N. Bedford ......................................... 3,030 3,101 3,090 2,988 3,222
Holy Cross Medical Plaza(2).............................. 1,822 1,864 1,896 1,749 1,785
St. Joseph's Medical Building(3)......................... 667 698 694 758 764
Sherman Oaks Medical Plaza(2)............................ 1,364 1,291 1,378 1,457 1,277
Regents Medical Center(2)................................ 1,618 1,570 1,555 1,640 1,531
Cigna Health Care Building(2)............................ 1,097 1,097 1,097 1,097 1,097
1095 Irvine Boulevard(4)................................. 206 201 197 174 N/A
14591 Newport Avenue, Medical Office I(5)................ 151 127 120 N/A N/A
14642 Newport Avenue, Medical Office II(5)............... 636 452 504 N/A N/A
San Pedro Medical Plaza (6).............................. 1,199 N/A N/A N/A N/A
Santa Clarita Valley Medical Center (6).................. 834 N/A N/A N/A N/A
26771 Aliso Creek Road (7)............................... 182 N/A N/A N/A N/A
24355 Lyons Avenue (6)................................... 851 N/A N/A N/A N/A
1330 Orange Avenue (6)................................... 755 N/A N/A N/A N/A
New Jersey (8)
- --------------
2103 Mt. Holly Rd., Burlington........................... 435 435 N/A N/A N/A
150 Century Parkway, Mt. Laurel.......................... 391 391 N/A N/A N/A
274 Highway 35, South Eatontown.......................... 481 481 N/A N/A N/A
80 Eisenhower Drive, Paramus............................. 422 422 N/A N/A N/A
16 Commerce Drive, Cranford.............................. 492 492 N/A N/A N/A
4622 Black Horse Pike, May Landing....................... 438 438 N/A N/A N/A
------- ------- --------- --------- ---------
Total $23,442 $19,845 $17,567 $16,820 $16,603
======= ======= ========= ========= =========
</TABLE>
- ----------------------------------
1) Retail space
2) Acquired in 1994.
3) Acquired in December 1993.
4) Placed in service in 1995.
5) Acquired in June 1996 from a creditors committee. Previous operating
statistics were not available
6) Property acquired in 1998
7) Property built in 1998.
8) All six facilities were acquired in February 1997 and operated as an
acutecare MOB by the previous owner. Due to the PHP bankruptcy discussed
above, all six facilities were vacant as of March 31, 1999.
22
<PAGE>
Senior Care Properties
The following lease expiration table sets forth the number, square feet,
number of beds and associated annual rent for the Company's Senior Care
Properties.
<TABLE>
<CAPTION>
Senior Care Properties - Lease Expirations
% of
Number of Approximate Total
Leases Total Rented Number Annual
Year of Lease Expiration (1) Expiring Square Feet of Beds Annual Rent Rent
- ------------------------------ ---------- ------------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1999(2)................... 1 24,862 98 $ 408,000 8.1%
2001...................... 1 60,566 92 960,000 19.0%
2002...................... 1 101,000 183 421,000 7.8%
2003...................... 1 29,500 110 600,000 11.8%
2012(3)................... 1 135,955 391 2,700,000 53.3%
--- ---------- -----
874 $5,089,000 100.0%
=== ========== =====
</TABLE>
- ----------------------------
1) Table does not include Maryland Gardens II.
2) On February 1, 1998, the Company signed a lease with Stefan. It provided
for triple net rental payments in the amount of $34,000 per month and
expired on January 31, 1999. Stefan is currently operating the facility on
a month-to-month basis.
3) Only one operating lease was signed for all the Hampden Properties which
consist of the Riverdale Gardens Nursing Home, Chestnut Hill Nursing Home,
and Mary Lyon Nursing Home.
The historical occupancy, rounded to the nearest tenth of one percent, of the
Senior Care Properties is shown in the following table:
Senior Care Properties--Historical Occupancy(1)
<TABLE>
<CAPTION>
Senior Care Property 1998 1997 1996 1995 1994
-------------------- --------- --------- --------- --------- ---------
Southern California
-------------------
<S> <C> <C> <C> <C> <C>
Tustin Hospital(2)........ 19.0% 0.0% 0.0% (2) (2)
Pacific Gardens............ 96.2% 93.8% 94.6% 88.1% (3)
Arizona
-------
Maryland Gardens .......... 91.9% 96.4% 96.0% 97.0% 92.9%
Maryland Gardens II........ 95.0% (3) (3) (3) (3)
Massachusetts
-------------
Riverdale Gardens.......... 88.7% 92.9% 87.6% 90.3% 96.3%
Chestnut Hill.............. 91.2% 89.4% 93.2% 95.3% 96.1%
Mary Lyon.................. 91.0% 87.0% 93.7% 97.6% 97.6%
Washington
----------
Pacific Care Center........ 89.8% (3) (3) (3) (3)
</TABLE>
- -----------------------------------
1) Occupancy is on a per-bed or unit basis.
2) Tustin Hospital (acquired in 1996 and leased in 1997) opened in the first
quarter of 1998. Tustin Hospital, previously operated as a full service
community hospital, was closed in March 1996 and subsequently acquired in
June 1996 from a creditors' committee. Previous operating statistics are
not available.
3) Information not available.
23
<PAGE>
The following tables set forth the annualized base rent per bed or unit for
the Senior Care Properties for the past five years.
Senior Care Properties--Annualized Average Base Rent Per Bed or Unit
<TABLE>
<CAPTION>
Senior Care Property 1998 1997 1996 1995 1994
-------------------- -------- --------- -------- -------- --------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C>
Tustin Hospital.................................. $ 2,300 $ 2,164 (2) (2) (2)
Pacific Gardens.................................. 10,435 (3) (3) (3) (3)
Arizona
- -------
Maryland Gardens(1)............................. 4,163 4,163 (2) (2) (2)
Maryland Gardens II.............................. 5,050 (3) (3) (3) (3)
Massachusetts
- -------------
Riverdale Gardens................................ 4,536 4,536 (2) (2) (2)
Chestnut Hill.................................... 11,650 11,650 (2) (2) (2)
Mary Lyon ....................................... 5,050 5,050 (2) (2) (2)
Washington
- ----------
Pacific Care Center.............................. 5,455 (3) (3) (3) (3)
Weighted average........................... $ 5,805 $ 5,214 -- -- --
</TABLE>
- -------------------------------------
1) On February 1, 1998, the Company signed a new lease with Stefan providing
for triple net rental payments in the amount of $34,000 per month. The
lease expired on January 31, 1999. Stefan is currently operating the
facility on a month-to-month basis.
2) This facility was previously managed by the owner and was not subject to a
lease.
3) Information not available.
24
<PAGE>
Senior Care Loans
Lending Operations
As of December 31, 1998, the Company had ten loans outstanding which total
approximately $15.6 million before reserves of $3.5 million. Two of the ten
loans, which total approximately $12.9 million before reserves, are first deeds
of trust secured by healthcare facilities in California and Maryland. The ten
loans are described in the following paragraphs.
On June 17, 1996, the Company funded a $6.1 million loan for the acquisition
of a nursing home facility in Baltimore, Maryland (the "Carroll Manor facility")
by Heritage Care, Inc. ("Heritage Care"), a non-profit corporation. The Company
received a first deed of trust on that facility and Carroll Manor, Inc.
("Carroll Manor"), the seller, received a second deed of trust which secures its
$500,000 loan to Heritage Care. Heritage Care is currently in default under the
$6.1 million loan, which matured on March 31, 1997 (including loan extensions)
and which currently bears interest at a rate of 15.0% per annum (the default
rate). The balance owing on the loan as of December 31, 1998 is $9.3 million. In
addition to the $6.1 million, the Company made additional advances in 1997,
which total $2.6 million, to enable Heritage Care to meet its payroll and other
current expenses necessary to remain in operation and thereby protect the value
of the Company's security interest in the Carroll Manor facility. The additional
advances are secured by the Company's first deed of trust pursuant to the
language thereof and are therefore secured loans, although they are subordinate
in priority to the $500,000 second trust deed in favor of Carroll Manor. The
facility is currently being operated by Future Care, an experienced Maryland
operator of nursing homes. Future Care took over operations on or about June
1997 and has turned around the operations and has substantially increased the
occupancy and therefore the profitability of the facility. As a result, the
Company received $1.0 million in debt service payments from the facility in
1998. During 1998, the Carroll Manor facility was appraised for $11.5 million
and the Company is currently reviewing its exit strategies with respect to the
loan to Heritage Care, which include the possibility of (i) causing the transfer
of the Carroll Manor facility to another non-profit entity that could obtain
long-term financing to replace the existing indebtedness or (ii) taking title to
the facility through foreclosure and subsequently leasing it to an operator or
selling it to a third party.
In December 1997, the Company funded $4.6 million into an escrow, to be
loaned to Aspen Paso Robles, Inc. ("Aspen") at the close of escrow. This loan
was to be secured by (i) a 59-bed nursing and rehabilitation center in Chico,
California; (ii) a 38-bed skilled nursing facility in Paso Robles, California;
and (iii) a 57-bed intermediate care center in Beaumont, California. The loan
closed on February 25, 1998 although certain funds were held in escrow pending
the close of the Chico and Beaumont facilities. The purchase of the Chico
facility subsequently closed. The funds for the Beaumont facility remained in
escrow until October 1998 at which time the Company secured the return of those
funds and applied them to pay down the loan balance to $3.6 million. The
remaining $3.6 million balance of the loan is currently in default and the two
facilities securing the loan have been closed. The Company is currently
reviewing its options concerning the recovery of this loan, which include (i)
taking title to the facilities through foreclosure and subsequently leasing them
to an operator or selling them to a third party and (ii) pursuing legal action
against the borrower and others based on allegations of fraud and negligent
misrepresentation. Due to the uncertainty surrounding the recovery of the loan,
the Company has increased its loan loss reserves for a portion of the
outstanding loan balance.
On April 25, 1996, the Company entered into a loan participation agreement
with Iatros to fund two loans secured by third and fifth trust deeds in the
amount of approximately $750,000 and $1.1 million, respectively, to facilitate
the purchase of a nursing home in Olathe, Kansas (the "Crystal Park facility").
Following the acquisition of the Crystal Park facility, the borrower engaged an
affiliate of Iatros to operate the facility. On May 16, 1997, the borrower filed
for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and engaged a new
operator for the Crystal Park facility, which has since closed. As of September
30, 1997, the Company's interest in the third and fifth trust deeds was
approximately $1.3 million, including principal (at face value) and accrued,
unpaid interest. In October 1997, the Company assigned its remaining interest in
the participation agreement and the promissory notes to Iatros in exchange for
an $800,000 note and title to the accounts receivable of the former owner of the
facility which had served as additional collateral for the promissory note. The
Company is still in the process of collecting
25
<PAGE>
these accounts receivable. The $800,000 note is due October 1, 2004 and accrues
interest at 10.0% per annum. Interest payments are due monthly based upon 5.0%
per annum of the outstanding balance. The promissory note is currently in
default and the Company has deemed it appropriate to reserve for this note.
In addition to the notes on the Carroll Manor and Aspen facilities and the
$800,000 note due from Iatros, the Company had seven other loans outstanding at
December 31, 1998, with an aggregate face value of $1.7 million, excluding
approximately $0.3 million of additional accrued, unpaid interest. The
following is a summary of the seven other loans as of December 31, 1998:
. $150,000 note secured by second deed of trust, interest payable
semiannually at a rate of 10.0% per annum.
. $300,000 unsecured promissory note issued by Iatros due May 31, 1999,
interest payable quarterly at 9.0% per annum. This note is currently in
default because no interest payments have been made.
. $47,000 unsecured promissory note issued by Iatros due January 23, 1998,
interest accrues at 14.0% per annum. This note is currently in default.
. $300,000 unsecured promissory note due April 1, 2003, interest payable
quarterly at 8.0% per annum. This note is currently in default and accrues
interest at the default rate of 12.0% per annum.
. $715,000 unsecured promissory notes payable upon demand, interest accrues
at 12.0% per annum.
. $115,000 unsecured credit line due May 31, 1998, interest payable annually
at 12.0% per annum. Unpaid principal accrues interest at 12.0% per annum
after maturity date. This amount is currently in default.
. $44,000 unsecured promissory note due June 30, 1999, interest payable at
10.0% per annum.
Due to uncertainties, related to the Company's portfolio of mortgage loans
and bonds receivable, the Company increased its reserves for doubtful notes
receivable from $0.8 million at the end of 1997 to $3.5 million as of December
31, 1998. Management believes that $3.5 million is appropriate in relation to
the status of the loans in the Company's portfolio as of March 19, 1999.
GLN
GLN was formed with Nomura for the purpose of making short-term loans to
third parties to purchase senior care facilities. GLN funded two loans during
1997, one of which was repaid in February 1998. Also in 1997, GLN purchased the
Company's Series A and B bonds issued by the Massachusetts Industrial Finance
Agency, Inc. that were secured by the Hampden Properties. These bonds were
repaid in late 1997 in full satisfaction of the outstanding balance. Since 1997,
GLN has not funded any additional loans. Due to market conditions and other
financial constraints, it does not appear likely that GLN will be used by the
Company or Nomura to make future loans. Any future lending activities involving
the Company will most likely be performed directly by the Company. As of
December 31, 1998, GLN had one loan outstanding.
In May 1997, GLN acquired a 50% limited partnership interest in a limited
partnership created to acquire a recreational vehicle (''RV'') park in Florida
for approximately $1.2 million. In connection with the acquisition of the RV
park, GLN funded a secured loan of approximately $1.5 million to the limited
partnership. This loan bears interest at a rate of approximately 9.0% per
annum, matures on May 1, 1999, and provides for monthly payments of interest
only. At maturity, the full $1.5 million will be due. As of December 31, 1998,
monthly interest payments had not been made since March 1998. However,
management does anticipate the repayment of this loan along with accrued
interest in 1999. The RV park is operated by Camper Clubs of America, Inc.,
(''Camper Clubs'') the largest RV park operator in the U.S. and a limited
partner in the limited partnership.
26
<PAGE>
Insurance
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to the MOB Properties and Senior Care
Properties. There are certain types of losses which may either be uninsurable
or not economically insurable; moreover, there can be no assurance that policies
maintained by the Company will be adequate in the event of a loss. The Company
carries earthquake and flood insurance for coverage of losses up to $35 million
on the MOB Properties and Senior Care Properties located in California and
Arizona, which amount represents approximately 23% of the net book value of
these properties. This coverage is subject to a 10% deductible up to the amount
of insured loss. The Senior Care Properties located in Washington and
Massachusetts do not carry earthquake or flood insurance. Twenty-four of the 36
properties directly owned by the Company are located in Southern California,
which has a history of seismic activity, including the 1994 Northridge
earthquake that damaged the Holy Cross Medical Plaza property. Two Senior Care
Properties owned by the Company are located in Phoenix, Arizona, in an area with
a history of flood activity. Should an uninsured loss occur, the Company could
lose its investment in, and anticipated earnings and cash flow from, a property.
ITEM 3. LEGAL PROCEEDINGS
There is no material pending litigation to which the Company or its
consolidated or unconsolidated subsidiaries is a defendant or to which any of
their properties is subject other than routine litigation arising in the
ordinary course of business, most, if not all, of which is expected to be
covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders of the Company during the
quarter ended December 31, 1998.
27
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol GLR. It has been the Company's policy to declare quarterly
distributions to holders of the Company's Common Stock so as to comply with
applicable sections of the Code governing REITs. Operating Partnership units
("Units") and shares of Common Stock receive equal distributions. Distributions
are declared and paid at the discretion of the Company's Board of Directors and
generally depend on the Company's cash flow, its financial condition, capital
requirements, the distribution requirements under the REIT provisions of the
Code and such other factors as the directors of the Company deem relevant.
The table below sets forth the high and low sales prices of the Company's
stock for each full quarterly period from January 1, 1997 to March 19, 1999 as
reported by the New York Stock Exchange. The table also includes, on a per
share basis, the quarterly cash distribution declared and paid to holders of the
Company's Common Stock and Units for each of the last two fiscal years and the
current year to date.
<TABLE>
<CAPTION>
High Low Distribution
------------------------------------
<C> <S> <C> <C> <C>
1999 First quarter (to March 19, 1999)... 15 3/16 11 7/8 $0.39
1998 Fourth quarter...................... 15 15/16 12 7/8 0.39
Third quarter....................... 17 7/16 14 11/16 0.39
Second quarter...................... 18 1/8 17 3/16 0.39
First quarter....................... 21 1/2 16 7/8 0.39
1997 Fourth quarter...................... 21 1/4 17 3/8 0.39
Third quarter....................... 19 15 3/4 0.36
Second quarter...................... 17 7/8 15 3/8 0.36
First quarter....................... 19 16 0.36
</TABLE>
______________________________
The Company also paid monthly dividends to holders of the Company's Series
A and Series B Preferred Stock on the fifteenth day of each month. Dividends are
paid monthly at the rate of $2.56 and $2.45 per annum on shares of the Company's
Series A and Series B Preferred Stock, respectively. Distributions on the
Company's Series A and Series B Preferred Stock are senior to all classes of the
Company's Common Stock.
At various times during the year ending December 31, 1998, the Company
repurchased a total of 151,700 shares of the Company's Common Stock at an
average price of approximately $15.41 per share.
The approximate number of holders of record of the shares of Common Stock
was 154 as of March 19, 1999. This number does not represent the total number
of beneficial holders of Common Stock.
28
<PAGE>
ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA
The following table sets forth consolidated selected financial and
operating information for the Company for each of the years ended December 31,
1998, 1997, 1996, 1995 and 1994. The following information should be read in
conjunction with all of the financial statements and notes thereto included in
this Form 10-K. This data also should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K. The consolidated selected financial and
operating data as of December 31, 1998, 1997, 1996, 1995 and 1994 and for each
of the years ended December 31, 1998, 1997, 1996, 1995 and 1994 have been
derived from audited financial statements.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
- --------------
Revenues:
Rental.................................................... $24,639 $20,307 $15,796 $16,801 $14,740
Tenant reimbursements..................................... 781 707 728 732 587
Parking................................................... 1,501 1,439 1,251 1,388 1,196
Interest, loan fees and other............................. 4,517 4,322 6,712 1,835 113
Other..................................................... 254 274 549 652 650
------- ------- ------- ------- -------
Total revenues.......................................... 31,692 27,049 25,036 21,408 17,286
------- ------- ------- ------- -------
Expenses:
Property operations....................................... 6,171 6,280 5,696 5,199 4,317
Earthquake costs (reimbursements)......................... --- --- --- (133) 635
Depreciation and amortization............................. 4,597 3,570 2,773 3,433 2,900
Interest.................................................. 8,683 9,088 9,322 6,986 4,422
General and administrative................................ 2,554 2,044 1,787 1,640 1,298
Provision for doubtful accounts, notes and bonds
receivable............................................... 5,603 --- --- --- ---
Loss on disposition of real estate........................ --- --- 4,874 --- ---
------- ------- ------- ------- -------
Total expenses.......................................... 27,608 20,982 24,452 17,125 13,572
------- ------- ------- ------- -------
Income from operations before minority interests, equity
in earnings of unconsolidated affiliates and extraordinary
gains (losses)........................................... 4,084 6,067 584 4,283 3,714
Equity in earnings of unconsolidated affiliates........... 80 1,195 --- --- ---
Minority interest in consolidated affiliates.............. (225) (156) (129) (131) (167)
Minority interest in Operating Partnership................ 404 (545) (65) (418) (353)
------- ------- ------- ------- -------
Income before extraordinary gains (losses)................ 4,343 6,561 390 3,734 3,194
Extraordinary gains (losses) (net of minority interest)... --- --- 9,311 (393) ---
------- ------- ------- ------- -------
Net income................................................ $ 4,343 $ 6,561 $ 9,701 $ 3,341 $ 3,194
======= ======= ======= ======= =======
Per share data:.............................................
Basic:
Before extraordinary (losses) gains..................... $ (0.70) $ 0.91 $ 0.10 $ 0.91 $ 0.77
Extraordinary gains (losses)............................ --- --- 2.29 (0.09) ---
------- ------- ------- ------- -------
Net (loss) income....................................... $ (0.70) $ 0.91 $ 2.39 $ 0.82 $ 0.77
======= ======= ======= ======= =======
Fully Diluted:
Before extraordinary (losses) gains..................... $ (0.70) $ 0.89 $ 0.09 $ 0.91 $ 0.77
Extraordinary gains (losses)............................ --- --- 2.24 (0.09) ---
------- ------- ------- ------- -------
Net income.............................................. $ (0.70) $ 0.89 $ 2.33 $ 0.82 $ 0.77
======= ======= ======= ======= =======
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
At or for the Year ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Funds From Operations (1):
- -------------------------
Operating Partnership funds from operations............... $ 798 $ 8,366 $ 8,028 $ 7,397 $ 7,042
Minority interest in consolidated partnership............. 36 (917) (847) (747) (700)
-------- -------- -------- -------- --------
Funds from operations..................................... $ 834 $ 7,449 $ 7,181 $ 6,650 $ 6,342
======== ======== ======== ======== ========
Dividends paid............................................ $ 6,354 $ 5,953 $ 5,525 $ 5,067 $ 6,821
======== ======== ======== ======== ========
Payout ratio.............................................. 761.9% 79.9% 76.9% 76.2% 107.6%
Dividends/distributions declared per share/unit........... $ 1.56 $ 1.47 $ 1.36 $ 1.24 $ 1.64
Cash Flow Data:
- --------------
Net cash provided by operating activities................. $ 12,666 $ 9,045 $ 5,726 $ 7,862 $ 7,632
Net cash used in investing activities..................... (51,094) (49,534) (23,413) (37,037) (31,552)
Net cash provided by financing activities................. 26,198 53,833 17,283 28,675 21,849
Balance Sheet Data:
- ------------------
Land, buildings and improvements, net..................... $186,751 $139,082 $ 93,231 $ 92,147 $ 92,715
Mortgage loans and bonds receivable, net.................. 12,101 14,098 34,576 33,634 ---
Total investments......................................... 198,852 153,180 127,807 125,781 92,715
Total assets.............................................. 219,499 189,380 135,996 133,347 98,384
Total debt................................................ 134,880 95,172 109,025 111,627 74,018
Total stockholders' equity................................ 79,584 88,924 22,448 18,267 21,311
Other Data:
- ----------
Ratio of earnings to fixed charges and preferred
dividends (2)............................................ 0.82x 1.36x 1.59x 1.61x 1.83x
Ratio of funds from operations to fixed
charges and preferred dividends (3)...................... 1.05x 1.77x 1.88x 2.09x 2.66x
Ratio of total debt to total market
capitalization (4)....................................... 50.6% 35.9% 63.8% 77.0% 52.4%
Number of properties...................................... 36 25 15 12 12
</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 is computed in accordance with the
definition adopted by the National Association of Real Estate Investment
Trusts ("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 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 the 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) For purposes of these computations, earnings consist of net income plus
fixed charges. Fixed charges and preferred dividends consist of interest
expense, capitalized interest, amortization of deferred financing costs and
preferred dividends paid to preferred stockholders during the period.
3) For purposes of these computations, ratio of funds from operations to fixed
charges consists of FFO as defined in note (1) plus fixed charges and
preferred dividends paid to preferred stock holders during the period.
Fixed charges and preferred dividends consist of interest expense,
capitalized interest, amortization of deferred financing costs and
preferred dividends paid to preferred stockholders during the period.
4) Total market capitalization as of the dates presented is long-term debt
plus the aggregate market value of the Company's Common Stock and Units not
owned by the Company, assuming one Unit is equivalent in value to one share
of Common Stock plus the liquidation value of the Preferred Stock
outstanding.
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Selected Financial Data and the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Form 10-K.
Information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements. 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, the creditworthiness of
tenants and borrowers, 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 Annual Report on Form 10-K.
Results of Operations
Comparison of the Year Ended December 31, 1998 Versus the Year Ended December
31, 1997
Total revenues increased by $4.6 million, or 17%, from $27.1 million for the
year ended December 31, 1997, to $31.7 million in 1998. Rents, tenant
reimbursements and parking revenues increased an aggregate $4.5 million, or 20%,
from a combined total of $22.4 million for the year ended December 31, 1997, to
$26.9 million in 1998. Three 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
MOBs since June 30, 1997. The acquisition of five MOBs located in Valencia,
California in March 1998 accounted for an additional $0.8 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 $0.7
million increase. Interest, loan fees and related revenues derived from loans
secured by Senior Care Facilities increased by $0.2 million for the year ended
December 30, 1998 compared to 1997. Interest and loan fee income increased $1.0
million due to interest and loan fees related to five loans that were originated
in late 1997 or early 1998 and increased $0.3 million due to interest earned on
excess cash from the November 1997 Preferred Stock offering and the April 1998
debt refinancing. These increases were offset by a decrease of $0.6 million
related to a gain from the sale of bonds on March 31, 1997 and a decrease of
$0.4 million related to the repayment of $4.6 million of notes receivable during
1998.
Total expenses increased by $6.6 million, or 32%, from $21.0 million for the
year ended December 30, 1997, to $27.6 million in 1998. The primary reason for
this increase was a $5.6 million increase in the Company's allowance for
doubtful accounts, notes and bonds receivable as of December 31, 1998 (See
Liquidity and Capital Resources). Excluding this increase in the Company's
allowance during the year ended December 31, 1998, operating expenses increased
by $1.0 million, or 5%, from $21.0 million for the year ended December 31, 1997
to $22.0 million in 1998.
Property operating expenses decreased $0.1 million, or 2%, from $6.3 million
for the year ended December 31, 1997, to $6.2 million in 1998, despite a $0.4
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 MOB Properties. Furthermore, the $18.8 million in MOB Properties and Senior
Care Properties acquired between June 30 and December 31, 1997 and the two
Senior Care Properties acquired during 1998 were leased on a triple-net basis,
thus the Company incurred no operating costs related to these buildings.
31
<PAGE>
Depreciation and amortization increased $1.0 million, or 28%, from $3.6
million for the year ended December 30, 1997 to $4.6 million in 1998. Of this
increase, $0.7 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 $0.4 million, or 4%, from $9.1 million for the
year ended December 30, 1997, to $8.7 million 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 $1.5 million on $66.1 million of new
borrowings in 1998.
General and administrative expense increased by $0.5 million, or 25%, from
$2.0 million for the year ended December 30, 1997 to $2.5 million in 1998. This
increase is related to the Company's addition of acquisition, development and
support personnel.
Net income decreased $2.2 million, or 34%, from $6.5 million for the twelve
months ended December 30, 1997 to $4.3 million in 1998. This decrease is
primarily due to an increase in the Company's reserves of $5.6 million and a
decrease in equity in earnings from unconsolidated affiliates of $1.1 million
offset by a $4.5 million increase in rental revenues, tenant reimbursements and
parking revenues.
Comparison of the Year Ended December 31, 1997 Versus the Year Ended December
31, 1996
Revenues increased approximately 8% or $2.0 million from $25.0 million for
the year ended December 31, 1996 to $27.0 million in 1997. This increase in
revenues was the result of a $4.7 million, or 26%, increase in rents, tenant
reimbursements and parking revenues which was partially offset by a $2.4
million, or 36%, decline in interest, loan fees and related revenues. The $4.7
million increase in rents, tenant reimbursements and parking revenues resulted
from several events, including the addition, on February 28, 1997, of the six
newly acquired New Jersey properties, the commencement on May 1, 1997 of the
Tustin Hospital lease, the leasing, in August 1997, of the Maryland Gardens
facility to a nursing home operator, the acquisition of the Hampden Properties
and a full year of revenues in 1997 from the reacquired property located at 436
North Bedford Drive.
During 1997, the Company made new investments in short-term secured loans
through GLN, an unconsolidated affiliate. Interest, loan fees and related
revenues declined $2.4 million from $6.7 million during 1996 to $4.3 million in
1997, reflecting management's decision to make investments in secured trust
deeds through GLN for which the Company reports its pro-rata share of net income
from GLN but no revenues. The Company accounts for its investments in
unconsolidated affiliates, such as GLN, using the equity method; therefore, the
Company's pro-rata share of net income from investment in such unconsolidated
affiliates is reported after income from operations. The Company's pro-rata
share of net income from GLN totaled $1.2 million for 1997.
Excluding the 1996 loss on disposition of rental property of $4.9 million,
operating expenses increased $1.4 million, or 7%, from $19.6 million during 1996
to $21.0 million in 1997. Property operations increased $0.6 million, or 10%,
from $5.7 million in 1996 to $6.3 million in 1997. The newly acquired
properties in New Jersey and the Hampden Properties are leased on a net basis
and therefore are not anticipated to add significant operating expense. The
increased operating costs are the result of the acquisition of the Tustin
Hospital and adjacent MOBs in June 1996 and the reacquisition of the 436 North
Bedford Drive property in August 1996. The Company also increased earthquake
insurance coverage on its properties located in Southern California which has
partially contributed to the rise in property operations expense.
Depreciation and amortization expense increased 29% or $0.8 million, from
$2.8 million in 1996 to $3.6 million in 1997. This increase in depreciation and
amortization expense is the result of depreciation expense related to the six
New Jersey properties, the Tustin Hospital and adjacent MOBs, the Maryland
Gardens facility, the Hampden Properties nursing homes and 436 North Bedford
Drive. Interest expense, which includes amortization
32
<PAGE>
of deferred financing costs, declined $0.2 million from $9.3 million in 1996 to
$9.1 million in 1997. The decrease in interest expense resulted from the
reduction of long-term debt retired with the proceeds from the sale of Series A
and Series B Preferred Stock in the second and fourth quarters of 1997,
respectively. The new loans obtained in conjunction with the New Jersey and
Massachusetts acquisitions offset the reduction in debts and interest expense
from the preferred stock offerings.
The Company's general and administrative expense increased 14%, or $0.3
million, in 1997 compared to 1996. This increase is related to the Company's
addition of acquisition and support personnel. In 1996, general and
administrative expense was $1.8 million representing a cost of 1.3% of total
assets of $136.0 million at December 31, 1996. Although general and
administrative expense increased in 1997 in absolute terms, in relative terms it
declined to 1.1% of total assets of $186.4 million at December 31, 1997.
Net income declined $3.1 million from $9.7 million for the year ended
December 31, 1996 to $6.6 million in 1997 primarily due to non-recurring gains
and losses resulting from the disposition of one of the Company's properties in
1996. The primary components affecting this decline were the $9.3 million
extraordinary gain on retirement of secured debt which was partially offset by a
$4.9 million loss on disposition of the related rental property.
Liquidity and Capital Resources
The Company's goal is to create wealth through growth in cash flow from its
real estate investments. The Company believes that this goal is being realized
through its management expertise in the areas of acquisition, development,
financing, leasing and strategic management of the MOB Properties and Senior
Care Properties. The Company seeks to maximize cash flow from its existing
properties and make new investments that are accretive to cash flow over the
long-term. The Company's use of leverage is viewed as a means to grow its asset
base without diluting shareholder value.
As of December 31, 1998, the Company's investment in real estate assets
totaled approximately $193.2 million and consisted of $177.6 million of
properties and $15.6 million of notes (before loan loss reserves of $3.5
million). Secured debt outstanding at year end totaled $130.3 million of which
6.5% or $8.5 million is floating rate debt.
During 1998, the Company invested approximately $49.9 million in real estate
investments either directly or through newly formed joint ventures. Since
January 1, 1998, the Company has completed the following investments:
. $6.3 million acquisition of three MOBs in San Pedro, California through
G&L Grabel San Pedro, LLC, a newly formed joint venture between the
Operating Partnership and an experienced MOB manager. The Company
contributed $1.2 million for a 50% equity interest in the newly formed
joint venture and loaned the venture an additional $5.1 million to
facilitate the purchase of the property. The $5.1 million loan was repaid
during 1998 upon financing of the properties.
. $4.3 million acquisition of five MOBs in Valencia, California located on
the Henry Mayo Newhall Hospital Campus. The Company is also constructing a
43,000 square foot MOB on a parcel of land adjacent to the five MOBs. The
completed project is anticipated to cost $8.5 million and is expected to
open in the second quarter of 1999.
. $4.0 million acquisition of a Ramada Inn in Rancho Penasquitos, California
through G&L Penasquitos, LLC, a newly formed joint venture between the
Operating Partnership and Parsons House, LLC. The Company contributed $1.2
million for a 50% equity interest in the newly formed joint venture. G&L
Penasquitos, LLC is converting the Ramada Inn to an 80 unit assisted
living facility. The total cost of the project including the land and
building purchase is anticipated to be $7.8 million and is expected to
open in the second quarter of 1999.
33
<PAGE>
. $1.0 million acquisition of a 20-unit senior resident apartment complex
located in Phoenix, Arizona. The property is adjacent to the 98-bed
skilled nursing facility that the Company owns in Phoenix.
. $0.8 million acquisition of a parcel of land in Aliso Viejo, California
upon which the Company is constructing a 23,000 square foot MOB. The
building is 73% pre-leased to a major not-for-profit medical provider. The
completed project is estimated to cost $4.0 million and is expected to be
completed in the third quarter of 1999.
. $11.2 million acquisition of a 92-unit senior care facility in Santa
Monica, California through GLH Pacific Gardens, LLC, a newly formed joint
venture between the Operating Partnership and ASL Santa Monica, Inc. The
Company contributed $3.5 million for a 93% equity interest in the newly
formed joint venture. The entire facility is leased to GLH Pacific Gardens
Corp., another joint venture between the Operating Partnership and ASL
Santa Monica, Inc.
. $0.9 million acquisition of a parcel of land in Yorba Linda, California
which the Company intends to lease to a senior care facility operator for
construction of a Senior Care Facility.
. $3.3 million acquisition of a 110-bed skilled nursing facility located in
Hoquiam, Washington. The facility is leased to Stefan.
. $7.4 million acquisition of a 49,000 square foot MOB located in Valencia,
California.
. $9.5 million acquisition of a 28,000 square foot office and retail complex
located in Coronado, California.
. $1.2 million acquisition of a parcel of land located in Omaha, Nebraska
through G&L Parsons House on Eagle Run, LLC, a newly formed joint venture
between the Operating Partnership and Parsons House, LLC. The Company
contributed $0.8 million for a 50% equity interest in the newly formed
joint venture. G&L Parsons House on Eagle Run, LLC intends to build an
assisted living facility upon the property. The total cost of the project
including the purchase of the land is anticipated to be $8.0 million and
is expected to open in the year 2000.
Due to uncertainties related to the Company's portfolio of mortgage loans and
bonds receivable, the Company increased its allowance for doubtful notes
receivable from $0.8 million at the end of 1997 to $3.5 million as of December
31, 1998. Management believes that $3.5 million is appropriate in relation to
the status of the loans in the Company's portfolio as of March 19, 1999.
The Company increased its loss reserves in response to several events that
could adversely affect certain of the Company's real estate assets. In the
fourth quarter, two unrelated nursing-home operating companies with debt
obligations financed by the Company experienced severe financial setbacks and
are now in default. At December 31, 1998, these mortgages totaled approximately
$5.8 million. During 1998, the Company purchased $2.8 million of PHP
Healthcare, Inc. bonds for approximately $1.3 million. In late November 1998,
PHP declared bankruptcy and, as a result, the Company has established a reserve
against the bonds. In addition, the Company also increased its reserves for a
portion of delinquent rents related to its MOB Property and Senior Care Property
tenants. The Company is pursuing all appropriate remedies to protect these
investments, including foreclosure proceedings on properties used to secure the
notes as well as other legal claims.
At various times during the year ending December 31, 1998, the Company
repurchased a total of 151,700 shares of the Company's Common Stock at an
average price of approximately $15.41 per share.
The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from leasing the MOB Properties and
Senior Care Properties and senior care lending activities and primarily consist
of Funds from Operations (''FFO'' - see discussion below of FFO). The Company's
external sources of capital consist of various secured loans and lines of credit
as well as access to public equity markets. The Company's
34
<PAGE>
ability to expand its holdings of MOBs and Senior Care Facilities and its senior
care lending operations requires continued access to capital to fund new
investments.
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.
Debt Structure
As of December 31, 1998, the Company had fourteen loans approximating $134.9
million, including one floating rate loan for approximately $8.5 million. The
terms of these fourteen loans are described below.
In August 1995, the Company borrowed $30.0 million from Nomura for ten years
at a fixed rate of 7.89%. As of December 31, 1998, the outstanding balance
under this loan was approximately $28.7 million, requiring monthly principal and
interest payments of approximately $229,000 (25-year amortization), and will
have a balance of $24.7 million on August 11, 2005, when the note is due.
Pursuant to the loan agreement, the Company has the option to prepay this loan
at any time upon the payment of a premium which, when added to the remaining
principal amount of the note, will be sufficient to purchase non-callable
obligations of the U.S. government sufficient to provide for the scheduled
payments remaining under the note. No prepayment premium is required during the
90-day period prior to the note's due date. The properties located at 405 North
Bedford, 415 North Bedford, 416 North Bedford and 435 North Bedford have been
pledged as security for this note.
During 1996, the Company borrowed $35.0 million from Nomura for ten years at
a fixed rate of 8.515%. This note had an outstanding balance of approximately
$34.1 million as of December 31, 1998, requires monthly principal and interest
payments of approximately $282,000 (25-year amortization), and will have a
balance of $29.4 million on August 11, 2006, when the note is due. Pursuant to
this loan agreement, the Company has the option to prepay this loan at any time
after August 30, 1999 upon the payment of a premium which, when added to the
remaining principal amount of the note, will be sufficient to purchase non-
callable obligations of the U.S. government sufficient to provide for the
scheduled payments remaining under this note. The Sherman Oaks Medical Plaza,
Regents Medical Center, Cigna HealthCare Building and office building at 436
North Bedford Drive have been pledged as security for this note.
On August 15, 1997, the Company borrowed $16.0 million from Nomura at a fixed
rate of 8.98%, the proceeds of which were used to repay a loan made by PHP in
connection with the purchase of six New Jersey primary care centers. On October
11, 1997, the Company began making monthly principal and interest payments on
this loan of approximately $155,000 (16 1/2 -year amortization). This note,
which will have a balance at maturity of $6.9 million, is due March 11, 2014,
however the note may be prepaid, at the option of the Company, at any time after
the third anniversary of the note upon the payment of a premium which, when
added to the remaining principal amount of the note, will be sufficient to
purchase non-callable obligations of the U.S. government sufficient to provide
for the scheduled payments remaining under the note. The note provides for
certain interest rate increases if the Company chooses to prepay it after
December 11, 2009. The six New Jersey properties have been pledged as security
for this note which had a balance of $15.5 million at December 31, 1998.
Concurrently with the $16.0 million loan from Nomura, the Operating
Partnership obtained a new $2.0 million loan from PHP. The note by its terms is
non-negotiable and provides for a right of offset against payments of interest
and for principal in an amount equal to the obligations of PHP under its
guarantee of the lease related to the New Jersey Properties. This note, in
effect, acts as a security deposit under the lease. The loan is unsecured and
requires interest-only payments quarterly at the end of October, January, April
and July at the rate of 8.5% a year. The full $2.0 million is due on July 31,
2007, but may be prepaid at any time prior to maturity without penalty.
35
<PAGE>
On October 28, 1997, the Company acquired the Hampden Properties for a total
consideration of approximately $20.0 million. Of this amount, the Company
borrowed $6.0 million from Nomura at an interest rate of 8.62% per annum. The
three properties were pledged as security for the repayment of this loan. Under
the terms of the loan agreement, the Company may, at any time during the next
two years, make up to two additional draws of not less than $2.0 million each,
up to an aggregate loan amount of $14.0 million (including the initial draw
under the loan). In the event the Company makes an additional loan draw, the
interest rate on such draw will be 8.20% per annum, a rate which the Company
locked in during 1998. The loan agreement with Nomura provides for a term of 12
years and requires monthly interest and principal payments based upon a 27-year
amortization schedule. At the end of 12 years, all unpaid principal and
interest will be due in full. The Company has the option to prepay this loan at
any time upon the payment of a premium that, when added to the remaining
principal amount of the note, will be sufficient to purchase non-callable
obligations of the U.S. Government sufficient to provide for the scheduled
payments remaining under the note. At December 31, 1998, the outstanding
balance due on the note was $6.0 million. As a condition of the loan, Nomura
has required the Company to place $400,000 into a reserve account which may be
used to fund unspecified maintenance capital reserves.
On April 22, 1998, 435 North Roxbury Drive, Ltd. (the "Roxbury Partnership"),
of which the Operating Partnership is the sole general partner with an ownership
interest of 61.75%, refinanced the 435 North Roxbury Drive property. The 435
North Roxbury Drive property was previously pledged as security for a $8.5
million loan from Citibank, N.A. (''Citibank''), which had an outstanding
balance as of December 31, 1997 of $7.7 million. In April 1998, the Roxbury
Partnership refinanced the property with a new $7.83 million loan from Tokai
Bank of California ("Tokai"). The Roxbury Partnership repaid the remaining
balance on the Citibank loan of $7.5 million with the new loan, which bears
interest at a fixed rate of 7.05% and is due on April 1, 2008. This loan had an
outstanding balance of $7.77 million as of December 31, 1998, requires monthly
principal and interest payments of approximately $56,000 (25-year amortization),
and will have a balance at maturity of $6.2 million. The 435 North Roxbury
Drive property has been pledged as security for this loan.
On April 22, 1998, the Company borrowed an additional $12.7 million from Tokai
at a fixed rate of 7.05%. On June 1, 1998, the Company began making monthly
principal and interest payments on these loans of approximately $91,000 (25-year
amortization). These notes, which will have a balance at maturity of $10.0
million, are due on April 1, 2008. The Holy Cross Medical Plaza, the St.
Joseph's Medical Office Building and the Tustin Medical Plaza have been pledged
as security for these loans.
On June 30, 1998, the Company, through GLH Pacific Gardens, LLC, a newly
formed joint venture, acquired Pacific Gardens, a 92-unit senior care facility
in Santa Monica, California for $11.2 million. Of this amount, GLH Pacific
Gardens, LLC borrowed $8.5 million from GMAC at an interest rate of 30-day LIBOR
plus 2.35%. The note requires monthly interest-only payments until July 1,
1999. Beginning July 1, 1999, monthly interest and principal payments of
approximately $66,000 (25-year amortization) are due. The note, which will have
a balance at maturity of $8.3 million, is due on July 1, 2001. Pacific Gardens
has been pledged as security for this note.
On August 6, 1998, the Company acquired a 110-bed skilled nursing facility in
Hoquiam, Washington for $3.3 million. Of this amount, the Company borrowed $2.5
million from GMAC at a fixed rate of 7.49%. On October 1, 1998, the Company
began making monthly principal and interest payments of approximately $18,000
(25-year amortization). This note, which will have a balance at maturity of
$2.0 million, is due on September 1, 2008. The Pacific Care Center has been
pledged as security for this note.
On November 3, 1998, the Company obtained a new $4.6 million unsecured credit
line from Tokai. The credit line requires monthly interest payments at 30-day
LIBOR plus 2.25% and is due on August 31, 2000. The Company has the option to
prepay the outstanding balance, or increments thereof, at any time upon not less
than 30 days' notice to Tokai. As of December 31, 1998, the Company had an
outstanding balance on the credit line of $4.6 million.
On December 22, 1998, the Company acquired a 49,000 square foot MOB in
Valencia, California for $7.4 million. Of this amount, the Company borrowed
$5.2 million from The Life Insurance Co. of Virginia at a fixed rate of 6.75%.
On February 1, 1999, the Company began making monthly principal and interest
payments of
36
<PAGE>
approximately $38,000 (25-year amortization). This note, which will have a
balance at maturity of $0.9 million, is due on January 1, 2019. The Lyons Avenue
Medical Building has been pledged as security for this note.
On December 31, 1998, the Company acquired a 40,000 square foot office and
retail complex in Coronado, California for $9.5 million. Of this amount, the
Company borrowed $7.5 million from GMAC at a fixed rate of 6.90%. On February
10, 1999, the Company began making monthly principal and interest payments of
approximately $50,000 (25-year amortization). This note, which will have a
balance at maturity of $6.4 million, is due on December 11, 2008. The Coronado
Plaza has been pledged as security for this note.
Capital Commitments
As of March 19, 1999, the Company is in various stages of negotiations to
acquire, either directly or through joint ventures, approximately $20 million of
MOBs and Senior Care Facilities. Although there can be no assurance that any of
these transactions will be consummated, the Company is prepared to commit the
needed capital to close these transactions if they can be completed on terms
favorable to the Company.
The Company expects to continue meeting its short-term liquidity and operating
requirements, as well as providing sufficient funds to maintain stockholder
distributions in accordance with REIT requirements, in the short and long-term,
through its working capital and cash flow provided by operations. The Company
expects to continue meeting its long-term liquidity requirements, such as
refinancing mortgages, financing acquisitions and funding of major capital
improvement projects, through long-term borrowings, the issuance of debt
securities and the offering of additional equity securities.
Distributions
Distributions on the Company's Common Stock totaled $1.56 per share for 1998.
The Company also paid monthly dividends to holders of the Company's Series A and
Series B Preferred Stock on the fifteenth day of each month. Dividends are paid
monthly at the rate of $2.56 and $2.45 per annum on shares of the Company's
Series A and Series B Preferred Stock, respectively. The Company's
undistributed FFO is used internally to fund maintenance and capital
expenditures necessary to maintain the Company's portfolio of properties.
Despite the $5.6 million increase in loss reserves during 1998, the Company
believes it has the ability to maintain the common stock dividend at its current
rate, although no assurance can be given that it will ultimately do so.
Although the impairment of the reserved assets may affect future cash flow, the
increase in the reserves was a non-cash event and did not affect the payment of
distributions. Furthermore, management expects future cash flow growth based
upon the five development projects that are currently in progress and expected
to begin generating revenue in the next twelve to eighteen months.
Financing Policies
The Company's ratio of debt to total market capitalization is 50.6% and 51.3%
based upon the closing price of the Common Stock at December 31, 1998 and March
19, 1999, respectively. Total market capitalization is based on the long-term
debt of the Operating Partnership, plus (i) 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, and (ii)
the aggregate liquidation value of the Series A Preferred Stock and the Series B
Preferred Stock.
To the extent that the Board of Directors of the Company decides to seek
additional funding, the Company may raise such capital using various means,
including retention of internally generated funds (subject to the distribution
requirements in the Code with respect to REITs), existing working capital and
possibly the issuance of additional debt (secured or unsecured) or equity
securities or any combination of the above. If the Board of Directors
determines to raise additional equity capital to fund investments by the
Operating Partnership, the Company will contribute such funds to the Operating
Partnership as a contribution to capital and will purchase additional interests
in the Operating Partnership. It is anticipated that borrowings will continue
to be made through
37
<PAGE>
the Operating Partnership or other entities, although the Company may also incur
indebtedness that may be re-borrowed by the Operating Partnership on the same
terms and conditions as are applicable to the Company's borrowing of such funds.
Except as required pursuant to existing financing agreements, the Company has
not established any limit on the number or amount of mortgages or unsecured debt
that may be placed on any single property or on its portfolio as a whole.
The Board of Directors of the Company also has the authority to cause the
Operating Partnership to issue additional Units in any manner (and subject to
certain limitations in the Partnership Agreement on such terms and for such
consideration) as it deems appropriate and may also decide to seek financing for
the purposes of managing the Company's balance sheet by adjusting the Company's
existing capitalization. The refinancing of the Company's balance sheet may
entail the issuance and/or retirement of debt, equity or hybrid securities.
Inflation
The majority of the Company's leases are long-term leases designed to
mitigate the adverse effect of inflation. Approximately 40% of the Company's
leases contain provisions that call for annual rent increases equal to the
increase in the Consumer Price Index and the majority of the remaining leases
allow for specific annual rent increases. Furthermore, many of the Company's
leases require tenants to pay a pro rata share of building operating expenses,
including real estate taxes, insurance and common area maintenance. The effect
of such provisions is to reduce the Company's exposure to increases in costs and
operating expenses resulting from inflation.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and requires all derivatives to be recorded on the
balance sheet at fair value as either assets or liabilities depending on the
rights or obligations under the contract. SFAS 133 also establishes new
accounting methodologies for the following three classifications of hedges: fair
value, cash flow and net investment in foreign operations. Management believes
the adoption of SFAS 133 will not have a material impact on the Company's
financial position or results of operations.
Year 2000 Compliance
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 by December 31, 1999 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
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 Company has obtained the
updated version and will install it in 1999. The cost of this upgrade is not
expected to be material to the Company.
38
<PAGE>
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. Approximately 90% 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 their 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. In January 1999, the Company made
inquiries of all of its tenants concerning their Year 2000 compliance and what
impact non-compliance would have on the Company. Through March 19, 1999, the
Company had received approximately 60 responses representing 16% of its tenants.
None of these responses indicated that the Company would suffer any negative
impact due to Year 2000 non-compliance.
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 NAREIT. FFO is calculated to include the
minority interests' 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, 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 the Selected Financial Data and
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K and the additional data presented below. The table on the following
page presents an analysis of FFO and additional data for each of the four
quarters and the year ended December 31, 1998 for the Operating Partnership:
39
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS
FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 Fiscal Quarter Year
------------------------------------------- --------
1/st/ 2/nd/ 3/rd/ 4/th/ 1998
-------- -------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Funds from Operations (1):
- -------------------------
Net income $ 2,366 $ 2,597 $ 2,434 $ (3,054) $ 4,343
Minority interest in Operating Partnership 48 95 78 (625) (404)
-------- -------- ------- -------- --------
Operating Partnership income (loss) 2,414 2,692 2,512 (3,679) 3,939
Depreciation of real estate assets 955 976 1,057 1,076 4,064
Amortization of deferred lease costs 30 39 42 54 165
Depreciation of real estate assets from
unconsolidated affiliates --- 6 39 29 74
Adjustment for minority interest in
consolidated affiliates (8) (15) (19) (21) (63)
Dividends paid on Preferred Stock (1,972) (1,803) (1,803) (1,803) (7,381)
-------- -------- ------- -------- --------
Operating Partnership funds from operations 1,419 1,895 1,828 (4,344) 798
Minority interest in Operating Partnership (153) (205) (200) 594 36
-------- -------- ------- -------- --------
Funds from operations $ 1,266 $ 1,690 $ 1,628 $ (3,750) $ 834
======== ======== ======= ======== ========
Dividends declared $ 0.39 $ 0.39 $ 0.39 $ 0.39 $ 1.56
Dividends paid on Common Stock $ 1,610 $ 1,604 $ 1,582 $ 1,558 $ 6,354
Pay-out ratio 127.2% 94.9% 97.2% N/A 761.9%
Weighted average shares/unit outstanding:
- -----------------------------------------
Basic 4,583 4,620 4,588 4,528 4,590
Fully Diluted 4,628 4,661 4,623 4,553 4,634
Additional Data
- ---------------
Cash Flows:
- ----------
Operating activities 2,999 2,935 3,505 3,227 12,666
Investing activities (13,769) (12,033) (6,180) (19,112) (51,094)
Financing activities (242) 17,176 (3,487) 12,751 26,198
Capital Expenditures:
- --------------------
Building improvements 53 41 236 253 583
Tenant improvements 15 427 224 216 882
Furniture, fixtures & equipment 2 113 109 10 234
Leasing commissions 44 245 112 40 441
Depreciation and Amortization:
- -----------------------------
Depreciation of real estate assets 955 976 1,057 1,076 4,064
Depreciation of non-real estate assets 75 68 114 111 368
Amortization of deferred lease costs 30 39 42 54 165
Amortization of capitalized financing costs 39 47 53 49 188
Rents:
- -----
Straight-line rent $ 5,882 $ 6,113 $ 6,386 $ 6,258 $ 24,639
Billed rent 5,804 6,013 6,217 6,454 24,488
</TABLE>
______________________________
1) FFO represents net income (computed in accordance with GAAP, consistently
applied), 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 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 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 the 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.
40
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary risk inherent in the Company's market sensitive instruments is
the risk of loss resulting from interest rate fluctuations. Approximately 10%
of the Company's notes payable bear interest at a rate indexed to the one-month
LIBOR rate. The table below provides information as of December 31, 1998 about
the Company's long-term debt obligations that are sensitive to changes in
interest rates, including principal cash flows by scheduled maturity, weighted
average interest rate and estimated fair value. The weighted average interest
rates presented are the actual rates as of December 31, 1998.
<TABLE>
<CAPTION>
Fair Market
PRINCIPAL MATURING IN: Value
------------------------------------------------------------- December 31,
1999 2000 2001 2002 2003 Thereafter Total 1998
------ ------ ------- ------ ------ ---------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Mortgage debt:
Fixed rate $1,971 $2,089 $ 2,292 $2,483 $2,698 $110,247 $121,780 $121,780
Average interest rate 8.04% 8.06% 8.07% 8.07% 8.08% 7.98% 7.99%
Variable rate 55 117 8,328 8,500 8,500
Average interest rate 7.41% 7.41% 7.41% 7.41%
Line of credit:
Variable rate 4,600 4,600 4,600
Average interest rate 7.31% 7.31%
------ ------ ------- ------ ------ -------- -------- --------
$2,026 $6,806 $10,620 $2,483 $2,698 $110,247 $134,880 $134,880
====== ====== ======= ====== ====== ======== ======== ========
</TABLE>
The Company's future earnings and cash flows relating to market sensitive
instruments are primarily dependent upon prevailing LIBOR market interest rate.
Based upon interest rates as of December 31, 1998, a 1% increase in the LIBOR
rate would decrease future earnings and cash flow by $131,000. A 1% decrease in
the LIBOR rate would increase future earnings and cash flow by $131,000. A 1%
change in the LIBOR rate would not have a material impact on the fair value of
the Company's debt.
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See Index to Consolidated Financial Statements and Schedules on Page 37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is provided under the captions
"Election of Directors," "Executive Officers" and "Section 16 Reporting" of the
Company's definitive proxy statement for its 1999 annual meeting of stockholders
which will be filed on or before April 30, 1999 and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is provided under the caption of
"Executive Compensation" of the Company's definitive proxy statement for its
1999 annual meeting of stockholders which will be filed on or before April 30,
1999 and is incorporated herein by reference; provided, however, that neither
the Report of the Compensation Committee on executive compensation nor the Stock
Performance Graph set forth therein shall be incorporated by reference herein,
in any of the Company's past or future filings under the Securities Act of 1933,
as amended, or the Securities Act of 1934, as amended, except to the extent the
Company specifically incorporates such report or Stock Performance Graph by
reference therein and should not be otherwise deemed filed under either such
Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is provided under the captions
"Principal Stockholders," "Information Regarding Nominees and Directors" and
"Executive Officers" of the Company's definitive proxy statement for its 1999
annual meeting of stockholders which will be filed on or before April 30, 1999
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is provided under the caption "Certain
Transactions" of the Company's definitive proxy statement for its 1999 annual
meeting of stockholders which will be filed on or before April 30, 1999 and is
incorporated herein by reference.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements and Schedules:
<TABLE>
<CAPTION>
Page
Reference
Form 10-K
---------
<S> <C>
1. Consolidated Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-3
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-5 to 8
Notes to Consolidated Financial Statements F-9 to 34
</TABLE>
2. Consolidated Financial Statement Schedules:
All schedules have been omitted because the required information is
not present in amounts sufficient to require submission of the
schedule or because the required information is included elsewhere in
the Consolidated Financial Statements or the Notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended December
31, 1998.
43
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ------------------------------------------------------------------------------------------------------
<C> <C> <S>
3.1 (1) Amended and Restated Articles of Incorporation of G&L Realty Corp.
3.2 (3) Amended and Restated Bylaws of G&L Realty Corp.
10.1 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Daniel M. Gottlieb.
10.2 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Steven D. Lebowitz.
10.3 (2) Agreement of Limited Partnership of G&L Realty Partnership, L.P.
10.4 (c) (1) 1993 Employee Stock Incentive Plan
10.5 (1) Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.
10.8.2 (2) Option Notice with respect to Sherman Oaks Medical Plaza.
10.9.2 (1) Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.)
between the Selling Partner (as defined therein) and G&L Development, dated as of October 29, 1993.
10.11 (1) Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp. and
Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29, 1993.
10.12 (1) Nomura Commitment Letter with respect to the Acquisition Facility.
10.12.2 (3) Amended and Restated Mortgage Loan Agreement dated as of January 11, 1995 among G&L Financing
Partnership, L.P., Nomura Asset Capital Corporation and Bankers Trust Company of New York.
10.16 (1) Investment Banking and Financial Advisory Agreement between G&L Development and Gruntal & Co.,
Incorporated.
10.17 (1) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
and Milner Investment Corporation.
10.18 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
and Reese L. Milner, II.
10.19 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
and Reese L. Milner, II.
10.20 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
and Reese L. Milner, II, Helen Milner and John Milner, as Trustees of the Milner Trust.
10.21 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
and Reese L. Milner, II.
10.22 (4) Amended and Restated Mortgage Loan Agreement by and between G&L Realty Financing Partnership II, L.P.,
as Borrower, and Nomura Asset Capital Corporation, as Lender, dated as of October 31, 1995.
</TABLE>
44
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ------------------------------------------------------------------------------------------------------
<C> <C> <S>
10.24 (4) Property Management Agreement between G&L Realty Financing Partnership II, L.P., as owner, and G&L
Realty Partnership, L.P., as agent, made August 10, 1995
10.25 (5) Commitment Letter between G&L Realty Partnership, L. P. and Nomura Asset Capital Corporation, dated as
of September 29, 1995.
10.30 (6) Mortgage Loan Agreement dated as of May 24, 1996 by and between G&L Medical Partnership, L.P. as
Borrower and Nomura Asset Capital Corporation as Lender.
10.38 (7) Limited Liability Company Agreement 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 creating
a Limited Liability Company to be named GLN Capital Co., LLC, dated as of November 25, 1996.
10.39 (7) 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 (7) 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 (7) 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 (8) Option Agreement, dated February 28, 1997, by and among G&L Realty Partnership, L.P., GLN Capital Co.,
LLC and PHP Healthcare Corporation
10.44 (9) Loan and Security Agreement by GLN Capital Co., LLC, a Delaware limited liability Company, and G&L
Realty Partnership, L.P., a Delaware limited partnership, dated as of June 1, 1997.
10.45 (10) First Amendment to GL/PHP, LLC Limited Liability Company Agreement by and among G&L Realty
Partnership, L.P., a Delaware limited partnership (the "Retiring Manager"), G&L Realty Partnership,
L.P., a Delaware limited partnership ("G&L Member"), and G&L Management Delaware Corp., a Delaware
corporation ("Manager Member"), made as of August 15, 1997.
10.46 (10) Lease Agreement between GL/PHP, a Delaware limited liability company (the "Landlord") and Pinnacle
Health Enterprises, LLC, a Delaware limited liability company wholly owned by PHP Healthcare
Corporation, a Delaware corporation (the "Tenant"), dated August 15, 1997
10.47 (10) Guaranty of Lease by PHP Healthcare Corporation, a Delaware corporation (the "Guarantor"), dated
February 15, 1997.
</TABLE>
45
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ------------------------------------------------------------------------------------------------------
<C> <C> <S>
10.48 (10) Non-Negotiable 8.5% Note Due July 31, 2007 in which G&L Realty Partnership, L.P., a Delaware limited
partnership (the "Maker"), promises to pay to PHP Healthcare Corporation (the "Payee") the principal
sum of $2,000,000.00, dated August 15, 1997.
10.49 (10) Mortgage Note in which GL/PHP, LLC a Delaware limited liability company (the "Maker") promises to pay
to the order of Nomura Asset Capital Corporation, a Delaware corporation, the principal sum of
$16,000,000.00, dated August 15, 1997.
10.50 (10) Mortgage, Assignment of Leases and Rents and Security Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Mortgagor") to Nomura Asset Capital Corporation, a Delaware corporation (the
"Mortgagee"), dated August 15, 1997.
10.51 (10) Assignment of Leases and Rents by GL/PHP, LLC a Delaware limited liability company (the "Assignor") to
Nomura Asset Capital Corporation, a Delaware corporation (the "Assignee"), dated August 15, 1997.
10.52 (10) Environmental and Hazardous Substance Indemnification Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Borrower") to Nomura Asset Capital Corporation, a Delaware corporation (the
"Lender"), dated August 15, 1997.
10.53 (11) Purchase and Sale Agreement, dated October 1, 1997, by and between Hampden Nursing Homes, Inc. and G&L
Senior Care, LLC.
10.54 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Holding Group,
Inc.
10.55 (11) Loan Commitment, dated October 23, 1997, by and between G&L Realty Partnership, L.P. and Iatros Health
Network, Inc.
10.56 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Nursing Homes,
Inc.
10.57 (11) Guaranty of Lease, dated October 1, 1997, by Iatros Health Network, Inc.
10.58 (11) Limited Liability Company Agreement of G&L Hampden, LLC.
10.59 (11) Loan Agreement by and between Nomura Asset Capital Corporation and G&L Hampden, LLC.
10.60 (11) Promissory Note in the amount of $6,000,000.00 given by G&L Hampden, LLC in favor of Nomura Asset
Capital Corporation.
10.61 (11) Form of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing for each of the 3 Hampden
Properties.
10.62 (12) Operating Agreement of AV Medical Associates, LLC, dated as of September 25, 1997.
10.63 (12) Real Estate Lease by and between AV Medical Associates, LLC and Hoag Memorial Hospital Presbyterian.
</TABLE>
46
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ------------------------------------------------------------------------------------------------------
<C> <C> <S>
10.64 (12) Assignment of Purchase Agreement and Development Management Agreement by and between G&L Realty
Partnership, L.P., Centrium Associates LLC and M&Z Aliso Associates, LLC.
10.68 (12) Promissory Note in the Amount of $2,799,490.00 given by Valley Convalescent, LLC in favor of G&L
Realty Partnership, L.P.
10.69 (12) Deed of Trust, Security Agreement, Fixture Filing with Assignment of Rents and Agreements, dated as of
August 29, 1997, by and between Valley Convalescent, LLC and G&L Realty Partnership, L.P.
10.70 (12) Assignment of Leases and Rents, dated as of August 29, 1997, by and between Valley Convalescent, LLC
and G&L Realty Partnership, L.P.
10.77 Agreement for Transfer of Property by and among G&L Coronado, LLC as Transferor and G&L Realty
Partnership, L.P. as Operating Partnership dated as of December 30, 1998.
10.78 Tenant Estoppel and Real Estate Lease between G&L Coronado, LLC as Landlord and Coronado Managers
Corp. as Tenant dated December 1, 1998.
10.79 Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively "Guarantor") in
favor of G&L Coronado, LLC ("Landlord").
11 Computation of Per Share Earnings
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the registrant.
27 Financial Data Schedule
</TABLE>
47
<PAGE>
1) Previously filed as an exhibit of like number to the Registrant's
Registration Statement on Form S-11 and amendments thereto (File No. 33-
68984) and incorporated herein by reference.
2) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.
3) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference.
4) Previously filed as Exhibits 10.1 (with respect to Exhibit 10.22), 10.2
(with respect to Exhibit 10.23), and 10.3 (with respect to Exhibit 10.24) to
the Registrant's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1995 and incorporated herein by reference.
5) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
6) Previously filed as an exhibit of like number to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference.
7) 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.
8) 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.
9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.
10) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as
of August 15, 1997) and incorporated herein by reference.
11) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as
of October 28, 1997) and incorporated herein by reference.
12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed as
of November 5, 1997) for the quarter ended September 30, 1997 and
incorporated herein by reference.
c) Management contract or compensatory plan or arrangement.
48
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
G&L Realty Corp.:
We have audited the accompanying consolidated balance sheets of G&L Realty
Corp. and subsidiaries (the Company) as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 5, 1999
F-1
<PAGE>
G&L REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------------------------
<S> <C> <C>
ASSETS
------
Rental properties (Notes 3, 18 and 20):
Land $ 35,059 $ 27,470
Building and improvements, net 142,531 111,312
Projects under development 9,161 300
-------- --------
Total rental properties 186,751 139,082
Cash and cash equivalents (Note 2) 1,379 13,609
Restricted cash (Note 2) 4,007 7,745
Tenant rent and reimbursements receivable, net (Note 4) 2,050 1,333
Unbilled rent receivable, net (Note 5) 1,892 1,815
Other receivables, net (Note 6) 208 972
Mortgage loans and bonds receivable, net (Notes 2 and 7) 12,101 14,098
Investments in unconsolidated affiliates (Note 8) 7,469 8,591
Investments in marketable securities, net (Note 9) --- ---
Deferred charges and other assets, net (Note 10) 3,642 2,135
-------- --------
TOTAL ASSETS $219,499 $189,380
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable (Notes 2 and 11) $134,880 $ 95,172
Accounts payable and other liabilities 2,296 1,920
Distributions payable 1,768 1,801
Tenant security deposits 1,270 1,046
-------- --------
Total liabilities 140,214 99,939
Commitments and Contingencies (Note 12)
Minority interest in consolidated affiliates (2,033) (2,399)
Minority interest in Operating Partnership 1,734 2,916
STOCKHOLDERS' EQUITY (Notes 13 and 14):
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 December 31, 1998 and 1997 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding as
of December 31, 1998 and 1997 14 14
Common shares - $.01 par value, 50,000,000 shares authorized,
3,995,000 and 4,120,000 shares issued and outstanding as of
December 31, 1998 and 1997, respectively 40 41
Additional paid-in capital 91,709 91,656
Distributions in excess of net income (12,194) (2,802)
-------- --------
Total stockholders' equity 79,584 88,924
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $219,499 $189,380
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-2
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rent (Notes 5 and 15) $24,639 $20,307 $15,796
Tenant reimbursements 781 707 728
Parking 1,501 1,439 1,251
Interest, loan fees and other 4,517 4,322 6,712
Other 254 274 549
------- ------- -------
Total revenues 31,692 27,049 25,036
------- ------- -------
EXPENSES:
Property operations 6,171 6,280 5,696
Depreciation and amortization 4,597 3,570 2,773
Interest 8,683 9,088 9,322
General and administrative 2,554 2,044 1,787
Provision for doubtful accounts, notes and bonds
receivable (Notes 4,6,7 and 9) 5,603 --- ---
Loss on disposition of real estate (Note 17) --- --- 4,874
------- ------- -------
Total expenses 27,608 20,982 24,452
------- ------- -------
Income from operations before minority interests,
equity in earnings of unconsolidated affiliates and 4,084 6,067 584
extraordinary gain
Equity in earnings of unconsolidated affiliates 80 1,195
Minority interest in consolidated affiliates (225) (156) (129)
Minority interest in Operating Partnership 404 (545) (65)
------- ------- -------
Income before extraordinary gain 4,343 6,561 390
Extraordinary gain on retirement of debt
(net of minority interest) (Note 17) --- --- 9,311
------- ------- -------
Net income $ 4,343 $ 6,561 $ 9,701
======= ======= =======
Per share data (Note 13):
Basic:
(Loss) income before extraordinary gain $ (0.70) $ 0.91 $ 0.10
Extraordinary gain --- --- 2.29
------- ------- -------
Net (loss) income $ (0.70) $ 0.91 $ 2.39
======= ======= =======
Fully diluted:
Income before extraordinary gain $ (0.70) $ 0.89 $ 0.09
Extraordinary gain --- --- 2.24
------- ------- -------
Net income $ (0.70) $ 0.89 $ 2.33
======= ======= =======
Weighted average outstanding shares:
Basic 4,092 4,049 4,063
Fully diluted 4,135 4,129 4,172
</TABLE>
F-3
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Distributions
Preferred Stock Preferred Stock Additional in excess Total
Series A Series B Common Stock Paid - in of stockholders'
Shares Amount Shares Amount Shares Amount Capital net income equity
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1996 --- --- --- --- 4,062 $41 $23,705 $ (5,479) $ 18,267
Stock options exercised --- 5 5
Net income 9,701 9,701
Distributions declared (5,525) (5,525)
----- --- ----- --- ----- --- ------- -------- --------
BALANCE DECEMBER 31, 1996 --- --- --- --- 4,062 41 23,710 (1,303) 22,448
Repurchase of common stock (76) (1) (1,277) (1,278)
Stock options exercised 134 1 1,288 1,289
Series A Preferred Stock issued 1,495 $15 35,383 35,398
Series B Preferred Stock issued 1,380 $14 32,552 32,566
Net Income 6,561 6,561
Distributions declared (8,060) (8,060)
----- --- ----- --- ----- --- ------- -------- --------
BALANCE DECEMBER 31, 1997 1,495 15 1,380 14 4,120 41 91,656 (2,802) 88,924
Repurchase of common stock (152) (1) (2,336) (2,337)
Stock options exercised 27 389 389
Issuance of common stock 2,000 2,000
Net Income 4,343 4,343
Distributions declared (13,735) (13,735)
----- --- ----- --- ----- --- ------- -------- --------
BALANCE DECEMBER 31, 1998 1,495 $15 1,380 $14 3,995 $40 $91,709 $(12,194) $ 79,584
===== === ===== === ===== === ======= ======== ========
</TABLE>
F-4
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,343 $ 6,561 $ 9,701
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary gain on retirement of debt --- --- (9,311)
Loss on disposition of rental property --- --- 4,874
Depreciation and amortization 4,597 3,570 2,773
Amortization of deferred interest costs 188 252 503
Amortization of discount on marketable securities (152) --- ---
Minority interests (179) 701 194
Unbilled rent receivable (77) (400) (5)
Equity in earnings of unconsolidated affiliates (80) (1,195) ---
Provision for doubtful accounts, notes and bonds receivables 5,603 339 876
(Increase) decrease in:
Prepaid expense and other assets (204) 16 (153)
Other receivables 489 231 (891)
Tenant rent and reimbursements receivable (1,594) (112) (842)
Accrued interest receivable and loan fees (875) (1,488) (1,102)
Increase (decrease) in:
Accounts payable and other liabilities 383 558 (893)
Tenant security deposits 224 12 2
-------- -------- --------
Net cash provided by operating activities 12,666 9,045 5,726
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental properties (1,699) (987) (2,220)
Purchases of real estate assets (37,790) (26,440) (21,550)
Construction in progress (4,990) (300) ---
Disposition (acquisition) of assets available for sale --- 3,944 (307)
Pre-acquisition costs, net (49) --- 1,001
Contributions to unconsolidated affiliates (11,996) (11,386) ---
Distributions from unconsolidated affiliates 7,553 3,990 ---
Investment in marketable securities (1,154) --- ---
Leasing commissions (441) (174) (149)
Investments in notes and bonds receivable (5,573) (19,822) (14,755)
Principal payments received from notes and bonds receivable 5,045 1,641 14,567
-------- -------- --------
Net cash used in investing activities (51,094) (49,534) (23,413)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 48,832 47,300 47,000
Repayment of notes payable (9,124) (47,153) (21,018)
Payment of deferred loan costs (896) (41) (1,398)
Decrease/(Increase) in restricted cash 3,738 (5,778) (1,356)
Sale of preferred stock --- 67,964 ---
Minority interest equity contribution 195 226 ---
Purchase of common stock and partnership units (2,337) (1,277) ---
Exercise of common stock options 389 1,288 5
Distributions (14,599) (8,696) (5,950)
-------- -------- --------
Net cash provided by financing activities 26,198 53,833 17,283
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,230) 13,344 (404)
BEGINNING CASH AND CASH EQUIVALENTS 13,609 265 669
-------- -------- --------
ENDING CASH AND CASH EQUIVALENTS $ 1,379 $ 13,609 $ 265
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 9,028 $ 8,709 $ 8,874
======== ======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-5
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
NONCASH INVESTING ACTIVITIES:
Net cost of assets transferred to Company (Note 18):
Accounts receivable $ 295
Land 1,751
Construction in progress 3,871
Deferred leasing costs 250
Deferred loan costs 20
Note receivable 44
Accounts payable 8
------
$6,239
======
Net cost of assets transferred from Company (Note 18):
Investment in unconsolidated affiliates $5,645
Note receivable 594
------
$6,239
======
Property acquired in satisfaction of note receivable $ 4,650
=======
The Company exchanged its interest Series A and B Bonds
for the following noncash consideration (Note 18):
Assignment of note payable $14,000
Investment in affiliate, net of deferred gain 2,653
-------
$16,653
=======
The Company acquired an interest in three Massachusetts
nursing homes for the following noncash consideration
(Note 18):
Note Receivable $14,000
Investment in affiliate, net of deferred gain 2,653
-------
$16,653
=======
Property acquired in exchange for partnership units
(Note 18) $2,000 $ 549
====== =======
NONCASH FINANCING ACTIVITIES:
Net cost of assets transferred to lien holder (Note 17):
Land $ 2,047
Buildings and improvements 21,601
Tenant improvements 477
Accumulated depreciation (3,557)
-------
Total rental property 20,568
Unbilled rent receivable, net 1,109
Other receivables, net 91
Tenant rent and reimbursements receivable, net 250
Deferred charges and other assets 267
Accounts payable and other liabilities 589
-------
Net cost of assets transferred to lien holder 22,874
Nonrecourse debt extinguished 28,500
-------
Excess of nonrecourse debt over net cost of assets surrendered $ 5,626
=======
Noncash gain from transfer of property to lien holder:
Extraordinary gain on retirement of debt $ 9,311
Minority interest share of extraordinary gain 1,055
-------
Extraordinary gain on retirement of debt 10,366
Extraordinary loss related to other refinancing transactions 134
-------
Extraordinary gain on transfer of property to lien holder 10,500
Loss on disposition of rental property (4,874)
-------
Noncash gain from transfer of property to lien holder $ 5,626
=======
Preferred distribution due to minority partner $ 17 --- ---
====== ======= =======
Distributions declared not yet paid $1,751 $ 2,370 $ 1,463
====== ======= =======
</TABLE>
F-6
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDING DECEMBER 31, 1998
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 Holy Cross, LLC, a California limited liability company ("Holy
Cross")*
G&L Burbank, LLC, a California limited liability company ("Burbank")*
G&L Tustin, LLC, a California limited liability company ("Tustin")*
GLH Pacific Gardens, LLC, a California limited liability company
("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company ("Hoquiam")
G&L Lyons, LLC, a California limited liability company ("Lyons")
G&L Coronado (1998), LLC, a California limited liability company
("Coronado")
* The Realty Financing Partnership, the Medical Partnership, Maryland
Gardens, GL/PHP, Hampden, Holy Cross, Burbank and Tustin are herein defined
collectively as the "Financing Entities" and individually as the "Financing
Entity".
The Company, as the sole general partner and as owner of an approximately 86%
ownership interest, controls the Operating Partnership. The Company controls
the Financing Entities through wholly owned subsidiaries incorporated in either
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 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 a co-managing member) and Hoquiam, Lyons and Coronado
(in which the Operating Partnership owns a 100% interest).
F-7
<PAGE>
The Company also owns interests in various unconsolidated affiliates.
Although the Company's investment represents a significant portion of the
capital of such affiliates and the 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 affiliates in the consolidated financial statements of the Company. The
Company has unconsolidated financial interests in the following entities:
. GLN Capital Co., LLC ("GLN"), a Delaware limited liability company formed
in 1996. GLN, 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 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"), who each hold a 50% ownership interest. Continuum is the
managing member of Valley Convalescent which was formed for the purpose
of acquiring Valley Convalescent Center located in El Centro, California.
. 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 three 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. 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 ASL Santa Monica, Inc., a California corporation
("ASL"). The Company owns 93% of the total equity in Pacific Gardens
Corp. in the form of non-voting preferred stock. ASL holds 7% of the
total equity in the form of 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.
. G&L Parsons on Eagle Run, LLC ("Eagle Run") is a California limited
liability company, formed on December 29, 1998, through the Operating
Partnership and Parsons. The Company and Parsons each contributed 50% of
the total equity in Eagle Run. Eagle Run was formed for the purpose of
acquiring a vacant piece of land in Omaha, Nebraska upon which the
members intend to develop an senior care facility.
GLN, Valley Convalescent, San Pedro, Penasquitos LLC, Penasquitos Inc.,
Pacific Gardens Corp. and Eagle Run are herein defined collectively as the
"Unconsolidated Affiliates" and individually as "Unconsolidated Affiliate".
F-8
<PAGE>
2. Summary of Significant Accounting Policies
Business-- The Company is a growth-oriented health care Real Estate
Investment Trust ("REIT") with two major areas of operation: (a) the Property
Investments Division, which owns, develops and manages high-quality,
strategically located medical office buildings and senior care facilities, and
(b) the Senior Care Division, which provides loan funds to facilitate the sale
of skilled nursing and assisted living facilities to various entities throughout
the United States.
Basis of presentation-- The accompanying consolidated financial statements
include the accounts of the Company, the Operating Partnership, the Realty
Financing Partnership, the Medical Partnership, Maryland Gardens, the Roxbury
Partnership, GL/PHP, Hampden, Valencia, Holy Cross, Burbank, Tustin, Pacific
Gardens, Hoquiam, Lyons and Coronado. The interests in the Operating
Partnership, the Roxbury Partnership, Valencia and Pacific Gardens not owned by
the Company have been reflected in minority interests. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Prior year amounts have been reclassified to conform to the current year's
presentation.
Properties-- The Operating Partnership, the Realty Financing Partnership, the
Medical Partnership, Maryland Gardens, the Roxbury Partnership, GL/PHP, Hampden,
Valencia, Holy Cross, Burbank, Tustin, Pacific Gardens, Hoquiam, Lyons and
Coronado own a 100% fee simple interest in all of the properties.
Income taxes-- The Company qualified and elected to be taxed as a REIT for
Federal income tax purposes. Such qualification and taxation as a REIT depends
upon the Company's ability to meet, on a continuing basis, various REIT
qualification requirements. As a REIT, the Company is eligible for a deduction
for dividends paid to shareholders. For the years ended December 31, 1998, 1997
and 1996, the Company paid dividends to its stockholders in excess of its
earnings and profits (See Note 13). Therefore, no provisions for Federal income
taxes are included in the accompanying financial statements.
Real estate and depreciation-- 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 years
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$4,432,000, $3,484,000 and $2,668,000 respectively. Expenditures for
maintenance and repairs are charged to operations as incurred. Significant
renovations and all costs directly related to acquisitions are capitalized.
Revenue recognition-- Base rental income is recognized on a straight-line
basis over the term of the lease regardless of when payments are due. Certain
leases include rent concessions and escalation clauses creating an effective
rent which is included in unbilled rent receivable (Note 5).
Cash and cash equivalents-- All demand and money market accounts and short-
term investments in governmental funds with a maturity of three months or less
are considered to be cash and cash equivalents. Cash equivalents are carried at
cost which approximates fair value due to the short period of time to maturity.
The Company invests its excess cash balances in commercial paper and auction
notes issued by companies with investment grade ratings. Throughout the year,
the Company also maintained cash balances at banks in excess of federally
insured limits.
Restricted Cash-- Pursuant to various loan agreements, the Company is
required to fund segregated interest bearing accounts to be used for debt
service payments, tenant security deposits, property taxes, insurance premiums
and property improvements.
Marketable Securities--Effective January 1, 1994, the Company adopted
Financial Accounting Standards Board (FASB) Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company determines
F-9
<PAGE>
the appropriate classification at the time of purchase. Securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at cost, adjusted for amortization of premiums and discounts to maturity.
Marketable securities not classified as held-to-maturity are classified as
available-for-sale or trading securities. As of December 31, 1998, the Company
has no securities classified as available-for-sale or trading. Interest and
amortization of premiums and discounts for all securities are included in
interest income.
Deferred charges and other assets-- Deferred charges and other assets consist
of leasing commissions, deferred loan fees, financing costs, construction-in-
progress, investments, deposits and prepaid expenses. Leasing commissions are
amortized on a straight-line basis over the lives of the leases which range
typically from five to ten years. Deferred loan fees are amortized over the
terms of the respective agreements. Expenses incurred to obtain financing are
capitalized and amortized over the term of the related loan as a yield
adjustment. Interest rate protection agreement fees are capitalized and
amortized over the term of the agreements.
Minority interest in consolidated affiliates-- The Operating Partnership, as
sole general partner, has a 61.75% ownership interest in the Roxbury Partnership
which owns the property located at 435 North Roxbury Drive. The minority
interest is a debit balance that resulted from depreciation allocations and cash
distributed to partners in excess of their original investment and subsequent
accumulated earnings. It is management's opinion that the deficit is adequately
secured by the unrecognized appreciated value of the Roxbury property and will
be recovered through an accumulation of undistributed earnings or sale of the
property. The Operating Partnership, as sole general partner, also owns an 80%
interest in Valencia and a 93% interest in Pacific Gardens.
Long-lived assets-- The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that an asset's book value
exceeds the undiscounted expected future cash flows to be derived from that
asset. Whenever undiscounted expected future cash flows are less than the book
value, the asset will be reduced to a value equal to the net present value of
the expected future cash flows and an impairment loss will be recognized.
Management believes that the expected future cash flows of its long-lived assets
exceeded the related book values as of December 31, 1998 and 1997.
Per share data-- Earnings per share are computed based upon the weighted
average number of shares of the Company's Common Stock, $.01 par value (the
"Common Stock") 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 stock incentive plan. Computation of
the number of shares is included in Note 14.
Financial instruments-- The estimated fair value of the Company's financial
instruments is determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessary to
interpret market data and develop the related estimates of fair value. The use
of different market assumptions or estimation methodologies may have a material
impact on the estimated fair value amounts Cash, cash equivalents, tenant rent
and other accounts receivable, accounts payable and other liabilities are
carried at book value as the amount of these instruments approximates fair value
due to their short-term maturities. The carrying amount of the Company's notes
payable approximate fair value because the interest rates are comparable to
rates currently being offered to the Company. The estimated fair values of the
company's mortgage loans and bonds receivable, are based upon market values of
loans and bonds receivable with similar characteristics adjusted for risk
inherent in the underlying transactions. Management estimates that the fair
value of the Company's mortgage loans and bonds receivable approximate their
amortized cost basis, after adjustment for the allowance for amounts deemed to
be uncollectible. There are no realized or unrealized gains or losses included
in the accompanying financial statements.
Comprehensive income-- The Company does not have any items which meet the
definition of other comprehensive income as defined in Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income."
Use of estimates-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE>
Recent accounting pronouncements-- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133").
SFAS 133 is effective for fiscal years beginning after June 15, 1999 and
requires all derivatives to be recorded on the balance sheet at fair value as
either assets or liabilities depending on the rights or obligations under the
contract. SFAS 133 also establishes new accounting methodologies for the
following three classifications of hedges: fair value, cash flow and net
investment in foreign operations. Management believes the adoption of SFAS 133
will not have a material impact on the Company's financial position or results
of operations.
3. Buildings and Improvements
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------------------
(in thousands)
<S> <C> <C>
Buildings and improvements $152,618 $118,799
Tenant improvements 5,846 4,946
Furniture, fixtures and equipment 2,560 1,628
-------- --------
161,024 125,373
Less accumulated depreciation
And amortization (18,493) (14,061)
-------- --------
Total $142,531 $111,312
======== ========
</TABLE>
4. Tenant Rent and Reimbursements Receivable
Tenant rent and reimbursements receivable are net of an allowance for
uncollectible amounts of $1,261,000 and $88,000 as of December 31, 1998 and
1997, respectively. The activity in the allowance for uncollectible tenant
accounts for the three years ending December 31, 1998, was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 88 $ 261 $ 8
Additions 1,210 150 499
Charge-offs (37) (323) (246)
------ ----- -----
Balance, end of year $1,261 $ 88 $ 261
====== ===== =====
</TABLE>
During the year ended December 31, 1998, the Company increased its allowance
for uncollectible amounts by $1.21 million. This increase was mainly related to
delinquent rents due from the operators of the Company's skilled nursing
facilities. The remaining balance represents increases for the Company's MOB
tenants incurred through the normal course of business.
5. Unbilled Rent
The Company has operating leases with tenants that expire at various dates
through 2011. The minimum rents due under these leases are subject to either
scheduled fixed increases or adjustments based on the Consumer Price Index. In
general, the retail leases require tenants to pay their pro-rata share of
property taxes, insurance and common area operating
F-11
<PAGE>
costs, while the medical office leases require tenants to reimburse the Company
for annual increases in property taxes, insurance and specified operating
expenses over a base year amount.
Generally accepted accounting principles require that rents due under
operating leases with fixed increases be averaged over the life of the lease.
This practice, known as "straight-line rents" creates an unbilled rent
receivable in any period during which the amount of straight-line rent exceeds
the actual rent billed (this occurs primarily at the inception of the lease
period). As the lease approaches its expiration date, billed rent will
eventually exceed the amount of straight line rent causing the unbilled rent
receivable to decline. The straight-line rent calculation assumes no new or re-
negotiated rents or extension periods during the life of the lease and excludes
operating cost reimbursements. The following table summarizes future rents due
under existing leases and the corresponding straight-line rent calculation:
<TABLE>
<CAPTION>
Year Ending December 31, Future Minimum Straight-line Unbilled Rent
Rent Rent Receivable
------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
1999...................... $ 19,326 $ 19,618 $ (292)
2000...................... 17,385 17,426 (41)
2001...................... 14,993 14,853 140
2002...................... 12,040 11,828 212
2003...................... 9,767 9,541 226
Thereafter................ 33,764 31,643 2,121
-------- -------- ------
Total........................ $107,275 $104,909 $2,366
======== ======== ======
</TABLE>
The activity in the allowance for unbilled rent, recorded as a reduction of
rental revenue for the three years ending December 31, 1998, consisted of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 476 $ 414 $ 967
Additions 12 62 ---
Charge-offs (14) --- (553)
----- ----- -----
Balance, end of year $ 474 $ 476 $ 414
===== ===== =====
</TABLE>
6. Other Receivables
Other receivables consist of all outstanding balances due to the Company
other than amounts due from current tenants and are net of the allowance for
uncollectible amounts of $330,000 and $248,000 as of December 31, 1998 and 1997.
The activity in the allowance for uncollectible accounts for the three years
ending December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
---------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 248 $248 $---
Additions 282 --- 248
Charge-offs (200) --- ---
----- ---- ----
Balance, end of year $ 330 $248 $248
===== ==== ====
</TABLE>
F-12
<PAGE>
7. Mortgage Loans and Bonds Receivable
Mortgage loans and bonds receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------------
(in thousands)
<S> <C> <C>
Note due June 30, 1997, collateralized by deed of trust, interest
payable monthly at 12% per annum, (This note is currently in default
and accrues interest at 15% per annum, the default rate)......................... $ 6,825 $ 6,825
Secured Note due April 1, 2008, interest payable semiannually at 10%
per annum (This note is currently in default).................................... 150 150
Unsecured promissory note receivable due October 1, 2004, interest
accrues monthly at 10.0% per annum. Payments are due monthly based on
5.0% per annum of the outstanding balance (This note is currently in
default)......................................................................... 800 800
Unsecured promissory note receivable due May 31, 1999 interest payable
quarterly at 9.0% per annum (This note is currently in default).................. 300 300
Unsecured promissory note receivable due January 23, 1998, no payments
are required until maturity. Interest accrues monthly at 14% per
annum (This note is currently in default)........................................ 47 47
Unsecured promissory note receivable due April 1, 2003, interest
payable quarterly at 8.0% per annum (This note is currently in default
and accrues interest at 12% per annum, the default rate)......................... 300 ---
Unsecured promissory notes receivable payable upon demand, interest
accrues monthly at 12% per annum................................................. 715 ---
Unsecured credit line receivable due May 31, 1998, interest payable
annually at 12.0% per annum. Unpaid principal accrues interest at
12.0% annually after maturity date (Amount is currently in default).............. 115 300
Secured promissory note due August 25, 1998, interest payable at 12%
per annum (This note is currently in default).................................... 3,589 ---
Unsecured promissory note receivable due June 30, 1999, interest
payable at 10.0% per annum....................................................... 44 ---
Unsecured subordinated notes receivable due February 1, 2006, interest
payable semiannually at 12.0% per annum.......................................... --- 7
Unsecured promissory note receivable due December 31, 1997, interest
payable annually at 5.25% per annum. Unpaid principal accrues
interest at 8.0% annually after maturity date.................................... --- 500
Secured promissory note due February 1, 1998, interest payable monthly
at 30-day LIBOR plus 6.5% per annum............................................. --- 1,934
Secured promissory note due April 1, 1998, interest payable monthly at
30-day LIBOR plus 6.5% per annum................................................ --- 870
Secured promissory note due April 1, 1998, interest payable monthly at
30-day LIBOR plus 6.5% per annum................................................. --- 115
Secured promissory note due October 15, 1998, no payments are required
until maturity. Interest accrues monthly at 18% per annum....................... --- 270
Secured promissory note due December 31, 1999, no payments are
required until maturity. Interest accrues monthly at 10% per annum.............. --- 540
Unsecured promissory notes receivable due July 7, 1997, interest
payable monthly at the greater of 11.0% per annum or 30-day LIBOR
plus 5.25%. Commencing July 7, 1997, borrower may at its option, pay
a fee equal to 1% of the outstanding balance of the loan to extend the
loan for additional 3-month periods.............................................. --- 250
------- -------
Face value of mortgage loans and bonds receivable.................................. 12,885 12,908
Accrued interest................................................................... 2,733 1,815
Reimbursable loan fees and costs advanced.......................................... --- 200
Allowance for uncollectible amounts................................................ (3,517) (825)
------- -------
Total mortgage loans and bonds interest receivable................................. $12,101 $14,098
======= =======
</TABLE>
F-13
<PAGE>
As of December 31, 1998, the principal balance on all notes receivable of
$12,885 was either past due, currently due as a result of default or due within
the next twelve months.
The activity in the allowance for uncollectible notes receivable for the
three years ending December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 825 $ 375 $ ---
Additions 2,792 450 375
Charge-offs (100) --- ---
------ ----- -----
Balance, end of year $3,517 $ 825 $ 375
====== ===== =====
</TABLE>
F-14
<PAGE>
8. Investments In Unconsolidated Affiliates
The Company has investments in various unconsolidated affiliates as described
in Note 1. The following tables provide a summary of the Company's investment
in each of these entities as of December 31, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------------------------------------------------
Valley Aliso
GLN Capital Convalescent AV Medical Partners San Pedro
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opening balance at beginning of year $ 2,730 $ 311 $ 600 $ 550 $ ---
Equity in earnings of affiliates 91 83 --- --- 78
Contributions --- --- --- --- 6,300
Distributions (2,113) (318) (600) (550) (5,213)
------- ------ ----- ----- -------
Equity, net of inter-company
transactions 708 76 --- --- 1,165
Intercompany receivable (payable), net 58 3,116 --- --- (16)
------- ------ ----- ----- -------
Investment in unconsolidated affiliates $ 766 $3,192 $ --- $ --- $ 1,149
======= ====== ===== ===== =======
<CAPTION>
As of December 31, 1998
----------------------------------------------------------------------
Penasquitos Penasquitos Pacific Gardens Parsons
LLC Inc. Corp. House Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opening balance at beginning of year $ --- $--- $ --- $--- $ 4,191
Equity in earnings of affiliates --- --- (172) --- 80
Contributions 1,229 270 23 800 8,622
Distributions --- --- --- --- (8,794)
------ --- ----- ---- -------
Equity, net of inter-company
transactions 1,229 270 (149) 800 4,099
Intercompany receivable (payable), net 170 --- 42 --- 3,370
------ --- ----- ---- -------
Investment in unconsolidated affiliates $1,399 $270 $(107) $800 $ 7,469
====== ==== ===== ==== =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997
--------------------------------------------------------------
Valley Aliso
GLN Capital Convalescent AV Medical Partners Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opening balance at beginning of year $ --- $ --- $ --- $ --- $ ---
Equity in earnings of affiliates 1,184 11 --- --- 1,195
Contributions 6,123 300 600 550 7,573
Distributions (4,577) --- --- --- (4,577)
------- ------ ------ ----- -------
Equity, net of inter-company
transactions 2,730 311 600 550 4,191
Intercompany receivable (payable), net 64 2,622 1,999 (285) 4,400
------- ------ ------ ----- -------
Investment in unconsolidated affiliates $ 2,794 $2,933 $2,599 $ 265 $ 8,591
======= ====== ====== ===== =======
</TABLE>
F-15
<PAGE>
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the years ended December 31, 1998 (in
thousands).
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Valley Aliso
GLN Capital Convalescent AV Medical Partners San Pedro
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Land $ --- $ 382 $ --- $ --- $ 1,882
Buildings --- 2,690 --- --- 4,334
Notes and bonds
receivable, net 1,473 --- --- --- ---
Other Assets 31 310 --- --- 434
Notes payable --- (2,799) --- --- (4,899)
Other liabilities (90) (146) --- --- (299)
------ ------- --------- --------- -------
Net assets $1,414 $ 437 $ --- $ --- $ 1,452
====== ======= ========= ========= =======
Partner's equity:
- -----------------
G&L Realty Partnership, L.P. $ 708 $ 76 $ --- $ --- $ 1,165
Others 706 361 --- --- 287
------ ------- --------- --------- -------
Total Equity $1,414 $ 437 $ --- $ --- $ 1,452
====== ======= ========= ========= =======
<CAPTION>
------------------------------------------------------------------
Pacific
Penasquitos Penasquitos Gardens Parsons
LLC Inc. Corp. House Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Land $ --- $--- $ --- $ --- $ 2,264
Buildings --- --- --- --- 7,024
Notes and bonds
receivable, net --- --- --- --- 1,473
Other Assets 6,878 411 157 1,709 9,930
Notes payable (4,800) --- --- --- (12,498)
Other liabilities (440) (51) (317) (109) (1,452)
------- ---- ----- ------ --------
Net assets $ 1,638 $360 $(160) $1,600 $ 6,741
======= ==== ===== ====== ========
Partner's equity:
- -----------------
G&L Realty Partnership, L.P. $ 1,229 $270 $(149) $ 800 $ 4,099
Others 409 90 (11) 800 2,642
------- ---- ----- ------ --------
Total Equity $ 1,638 $360 $(160) $1,600 $ 6,741
======= ==== ===== ====== ========
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Valley Aliso
GLN Capital Convalescent AV Medical Partners San Pedro
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
- -----------
Revenues $352 $603 $ --- $ --- $948
Expenses 170 437 --- --- 792
---- ---- ------- ------- ----
Net income $182 $166 $ --- $ --- $156
==== ==== ======= ======= ====
Allocation of net income:
- --------------------------
G&L Realty
Partnership, L.P. $ 91 $ 83 $ --- $ --- $ 78
Others 91 83 --- --- 78
---- ---- ------- ------- ----
$182 $166 $ --- $ --- $156
==== ==== ======= ======= ====
<CAPTION>
--------------------------------------------------------------
Pacific
Penasquitos Penasquitos Gardens Parsons
LLC Inc. Corp. House Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
- -----------
Revenues $ --- $ --- $1,185 $ --- $3,088
Expenses --- --- 1,369 --- 2,768
------- ------- ------ ------ ------
Net income $ --- $ --- $ (184) $ --- $ 320
======= ======= ====== ====== ======
Allocation of net income:
- ------------------------
G&L Realty
Partnership, L.P. $ --- $ --- $ (172) $ --- $ 80
Others --- --- (12) --- 240
------- ------- ------ ------ ------
$ --- $ --- $ (184) $ --- $ 320
======= ======= ====== ====== ======
</TABLE>
F-16
<PAGE>
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the years ended December 31, 1997 (in
thousands).
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Valley Aliso
GLN Capital Convalescent AV Medical Partners Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Land $ 382 $ 1,738 $ 3,107 $ 5,227
Buildings 2,721 2,721
Notes and bonds receivable, net $ 8,900 8,900
Other Assets 1,081 402 1,080 1,229 3,792
Notes payable (4,134) (2,799) (1,989) (3,236) (12,158)
Other liabilities (483) (41) (29) (553)
------- ------- ------- ------- --------
Net assets $ 5,364 $ 665 $ 800 $ 1,100 $ 7,929
======= ======= ======= ======= ========
Partner's equity:
- -----------------
G&L Realty Partnership, L.P. $ 2,730 $ 311 $ 600 $ 550 $ 4,191
Others 2,634 354 200 550 3,738
------- ------- ------- ------- --------
Total Equity $ 5,364 $ 665 $ 800 $ 1,100 $ 7,929
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Valley Aliso
GLN Capital Convalescent AV Medical Partners Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
- -----------
Revenues $ 4,179 $ 142 $ --- $ --- $ 4,321
Expenses (1,872) (120) (1,992)
------- ----- ------ ------ -------
Net income $ 2,307 $ 22 $ --- $ --- $ 2,329
======= ===== ====== ====== =======
Allocation of net income:
- -------------------------
G&L Realty Partnership, L.P. $ 1,184 $ 11 $ --- $ --- $ 1,195
Others 1,123 11 1,134
------- ----- ------ ------ -------
$ 2,307 $ 22 $ --- $ --- $ 2,329
======= ===== ====== ====== =======
</TABLE>
F-17
<PAGE>
9. Marketable Securities
Marketable securities consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------
<S> <C> <C>
(in thousands)
PHP Healthcare Corporation subordinated
debentures, $2,800,000 face value,
interest at 6.50%, due December 15,
2002, at cost $ 1,154 $ ---
Accrued interest 58 ---
Amortized discount 152 ---
------- --------
1,364 ---
Less reserve for uncollectible amounts (1,364) ---
------- --------
Total $ --- $ ---
======= ========
</TABLE>
See Footnote 15 for additional discussion of marketable securities.
10. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------
<S> <C> <C>
(in thousands)
Deferred financing costs $2,558 $1,669
Leasing commissions 1,272 581
Prepaid expense and other assets 527 273
------ ------
4,357 2,523
Less accumulated amortization (715) (388)
------ ------
Total $3,642 $2,135
====== ======
</TABLE>
F-18
<PAGE>
11. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------
<S> <C> <C>
(in thousands)
$9,000,000 Note due May 31, 1999, collateralized by deed of trust, interest
payable monthly at 30-day LIBOR plus 1.50% per annum, note requires monthly
principle payments of $35,000 plus semiannual payments equal to excess cash
flow, as defined in the loan extension agreement.............................. $ --- $ 7,650
$7,831,000 Note due April 1, 2008 collateralized by deed of trust, monthly
payments of $56,000 of principal and interest, interest at 7.05% per annum. 7,766 ---
$7,500,000 Note due January 10, 2009, collateralized by deed of trust,
monthly payments of $50,000 of principal and interest, interest at 6.90% per
annum. 7,500 ---
$8,500,000 Note due July 1, 2001, collateralized by deed of trust, interest
payable monthly at 30-day LIBOR plus 2.35% until July 1, 1999; beginning July
1, 1999, monthly payments of $65,708 of principal and interest................ 8,500 ---
$4,600,000 Unsecured credit line due August 31, 2000, interest payable monthly
at LIBOR plus 2.25% per annum. 4,600 ---
$8,100,000 Note due April 1, 2008, collateralized by deed of trust, monthly
payments of $58,000 of principal and interest, interest at 7.05% per annum. 8,032 ---
$2,475,000 Note due September 1, 2008 collateralized by deed of trust, monthly
payments of $18,000 of principal and interest, interest at 7.49% per annum. 2,466 ---
$3,267,000 Note due April 1, 2008 collateralized by deed of trust, monthly
payments of $23,000 of principal and interest, interest at 7.05% per annum. 3,240 ---
$5,225,000 Note due January 1, 2019 collateralized by deed of trust, monthly
payments of $38,209 of principal and interest, interest at 6.75% per annum. 5,225 ---
$1,333,125 Note due April 1, 2008 collateralized by deed of trust, monthly
payments of $9,554 of principal and interest, interest at 7.05% per annum. 1,322 ---
$35,000,000 Note due August 11, 2006, collateralized by deed of trust, monthly
payments of $282,000 of principal and interest, interest at 8.515% per annum. 34,092 34,516
$30,000,000 Note due August 11, 2005, collateralized by deed of trust, monthly
payments of $229,000 of principal and interest, interest at 7.89% per annum... 28,669 29,109
$16,000,000 Note due March 11, 2014, collateralized by deed of trust, monthly
payments of $155,000 of principal and interest, interest at 8.98% per annum... 15,468 15,897
$14,000,000 Note due November 11, 2009, collateralized by deed of trust with
interest only payable monthly at the rate of 8.62% per annum. The Company
has the option to draw an additional $8.0 million, up to a maximum loan
amount of $14.0 million during the first two years of the note. The interest
rate on the additional loan draws will bear interest at the ten-year treasury
rate plus 2.5%. After the initial two year period, the loan terms will be
amended to require principal and interest payments based upon a 27-year
amortization period. The interest rate will be a weighted average based upon
the rate set at the time of each of the loan draws. Currently, interest is
payable at a rate of $44,000 per month........................................ 6,000 6,000
$2,000,000 Unsecured note due July 31, 2007, quarterly payments of $43,000
interest only (based upon an interest rate of 8.5% per annum)................. 2,000 2,000
-------- -------
Total.......................................................................... $134,880 $95,172
======== =======
</TABLE>
As of December 31, 1998, 30-day LIBOR was 5.064%.
F-19
<PAGE>
Aggregate future principal payments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
-----------------------
(in thousands)
<S> <C>
1999............................. $ 2,026
2000............................. 6,806
2001............................. 10,620
2002............................. 2,483
2003............................. 2,698
Thereafter....................... 110,247
--------
Total........................... $134,880
========
</TABLE>
As of December 31, 1998, the Company had a $200,000 letter of credit
outstanding in favor of a secured lender. The letter of credit is held as
additional collateral for tenant security deposits outstanding in the event of a
default on the secured loan.
During 1998 and 1997, the Company capitalized interest relating to
development projects, either directly owned by the Company or through joint
ventures, of $545,000 and $84,000, respectively. The Company capitalized no
interest in 1996.
12. Commitments and Contingencies
Neither the Company, the Operating Partnership, the Financing Entities, the
Subsidiaries, Maryland Gardens, the Roxbury Partnership, Valencia, Pacific
Gardens, Hoquiam, Lyons, Coronado, the Unconsolidated Affiliates nor any of the
assets within their portfolios of MOBs, parking facilities, and retail space
(the "Properties") is currently a party to any material litigation.
13. Stockholders' Equity
In May 1997, the Company issued 1,495,000 shares of the 10.25% Series A
Preferred Stock, from which it received net proceeds of $35.4 million. In
November 1997, the Company issued 1,380,000 shares of 9.8% Series B Preferred
Stock and received net proceeds of $32.6 million. The Company's preferred
stock has no stated maturity, is not subject to any sinking fund requirements
and is not convertible into or exchangeable for any property or other securities
of the Company. The Company, at its sole discretion, may call the Series A and
Series B Preferred Stock at any time after June 1, 2001 and January 1, 2002,
respectively. All classes of the Company's preferred stock have a par value of
$0.01 and rank senior to the Company's common stock with respect to payment of
dividends and upon liquidation. All classes of Preferred Stock are on parity
with all other classes of the Company's Preferred Stock for payment of dividends
and liquidation purposes. In the event of liquidation, or if the Company elects
to call the Preferred Stock, holders of the Company's Preferred Stock are
entitled to receive $25.00 per share plus any accrued and unpaid dividends,
whether or not such dividends have been declared by the Company's Board of
Directors. Holders of the Company's Series A Preferred Stock are entitled to
receive monthly dividends at an annual rate of $2.56 per share. Series B
Preferred Stockholders are entitled to receive monthly dividends at an annual
rate of $2.45 per share.
Distributions in excess of net income-- As described in Note 2, the Company
has elected to be treated as a REIT for Federal income tax purposes. As such,
the Company is required to distribute at least 95% of its annual taxable income.
In reporting periods for which distributions exceed net income, stockholders'
equity will be reduced by the excess of distributions over net income.
Conversely, net income in excess of distributions increases stockholders'
equity.
F-20
<PAGE>
The following table reconciles distributions in excess of net income for the
years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
---------------------------
<S> <C> <C>
(in thousands)
Distributions in excess of net income
at beginning of year $ (2,802) $(1,303)
Net income during the year 4,343 6,561
Distributions declared (13,735) (8,060)
-------- -------
Distributions in excess of net income
at end of year $(12,194) $(2,802)
======== =======
</TABLE>
For years ended December 31, 1998 and 1997, cash distributed in the form of
dividends to holders of the Company's Common Stock exceeded the Company's
taxable income and is therefore considered to be a return of capital. In 1998,
18.55% of the Company's dividend was taxable as ordinary income and 81.45% was
considered a return of capital to Common shareholders. For 1997, 30.83% of the
dividend was taxable as ordinary income, 21.66% was capital gains, taxable at a
maximum 28% federal tax rate, and the remaining 47.51% represented a return of
capital. Dividends paid to holders of the Company's Preferred Stock are fully
taxable as ordinary income.
Earnings per share-- Basic earnings per share is computed by dividing net
income less preferred stock dividends by the weighted average number of common
shares outstanding during each year. Fully diluted earnings per share is
computed by dividing net income less preferred stock dividends by the weighted
average number of common shares outstanding during each year plus the
incremental shares that would have been outstanding upon the assumed exercise of
dilutive stock options. In 1998, the incremental shares that would have been
outstanding upon the assumed exercise of stock options would have been anti-
dilutive and, therefore, were not considered in the computation of fully diluted
earnings per share. The following table reconciles the numerator and
denominator of the basic and fully diluted per-share computations for net income
for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
(in thousands)
Numerator:
----------
Net income $ 4,343 $ 6,561 $9,701
Preferred stock dividends (7,212) (2,875)
------- ------- ------
Net (loss) income available to
common stockholders $(2,869) $ 3,686 $9,701
======= ======= ======
Denominator:
------------
Weighted average shares - basic 4,092 4,049 4,063
Dilutive effect of stock options 43 80 109
------- ------- ------
Weighted average shares - fully
diluted 4,135 4,129 4,172
======= ======= ======
Per share:
----------
Basic $ (0.70) $ 0.91 $ 2.39
Dilutive effect of stock options --- (0.02) (0.06)
------- ------- ------
Fully diluted $ (0.70) $ 0.89 $ 2.33
======= ======= ======
</TABLE>
F-21
<PAGE>
The Company declared a quarterly distribution for the first quarter of 1999 in
the amount of $0.39 per Common share to be paid on April 15, 1999 to holders of
the Company's Common Stock on March 31, 1999. This quarterly dividend is equal
to an annualized distribution of $1.56 per share.
14. Stock Incentive Plan
As of December 31, 1998, the Company had a stock incentive plan under which an
aggregate of 505,500 shares of the Company's Common Stock are reserved for
issuance. Options are granted at per share amounts not less than fair market
value at the date of grant and expire ten years thereafter. Granted options
vest in even increments over a two or three year period beginning one year from
the grant date. The Company does not charge the estimated compensation cost of
options granted against income. Compensation cost is estimated to be the fair
value of all options granted based on the Binary option-pricing model. Based
upon the closing stock price at the end of the year, the costs associated with
options granted in each of the years ending December 31, 1998, 1997, and 1996
are $77,000, $143,000, and $124,000, respectively. If the compensation costs
had been charged against income at the time of vesting, adjusted for shares
exercised and canceled during the period, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
(in thousands, except per share amounts)
Net Income:
As reported $4,343 $6,561 $9,701
Pro forma $4,266 $6,418 $9,577
Earnings per share:
As reported:
Basic $(0.70) $ 0.91 $ 2.39
Fully diluted $(0.70) $ 0.89 $ 2.33
Pro forma:
Basic $(0.72) $ 0.87 $ 2.36
Fully diluted $(0.72) $ 0.86 $ 2.30
</TABLE>
In December 1995, the Company canceled outstanding options for 218,800 shares
of Common Stock which were originally issued at the time of the Company's
initial public offering at an average exercise price of $18.25 per share.
Concurrently, the Company issued new unvested options for the same aggregate
amount with exercise prices of $9.625 per share, the market price on the date
the new options were granted.
A summary of the status of the Company's stock incentive plan as of December
31, 1998, 1997, 1996, and changes during the years ending on those dates is
presented in the following table. The average price presented below represents
the weighted average exercise price based upon the market value at the grant
date.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- ------------------------ -------------------------
Average Average Average
Shares Price Shares Price Shares Price
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
Beginning of year 244,000 $14.25 367,000 $11.95 257,000 $10.10
Granted 49,000 17.34 60,000 18.75 143,000 15.00
Exercised (27,000) 14.66 (134,000) 9.65 (1,000) 9.15
Forfeited or canceled (52,000) 16.09 (49,000) 15.00 (32,000) 10.70
---------- ------ -------- ------ --------- ------
Outstanding,
end of year 214,000 $14.49 244,000 $14.25 367,000 $11.95
========== ====== ======= ====== ======== ======
Options exercisable
at year-end 123,667 $12.34 57,000 $14.60 89,000 $10.80
Weighted-average fair
value of options
granted during
the year $2.44 $2.25 $2.50
</TABLE>
F-22
<PAGE>
The following table summarizes information relating to the Company's stock
incentive plan as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------
Average
Remaining life Number
Exercise Price Number (in months) Exercisable
---------------------------------------------------------------------------
<S> <C> <C> <C>
$ 9.125 1,000 77 1,000
9.625 72,000 84 72,000
10.375 3,000 83 3,000
12.917 2,000 120 ---
13.099 1,000 20 ---
13.625 22,000 88 14,667
15.750 1,000 01 333
16.750 22,000 101 7,333
17.000 10,000 96 6,667
17.375 20,000 111 ---
17.500 11,000 113 ---
17.563 5,000 112 ---
17.625 9,000 60 9,000
18.125 6,000 111 ---
20.125 29,000 108 9,667
---------- ----------
214,000 123,667
========== ==========
</TABLE>
Fair value of the plan- The Company estimated the fair value of the options
granted in 1998, 1997 and 1996 based on the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Risk-free interest rate............... 5.01% 5.77% 6.43%
Expected life of the option........... 3 years 3 years 3 years
Expected volatility of stock.......... 24.00% 21.00% 25.12%
Expected dividends.................... $ 1.56 $ 1.56 $ 1.44
</TABLE>
The Company assumes that the equivalent risk-free interest rate is the closing
market rate, on the last trading day of the year, for three-year treasury bills.
The Company's stock incentive plan was introduced in conjunction with its
initial public offering on December 16, 1993. Based upon the number of options
exercised and cancelled since the inception of the plan, the Company assumes the
estimated life of the outstanding option agreements, to be three years.
F-23
<PAGE>
The Company uses the treasury stock method for purposes of determining the
number of shares to be issued to in conjunction with the Company's stock
incentive plan. Based upon the number and amounts of vested and unvested
options outstanding, the dilutive effect on the Company's outstanding shares for
the years ended December 31, 1998, 1997 and 1996 is 43,000, 80,000 and 109,000
shares, respectively.
15. Concentration of Credit Risk
The Company is subject to the all risks associated with leasing property,
including but not limited to, the risk that upon the expiration of leases for
space located in the Company's properties, the leases may not be renewed, the
space may not be re-leased or the terms of renewal or re-leasing (including any
cost of required renovations or concessions to tenants) may be less favorable
than current lease terms. If the Company is unable to promptly re-lease or
renew leases for a significant portion of its space or if the rental rates upon
renewal or re-leasing are significantly lower than expected, the Company's
earnings and the ability to make distributions to stockholders may be adversely
affected. Most of the tenants in the Company's healthcare properties provide
specialized health care services. The ability of the tenants to honor the terms
of their respective leases is dependent upon the economic, regulatory and social
factors affecting the communities and industry in which the tenants operate.
Many of the Company's medical office properties are in close proximity to one
or more local hospitals. Relocation or closure of a local hospital could make
the Company's nearby properties (particularly those outside of the Beverly Hills
area) less desirable to doctors and healthcare providers affiliated with the
hospital and affect the Company's ability to collect rent due under existing
leases, renew leases and attract new business.
A portion of the Company's assets are invested in debt instruments secured by
long-term senior care or skilled nursing facilities. The ability of the
facility owners to pay their obligations as they come due, as well as their
ability to obtain other permanent financing through the sale of bonds or other
forms of long-term financing is dependent upon their ability to attract patients
who are able to pay for the services they require. These facilities have
complex licensing requirements as do the professionals they employ. The
majority of the services rendered are paid by various federal, state and local
agencies. Each of these facilities function in a complex environment of
changing government regulations which have a significant impact on economic
viability.
The Company leased the six New Jersey primary care facilities to one tenant, a
subsidiary of PHP Healthcare Corporation, a NYSE listed company ("PHP"), the
obligations of which were guaranteed by PHP. The annualized rent paid to the
Company by the subsidiary of PHP was approximately $2.7 million or 10.8% of the
$24.6 million in rental revenues recognized by the Company in 1998. In November
1998, PHP and the subsidiary filed Chapter 7 petitions under the U.S. Bankruptcy
Code. The facilities were being operated by HIP of New Jersey, Inc. ("HIP").
HIP's operations were taken over by the Commissioner of the New Jersey
Department of Banking and Insurance (the "Commissioner") on or about December 2,
1998. The State of New Jersey continued to occupy and lease the buildings
through March 5, 1999. By the end of March 1999, the Commissioner had vacated
the buildings. The Company holds a $2.0 million security deposit in the form of
a $2.0 million note payable to PHP. The Company is actively seeking to re-lease
the buildings. However, the financial position of the Company, and its ability
to make expected distributions to shareholders, may be adversely affected if the
Company is unable to re-lease the buildings in a timely manner.
In conjunction with the Company's acquisition of the three nursing home
properties in Massachusetts on October 28, 1997, the Company entered into a 15-
year net operating lease with Iatros Health Network, Inc. ("Iatros"). During
1998, Iatros endured financial difficulties and was unable to meet its rental
obligations in a timely manner. On October 8, 1998, Lenox Healthcare, Inc.
("Lenox") replaced Iatros as the operator of the nursing homes. Although
Iatros was the operator of these Massachusetts nursing homes, the licenses
necessary to operate the facilities are currently held by Hampden Nursing Homes,
Inc., ("Hampden") the former owner. Iatros had applied for state authorization
to operate the facilities without the participation of Hampden. In order for
Lenox to operate the facilities, Lenox entered into a consulting services
agreement with Iatros for an initial term expiring on March 31, 1999. The
Company and Lenox are currently negotiating an extension until December 31,
1999. Lenox has applied for state authorization to operate the facilities.
Until such time as Lenox receives its licenses, the Company has leased the
facilities to Hampden. The lease between the Company and Hampden
F-24
<PAGE>
requires monthly payments of $225,000 net of property taxes, insurance and costs
to maintain the facilities and will expire upon transfer of the lease to Lenox.
The consulting services agreement between the Company and Lenox requires annual
net rental payments of $2.7 million to be paid in arrears in twelve equal
monthly installments. Rents from the three Massachusetts nursing homes represent
approximately 11.0% of the $24.6 million in rental revenues recognized by the
Company in 1998. The Company believes that Lenox will receive approval for
operating licenses in a timely manner. Not withstanding management's belief,
however, there can be no assurances that Lenox will receive the licenses. The
Company's management also believes that the current management of Lenox is
experienced and that Lenox will be able to pay the lease obligations under the
lease as they become due; however, the financial position of the Company, and
its ability to make expected distributions to shareholders, may be adversely
affected in the event that Lenox experiences financial difficulties or if Lenox
fails to secure the appropriate licenses to operate the facilities.
In addition to the nursing homes in Massachusetts, the Company owns other
senior care facilities that it leases to operators. In the event that the
operators of these facilities are unable to effectively operate the facilities,
the ability of the operators to make rental payments to the Company may become
impaired. If any of these operators experience financial difficulty, the
financial position of the Company and the ability of the Company to make
expected distributions may be adversely affected.
16. 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, 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, an unconsolidated operating venture
with Nomura Asset Capital Corporation. The following table reconciles the
Company's income and expense activity for the year ending December 31, 1998 and
balance sheet data as of December 31, 1998.
1998 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
-------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking..... $26,921 $26,921
Interest, loan fees and related revenues..... 523 $3,002 $ 992 4,517
Other........................................ 250 4 254
------- ------ -------- -------
Total revenues............................ 27,694 3,002 996 31,692
------- ------ -------- -------
Expenses:
Property operations.......................... 6,171 6,171
Depreciation and amortization................ 4,229 368 4,597
Interest..................................... 8,683 8,683
General and administrative................... 2,554 2,554
Reserves..................................... 1,447 2,792 1,364 5,603
------- ------ -------- -------
Total expenses............................ 11,847 2,792 12,969 27,608
------- ------ -------- -------
Income (loss) from operations before
minority interests........................... $15,847 $ 210 $(11,973) $ 4,084
======= ====== ======== =======
</TABLE>
F-25
<PAGE>
1998 Reconciliation of Reportable Segment Information - (Continued)
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
-------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Rental properties........................... $186,751 $186,751
Mortgage loans and bonds receivable, net.... $12,101 12,101
Other Assets................................ 16,185 766 $3,696 20,647
-------- ------- ------ --------
Total assets............................ $202,936 $12,867 $3,696 $219,499
======== ======= ====== ========
Other Assets:
Cash and cash equivalents................. $1,379 $ 1,379
Restricted cash........................... $ 4,007 4,007
Tenant rent and reimbursements
receivable, net.......................... 2,050 2,050
Unbilled rent receivable, net............. 1,892 1,892
Other receivables, net.................... 121 87 208
Investment in unconsolidated affiliates... 6,703 $ 766 7,469
Investment in marketable securities, net.. --- ---
Deferred financing costs, net............. 2,179 2,179
Deferred lease costs, net................. 937 937
Prepaid expense and other................. 475 51 526
-------- ------- ------ --------
Total other assets.................... $ 16,185 $ 766 $3,696 $ 20,647
======== ======= ====== ========
Capital Expenditures
--------------------
Purchases of real estate assets........... $ 37,790 $ 37,790
Additions to rental properties............ 1,559 $ 140 1,699
-------- ------ --------
Total capital expenditures.............. $ 39,349 $ 140 $ 39,489
======== ====== ========
</TABLE>
The following table reconciles the Company's income and expense activity for
the year ending December 31, 1997 and balance sheet data as of December 31,
1997.
1997 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
----------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking... $ 22,453 $ 22,453
Interest, loan fees and related revenues... 161 $ 3,999 $ 162 4,322
Other...................................... 240 34 274
-------- ------- -------- --------
Total revenues........................... 22,854 3,999 196 27,049
-------- ------- -------- --------
Expenses:
Property operations........................ 6,043 237 6,280
Depreciation and amortization.............. 3,443 127 3,570
Interest................................... 9,088 9,088
General and administrative................. 2,044 2,044
-------- ------- -------- --------
Total expenses........................... 9,486 237 11,259 20,982
-------- ------- -------- --------
Income (loss) from operations before
minority interests.......................... $ 13,368 $ 3,762 $(11,063) $ 6,067
======== ======= ======== ========
Rental properties............................ $139,082 $139,082
Mortgage loans and bonds receivable, net..... $14,098 14,098
Other Assets................................. 13,073 8,006 $ 15,121 36,200
-------- ------- -------- --------
Total assets............................... $152,155 $22,104 $ 15,121 $189,380
======== ======= ======== ========
</TABLE>
F-26
<PAGE>
1997 Reconciliation of Reportable Segment Information - (Continued)
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
---------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Other Assets:
Cash and cash equivalents.................... $13,609 $13,609
Restricted cash.............................. $ 3,050 $4,695 7,745
Tenant rent and reimbursements
receivable, net.............................. 1,333 1,333
Unbilled rent receivable, net................ 1,815 1,815
Other receivables, net....................... 417 516 39 972
Investment in unconsolidated affiliates...... 5,797 2,794 8,591
Deferred financing costs, net................ 1,452 1,452
Deferred lease costs, net.................... 410 410
Prepaid expense and other.................... 251 1 21 273
------- ------ ------- -------
Total other assets....................... $13,073 $8,006 $15,121 $36,200
======= ====== ======= =======
Capital Expenditures
--------------------
Purchases of real estate assets.............. $26,440 $26,440
Additions to rental properties............... 958 $ 29 987
------- ------- -------
Total capital expenditures................. $27,398 $ 29 $27,427
======= ======= =======
</TABLE>
The following table reconciles the Company's income and expense activity for
the year ending December 31, 1996.
1996 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
----------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking..... $17,775 $17,775
Interest, loan fees and related revenues..... 74 $6,594 $ 44 6,712
Other........................................ 411 138 549
------- ------ -------- -------
Total revenues............................. 18,260 6,594 182 25,036
------- ------ -------- -------
Expenses:
Property operations.......................... 5,578 118 5,696
Depreciation and amortization................ 2,726 47 2,773
Interest..................................... 9,322 9,322
General and administrative................... 1,787 1,787
Loss on disposition of real estate........... 4,874 4,874
------- ------ -------- -------
Total expenses............................. 13,178 118 11,156 24,452
------- ------ -------- -------
Income (loss) from operations before
minority interests.......................... $ 5,082 $6,476 $(10,974) $ 584
======= ====== ======== =======
</TABLE>
17. Loss on Disposition of Real Property and Extraordinary Gain
In May 1996, the Company transferred ownership of the property located at 436
North Bedford Drive in Beverly Hills, California (the "Bedford Property") to the
holder of the $28.5 million non-recourse loan in satisfaction of the debt (the
F-27
<PAGE>
"deed-in-lieu transaction"). In August, the Medical Partnership reacquired the
Bedford Property for approximately $18.1 million which was funded by a $15.2
million loan from Nomura and $2.9 million in cash.
As a result of the deed-in-lieu transaction, the Company recorded a $4,874,000
loss on disposition of the property (the difference between book value and
market value) and a $10.5 million extraordinary gain from retirement of the
related $28.5 million loan.
During 1996, the Company refinanced three properties and obtained a new $19.8
million loan from Nomura. The properties, pledged as collateral for the new
loan, were subsequently transferred to the Medical Partnership along with the
related $19.8 million loan. In conjunction with the refinancing transaction,
the Company negotiated a $350,000 discount on one note, and incurred other costs
and prepayment penalties totaling $484,000. In conjunction with the $19.8
million refinancing, the Company incurred a net extraordinary loss of $134,000.
The net extraordinary gain was adjusted to $9.3 million to reflect the portion
of the gain attributable to the minority interest.
18. Related Party Transactions
In 1995, the Company acquired all of the outstanding 1989 Series A and B
Health Care Revenue (the "Bonds") issued by the Massachusetts Industrial Finance
Agency for $19.9 million. At the time of acquisition, the Series A and B Bonds
had face values of $21.0 million and $5.0 million, respectively. The Bonds were
backed by mortgages on three nursing homes owned by Hampden. Principal and
interest payments due on these Bonds were paid by the bond trustee out of the
debt service payments received from Hampden.
In March 1997, the Company sold the Bonds to GLN, a joint venture between the
Company and Nomura Asset Capital Corporation ("Nomura"), for total consideration
of $21.7 million. The Bonds, which had a book value of $20.7 million, had a
combined outstanding balance of $27.7 million, including principal and accrued
interest at the time of the sale. The Bonds were sold for $7.7 million and an
assumption of $14.0 million in indebtedness owed to GMAC Commercial Mortgage
Corporation ("GMAC-CM"). The $7.7 million amount consisted of a cash payment of
$4.5 million and $3.2 million which was deemed a capital contribution to GLN.
In June 1997, the Company loaned $14.0 million to GLN, which was used by GLN to
retire the $14.0 million loan due to GMAC-CM.
The Operating Partnership's gain on sale of the Bonds to GLN was approximately
$1.0 million, of which the Operating Partnership recognized approximately
$500,000 during the first quarter of 1997 and deferred recognition of the
remaining $500,000.
In October 1997, the Company acquired the three Massachusetts nursing homes
from Hampden for a total aggregate consideration of approximately $20.0 million.
Of this amount, the Company borrowed $6.0 million from Nomura at an interest
rate of 8.62% per annum. The Massachusetts nursing homes were pledged as
security for the repayment of this loan.
On June 14, 1996, the Company and 445 Bedford, LLC, a California limited
liability company ("445 LLC"), acquired undivided tenant-in-common interests in
a hospital facility, two MOBs and a parcel of vacant land in Tustin, California
(the "Tustin Properties"). The Tustin Properties were acquired for a sum of
$4.6 million, of which $1.4 million was contributed in cash by 445 LLC. Daniel
M. Gottlieb and Steven D. Lebowitz, both directors and officers of the Company,
and Reese L. Milner II, a director of G&L Realty, have financial interests in
445 LLC.
The Partnership acquired Mr. Milner's interest in 445 LLC for $808,000, after
which 445 LLC redeemed the Partnership's interest in 445 LLC for an increased
interest in the Tustin Properties. On June 28, 1996, 445 LLC contributed its
remaining interest in the Tustin Properties to the Partnership in exchange for
39,215 newly issued Partnership Units, valued at $549,000. The newly issued
Partnership Units are convertible into G&L Realty Common Stock one year from the
date of issuance on a one-for-one basis. These new units were issued at an
effective rate of $14.00 per unit which included a premium over the $13.00
closing price of G&L Realty's Common Stock on May 1, 1996, the commitment date.
F-28
<PAGE>
The funds contributed by 445 LLC toward the purchase of the Tustin Property
were obtained as part of a tax deferred exchange involving the sale of real
estate previously held by 445 LLC to an unrelated third party.
On June 30, 1998, Pacific Gardens, a joint venture between the Company and
American Senior Care, Inc., purchased a 92-unit senior care facility located in
Santa Monica, California. Upon acquisition, this facility was leased to Pacific
Corp., an unconsolidated joint venture of the Company's in which the Company
owns 93% of the equity in the form of non-voting preferred stock. During 1998,
Pacific Gardens Corp. made lease payments of $420,000 to the Company.
During 1998, the Company owned 50% of the equity in AV Medical, LLC ("AV
Medical") and G&L/M&Z Aliso Partners ("G&L/M&Z"), unconsolidated joint ventures
formed in 1997 with M&Z Aliso Associates, LLC ("M&Z") for the purposes of buying
undeveloped parcels of land in Aliso Viejo and building a 33,000 square foot MOB
and a retail complex, respectively. In December 1998, the Company exchanged its
50% interest in G&L/M&Z Aliso Partners for M&Z's 50% interest in AV Medical,
LLC. This transaction was treated as a non-taxable exchange of like-kind real
estate assets under Section 1031 of the Code. As part of the exchange, M&Z paid
the Company $295,000 in accrued distributions and accrued interest due on loans
made by the Company to AV Medical and G&L/M&Z and signed a $44,000 promissory
note due on June 30, 1999 for the remaining balance owed. Upon closing the
exchange, AV Medical was dissolved and the property previously owned by AV
Medical was owned 100% by the Operating Partnership.
On December 31, 1998, the Company acquired a 40,000 square foot office and
retail complex located in Coronado, California. The property was acquired from
a limited liability company (the "LLC") owned by Daniel M. Gottlieb and Steven
D. Lebowitz, both directors and officers of the Company, who held interests in
the LLC of 30% and 70%, respectively. The property was acquired for an
aggregate purchase price of $9.5 million. The Company assumed $7.5 million in
long-term debt and issued 134,499 Partnership Units valued at $2,000,000. These
new units were issued at an effective rate of $14.87 per unit, a 15.5% premium
over the $12.875 closing price of the Company's stock on December 31, 1998, the
closing date of the transaction, effectively reducing the number of units issued
to Messrs. Gottlieb and Lebowitz. In connection with the purchase of the
property, G&L Coronado Managers Corp. ("Coronado Corp."), an entity owned 30%
and 70% by Messrs. Gottlieb and Lebowitz, respectively, signed a lease (the
"Master Lease Agreement") for the entire third floor of the building with the
Company. Under the terms of the Master Lease Agreement, Coronado Corp. will
operate the Executive Suites located on the third floor of the building on
behalf of the Company for lease payments of $19,000 per month until November 30,
2010.
19. Unaudited Consolidated Quarterly Information
Unaudited consolidated quarterly financial information for the periods as
follows:
<TABLE>
<CAPTION>
1998 Fiscal Quarter
---------------------------------------------
1/st/ 2/nd/ 3/rd/ 4/th/
------ ------ ------ -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue:
Rental................................. $5,882 $6,113 $6,386 $ 6,258
Tenant reimbursements.................. 129 209 219 224
Parking................................ 359 374 378 390
Interest, loan fees and other.......... 1,056 1,267 1,095 1,099
Other.................................. 58 113 33 50
------ ------ ------ -------
Total revenues....................... 7,484 8,076 8,111 8,021
------ ------ ------ -------
Expenses:
Property operations.................... 1,411 1,506 1,628 1,626
Depreciation and amortization.......... 1,060 1,083 1,213 1,241
Interest............................... 1,916 2,093 2,210 2,464
General and administrative............. 689 734 545 586
Provision for doubtful accounts, notes
and bonds receivable.................. --- --- --- 5,603
------ ------ ------ -------
Total expenses....................... 5,076 5,416 5,596 11,520
------ ------ ------ -------
Income from operations before minority
interests.............................. 2,408 2,660 2,515 (3,499)
Equity in earnings of unconsolidated
affiliates............................. 52 101 43 (116)
Minority interest in consolidated
affiliates............................. (46) (69) (46) (64)
Minority interest in Operating
Partnership........................... (48) (95) (78) 625
------ ------ ------ -------
Net income (loss)...................... $2,366 $2,597 $2,434 $(3,054)
====== ====== ====== =======
Per share data:
Basic.................................. $ 0.14 $ 0.19 $ 0.15 $ (1.21)
Fully Diluted.......................... $ 0.13 $ 0.19 $ 0.15 $ (1.21)
Weighted average shares outstanding:
Basic.................................. 4,129 4,122 4,090 4,030
Fully Diluted.......................... 4,174 4,163 4,125 4,053
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
1997 Fiscal Quarter
---------------------------------------------
1/st/ 2/nd/ 3/rd/ 4/th/
------ ------ ------ -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue:
Rental................................. $4,510 $4,903 $5,201 $5,693
Tenant reimbursements.................. 249 146 189 123
Parking................................ 360 358 330 391
Interest, loan fees and other.......... 1,575 810 1,059 878
Other.................................. 109 29 84 52
------ ------ ------ ------
Total revenues....................... 6,803 6,246 6,863 7,137
------ ------ ------ ------
Expenses:
Property operations.................... 1,666 1,501 1,490 1,623
Depreciation and amortization.......... 785 830 890 1,065
Interest............................... 2,635 2,442 2,115 1,896
General and administrative............. 477 529 502 536
------ ------ ------ ------
Total expenses....................... 5,563 5,302 4,997 5,120
------ ------ ------ ------
Income from operations before minority
interests............................. 1,240 944 1,866 2,017
Equity in earnings of unconsolidated
affiliates............................ 52 520 294 329
Minority interest in consolidated
affiliates............................ (49) (46) (40) (21)
Minority interest in Operating
Partnership........................... (136) (136) (129) (144)
------ ------ ------ ------
Net income............................. $1,107 $1,282 $1,991 $2,181
====== ====== ====== ======
Per share data:
Basic.................................. $ 0.27 $ 0.19 $ 0.26 $ 0.19
Fully Diluted.......................... $ 0.27 $ 0.19 $ 0.25 $ 0.18
Weighted average shares outstanding:
Basic.................................. 4,063 4,006 4,006 4,120
Fully Diluted.......................... 4,175 4,102 4,128 4,111
</TABLE>
F-30
<PAGE>
20. SCHEDULE OF CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF
DECEMBER 31, 1998. (In Thousands).
<TABLE>
<CAPTION>
Cost Capitalized
Initial Cost Subsequent Gross amount at which carried
to Company to Acquisition at close of Period (See Note G)
-------------------- -------------------- ------------------------------------------
Encumbrances Building and Building and Building and Accumulated
Description (See Notes) Land Improvements Land Improvement Land Improvements Total Depreciation
- ------------------------- ------------ ------- ------------ ------ ------------ ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Medical Office Buildings
California Properties:
- ----------------------
405 North Bedford Drive (See Note A) $ 2,186 $ 4,076 $452 $ 9,691 $ 2,638 $ 13,767 $ 16,405 $ 3,612
415 North Bedford Drive (See Note A) 292 573 --- 591 292 1,164 1,456 521
416 North Bedford Drive (See Note A) 427 247 --- 2,386 427 2,633 3,060 892
435 North Bedford Drive (See Note A) 1,144 2,853 --- 2,559 1,144 5,412 6,556 2,466
435 North Roxbury Drive $ 7,766 162 390 39 2,462 201 2,852 3,053 1,107
436 North Bedford Drive (See Note B) 2,675 15,317 --- 327 2,675 15,644 18,319 987
439 North Bedford Drive --- --- 109 --- 444 --- 553 553 217
Holy Cross Medical Plaza 8,032 2,556 10,256 --- 979 2,556 11,235 13,791 1,733
St. Joseph's Professional
Building. 3,240 1,300 3,936 --- 146 1,300 4,082 5,382 555
Sherman Oaks Medical
Plaza (See Note B) 1,454 8,278 --- 1,927 1,454 10,205 11,659 1,739
Regents Medical Center (See Note B) 1,470 8,390 --- 1,198 1,470 9,588 11,058 1,481
Cigna HealthCare Bldg. (See Note B) 1,260 7,282 --- 48 1,260 7,330 8,590 805
1095 Irvine Boulevard 1,322 474 663 --- 453 474 1,116 1,591 204
14662 Newport Avenue 645 1,900 --- 57 645 1,957 2,602 121
14591 Newport Avenue 160 36 --- 62 160 98 258 6
14642 Newport Avenue 400 1,033 --- 408 400 1,441 1,841 151
1101 Sycamore Avenue 280 8 288 --- 288 ---
15225 Aliso Creek Road 585 --- 1,225 585 1,225 1,810 6
23861 McBean Parkway --- 4,164 --- 371 --- 4,535 4,535 89
24355 Lyons Avenue 5,225 623 6,752 --- 623 6,752 7,375 7
1330 Orange Avenue 7,500 809 8,753 --- 809 8,753 9,562 ---
5 Journey Road 822 --- 822 --- 822 ---
26671 Aliso Creek Road 1,751 --- 1,751 --- 1,751 ---
4792 Lakeview Avenue 947 --- 947 --- 947 ---
New Jersey Properties:
- ----------------------
2103 Mt. Holly Road (See Note C) 775 2,904 --- 3 775 2,907 3,682 137
150 Century Parkway (See Note C) 600 2,708 --- 3 600 2,711 3,311 130
274 Highway 35, South --- 1,200 2,867 --- 3 1,200 2,870 4,070 138
80 Eisenhower Drive (See Note C) 975 2,591 --- 3 975 2,594 3,569 127
16 Commerce Drive (See Note C) 1,240 2,932 --- --- 1,240 2,932 4,172 122
4622 Black Horse Pike (See Note C) 850 2,849 --- --- 850 2,849 3,699 118
Senior Care Facilities
Arizona Properties:
- -------------------
31 West Maryland Avenue 800 3,847 --- 54 800 3,901 4,701 202
39 West Maryland Avenue 172 835 --- 24 172 859 1,031 15
California Properties:
- ----------------------
1437 Seventh Street 8,500 2,357 8,427 --- 428 2,357 8,855 11,212 118
Massachusetts Properties:
- -------------------------
42 Prospect Avenue (See Note D) 1,048 4,609 --- 1 1,048 4,610 5,658 233
32 Chestnut Street (See Note D) 1,319 9,307 --- 6 1,319 9,313 10,632 256
34 Main Street (See Note D) 702 3,04 --- --- 702 3,040 3,742 152
Washington Properties:
- ----------------------
3035 Cherry Street 2,466 100 3,216 --- 25 100 3,241 3,341 46
------------ ------- ------------ ------ ------------ ------- ------------ -------- ------------
Total............ $ 44,051 $34,560 $135,140 $499 25,884 $35,059 $161,024 $196,083 $18,493
============ ======= ============ ====== ============ ======= ============ ======== ============
Realty Financing Partnership
(See Note A) 28,669
Medical Partnership (See
Note B) 34,092
GL/PHP, LLC (See Note C) 15,468
G&L Hampden, LLC
(See Note D) 6,000
Per Above 44,051
------------
Total encumbrances $128,280
============
</TABLE>
<TABLE>
<CAPTION>
Date of
Acquisition Construction or
Description Date Rehabilitation
- ------------------------- ----------- ---------------
<S> <C> <C>
Medical Office Buildings
California Properties:
- ----------------------
405 North Bedford Drive 1993 1947/1987
415 North Bedford Drive 1993 1955
416 North Bedford Drive 1993 1946/1986
435 North Bedford Drive 1993 1950/1963/1984
435 North Roxbury Drive 1993 1956/1983
436 North Bedford Drive 1990 1980
439 North Bedford Drive 1993 1956/1983
Holy Cross Medical Plaza 1994 1985
St. Joseph's Professional
Building. 1993 1987
Sherman Oaks Medical
Plaza 1994 1969/1993
Regents Medical Center 1994 1989
Cigna HealthCare Bldg. 1994 1992
1095 Irvine Boulevard 1994 1994/1995
14662 Newport Avenue 1996 1969/1974
14591 Newport Avenue 1996 1969
14642 Newport Avenue 1996 1985
1101 Sycamore Avenue 1996 N/A
15225 Aliso Creek Road 1997 1998
23861 McBean Parkway 1998 1981
24355 Lyons Avenue 1998 1990
1330 Orange Avenue 1998 1977/1985
5 Journey Road 1998 1998/1999
26671 Aliso Creek Road 1997 1998/1999
4792 Lakeview Avenue 1998 N/A
New Jersey Properties:
- ----------------------
2103 Mt. Holly Road 1997 1994
150 Century Parkway 1997 1995
274 Highway 35, South 1997 1995
80 Eisenhower Drive 1997 1994
16 Commerce Drive 1997 1963
4622 Black Horse Pike 1997 1994
Senior Care Facilities
Arizona Properties:
- -------------------
31 West Maryland Avenue 1997 1951-1957
39 West Maryland Avenue 1998 1968
California Properties:
- ----------------------
1437 Seventh Street 1998 1990
Massachusetts Properties:
- -------------------------
42 Prospect Avenue 1997 1957/65/78/85
32 Chestnut Street 1997 1985
34 Main Street 1997 1965/1985
Washington Properties:
- ----------------------
3035 Cherry Street 1998 1954
</TABLE>
F-31
<PAGE>
The changes in total real estate assets and accumulated depreciation for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
Total Real Estate Assets Accumulated Depreciation
--------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------------------------------- -------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $151,214 $103,481 $103,351 Balance at beg. of year $13,808 $10,500 $11,450
Improvements and acquisitions 44,869 47,963 24,257 Depreciation 4,685 3,343 2,606
Dispositions --- (230) (24,127) Dispositions --- (35) (3,556)
-------- -------- -------- ------- ------- -------
Balance at end of year $196,083 $151,214 $103,481 Balance at end of year $18,493 $13,808 $10,500
======== ======== ======== ======= ======= =======
</TABLE>
_______________________
Note A: The Realty Financing Partnership owns the following properties which
are security for a blanket first trust deed: 405 North Bedford, 415
North Bedford, 416 North Bedford and 435 North Bedford.
Note B: The Medical Partnership owns the following properties, which are each
security for a blanket first trust deed: Sherman Oaks Medical Plaza,
Cigna HealthCare Building, Regents Medical Center and 436 North Bedford
Drive.
Note C: GL/PHP, LLC owns the following properties which are security for a
blanket first trust deed: 2103 Mt. Holly Road, 150 Century Parkway, 274
Highway 35, South, 80 Eisenhower Drive, 16 Commerce Drive, and 4622
Black Horse Pike.
Note D: G&L Hampden, LLC owns the following properties, which are security for
a first trust deed: 42 Prospect Avenue, 32 Chestnut Street, and 34 Main
Street.
Note E: The aggregate costs for Federal income tax purposes were $220,736,000
as of December 31, 1998.
F-32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
G&L REALTY CORP.
Date: April 9, 1999 By: /s/ David Hamer
---------------------------
David Hamer
Controller and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Daniel M. Gottlieb Chief Executive Officer, April 9, 1999
- ------------------------------ Co-Chairman of the Board and
Daniel M. Gottlieb Director (Principal Executive
Officer)
/s/ Steven D. Lebowitz President, Co-Chairman of the April 9, 1999
- ------------------------------ Board and Director
Steven D. Lebowitz
/s/ Richard L. Lesher Director April 9, 1999
- ------------------------------
Richard L. Lesher
/s/ Leslie D. Michelson Director April 9, 1999
- ------------------------------
Leslie D. Michelson
/s/ Reese L. Milner II Director April 9, 1999
- ------------------------------
Reese L. Milner II
/s/ Charles P. Reilly Director April 9, 1999
- ------------------------------
Charles P. Reilly
/s/ S. Craig Tompkins Director April 9, 1999
- ------------------------------
S. Craig Tompkins
F-33
<PAGE>
EXHIBIT 10.77
AGREEMENT FOR TRANSFER
OF
PROPERTY
by and among
G & L CORONADO LLC
as Transferor
and
G & L REALTY PARTNERSHIP, L.P.
as Operating Partnership
Dated as of December 30, 1998
<PAGE>
AGREEMENT FOR TRANSFER OF PROPERTY
This AGREEMENT FOR TRANSFER OF PROPERTY ("Agreement") is dated the 30th day
of December, 1998, and is by and between G & L REALTY PARTNERSHIP, L.P., a
Delaware limited partnership (the "Operating Partnership") and G & L CORONADO
LLC, a Delaware limited liability company ("Transferor")
RECITALS
A. Transferor owns that certain improved real property commonly known as
Coronado Plaza, Coronado, California, and more particularly described on Exhibit
-------
"A" attached hereto and incorporated herein by reference (such property,
- ---
together with the buildings, structures and other improvements situated thereon
is referred to herein as the "Coronado Property").
B. Transferor desires to transfer its interest in the Coronado Property to
Operating Partnership, and Operating Partnership desires to acquire the Coronado
Property upon the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are acknowledged, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. AGREEMENT TO TRANSFER THE CORONADO PROPERTY. Effective upon the Closing,
Transferor shall transfer to Operating Partnership all of Transferor's right,
title and interest and to the Coronado Property, including but not limited to
the land described on Exhibit "A" attached hereto and incorporated herein by
reference, and Transferors interest in:
1.1 Land. The Land, as is described in Exhibit "A".
---- -----------
1.2 Buildings and Other Improvements. All existing buildings, structures
--------------------------------
and other improvements located upon the Land, including, without limitation,
walkways, parking facilities, and all other improvements of whatever kind which
have previously been made, installed or erected and are now located on any part
of the Land (collectively, the "Improvements").
---------------
1.3 Tangible Personal Property. All right, title and interest in and to
--------------------------
tangible personal property utilized in the operation of the Land and
Improvements (the "Tangible Personal Property").
-----------------------------
<PAGE>
1.4 Water Rights and Mineral Rights. All right, title and interest in and
-------------------------------
to water rights, minerals, oil, gas and other hydrocarbons located in or beneath
the Land, along with all rights to surface and subsurface entry (the "Water
------
Rights and Mineral Rights").
- ---------------------------
1.5 Appurtenances. All right, title and interest in and to all
-------------
appurtenances, rights, including reversionary rights, easements, and privileges
belonging to or running with the Land, including, without limitation, all right,
title and interest in and to any and all land laying in the bed of any street,
road, cul-de-sac, alley or access way, open or closed, existing, vacated or
proposed, adjoining, adjacent to or contiguous to the Land, all awards for
damage to the Land or taking by eminent domain or the change in the grade of any
street adjoining the Land, all strips and gores of land adjoining or surrounded
by the Land, and all zoning and land use entitlement and development rights
pertaining to the Land (the "Appurtenances").
----------------
1.6 Intangible Personal Property. All intangible personal property now
----------------------------
owned by Transferor or in which Transferor has any interest on the Closing Date,
which is used in, or which has been acquired for use in, the operation of the
Land, including by way of example and not by limitation, any permits, approvals,
franchises, licenses, trade names, trademarks and logos, commitments, contracts,
warranties, rights to recovery of judgments, books and records and telephone
numbers (the "Intangible Property" and together with the Tangible Personal
Property, the "Personal Property").
--------------------
1.7 Leases with Tenant. All of Transferor's right, title and interest as
------------------
Landlord with all tenants of the Coronado Property.
2. TRANSFER CONSIDERATION. In consideration for the transfer by Transferor
of the Coronado Property as set forth above, Operating Partnership shall issue
to new transferor the number of units of Transferor (the "OP Units") set forth
in the column labeled "Consideration" on "Exhibit B" attached hereto, and as set
-----------
forth in the amended Exhibit "A" to the Partnership Agreement of Operating
-----------
Partnership ("OP Agreement").
3. CLOSING.
3.1 Conditions Precedent. The obligations of Transferor to effect the
--------------------
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) Each of the obligations of Operating Partnership to be performed by
it shall have been duly performed by it on or before the Closing Date:
(b) Concurrently with the Closing, Operating Partnership shall have
executed and delivered to each Transferor the documents required to be delivered
pursuant to Section 3.3 hereof;
(c) Operating Partnership shall not have breached any of its covenants
contained herein in any material respect;
2
<PAGE>
(d) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened; and
(e) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in Operating Partnership's business:
The foregoing conditions may be waived by Transferor in its sole and
absolute discretion.
The obligations of Operating Partnership to effect the transactions
contemplated hereby shall be subject to the following additional conditions:
(i) The representations and warranties of Transferor contained in this
Agreement shall have been true and correct in all material respects on the date
such representations and warranties were made, and shall be true and correct in
all material respects on the Closing Date as if made at and as of such date;
(ii) Each of the obligations of Transferor to be performed by it shall
have been duly performed by such Transferor on or before the Closing Date;
(iii) Concurrently with the Closing, Transferor shall have executed and
delivered to the Operating Partnership the documents required to be delivered
pursuant to Section 3.3 hereof;
(iv) Transferor shall not have breached any of its covenants contained
herein in any material respect;
(v) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened; and
(vi) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Coronado Property or the
business of Transferor.
The foregoing conditions may be waived by Operating Partnership in its
sole and absolute discretion.
3.2 Time and Place. Provided that all conditions precedent set forth
--------------
in Section 3.1 hereof are satisfied in full (or waived by Transferor, as to its
-----------
conditions precedent, and/or Operating Partnership, as to its conditions
precedent), the Closing shall occur on December 31, 1996 (the "Closing Date").
---------------
3
<PAGE>
3.3 Closing Items. With respect to the Coronado Property, the following
-------------
documents:
(a) A grant deed by Transferor for the Coronado Property, in
substantially the form of Exhibit "C" attached hereto (the "Deed").
-----------
(b) A Bill of Sale by Transferor for all of the Personal Property with
respect to the Coronado Property in substantially the form of Exhibit "D"
-----------
attached hereto.
(c) A commitment to issue an ALTA Owner's 1970 form Extended Coverage
policy of title insurance to be issued as of the Closing Date for the Coronado
Property, which Transferor shall cause to be issued to Operating Partnership in
form acceptable to Operating Partnership (the "Title Policy").
------
(d) Books and records of the Coronado Property
(e) An affidavit from Transferor, stating under penalty of perjury,
Transferor's United States Taxpayer Identification Number and that Transferor is
not a foreign person pursuant to Section 1445(b)(2) of the United States
Internal Revenue Code of 1986, as amended (the "Code").
(f) An assignment of all of Transferor's interest in the Leases.
3.4 Failure of Closing to Occur. If, for any reason, the Closing does not
---------------------------
occur on or before January 15, 1999, this Agreement will terminate, and any and
all rights or obligations hereunder shall cease and no longer be binding on the
parties hereto and no party shall thereafter have any liability or obligation
hereunder to any other party.
4. REPRESENTATIONS AND WARRANTIES
4.1 Represenations and Warranties of Operating Partnership to Transferor.
--------------------------------------------------------------------
Operating Partnership hereby represents and warrants to and covenants with
Transferor that:
(a) Operating Partnership has been duly formed and is validly existing
with requisite power to enter into this Agreement and all agreements
contemplated hereby;
(b) Operating Partnership is not a foreign corporation, foreign
partnership, foreign trust or foreign estate (as defined in the Code), and is,
therefore, not subject to the provisions of Sections 897(a) or 1445 of the Code
related to the withholding of sales proceeds to foreign persons. Operating
Partnership shall execute at Closing such certificates or affidavits reasonably
necessary to document the inapplicability of the Code sections referred to
above;
4
<PAGE>
(c) The Persons and entitles executing this Agreement and all
agreements contemplated hereby or, behalf of Operating Partnership have the
power and authority to enter into this Agreement and such other contemplated
agreements; and
(d) The execution, delivery end performance by Operating Partnership of
its obligations under this Agreement and all agreements contemplated hereby will
not contravene any provision of applicable law, the Partnership Agreement of
Operating Partnership, charter, declaration or trust or other constituent
document of Operating Partnership, or any agreement or other instrument binding
upon Operating Partnership or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over Operating Partnership, and no
consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by Operating
Partnership of its obligations under this Agreement and all other agreements
contemplated hereby.
4.2 Representations and Warranties of Transferor. Transferor represents and
--------------------------------------------
warrants to, and covenants with, Operating Partnership as provided in Exhibit
-------
"E" attached hereto, and acknowledges and agrees to be bound by the
- ---
indemnification provisions contained therein.
5. COVENANTS OF TRANSFEROR.
(a) Transferor hereby covenants for the benefit of Operating Partnership
that, from the date hereof through the Closing, Transferor shall conduct the
business of the Coronado Property in the ordinary course, consistent with past
practice, and shall not:
(i) Enter into any material transaction not in the ordinary course of
business with respect to the Coronado Property;
(ii) Sell or transfer all or any portion of the Coronado Property;
(iii) Mortgage, pledge or encumber (or permit to become encumbered) all
or any portion of the Coronado Property, except (w) liens incurred in the
ordinary course of Transferor's business, (x) liens for taxes not due, (y)
purchase money security interests and (z) mechanic's liens being disputed by
Transferor in good faith and by appropriate proceedings; or
(iv) Amend, modify or terminate any material agreements or other
instruments relating to the Coronado Property
(b) Transferor hereby covenants for the benefit of Operating Partnership
that such Transferor shall use its best efforts to obtain any approvals,
waivers, or other consents of third parties required to effect the transactions
contemplated by this Agreement.
6. CONSENT OF LENDER. Transferor and Operating Partnership hereby agree to
take all actions reasonably necessary to obtain the consent of GMAC Commercial
Mortgage
5
<PAGE>
Corporation ("Lender") to the transactions described herein, including but not
limited to the execution by Operating Partnership or its general partner of
guaranties sufficient in form and content to cause Lender to release Daniel
Gottlieb and Steven D. Lebowitz from their personal liabilities with respect to
Lender's loan. Operating Partnership further agrees to pay all costs and
expenses of Transferor in connection with the processing and obtaining of the
consent and to reimburse Transferor of costs incurred by Transferor in obtaining
the loan from Lender in an amount not exceeding one hundred thousand Dollars
($100,000).
7. FURTHER ASSURANCES. Transferor shall take such other actions and execute
------------------
such other documents following the Closing as Operating Partnership may
reasonably request in order to effect the transactions contemplated hereby.
8. HOLD HARMLESS. Operating Partnership hereby agrees to indemnify, defend,
-------------
protect and hold harmless Transferor from and after the Closing Date with
respect to any and all claims, liabilities, causes of action, damages, costs and
expenses, including without limitation, reasonable attorneys' fees, incurred by
a Transferor as a result of any claims pertaining to the ownership or operation
of the Property by Operating Partnership after the Closing Date.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as of
the day and year first above written.
OPERATING PARTNERSHIP: TRANSFEROR:
G&L REALTY PARTNERSHIP, L.P. G&L CORONADO LLC
a Delaware limited partnership a California limited liability company
By: G&L REALTY CORP. By: CORONADO MANAGERS CORP.
a Maryland Corporation a Delaware Corporation
General partner Manager
By /s/ Daniel M. Gottlieb By /s/ Steven D. Lebowitz
------------------------------ ---------------------------------
Name Name
----------------------------- --------------------------------
Title Title
---------------------------- -------------------------------
6
<PAGE>
EXHIBIT "A"
-----------
LEGAL DESCRIPTION OF REAL PROPERTY
----------------------------------
<PAGE>
Exhibit A
---------
All or Block 10 of Coronado Beach, South Island, in the City of Coronado,
County of San Diego, State of California, according to Map thereof No. 376,
filed in the Office of the County Recorder of San Diego County, November 12,
1886, more particularly described as follows:
Beginning at the most northerly corner of said Block 10, said corner being on
the arc of a curve concave northwesterly and having a radius of 508.34 feet, a
radial line to said point bears South 63(degree)33'48" East; thence
southwesterly, along the northwesterly line of Block 10, along the arc of said
curve, through a central angle of 38(degree)28'18", 341.33 feet to a point on a
curve concave northerly and having a radius of 925.37 feet, a radial line to
said point bears South 4(degree)16'0l" East; thence easterly, along the
southerly line of Block 10, along the arc of said curve, through a central angle
of 14(degree)31'58", 234.72 feet to a point of reverse curve with a curve
concave southerly and having a radius of 508.34 feet, a radial line to said
point bears North 18(degree)47'59" West; thence easterly along the southerly
line of Block 10, along the arc of said curve, through a central angle of
13(degree)44'01", 121.85 feet to a point on a curve concave northeasterly, and
having a radius of 548.34 feet, a radial line to said point bears South
45(degree)54'35" West; thence northwesterly, along the northeasterly line of
Block 10, along the arc of said curve, through a central angle of
20(degree)30'10", 196.22 feet to the point of beginning.
<PAGE>
EXHIBIT "B"
-----------
CONSIDERATION
-------------
<PAGE>
G&L Realty Corporation
Calculation of Units to be Issued for Coronado Purchase
As of December 31, 1998
<TABLE>
<S> <C>
OP Unit Price 14.87000
==============
G&L Consideration $ 2,000,000.00
Divided by OP Unit Price 14.87000
--------------
Total Number of Units to be Issued 134,499
==============
OP Unit Allocation
- ------------------
G&L Coronado Managers Corp. (1%) 1,345
Daniel M. Gottlieb (29.7%) 39,946
Steven D. Lebowitz (69.3%) 93,208
--------------
Total Number of Units to be Issued 134,499
==============
G&L Coronado Managers Corp. Allocation
- --------------------------------------
Daniel M. Gottlieb (30%) 403
Steven D. Lebowitz (70%) 941
--------------
Total 1,345
==============
Total Units for Dan & Steve
- ---------------------------
Daniel M. Gottlieb 40,350 14.87000 600,000.00
Steven D. Lebowitz 94,149 14.87000 1,400,000.00
--------------
Total 134,499
==============
</TABLE>
<PAGE>
EXHIBIT "C"
GRANT DEED
RECORDING REQUESTED BY |
|
AND WHEN RECORDED MAIL THIS DEED AND, |
UNLESS OTHERWISE SHOWN BELOW, MAIL TAX |
STATEMENTS TO: |
|
NAME |
ADDRESS |
|
CITY & |
STATE |
ZIP |
================================================================================
GRANT DEED
* The undersigned Grantor
declares that Documentary
Transfer Tax is not part of
the public records.
The undersigned declares that the documentary transfer tax is $_______ * and is
[ ] computed on the full value of the interest or property conveyed, or is
[ ] computed on the full value less the value of liens or encumbrances remaining
thereon at the time of sale.
The land, tenements or realty is located in [_] unincorporated area [X] the
City of _____________, and
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged
_____________________________
hereby GRANT(S) to
_____________________________
the following described real property in the county of _____________, State of
California:
SEE EXHIBIT "A" ATTACHED HERETO AND INCORPORATED HEREWITH
Dated _______________________ _______________________________________
State of California )
) ss.
County of Los Angeles )
On ___________ 1998, before me, the undersigned Notary Public, personally
appeared _________________, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_______________________________________
(Signature of Notary)
(Seal of Notary)
<PAGE>
EXHIBIT "D"
-----------
BILL OF SALE
------------
This BILL OF SALE is made as of December 31, 1998, by G&L CORONADO LLC, a
Delaware limited liability company ("Transferor") in favor of G&L CORONADO
(1998) LLC, a Delaware limited liability company ("Transferee").
FOR VALUE RECEIVED, receipt of which is hereby acknowledged, Transferor
does hereby sell, convey, assign, transfer and set over unto Transferee,
absolutely and not as security, free and clear of all liens and encumbrances,
all of Transferor's right, title and interest in and to the personal property
and equipment located on the property described on Exhibit A attached hereto and
incorporated herein by reference. The foregoing sale, conveyance, assignment,
transfer and setting over of the personal property by Transferor to Transferee
is made without any representation or warranty with respect to the condition
thereof. TRANSFEREE ACKNOWLEDGES THAT THE PERSONAL PROPERTY AND EQUIPMENT
DESCRIBED HEREIN IS DELIVERED IN ITS AS, WHERE IS CONDITION WITHOUT WARRANTY OF
FITNESS OR MERCHANTABILITY, EXPRESS OR IMPLIED.
"TRANSFEROR"
G&L CORONADO LLC
a California limited liability company
By: CORONADO MANAGERS CORP.,
A Delaware corporation
Manager
By________________________________
Steven D. Lebowitz, Secretary
"TRANSFEREE"
G&L CORONADO (1998) LLC
a Delaware limited liability company
By: CORONADO MANAGEMENT CORP.
a California corporation
Manager
By________________________________
George Nagler, Secretary
<PAGE>
EXHIBIT "E"
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Transferor represents and warrants to Operating Partnership ("Transferee")
that the following matters are true and correct as of the execution of this
Agreement and will also be true and correct as of the Closing as if made on the
date thereof.
1.1 Organization: Authority. Transferor is duly formed, validly existing
-----------------------
and in good standing (to the extent applicable) under the laws of its
jurisdiction of formation, and qualified to do business under the laws of the
State of California.
1.2 Due Authorization. The execution, delivery and performance of this
-----------------
Agreement by Transferor has been duly and validly authorized by all necessary
action of such party. This Agreement has been duly executed and delivered by
Transferor and constitutes a legal, valid and binding obligation of such party,
enforceable against each such party in accordance with its terms, as such
enforceability may be limited by bankruptcy or the application of equitable
principles.
1.3 Consents and Approvals. No consent, waiver, approval or authorization
----------------------
of any third party is required to be obtained by Transferor in connection with
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby, except any of the foregoing that shall have been satisfied
prior to the Closing Date.
1.4 No Violation. None of the execution, delivery or performance of this
------------
Agreement and the transactions contemplated hereby does or will, with or without
the giving of notice, lapse of time, or both, (i) violate, conflict with, result
in a breach of, or constitute a default under or give to others any right of
termination or cancellation of (A) the organizational documents, including the
charters any bylaws, if any, of Transferor, (B) any material agreement, document
or instrument to which any Transferor is party or by which they or the Property
are bound or (C) any term or provision of any judgment, order, writ, injunction,
or decree of any governmental or regulatory authority binding on Transferor or
by which they or any of their assets or properties are bound or subject or (ii)
result in the creation of any lien upon the Property other than permitted liens.
1.5 Ownership of the Property. Tranferor is the sole lawful owner of record
-------------------------
and beneficial owner of the Property or portion thereof identified on Exhibit
"A" to the Agreement and has good, valid and marketable title to such Property
free and clear of all liens other than permitted liens.
1.6 Non-foreign Status. Tranferor is not a foreign corporation, foreign
------------------
partnership, foreign trust or foreign estate (as defined in the Code), and is,
therefore, not subject to the provisions of Sections 897(a) or 1445 of the Code
related to the withholding of sales proceeds to foreign persons. Transferor
shall execute at Closing such certificates or affidavits reasonably necessary to
document the inapplicability of the Code sections referred to above.
1.7 Investment Purposes. Transferor understands that the offering and sale
-------------------
of the OP Units to be acquired pursuant to this Agreement are intended to be
exempt from registration under
<PAGE>
the Securities Act of 1933, as amended (the "Act"). In furtherance thereof,
Transferor represents and warrants to Transferee as follows:
1.7.1 Investment. Transferor is acquiring the OP Units solely for
----------
Transferor's own account for the purpose of investment and not as a nominee
or agent for any other person and not with a view to, or for offer or sale
in connection with, any distribution of any thereof except to its member.
Except as otherwise provided in the OP Agreement, Transferor agrees and
acknowledges that Transferor will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "Transfer") any of the OP Units unless such Transfer complies
with the OP Agreement and either (i) the Transfer is pursuant to an
effective registration statement under the Act and the rules and
regulations in effect thereunder and qualification or other compliance
under applicable blue sky or state securities laws, or (ii) counsel for
Transferor (which counsel shall be reasonably acceptable to Operating
Partnership) shall have furnished Operating Partnership with an opinion,
reasonably satisfactory in form and substance to Operating Partnership, to
the effect that such registration is required because of the availability
of an exemption from registration under the Act and qualification or other
compliance under applicable blue sky or state securities laws.
1.7.2 Knowledge. Transferor is knowledgeable sophisticated and
---------
experienced in business and financial matters; Transferor, or its members,
has previously invested in OP Units and fully understands the limitations
on transfer described in this Agreement and the OP Agreement. Transferor is
able to bear the economic risk of holding investment in the OP Units;
Transferor has received and reviewed the Company's registration statement
filed with the Securities and Exchange Commission on Form 5-11, and has
been given the opportunity to obtain any additional information or
documents and to ask questions and receive answers about such documents,
Operating Partnership and the Company and the business and prospects of
Operating Partnership and the Company which Transferor deems necessary to
evaluate the merits and risks related to his, her or its investment in the
OP Units; and Transferor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
1.7.3 Holding Period. Transferor acknowledges that he, she or it has
--------------
been advised that (i) the OP Units must be held indefinitely, and
Transferor must continue to bear the economic risk of the investment in the
OP Units unless they are subsequently registered under the Act or an
exemption from such registration is available, (ii) it is not anticipated
that there will be any public market for the OP Units, (iii) Rule 144
promulgated under the Act is not available with respect to the sale of any
securities of Operating Partnership, and Operating Partnership has made no
covenant to make such Rule available, (iv) a restrictive legend in the form
hereafter set forth shall be placed on the certificates or instruments
representing the OP Units, and (vi) a notation shall be made in the
appropriate records of Operating Partnership indicating that the OP Units
are subject to restrictions on transfer.
1.7.4 Exchange for Common Stock. Transferor also acknowledges that (i)
-------------------------
the exchange of OP Units into shares of Common Stock, and the put of OP
Units to the
2
<PAGE>
Company for cash, are subject to certain substantial restrictions contained
in the Op Agreement; and (ii) the Common Stock which may be received upon
such an exchange may, under certain circumstances, be restricted securities
and be subject to limitations as to transfer, and therefore subject to the
risks referred to in paragraph 1.7.2 above.
1.7.5 Accredited Investor. If Transferor is an individual, such
-------------------
Transferor is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) has an individual net worth, or Joint net worth with his
spouse, in excess of $1,000,000; or
(ii) had an Individual annual adjusted gross income in excess of
$200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income In excess of $200,000 in the
current year; or
(iii) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an
annual adjusted gross income, with his spouse, in excess of $300,000
in the current year.
If Transferor is not an individual, Transferor is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
1.7.6 Legending. Each certificate or Instrument representing OP Units
---------
shall bear the following legend:
"THE OP UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A
PARTNERSHIP AGREEMENT AS OF NOVEMBER 15, 1993 (A COPY OF WHICH IS ON
FILE WITH THE OPERATING PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN
SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION
OR OTHER DISPOSITION OF THE OP UNITS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT), OR (B) IF THE
OPERATING PARTNERSHIP HAS BEEN FURNISHED WiTh A SATISFACTORY OPINION
OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF
SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT
THEREUNDER."
3
<PAGE>
1.8 No Other Right to Acquire the Property. Transferor is not a party to
--------------------------------------
any contract or agreement other than this Agreement whereby it has granted to
anyone an absolute or contingent right to purchase, obtain or acquire any rights
in any of the Property.
1.9 Brokers or Finders. There is no broker or finder involved on behalf of
------------------
Transferor in connection with the purchase of the Property contemplated by this
Agreement.
1.10 Hazardous Substances. To the best of Transferor's actual knowledge,
--------------------
the Property (including the improvements and land) is free of any and all
Hazardous Substances and Transferor has not knowingly disposed of any Hazardous
Substances on the Property. A "Hazardous Substance", for purposes of this
Agreement is defined as any substance whose nature or quantity of existence,
use, manufacture, disposal or effect, renders it subject to Federal, State or
local regulation, investigation, remediation, or removal as potentially
injurious to public health or welfare.
1.11 Documents. The documents and materials to be delivered by Transferor
---------
to Operating Partnership pursuant to this Agreement are true and correct and the
information contained therein is accurate.
1.12 Compliance with Laws. Transferor has no actual notice of a condition
--------------------
on the Property or any part of it which fails to comply with any applicable
laws, building codes or zoning regulations and which has not been cured, nor
does Transferor have any actual knowledge of any unfulfilled order or directive
of any applicable governmental agency or casualty insurance company that any
work of investigation, remediation, repair, maintenance or improvement is to be
performed on the Property.
1.13 Pending Litigation. There are no actions, suits or proceedings pending
------------------
or threatened before any commission, board, bureau, agency, instrumentality,
arbitrator, court or tribunal that would adversely affect the Property or the
right to occupy or utilize same.
1.14 Fee Title. Transferor is the fee owner of the Property and has good
---------
and marketable title thereto, free and clear of all liens, claims, and mortgagee
whatsoever, except only the mortgages, easements, agreements, liens, and
encumbrances set forth in the preliminary title report, and the tenancies and
occupancies disclosed herein. Currently, there are not any encroachments onto
the Property or by the improvements onto any adjoining property, except as may
be shown on the ALTA survey.
1.15 Tenant Leases. The Property shall be sold subject to existing
-------------
tenancies, leaseholds and occupancies. Transferor shall be deemed to have
warranted that the tenant leases are in full force and effect, there exists no
event of default thereunder and Transferor knows of no fact or event that, with
the giving of notice and/or the passage of time, would render it in default as
landlord thereunder. In addition, the tenant leases will not, as of the Closing,
have been modified or amended verbally, by course of conduct, or in writing.
There are no prepayments of rent under the tenant leases other than security
deposits for the account of tenants and there are no agreements, written or
oral, with any of such tenants to purchase the Property.
4
<PAGE>
1.16 Service Agreements. No notice of default has been received from any of
------------------
the parties to the service agreements and to the best of Transferor's knowledge
no event has occurred that, with notice or lapse of time, or both, would
constitute any such default, and each of such agreements is in full force and
effect. Such agreements constitute all agreements affecting the leasing,
management operation, maintenance, and repair of the Property.
1.17 Occupancy Right. There are no leases, licenses, or other agreements
---------------
permitting, nor has Transferor entered into any course of conduct that would
permit, any person or entity to occupy any portion of the Property or otherwise
affecting the Property or any part thereof other than as permitted under the
tenant leases.
1.18 Commitments. Transferor has made no commitment to any tenant,
-----------
governmental, or quasi-governmental entity or other person or entity which
commitment relates to the Property or imposes upon Transferor or the successors
or assigns of Transferor any obligation to pay or contribute property or money
or to construct, install, or maintain any Improvements on or off the Property.
1.19 Utilities. All utilities necessary to service the Property will be
---------
available to the Property at the Closing without the consent of any other person
firm, or corporation and without expanses (other than normal end usual security
deposits or bonds) to Operating Partnership, and Transferor has complied with
all laws, ordinances, and regulations relating to the delivery of such services
and payment therefor.
1.20 Access. To the best of Transferor's knowledge, there are no facts or
------
conditions that will result in the termination of the present access from the
Property to any utility services or to existing highways and roads.
1.21 Employees. Except for persons Who shall remain employees of Transferor
---------
after the Closing, them are no other persons employed either full-time or
part-time exclusively or primarily to service the Property, and Transferor is
not a party to, or otherwise bound by, any other collective bargaining agreement
or multi-employer pension fund covering employees who service the Property.
1.22 Condition of Property. To the best of Seller's knowledge, there are no
---------------------
latent or structural defects, hidden or otherwise, in the construction of the
improvements, or in the heating, ventilating, air-conditioning, electrical, end
plumbing systems, and the same are in good and proper working order, the
improvements are in good physical condition, and there is no subsurface soil
condition that has caused, or is currently causing, material structural damage
to the improvements.
1.23 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of Seller shall survive the Closing and the delivery of the Grant
Deed.
5
<PAGE>
EXHIBIT 10.78
TENANT ESTOPPEL
---------------
December 7, 1998
GMAC Commercial Mortgage Corporation
650 Dresher Road
Horsham, Pennsylvania 19044-5015
Re: Lease between G&L Coronado LLC, as Landlord or its assignees
("Landlord"), and Coronado Managers Corp. as Tenant ("Tenant"), dated
December 1, 1998, for approximately 7596 Square feet of space in Coronado
Plaza, 1330 Orange Avenue, Suite 300, Coronado, CA 92115 (the "Project")
as amended by the following amendments: None (the "Lease")
Ladies and Gentlemen:
Tenant understands that GMAC COMMERCIAL MORTGAGE CORPORATION ("Lender")
intends to make a loan to G&L CORONADO LLC, a Delaware limited liability company
("Borrower") to be secured by the Project. Tenant presently leases premises
within the Project pursuant to the Lease, and, in connection with the foregoing,
Tenant does hereby certify to Borrower and Lender as follows:
1. Attached hereto as Exhibit "A" is true, complete and accurate copy of the
-----------
Lease and all amendments and modifications thereto.
2. The Lease is in full force and effect; there are no amendments or
modifications of any kind to the Lease except as referenced above; there
are no other promises, agreements, understandings, or commitments between
Landlord and Tenant relating to the premises leased under the Lease; and
Tenant has not given Landlord any notice of termination under to Lease;
3. There has not been and is now no subletting of the leased premises, or
any part thereof, or assignment by Tenant of the Lease, or any rights
therein, to any party;
4. No security deposit has been given by Tenant under the terms of, or with
respect to, the Lease;
5. No uncured default, event of default, or breach by Landlord exists under
the Lease, no facts or circumstances exist that, with the passage of time
or the giving of notice, or both, will or could constitute a default
event of default, or breach under the Lease. Tenant has made no claim
against Landlord alleging Landlord's default under the Lease;
6. Tenant is in full and complete possession of its leased premises in the
Project and has accepted its leased premises in the Project, including
any work of Landlord performed
<PAGE>
thereon pursuant to the terms and provisions of the Lease, and all common
areas of the Project (including, without limitation, parking areas,
sidewalks, access ways and landscaping) are in compliance with the Lease
and are satisfactory for Tenants purposes;
7. To the best of Tenant's knowledge and belief, there are no rental, lease,
or similar commissions payable with respect to the Lease, except as may
be expressly set forth therein;
8. Tenant is obligated to pay rent to Landlord at the rate set fort in the
Lease. Tenant is current with respect to, and is paying the full rent and
other charges stipulated in the Lease (including, without limitation,
common area maintenance charges) with no offsets, deductions, defenses or
claims; and Tenant has not prepaid any rent or other amounts to Landlord
other than rent and other charges due and payable in the calendar month
of this certification. None of the rent which the Tenant is required to
pay under the Lease has been prepaid more than one (1) month in advance
and the Tenant agrees not to pay rent more than one (1) month in advance
unless otherwise specified in the Lease. The Tenant agrees that upon
notification by Lender in writing that rental payments ass to be made to
Lender because of a default under the Loan, the Tenant will cease making
rental payments to the Landlord, or its successors and assigns, and will
begin making such rental payments directly to Lender as required by the
terms of the Landlord's collateral assignment of the Lease to Lender.
9. The Tenant agrees that the Lease shall not hereafter be modified or
amended without the prior written consent of Lender. Neither Lender nor
any purchaser at foreclosure or owner by virtue of a deed in lieu of
foreclosure of the Project shall be responsible for any security deposit
or advance rent payment not actually received by such person or entity.
10. Tenant is not entitled to any concession or rebate of rent or other
charges from time to time due and payable under the Lease, and there are
no unpaid or unreimbursed construction allowances or other offsets due
Tenant under the Lease;
11. The current monthly estimated "common area maintenance" charge paid by
Tenant under the Lease is $0.00;
12. The current monthly estimated charge for taxes paid by Tenant under the
Lease is $0.00;
13. The current monthly estimated charge for insurance paid by Tenant under
the Lease is $0.00;
14. The monthly base rent under the Lease is $18,990 and has been paid by
Tenant through December 31, 1999;
15. Tenant is open for business and in operation in the Project;
16. Tenant acknowledges that the initial term of the Lease commenced on
December 1, 1998, and shall expire on November 30, 2010, unless sooner
terminated in accordance with the
<PAGE>
terms of the Lease. Tenant has no option to renew or extend the lease
term, except as follows: None.
17. Tenant agrees to provide copies of all notices given to Landlord under
the Lease to Lender at the following address:
If to Lender: GMAC Commercial Mortgage Corporation
650 Dresher Road
Horsham, Pennsylvania 19044-5015
Attention: Executive Vice President,
Commercial Loan Servicing
Facsimile No.: (215) 682-3478
With a copy to: Commercial Capital initiatives, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Attention: Manager - Loan Administration
Facsimile No.; (212) 269-5286
The Tenant will accept performance by Lender of any term of the Lease
required to be performed by the Landlord, with the same force and
effect as though performed by Landlord, although Lender shall in no
event be required to do so. Lender shall have a reasonable time after
actual receipt of any notice of default within which to cure any such
default.
18. The undersigned representative of Tenant is duly authorized and fully
qualified to execute this instrument on behalf of Tenant thereby binding
Tenant;
19. Tenant agrees and acknowledges that the Lease is and shall be subordinate
to the mortgage of Lender. Tenant agrees that if Lender shall become the
owner of the Project by reason of the foreclosure of the Mortgage or the
acceptance of a deed or assignment in lieu of foreclosure or otherwise,
then, unless Lender elects otherwise, the Lease shall not be terminated
or affected thereby but shall continue in full force and effect as a
direct lease between Lender and Tenant upon all of the terms, covenants
and conditions set forth in the Lease and in that event Tenant agrees to
attorn to Lender and Lender agrees to accept such attornment, provided,
however, that the provisions of the Mortgage shall govern with respect to
the disposition of any casualty insurance proceeds or condemnation awards
and Lender shall not be (i) obligated to complete any construction work
required to be done by prior Landlords pursuant to the provisions of the
Lease or to reimburse Tenant for any construction work done by Tenant,
(ii) liable for any accrued obligation of Landlord or for any act or
omission of Landlord, whether prior to or after such foreclosure or sale,
(iii) required to make any repairs to the Project or to the premises
demised under the Lease required as a result of fire, or other casualty
or by reason of condemnation unless Lender shall be obligated under the
Lease to make such repairs and shall have received sufficient casualty
insurance proceeds or condemnation awards to finance the completion of
such
<PAGE>
repairs, (iv) required to make any capital improvements to the Project or
to the premises demised under the Lease which Landlord may have agreed to
make, but had not completed, or to perform or provide any services not
related to possession or quiet enjoyment of the premises demised under
the Lease, or (v) subject to any offsets or counterclaims which shall
have accrued to Tenant against Landlord prior to the date upon which
Lender shall become the owner of the Project.
20. If Lender or any third parry succeeds to the interests of Landlord under
the Lease, the parties between themselves shall have the same remedies
and rights as the Landlord and the Tenant now possess with respect to the
Lease; provided, however, that Lender and such third party shall not be:
a. liable for any negligent act or omission of any prior landlord; or
b. bound by any rent which the Tenant might have paid for more than the
current month to any prior landlord; or
c. bound by any agreement or modification of the Lease made without
Lender's prior written consent.
21. Tenant has no option or right to purchase the property of which the
demised premises are a part, or any part thereof.
22. Tenant understands and acknowledges that Lender is about to make a loan
to Landlord and receive as part of the security for such loan (i) a
Mortgage/Deed of Trust encumbering Landlord's fee interest in the Project
(of which the demised premises are a portion) and the rents, issues and
profits of the Lease (the "Mortgage"), and (ii) an Assignment of Leases
and Rents ("Assignment of Leases") which affects the Lease, and that
Lender (and persons or entities to whom the Mortgage and/or Assignment of
Leases may subsequently be assigned) is relying upon the representations
and warranties contained herein in making such loan. Further, Tenant has
notice that the Lease and the rent and all other sums due thereunder have
been assigned or are to be assigned to Lender as security for the
aforesaid loan secured by the Mortgage. In the event that Lender (or any
person or entity to whom the Mortgage and/or Assignment of Leases may
subsequently be assigned) notifies Tenant of a default under the Mortgage
or Assignment of Leases and demands that Tenant pays its rent and all
other sums due under the Lease to Lender (or such future lender), Tenant
shall honor such demand and pay its rent and all other sums due under the
Lease directly to Lender (or such future lender) or as otherwise required
pursuant to such notice.
23. Tenant acknowledges and agrees that Landlord and Lender shall be entitled
to rely on Tenant's certifications set forth herein. Tenant hereby
further agrees for a period of thirty (30) days from the date hereof to
notify Landlord and Lender in writing at the address set forth above of
any changes in the truth and accuracy of any of the certifications
contained herein promptly upon Tenants learning of each such change.
<PAGE>
IN WITNESS WHEREOF, Tenant has executed this instrument this 7th day of
December 1998.
TENANT:
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G&L CORONADO LLC
a Delaware limited liability company
By: CORONADO MANAGERS CORP.
a Delaware corporation
Managing Member
By: /s/ Steven D. Lebowitz
----------------------------------
Steven D. Lebowitz, Secretary
<PAGE>
GUARANTOR'S ACKNOWLEDGMENT
--------------------------
The undersigned, STEVEN D. LEBOWTTZ and DANIEL GOTTLIEB (collectively
"Guarantors"), (i) acknowledge and agree that the documents attached hereto as
Exhibit B constitute a complete and accurate copy of Guarantor's Guaranty of the
- ---------
Lease (the "Guaranty") and that the Guaranty is in full force and effect and is
enforceable in accordance with its terms, with no offset, deduction, defense or
claim by Guarantor and (ii) certifies that the certifications of Tenant herein
are true and correct.
GUARANTOR:
----------
/s/ Steven D. Lebowitz
-----------------------------------
STEVEN D. LEBOWITZ
/s/ Daniel Gottlieb
-----------------------------------
DANIEL GOTTLIEB
<PAGE>
RIDER TO TENANT ESTOPPEL
------------------------
Lender agrees that if any action or proceeding is commenced by Lender or at
Lender's behest for the foreclosure of the Mortgage or the sale of the Project,
Tenant shall not be named as a party therein, and the sale of the Project in any
such action or proceeding and the exercise by Lender of any of its other rights
under the Note or the Mortgage shall be made subject to all rights of Tenant
under the Lease, provided that at the time of the commencement of any such
action or proceeding or at the time of any such sale or exercise of any such
other rights (i) the term of the Lease shall have commenced pursuant to the
provisions thereof, (ii) Tenant shall be in possession of the premises demised
under the Lease, (iii) the Lease shall be in full force and effect and (iv)
Tenant shall not be in default under any of the terms, covenants or conditions
of the Lease or of this Agreement on Tenant's part to be observed or performed.
<PAGE>
EXHIBIT A
---------
REAL ESTATE LEASE
(MULTI-TENANT FACILITY)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
-----------
Landlord and Tenant named below. Other Articles and Sections of the Lease
referred to in this Article One explain and define the Basic Terms and are to be
-----------
read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: December 1. 1998
Section 1.02. Landlord: G&L CORONADO LLC, 439 North Bedford Drive, Beverly
Hills, CA 90210
Section 1.03. Tenant (include legal entity): CORONADO MANAGERS CORP., 1330
Orange Avenue, Suite 300, Coronado, CA 92118.
Section 1.04. Property: The Property consists the third floor executive
suite of Landlord's multi-tenant real property development known as and
described as 1300 Orange Avenue, Coronado, California, and depicted in Exhibit
"A" (the "Project"). The Project includes the land, the buildings and all other
improvements located on the land, and the common areas described in Section
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406(a).
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Section 1.05. Lease Term: The Lease shall continue for a term of twelve
(12) years commencing December 1,1998, and ending on November 30, 2010.
Section 1.06. Permitted Uses: (See Article Five) Operation of general
------------
offices
Section 1.07. Brokers: (See Article Fourteen) None.
----------------
Section 1.08. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Thirty Dollars ($30.00) per square foot per year for the
first five (5) years, payable in equal monthly installments, subject to
increases every five (5) years during the term in accordance with Section 3.02,
------------
below;
(b) ADDITIONAL RENT: See Section 3.04 below.
------------
(c) OTHER PERIODIC PAYMENTS: Building operating expenses in accordance with
Article 4 below, and Maintenance, Repairs and Alterations as set forth in
- ---------
Article Six.
- -----------
<PAGE>
ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property For Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section l.05 above and shall
------------
begin and end on the dates specified in Section 1.05 above, unless the beginning
------------
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
------------
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02. Delay in Commencement. Notwithstanding the Commencement Date,
if for any reason Landlord cannot deliver possession of the Property to Tenant
on the Turn-Over Date, Tenant shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease or the obligations of
Tenant hereunder, but in such case the Lease Term shall be extended by the
length of the delay and Tenant shall not be obligated to pay rent until
possession of the Property is tendered to Tenant.
Section 2.03. Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by fifty percent (50%).
ARTICLE THREE: BASE RENT AND ADDITIONAL RENT
Section 3.01. Time and Manner of Payment. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Section 1.07(a)
---------------
above for the first month of the Lease Term. On the first day of the second
month of the Lease Term and each month thereafter, Tenant shall pay Landlord,
the Base Rent, in advance, without offset, deduction or prior demand. The Base
Rent shall be payable at Landlord's address or at such other place as Landlord
may designate in writing.
Section 3.02. Cost of Living Increases. The Base Rent shall be increased
effective on the first day of each fifth (5/th/) lease year commencing on the
first day of the sixth lease year (the "Rental Adjustment Date") in accordance
with the increase in the United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index for All Urban Consumers (all items for the
geographical Statistical Area in which the Property is located on the basis of
1982-1984 = 100) (the "Index"). In making such calculations, no effect shall be
given to any rent concessions or abatements, if any, provided for in this Lease.
The increase shall be calculated as follows:
(a) The Base Rent (the "Comparison Base Rent") set forth in Section 1.08(a)
---------------
shall be increased by the percentage that the Index has increased from the
calendar month immediately preceding the month in which the Commencement Date
occurs (the "Comparison
2
<PAGE>
Date") through the month immediately preceding the month in which the applicable
Rental Adjustment Date occurs. The Base Rent shall not be reduced by reason of
such computation. Landlord shall notify Tenant of each increase by a written
statement which shall include the Index for the applicable Comparison Date, the
Index for the applicable Rental Adjustment Date, the percentage Increase between
those two Indices, and the new Base Rent. In no event shall the Base Rent be
increased by more than ten percent (10%).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may be
given after the applicable Rental Adjustment Date of the increase, and Tenant
shall pay Landlord the accrued rental adjustment for the months elapsed between
the effective date of the increase and Landlord's notice of such increase within
ten (10) days after Landlord's notice. If the format or components of the Index
are materially changed after the Commencement Date, Landlord shall substitute an
index which is published by the Bureau of Labor Statistics or similar agency and
which is most nearly equivalent to the Index in effect on the Commencement Date.
The substitute index shall be used to calculate the increase in the Base Rent
unless Tenant objects to such index in writing within fifteen (15) days after
receipt of Landlord's notice. If Tenant objects, Landlord and Tenant shall
submit the selection of the substitute index for binding arbitration in
accordance with the rules and regulations of the American Arbitration
Association at its office closest to the Property. The costs of arbitration
shall be borne equally by Landlord and Tenant.
Section 3.03. Partial Month. Should the Commencement Date be a day of the
month other than the first day of such month, then the Basic Rent for the first
fractional month shall be computed on a daily basis for the period from the
Commencement Date to the end of such calendar month and at an amount equal to
one/three hundred and sixtieth (1/360th) of the Minimum Annual Rental for each
such day. Rental for such partial month shall be due and payable prior to the
Commencement Date.
Section 3.04 Additional Rent. To the extent not paid by Tenant to Landlord
pursuant to Section 4.01 below, Tenant shall pay to Landlord as additional rent
------------
on a monthly basis an amount equal to the cash collections derived by Tenant
from its subtenants for telephone and other expense reimbursements during the
immediately preceding calendar month.
Section 3.04. Financial Statements. At least annually during the term of
this Lease, Tenant shall provide to Landlord financial statements for Tenant and
Tenant's operations at the Property prepared in accordance with generally
accepted accounting principles consistently applied and shall include a profit
and loss statement and a balance sheet. Such statements shall be provided within
ninety (90) days after the expiration of each lease year. For purposes of this
Lease, the term lease year shill refer to a twelve (12) month period with the
first lease year commencing on the first day of the first full month of the
Lease Term.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT.
Section 4.01. Operating Expense Adjustments. For the purposes of this
Article, the following terms are defined as follows:
3
<PAGE>
(a) Base Year: Calendar year: 1999.
(b) Comparison Year: Each calendar year or portion thereof during the term
of this Lease after the Base Year.
(c) Direct Expenses: The term "Direct Expenses" shall include:
(i) Taxes: All real and personal property taxes and assessments
imposed by any government authority or agency on the Project and the land
on which the Project is located (including a pro rata portion of any taxes
levied on any common areas); any assessments levied in lieu of taxes; any
tax or fee on or measured by gross rentals received from the rental of
space in the Project and associated parking areas, including any
improvements thereon; and any other costs levied or assessed by or at the
direction of, any federal, state, or local government authority in
connection with the use or occupancy of the Property; any tax on this
transaction or any document to which Tenant is a party creating or
transferring an interest in the Property; and any expenses, including cost
of attorneys or experts, reasonably incurred by Landlord in seeking
reduction by the taxing authority of the above referenced taxes; but shall
not include any net income, franchise, capital stock, estate, or
inheritance taxes.
(ii) Insurance and Utilities: Costs consisting of Landlord's
operating expenses that are attributable to premiums and other charges
incurred by Landlord for insurance on the Project, land, and parking areas,
and for the employees, agents, and independent contractors referred to
herein, including, but not limited to (a) fire and extended coverage
insurance, flood and earthquake insurance, rental interruption insurance,
boiler and machinery insurance, sprinkler leakage insurance, commercial
general liability insurance, and other insurance, and (b) the cost of all
water, gas, electricity, sewer service, and other utilities, including, but
not limited to, all costs, charges, and expenses incurred by Landlord in
connection with any change of any company providing electricity service,
including, without limitation, maintenance, repair, installation, and
service costs associated therewith.
(iii) Other Direct Expenses. Costs consisting of Landlord's operating
expenses that are attributable to the operation, maintenance, management,
securing, and repair of the Project, underlying land, and parking areas,
including, but not limited to, salaries and other compensation, including
payroll taxes, vacation, holidays, and other paid absences, and welfare,
retirement, and other fringe benefits, paid to employees, agents, and
independent contractors of Landlord; repairs and maintenance of the
Project, land, and parking areas, and the costs of related supplies, tools,
materials, and equipment; premiums and other charges incurred by Landlord
for insurance on the Project, land, and parking areas, and for the
employees, agents, and independent contractors referred to above; cost of
providing security for the Project and the parking areas; costs incurred
for inspection and servicing including all outside maintenance contracts
for the proper maintenance of Project, land, and parking areas such as
janitorial and window cleaning, rubbish removal, exterminating, water
treatment, elevator, electrical, plumbing, and mechanical equipment, and
the cost of related materials, tools, supplies, and equipment; costs
incurred for utilities; sales, use, and excise taxes on goods and services
purchased by Landlord; license, permit, and
4
<PAGE>
inspection fees; auditors fees; legal fees, costs, and disbursements
(excluding those (a) relating to disputes with tenants, (b) based upon
Landlord's negligence or other tortious conduct, (c) relating to enforcing
lease provisions for the benefit of the Project tenants generally, or (d)
relating to the defense of Landlord's title to, or interest in, the
Project; management fees; other costs reasonably necessary to operate,
repair, manage, and maintain the Property in a first-class manner and
condition.
(iv) Administrative Fee. An administrative fee to Landlord in an
amount equal to three and one-half (3.5%) of the Direct Expenses referred
to in Sections 4.01(c)(i), 4.01(c)(ii) and 4.0l(c)(iii).
------------------------------------------------
(d) The following expenses incurred by Landlord shall not be Included in
Direct Expenses: (a) leasing commissions, costs, disbursements, and other
expenses incurred for leasing, renovating, or improving space for tenants, (b)
costs (including permit, license, and inspection fees) incurred in renovating,
improving, decorating, painting, or redecorating vacant space or space for
tenants, (c) Landlord's cost of electricity or other service sold to tenants for
which Landlord is to be reimbursed as a charge over the Rent and Additional Rent
payable under the lease with that tenant, (d) costs incurred by Landlord for
alterations that are considered capital improvements and replacements under
generally accepted accounting principles consistently applied except that the
annual amortization of these costs shall be included with interest on the
unamortized portion thereof at the rate of ten percent (10%) per annum, (e)
depreciation and amortization on the Project except as expressly permitted
elsewhere in this Lease, (f) costs incurred because the Landlord or another
tenant violated the terms of any lease, (g) rentals and other related expenses
incurred in leasing air conditioning systems, elevators, or other equipment
ordinarily considered to be of a capital nature, except equipment used in
providing janitorial services that is not affixed to the Project, (h) items and
services for which Tenant reimburses Landlord or pays third parties or that
Landlord provides selectively to one or more tenants of the Project other than
Tenant without reimbursement, (i) advertising and promotional expenditures; (j)
repairs or other work needed because of fire, windstorm, or other casualty or
cause insured against by Landlord or to the extent Landlord's insurance required
under this Lease; (k) nonrecurring costs incurred to remedy structural defects
in original construction materials or installations, and (l) costs incurred to
test, survey, cleanup, contain, abate, remove, or otherwise remedy Hazardous
Substances (as defined below) or asbestos-containing materials from the Property
unless the Hazardous Substances or asbestos-containing materials were in or on
the Project because of Tenant's negligence or intentional acts.
(e) If the Direct Expenses paid or incurred by the Landlord for the
Comparison Year exceed the Direct Expenses paid or Incurred by the Base Year,
then Tenant shall pay __________ percent (___%) of the increase as Additional
Rent. This percentage represents Tenant's portion of the Projects Rentable
Square Footage.
Section 4.02 Procedures. As soon as practicable prior to the commencement
of each Comparison Year or as soon as practicable thereafter. Landlord shall
furnish to Tenant a statement of Landlord's reasonable estimate of the Direct
Expenses expected to be incurred during the Comparison Year and showing the
amount of Additional Rent, if any, payable by Tenant to Landlord during the
Comparison Year on the basis of such estimate. This estimate amount shall be
divided into twelve (12) installments. Tenant shall pay to Landlord,
5
<PAGE>
concurrently with the regular monthly Rent payment next due, following the
receipt of such statement, an amount equal to one (1) monthly installment
multiplied by the number of months from January in the calendar year in which
said statement is furnished to the month of such payment. Subsequent
installments shall be payable concurrently with the regular monthly rental
payments for the balance of the Comparison Year until the next calendar's year
statement is furnished to Tenant. If the final Comparison Year during the term
of the Lease is a partial year, then Tenant shall pay to Landlord the estimated
amount of Additional Rent required to be paid by Tenant for partial Comparison
Year divided by the number of months in said partial Comparison Year
concurrently with the regular monthly payments during said partial Comparison
Year.
(a) If the base for Operating Expenses is a Base Year and occupancy of the
Project during the Base Year or any Comparison Year is less than ninety five
percent (95%), then Operating Expenses for that Base Year or Comparison Year
shall be "grossed up" to that amount of Operating Expenses that, using
reasonable projections, would normally be expected to be incurred during the
Base Year or Comparison Year if the Project were ninety five percent (95%)
occupied during the Base Year or Comparison Year, as determined under generally
accepted accounting principles consistently applied. Landlord shall provide in
the Statement required by Section 4.02, a reasonably detailed description of how
------------
the Operating Expenses were grossed up. Only those component expenses that are
affected by variations in occupancy levels shall be grossed up.
(b) Subject to the above set forth limitations, Landlord shall have the
right, in Landlord's discretion, to reasonably revise Landlord's estimated
amount of Direct Expenses from time to time during the necessary period to
account for savings or additional expenditures attributable to the period in the
Comparison Year prior to the Landlord's revised estimate. The payment of the
revised Direct Expenses shall be due on the first monthly Rent payment date
following Tenant's receipt from Landlord of a statement of such revised
estimate.
(c) With reasonable promptness after the expiration of each Comparison
Year, Landlord shall make available to Tenant a statement showing (a) the actual
amount of Direct Expenses incurred during the Comparison Year and the actual
Direct Expenses for the Base Year, (b) the difference, if any, between
Landlord's estimated amount thereof and the actual amount of Direct Expenses,
and (c) showing the aggregate amount of any charge or actual to Tenant necessary
to adjust the amount of Additional Rent previously paid by Tenant to the amount
of actual Direct Expenses. On or before the first of the month following
notification by Landlord to Tenant, Tenant shall, in case of an underpayment,
promptly pay to Landlord an amount equal to such underpayment or Landlord shall,
in the case of an overpayment, credit the next monthly Rental payment due from
Tenant with an amount equal to such overpayment. The amount of increases in Rent
payable to Landlord hereunder for any partial month shall be prorated on a daily
basis.
(d) Even though the term of this Lease has expired and Tenant has vacated
the Property, when the final determination is made of Tenant's proportionate
share of Direct Expenses for the year in which this Lease terminates, Tenant
shall immediately pay an increase due over the estimated expenses paid, and
conversely, any overpayment made in the event said expenses decrease shall be
rebated by Landlord to Tenant.
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<PAGE>
(e) Notwithstanding anything contained in this Article, the Rent payable by
Tenant shall in no event be less than the Rent specified in Article Three
-------------
hereinabove.
Section 4.03 Personal Property Taxes.
(a) Tenant shall pay all taxes charged against the trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(b) If any of Tenant's trade fixtures, furnishings, equipment and other
personal property is taxed with the Property, Tenant shall pay Landlord the
taxes for the personal property within fifteen (15) days after Tenant receives a
written statement from Landlord for such personal property taxes.
Section 4.04. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with any
other portions of the Project, Landlord shall make a reasonable determination of
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
Section 4.05. Insurance Policies.
(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Such
insurance shall be maintained with a single combined liability limit of at least
One Million Dollars ($1,000,000.00) insuring against all liability of Tenant and
its authorized representatives arising out of or in connection with Tenant's use
or occupancy of the Property. All of such insurance shall insure performance by
Tenant of the indemnity provisions of Section 5.04 of this Lease and shall name
------------
Landlord and its partners as an additional insured.
(b) Property and Rental Income Insurance. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
as part of the Landlord's insurance coverage for the Project. Such policy shall
provide protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, special extended perils
(all risk), sprinkler leakage and any other perils which Landlord deems
reasonably necessary. Landlord shall have the right to obtain flood and
earthquake insurance. Landlord shall not obtain insurance for Tenant's fixtures
or equipment or building improvements installed by Tenant on the Property.
During the Lease Term, Landlord shall also have the right, but not the
obligation, to maintain a rental income insurance policy, with loss payable to
Landlord, in an amount equal to one year's Base Rent, plus estimated real
property taxes and insurance premiums.
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<PAGE>
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to
give Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-IX or better, as set
forth in the most current issue of "Best Key Rating Guide."
(iii) Anything to the contrary in this Lease notwithstanding, neither
party, nor its officers, directors, employees, agents or invitees, nor, in
case of Tenant, its subtenants, shall be liable to the other party or to
any insurance company (by way of subrogation or otherwise) insuring the
other party for any loss or damage to any building, structure or other
tangible property, when such loss is caused by any of the perils which are
or could be insured against under a standard policy of full replacement
cost insurance for fire, theft and all risk coverage, or losses under
workers' compensation laws and benefits, even though such loss or damage
might have been occasioned by the negligence of such party, its agents or
employees (this clause shall not apply, however, to any damage caused by
intentionally wrongful actions or omissions); provided, however, that if,
by reason of the foregoing waiver, either party shall be unable to obtain
any such insurance, such waiver shall be deemed not to have been made by
such party and, provided further, that if either party shall be unable to
obtain any such insurance without the payment of an additional premium
therefor, then, unless the party claiming the benefit of such waiver shall
agree to pay such party for the cost of such additional premium within
thirty (30) days after notice setting forth such requirement and the amount
of the additional premium, such waiver shall be of no force and effect
between such party and such claiming party. Each party shall use reasonable
efforts to obtain such insurance from a company that does not charge an
additional premium or, if that is not possible, one that charges the lowest
additional premium. Each party shall give the other party notice at any
time when it is unable to obtain insurance with such a waiver of
subrogation without the payment of an additional premium and the foregoing
waiver shall be effective until thirty (30) days after notice is given.
Each party represents that its current insurance policies allow such
waiver.
Section 4.06. Common Areas; Use, Maintenance and Costs.
(a) Common Areas. As used in this Lease, "Common Areas" shall mean all
areas within the Project which are available for the common use of tenants of
the Project and which are not leased or held for the exclusive use of Tenant or
other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas.
(b) Use of Common Areas. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject to
such reasonable rules and regulations as Landlord may establish from time to
time.
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<PAGE>
(c) Maintenance of Common Areas. Landlord shall maintain the Common Areas
in good order, condition and repair.
Section 4.07. Interest on Past Due Obligations. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
------------
Section 5.02. Manner of Use. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
tenants of the Project, or which constitutes a nuisance or waste. Tenant shall
obtain and pay for all permits, including a Certificate of Occupancy, required
for Tenants occupancy of the Property and shall promptly take all actions
necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. Signs and Auctions. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriffs sales at the Property. The location of Tenants
sign shall be subject to the Landlord's approval and shall not adversely affect
the visibility of the signs of other tenants located in the Project. All of such
signs shall be subject to the approval of the City of Los Angeles and any other
applicable governmental agencies. Tenant shall be solely responsible for the
maintenance of Tenant's signs and shall keep such signs in good condition and
repair at all times. At the expiration of the Lease Term all signs shall be
removed by Tenant at Tenant's sole cost and expense, provided that Landlord, at
Landlord's sole option shall have the right to designate such of Tenants signs
as Landlord does not desire Tenant to remove. Such signs shall become the
property of Landlord at the expiration of the Lease Term.
Section 5.04. Indemnity. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord. Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause,
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<PAGE>
and Tenant hereby waives all claims in respect thereof against Landlord, except
for any claim arising out of Landlord's gross negligence or willful misconduct.
As used in this Section, the term "Tenant" shall include Tenant's employees,
agents, contractors and invitees, if applicable.
Section 5.05. Landlord's Access. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency. Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.05. Quiet Possession. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto.
Section 6.02. Exemption of Landlord from Liability. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures by any other cause; (c) conditions arising in or about the
Property or upon other portions of the Project, or from other sources or places;
or (d) any act or omission of any other tenant of the Project. Landlord shall
not be liable for any such damage or injury even though the cause of or the
means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
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liability for Landlord's gross negligence or willful misconduct.
Section 6.03. Landlord's Obligations. Except as provided in Article Seven
-------------
(Damage or Destruction) and Article Eight (Condemnation). Landlord shall keep
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the following in good order, condition and repair the foundations, exterior
walls and roof of the Project (including painting, if necessary) and all
components of electrical, mechanical, plumbing, heating and air conditioning
systems and facilities located in the Project which are concealed or used in
common by tenants of the Project. However, Landlord shall not be obligated to
maintain or repair windows, doors, plate glass or the interior surfaces of
exterior walls. Landlord shall make
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repairs under this Section 5.03 within a reasonable time after receipt of
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written notice from Tenant of the need for such repairs.
Section 6.04. Tenants Obligations.
(a) Except as provided in Section 6.03, Article Seven (Damage or
------------ -------------
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of
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the Property (including structural, nonstructural, interior, systems and
equipment) in good order, condition and repair (including interior repainting
and refinishing, as needed, and repairs or replacement required by fire,
earthquake or other code requirements). If any portion of the Property or
Project is damaged by any act or omission of Tenant. Tenant shall pay Landlord
the cost of repairing or replacing such damaged property, whether or not
Landlord would otherwise be obligated to pay the cost of maintaining or
repairing such property.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
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6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
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the Property as required by this Section 6.04, Landlord may, upon ten (10) days'
------------
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed Ten Thousand Dollars ($10,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Section 6.05(a) upon
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Landlord's written request.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
(c) Within thirty (30) days from the execution of this Lease by Tenant,
Tenant shall provide to Landlord a design plan for Tenant's Property prepared by
a licensed architect or engineer setting forth in detail a floor plan of the
Property, the designated uses of the specific areas listed on the floor plan,
locations of interior walls and any plumbing and electrical systems that will be
installed by Tenant in the Property. All of such plans shall be subject to the
approval of Landlord.
Section 6.08. Condition upon Termination. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. The term
"ordinary wear and tear" shall mean wear and tear which manifests itself solely
through normal use and the passage of time, such as may be
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caused by foot traffic, wear to carpets and fading of painted surfaces,
settlement of the building and other geologic condition. Ordinary wear and tear
shall not include any damage or deterioration that could have been prevented by
Tenant performing all of its obligations under this Sublease. For the purpose of
this Sublease, items of wear which are not ordinary include, but are not limited
to, the following (other than items as may have been caused by Landlord's acts
or omissions or are Landlord's obligation to maintain, repair and/or replace
pursuant to this Sublease), which items shall be Tenant's obligation to repair
and correct: (i) damage to or defacement of walls, partitions, floors, ceilings,
roof, landscaping, pavements, columns, mechanical, electrical, and plumbing
equipment, doors, or other components of the Property (ii) excessively soiled,
stained or marked surfaces; (iii) damage caused by the installation of or
removal of Tenant's trade fixtures, furnishings, equipment, alterations or
utility installations; (iv) the removal of Tenants signs and the restoration of
any area or surface affected by such signs and/or utility installations, and (v)
any defects to the Property which developed subsequent to the Commencement Date
and which are otherwise Tenant's obligation to repair pursuant to this Lease.
Section 6.07. Hazardous Materials. Tenant shall not cause or permit any
Hazardous Material (as defined below) to be brought upon, kept or used in or
about the Property by Tenant, its agents, employees, contractors or invitees,
without the prior written consent of Landlord (which Landlord shall not
unreasonably withhold as long as Tenant demonstrates to Landlord's reasonable
satisfaction that such Hazardous Material is necessary or useful to Tenant's
business and will be used, kept and stored in a manner that complies with all
laws, rules, statutes and ordinances regulating any such hazardous Material so
brought upon or used or kept In or about the Property). If Tenant breaches the
obligations stated above in this Paragraph, or if the presence of Hazardous
Material on or about the Property caused or permitted by Tenant results in
contamination of the Property, or if contamination of the Property or
surrounding area by Hazardous Material otherwise occurs for which Tenant is
legally liable to Landlord for damage resulting therefrom, then Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Property or the building which is part of
the Property, damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Property, damages arising from any adverse impact
on marketing of space in the building, and sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees) which arise during or after
the term of this Lease as a result of such contamination. This indemnification
of Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on, under or about the Property. Without limiting the foregoing, if
the presence of any Hazardous Material on or about the Property caused or
permitted by Tenant results in any contamination of the Property or surrounding
area, or causes the Property or surrounding area to be in violation of any laws,
rules, statutes or ordinances, Tenant shall promptly take all actions at its
sole expense as are necessary to return the Property and surrounding area to the
condition existing prior to the introduction of any such Hazardous Material;
provided that Landlord's approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld so long as such actions would not
potentially have any material adverse long-term, or short-term effect on the
Property or surrounding area.
As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental
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authority, the State of California or the United States Government. The term
"Hazardous Material" includes, without limitation, any material or substance
which is (i) defined as a "hazardous waste," "extremely hazardous waste," or
"restricted hazardous wastes" under Sections 25115, 25117, or 25122.7, or listed
pursuant to Section 25140, of the California Health and Safety Code, Division
20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a "hazardous
substance" under Section 25316 of the California Health and Safety Code,
Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance Account
Act), (iii) defined as a "hazardous material," "hazardous substance," or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and
Inventory), (iv) defined as a "hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
of Hazardous Substances), (v) petroleum, (vi) asbestos, (vii) listed under
Article 9 or defined as hazardous or extremely hazardous pursuant to Article 11
of Title 22 of the California Administrative Code, Division 4, Chapter 20,
(viii) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. Sec. 1317), (ix) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C. Sec. 6901 et seq. (42 U.S.C. Sec. 6903), or (x)
-- ---
defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sec. 9601 et
--
seq. (42 U.S.C. Sec. 6901).
- ---
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the occurrence
of any damage to the Property. If the Property is only partially damaged (i.e.,
less than fifty percent (50%) of the Property is untenantable as a result of
such damage or less than fifty percent (50%) of Tenants operations are
materially impaired) and if the proceeds received by Landlord from the insurance
policies described in Section 4.05(b) are sufficient to pay for the necessary
---------------
repairs, this Lease shall remain in effect and Landlord shall repair the damage
as soon as reasonably possible. Landlord may elect (but is not required) to
repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.05(b), or if
-----------------
twenty-five percent (25%) or more of the leasable space in the Project in
untenantable (as determined by Landlord), or if the damage to the Property
renders fifty percent (50%) or more of the Property untenantable, Landlord may
elect either to (i) repair the damage as soon as reasonably possible, in which
case this Lease shall remain in full force and effect, or (ii) terminate this
Lease as of the date the damage occurred. Landlord shall notify Tenant within
ninety (90) days after receipt of notice of the occurrence of the damage whether
Landlord elects to repair the damage or terminate the Lease. If Landlord elects
to repair the damage. Tenant shall pay Landlord the "deductible amount" (if any)
under Landlord's Insurance policies and, if the damage was due to an act or
omission of Tenant, or Tenant's employees, agents, contractors or invitees, the
difference between the actual cost of repair and any insurance proceeds received
by Landlord.
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(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
------------
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in, which case this Lease shall remain in full force and effect.
Landlord shaft notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction, if
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
-------------
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one years payment of Base Rent, insurance premiums
and real property taxes, except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
Any Condemnation award or payment shall be distributed in the following order:
(a) first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property; (b)
second, to Tenant, only the amount of any award specifically designated for loss
of or damage to Tenant's business, trade fixtures or removable personal property
paid for by Tenant (and not Landlord); and (c) third, to Landlord, the remainder
of such award, whether as compensation for reduction in the value of the
leasehold, the taking of the fee, or otherwise. Any award for the taking of all
or any part of the Property under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of the
Landlord, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as several damages.
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ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. Tenant shall not assign this
Lease and its rights thereunder without Landlord's prior written consent, which
consent shall not be unreasonably withheld. Tenant shall have the absolute right
to sublet individual office Property in the Property without the consent of
Landlord.
Section 9.02. No Release of Tenant. No transfer permitted by this Article
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Nine, whether with or without Landlord's consent, shall release Tenant or change
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Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
------------
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.05. No Merger. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
------------
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. Defaults. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons or vacates the Property;
(b) If Tenant fails to pay rent or any other charge, interest or fee when
due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Section is intended to satisfy any and all notice
requirements imposed by law on Landlord and Is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for
reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver Is appointed
to take possession of substantially all of Tenant's assets located
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at the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
Section 10.03. Remedies. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%). If Tenant has abandoned the Property, Landlord shall have the option of
(i) retaking possession of the Property and recovering from Tenant the amount
specified in this Section 10.03(a), or (ii) proceeding under Section 10.03(b);
---------------- ----------------
(b) Exercise the remedy described in California Civil Code (S) 1951.4
(Lessor May Continue Lease in Effect After Lessee's Breach and Abandonment and
Recover Rent as it Becomes Due, if Lessee has Right to Sublet or Assign, Subject
Only to Reasonable Limitations);
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
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Section 10.04. Automatic Termination. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
-------------
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, and which may
include provisions to the effect that this Lease will not be amended,
surrendered or terminated without the lenders consent, that rent will not be
prepaid more than one (1) month in advance, and that the lender will not be
subject to any offsets or claims for monies previously paid to Landlord by
Tenant or for any damages caused by Landlord. Subject to the approval of the
lender, Tenant's right to quiet possession of the Property during the Lease Term
shall not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale or by deed in lieu of foreclosure, Tenant shall
attorn to the transferee of or successor to Landlord's interest in the Property
and recognize such transferee or successor as Landlord under this Lease. Tenant
waives the protection of any statute or rule of law which gives or purports to
give Tenant any right to terminate this Lease or surrender possession of the
Property upon the transfer of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
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Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10)-day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. Tenant's Financial Condition. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Property by license of or agreement with
Tenant; (b) for foreclosure of any
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lien for labor or material furnished to or for Tenant or such other person; (c)
otherwise arising out of or resulting from any act or transaction of Tenant or
such other person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the
United States Code, as amended. Tenant shall defend Landlord against any such
claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs Landlord incurs in any such claim or action.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the current owner
or owners of the fee title to the Property or Project or the leasehold estate
under a ground lease of the Property or Project at the time in question. Each
Landlord is obligated to perform the obligations of Landlord under this Lease
only during the time such Landlord owns such interest or title. Any Landlord who
transfers its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30)-day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property and the Project,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or
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invalidate the remainder of such provision or this Lease, which shall remain in
full force and effect.
Section 13.04. Interpretation. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. Incorporation of Prior Agreements; Modifications. This Lease
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. Notices. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid, and shall be deemed to be given upon
receipt if personally delivered, or if mailed, forty-eight (48) hours after
being deposited in the United States mail, postage prepaid. In lieu of mailing,
either party may cause delivery of such notices, demands and requests to be made
by personal service, telegram or air freight, provided that written proof of
delivery is given to the sender. Notices to Tenant shall be delivered to the
address specified in Section 1.03 above, except that upon Tenant's taking
------------
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
- ------------
may change its notice address upon written notice to the other party.
Section 13.07. Waivers. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. No Recordation. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. Binding Effect; Choice of Law. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of
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<PAGE>
Tenant's Board of Directors authorizing the execution of this Lease or other
evidence of such authority reasonably acceptable to Landlord. If Tenant is a
partnership, each person or entity signing this Lease for Tenant represents and
warrants that he or it is a general partner of the partnership, that he or it
has full authority to sign for the partnership and that this Lease binds the
partnership and all general partners of the partnership. Tenant shall give
written notice to Landlord of any general partners withdrawal or addition.
Within thirty (30) days after this Lease is signed. Tenant shall deliver to
Landlord a copy of Tenant's recorded statement of partnership or certificate of
limited partnership.
Section 13.11. Joint and Several Liability. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions,
Section 13.13. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. Survival. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
Section 13.15. Guaranty. Currently herewith and as a condition to the
effectiveness of this Lease, STEVEN D. LEBOWITZ and DANIEL M. GOTTLIEB
(collectively "Guarantors") shall execute a Lease Guaranty in the form of
Exhibit "B" attached hereto pursuant to which the Guarantors shall personally,
- -----------
jointly and severally guarantee the Rent, the Additional Rent, and the
performance of the remaining terms of this Lease pursuant to the terms and
conditions set forth in a Guaranty executed by them concurrently herewith.
Section 13.16. Assignment of Subleases. Landlord does hereby assign to
Tenant all of Landlord's right, title and interest in and to the leases and
occupancy agreements outstanding as of the date of this Lease with occupants and
tenants of the Premises.
SIGNATURES ON NEXT PAGE
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<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below.
LANDLORD: TENANT:
G&L CORONADO LLC CORONADO MANAGERS CORP.
a Delaware limited liability company a Delaware corporation
By: CORONADO MANAGERS CORP.
a Delaware corporation By /s/ Steven D. Lebowitz
Its Managing Member -------------------------------
Steven D. Lebowitz
Secretary
By /s/ Steven D. Lebowitz
----------------------------------
Steven D. Lebowitz, Secretary
22
<PAGE>
EXHIBIT "A"
Property
--------
<PAGE>
Exhibit A
---------
All of Block 10 of Coronado Bath, South Island, in the City of Coronado,
County of San Diego, State of California, according to Map thereof No. 376,
filed in the Office of the County Recorder of San Diego County, November 12,
1886, more particularly described as follows:
Beginning at the most northerly corner of said Block 10, said corner being on
the arc of a curve concave northwesterly and having a radius of 508.34 feet, a
radial line to said point bears South 63(degree)33'48" East; thence
southwesterly, along the northwesterly line of Block 10, along the arc of said
curve, through a central angle of 38(degree)28'18", 341.33 feet to a point on a
curve, concave northerly and having a radius of 925.37 feet, a radial line to
said point bears South 4(degree)16'0l" East; thence easterly, along the
southerly line of Block 10, along the arc of said curve, through a central angle
of 14(degree)31'58", 234.72 feet to a point of reverse curve with a curve
concave southerly and having a radius of 508.34 feet, a radial line to said
point bears North 18(degree)47'59" West; thence easterly along the southerly
line of Block 10, along the arc of said curve, through a central angle of
13(degree)44'01", 121.85 feet to a point on a curve concave northeasterly, and
having a radius of 548.34 feet, a radial line to said point bears South
45(degree)54'38" West; thence northwesterly, along the northeasterly line of
Block 10, along the arc of said curve, through a central angle of
20(degree)30'l0", 196.22 feet to the point of beginning.
2
<PAGE>
EXHIBIT "B"
Lease Guaranty
--------------
This GUARANTY OF LEASE ("Guaranty") is made and entered into as of the 1/st/
day of December, 1998, and is by and between STEVEN D. LEBOWITZ and DANIEL M,
GOTTLIEB (collectively "Guarantor") in favor of G&L CORONADO LLC, a Delaware
limited liability company ("Landlord") with respect to the following
circumstances:
1. Landlord has entered into a lease ("Lease"), dated concurrently
herewith, with CORONADO MANAGERS CORP., a Delaware corporation ("Tenant"),
whether acting on behalf of itself or any estate created by the commencement of
a case under Title 11 of the United States Code or any successor statute thereto
(the "Bankruptcy Code") or any other insolvency, bankruptcy, reorganization or
liquidation proceeding, or by any trustee under the Bankruptcy Code, liquidator,
sequestrator or receiver of Tenant or Tenant's property or similar person duly
appointed pursuant to any law generally governing any insolvency, bankruptcy,
reorganization, liquidation, receivership or like proceedings.
2. In consideration of Landlord entering into the Lease with Tenant, and
with full knowledge that Landlord would not have entered into the Lease with
Tenant were it not for the agreements of Guarantor hereunder, Guarantor hereby
agrees as follows:
a. Guarantor hereby guarantees the full, faithful and timely payment
and performance by Tenant of all of the payments, covenants and other
obligations of Tenant under or pursuant to the Lease (all of which shall
hereinafter be referred to as the "Obligations"). If Tenant shall default at any
time in the payment of any rent or any other sums, costs, or charges whatsoever,
or in the performance of any of the other covenants and obligations of Tenant,
under or pursuant to the Lease, then Guarantor(s), at Guarantor's expense, shall
on demand of Landlord fully and promptly, and pay all rent, sums, costs and
charges to be paid by Tenant, and perform all the other covenants and
obligations to be performed by Tenant under or pursuant to the Lease. In
addition, Guarantor shall, on Landlord's demand, pay to Landlord any and all
sums due to Landlord, including (without limitation) all interest and late
charges with respect to past due obligations of Tenant, costs advanced by
Landlord, and damages and all expenses (including attorneys' fees and litigation
costs) that may arise in consequence of Tenant's default. Guarantor hereby
waives all requirements of notice of the acceptance of this Guaranty. Guarantor
specifically agrees that this is a guaranty of payment and performance, not of
collection or satisfaction of judgment.
b. In case of the dissolution, liquidation or insolvency (howsoever
evidenced) of, or the institution of bankruptcy or receivership proceedings
against Tenant or Guarantor, all of the Obligations then existing shall, at the
option of Landlord, immediately become due or accrued and payable from
Guarantor. In the event of a default by Tenant under the Lease, all dividends or
other payments received thereafter by Guarantor from Tenant or on account of the
Obligations from whatsoever source, shall be taken and applied as payment in
gross, and this Guaranty shall apply to and secure any ultimate balance that
shall remain owing to Landlord.
c. The liability hereunder shall in no way be terminated, diminished,
affected or impaired by (and Landlord is hereby authorized to make, from time to
time, without notice to
<PAGE>
Guarantor) any extensions, renewals, amendments, indulgences, modifications,
transfers or assignments in whole or in part of the Lease by Landlord, whether
or not notice thereof is given to Guarantor, by reason of sums paid or payable
to Landlord from the proceeds of any insurance policy or condemnation award,
sale, pledge, surrender, compromise, settlement, release, renewal, extension,
indulgence, alteration, substitution, exchange, change in, modification or other
disposition of any of the Obligations, either express or implied, or of any
security, additional security or collateral therefor. The liability hereunder
shall in no way be terminated, diminished, affected or impaired by any
acceptance by Landlord of any security or additional security for, or other
guarantors, or by the invalidity, unenforceability, loss of, change in priority
or reduction in value in or loss of value of any of the security or additional
security, or by any failure, neglect or omission on the part of Landlord to
realize upon or protect any of the Obligations, or any collateral or security or
additional security therefor, or to exercise any lien upon or right of
appropriation of any monies, credits or property of Tenant, possessed by
Landlord, toward the liquidation of the Obligations, or by any application of
payments or credits thereon or by any failure, neglect or omission on the party
of Landlord to enforce the obligations of the other Guarantor, or by the
surrender, compromise, settlement, release, change, modification or other
disposition of the obligations of the other Guarantors. Landlord shall have the
exclusive right to determine how, when and what application of payments and
credits, if any, shall be made on the Obligations, or any part thereof. In order
to hold Guarantor liable hereunder, there shall be no obligation on the part of
Landlord, at any time, to resort for payment to Tenant or to any other Guaranty,
or to any other persons or corporations, their properties or estates, or resort
to any collateral, security, property liens or other rights or remedies
whatsoever, and Landlord shall have the right to enforce this Guaranty
irrespective of whether or not other proceedings or steps seeking resort to or
realization upon or from any of the foregoing are pending.
a. All Landlord's diligence in collection or protection, and all
Landlord's demand and notice, as to any and everyone, whether or not Tenant or
Guarantor or others, of default and of non-payment and of the creation and
existence of any and all of the Obligations, and of any security and collateral
therefor, and of the acceptance of this Guaranty, and of any and all extensions
of credit and indulgence hereunder, are waived.
3. Notwithstanding any other provision of this Guaranty to the contrary,
Guarantor hereby waives any claim or other rights which Guarantor may now have
or hereafter acquire against Tenant or any other guarantor of all or any of
Tenant's obligations under the Lease that arise from the existence or
performance of Guarantor's obligations under this Guaranty or otherwise (all
such claims and rights are referred to as "Guarantor's Conditional Rights"),
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, or indemnification, any right to participate in any
claim or remedy of Landlord against Tenant or any collateral which Landlord now
has or hereafter acquires, whether or not such claim, remedy, or right arises in
equity or under contract, statute or common law, by any payment made hereunder
or otherwise, including without litigation, the right to take or receive from
Tenant, director or indirectly, in cash or other property or by setoff or in any
other manner payment, or security on account of such claim or other rights. If,
notwithstanding the foregoing provisions, any amount shall be paid to Guarantor
on account of any such Guarantors conditional rights and either (a) such amount
is paid to Guarantor at any time when any of Tenant's obligations under the
Lease shall not have been paid or performed in full, or (b) regardless of when
such amount is paid to Guarantor, any payment made by Tenant to landlord is at
any time determined to be a Preferential Payment, then such amount paid to
Guarantor shall be held in trust for the benefit of Landlord and shall forthwith
be paid to landlord to be
2
<PAGE>
credited and applied upon Tenant's obligations under the Lease, whether matured
or unmatured, in such order as Landlord, in its sole and absolute discretion,
shall determine. To the extent that any of the foregoing provisions of this
Section 4 shall not be enforceable, Guarantor agrees that until the period of
- ---------
time has expired during which any payment made by Tenant or Guarantor to
Landlord may be determined to be a Preferential Payment, Guarantor's Conditional
Rights to the extent not validly waived shall be subordinate to Landlord's right
to full payment and performance of all the obligations of Tenant under the Lease
and Guarantor shall not enforce Guarantor's Conditional Rights during such
period.
4. Landlord may, without any notice whatsoever to any, sell, mortgage,
encumber, hypothecate, assign or transfer the Lease and all of the Obligations,
or any part thereof, or grant participation therein, and in that event each and
every immediate and successive grantor, mortgagor, trustee under a trust deed in
the nature of a mortgage, assignee, transferee, or holder or participant in all
or any part of the Lease or Obligations, shall have the right to enforce this
Guaranty, by suit or otherwise, for the benefit of such grantor, mortgagor,
trustee under a trust deed in the nature of a mortgage, assignee, transferee,
holder or participant, as fully as if such grantor, mortgagor, trustee under a
trust deed in the nature of the mortgage, assignee, transferee, holder or
participant were herein by name specifically given such rights, powers and
benefits; but Landlord shall have an unimpaired right to enforce this Guaranty
for the benefit of Landlord or any such participant, as to so much of the
Obligations that it has not sold, assigned or transferred.
5. Guarantor waives any and all defenses, claims and discharges of Tenant,
or any other obligor, pertaining to the Obligations, except the defense of
discharge by payment in full. Without limiting the generality of the foregoing,
Guarantor will not assert, plead or enforce against Landlord any defense of
waiver, release, discharge in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to Tenant or any other
person liable in respect of any of the Obligations, or any setoff available
against Landlord to Tenant or any such other person, whether or not on account
of a related transaction. Guarantor agrees that Guarantor shall be and remain
liable for any deficiency remaining after foreclosure of any collateral securing
the Obligations, whether or not the liability of Tenant or any other obligor for
such deficiency is discharged pursuant to statute or judicial decision.
6. Landlord's rights under this Guaranty will not be exhausted by any
action by Landlord until all of the Obligations have been fully paid and
performed and the period of time has expired during which any payment made by
Tenant or Guarantor to Landlord may be determined to be a Preferential Payment
(hereinafter defined). Guarantor further agrees that to the extent Tenant or
Guarantor makes any payment to Landlord in connection with the obligations of
Tenant under the Lease and all or any part of such payment is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid by Landlord or paid over to a trustee, receiver, or any other entity,
whether under any bankruptcy act or otherwise (any such payment is hereinafter
referred to as a "Preferential Payment"), then this Guaranty shall continue to
be effective or shall be reinstated, as the case may be, and, to the extent of
such payment or repayment by Landlord, the obligations or part thereof intended
to be satisfied by such Preferential Payment shall be revived arid continued in
full force and effect as if said Preferential Payment had not been made.
7. Any debt, Obligations, obligations and liabilities (the "Debts") of
Tenant now or hereafter held by Guarantor, is hereby subordinated to the
Obligations of Tenant to Landlord;
3
<PAGE>
and, in the event of a default by Tenant under the Lease, such Debts of Tenant
to Guarantor if Landlord so requests shall be collected, enforced and received
by Guarantor as trustee for Landlord and shall be paid over to Landlord on
account of the Obligations of Tenant to Landlord, but without reducing or
affecting in any manner the liability of Guarantor under the other provisions of
this Guaranty.
8. Guarantor agrees at any time and from time to time, on not less than
fourteen (14) days prior request by Landlord, to execute, acknowledge and
deliver to Landlord and such Landlord's proposed grantors, mortgagees, trustee
under a trust deed in a nature of a mortgage, successor or Tenant of the
Obligations a statement in writing certifying that this Guaranty is unmodified
and in full force or effect (or if the same has been modified, that the same is
in full force and effect as modified and stating the modifications) and stating
whether Guarantor claims any defenses, offsets or counterclaims against the
enforcement of this Guaranty (and if so, the nature and amount of such defense,
offset or counterclaim). Guarantor understands that the written certificate
delivered pursuant to this paragraph may be relied upon by any prospective
purchaser, mortgagee or trustee under a trust deed in the nature of a mortgage
of the Lease or Obligations.
9. Guarantor hereby consents to any remedy pursued by Landlord or its
successor in interest to enforce its rights under the Lease, in whatever order
such party may choose, including any remedies which may affect or destroy
Guarantor's right of subrogation, contribution or reimbursement or the right of
Guarantor to proceed against Tenant for reimbursement. Without limiting the
generality of the foregoing, Guarantor hereby waives any rights Guarantor may
have under California Civil Code sections 2809, 2819, 2845, 2849, and 2850, as
they may be amended or modified from time to time, and any similar or successor
statutes. Landlord shall have no obligation to protect, secure or insure the
real estate, including all improvements thereon, described in the Lease or any
security or additional security, security interests, liens or encumbrances of
any collateral or additional collateral or interests in properties subject
thereto. Guarantor agrees that there are no conditions or limitations to
Landlord's right to enforce this Guaranty.
10. Any invalidity or unenforceability of any provision or application of
this Guaranty shall not affect other lawful provisions and applications hereof,
and to this end the provisions of this Guaranty are declared to be severable.
This Guaranty shall be construed according to the laws of the State of
California, in which State it shall be performed by Guarantor and may not be
waived, amended, released or otherwise changed except by a writing signed by
Landlord.
11. Guarantor agrees that Landlord shall have the right to file lawsuits
from time to time against Guarantor to enforce this Guaranty in any court or
courts of competent jurisdiction in Los Angeles County, State of California, and
in furtherance thereof, Guarantor hereby submits itself to and consents to the
jurisdiction of any such court of competent jurisdiction for lawsuits in Los
Angeles County, State of California.
12. If any legal action is brought to enforce or interpret any part of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs in connection therewith. Any judgment
shall include an attorneys' fees clause which shall entitle the judgment
creditor to recover attorneys' fees incurred to enforce a judgment hereon, which
attorneys' fees shall be an element of post-judgment costs. The "prevailing
party" shall be the party who is entitled to recover his costs of suit whether
or not the suit proceeds to final judgment. The successful or prevailing party
in any legal action brought to
4
<PAGE>
enforce or interpret any part of this Agreement shall be entitled to recover
reasonable attorneys' fees and other costs incurred after a judgment has been
entered in defending, perfecting or enforcing the judgment, which attorneys'
fees shall be an element of post-judgment costs. The parties agree that this
post-judgment attorneys' fee provision is a distinct contractual agreement
severable from the rights set forth elsewhere in this Agreement and shall not
merge into any judgment enforcing or interpreting any other part of this
agreement.
13. This Guaranty and every part thereof shall be effective upon delivery
to Landlord, without further act, condition or acceptance by Landlord, shall be
binding upon Guarantor and upon its successors and assigns and shall inure to
the benefit of Landlord, its grantors, mortgagees, trustees under a trust deed
in nature of a mortgage, successors and assigns. Guarantor waives notice of
Landlord's acceptance hereof.
SIGNED AND DELIVERED by Guarantor, at Beverly Hills, California, this 1/st/
day of December, 1998.
/s/ Steven D. Lebowitz
--------------------------
STEVEN D. LEBOWITZ
439 N. Bedford Drive
Beverly Hills, CA 90210
/s/ Daniel M. Gottlieb
--------------------------
DANIEL M. GOTTLIEB
439 N. Bedford Drive
Beverly Hills, CA 90210
5
<PAGE>
EXHIBIT 10.79
Lease Guaranty
--------------
This GUARANTY OF LEASE ("Guaranty") is made and entered into as of the 1/st/
day of December, 1998, and is by and between STEVEN D. LEBOWITZ and DANIEL M.
GOTTLIEB (collectively "Guarantor) in favor of G&L CORONADO LLC, a Delaware
limited liability company ("Landlord") with respect to the following
circumstances:
1. Landlord has entered into a lease ("Lease"), dated concurrently
herewith, with CORONADO MANAGERS CORP., a Delaware corporation ("Tenant"),
whether acting on behalf of itself or any estate created by the commencement of
a case under Title 11 of the United States Code or any successor statute thereto
(the "Bankruptcy Code") or any other insolvency, bankruptcy, reorganization or
liquidation proceeding, or by any trustee under the Bankruptcy Code, liquidator,
sequestrator or receiver of Tenant or Tenant's property or similar person duly
appointed pursuant to any law generally governing any insolvency, bankruptcy,
reorganization, liquidation, receivership or like proceedings.
2. In consideration of Landlord entering into the Lease with Tenant,
and with full knowledge that Landlord would not have entered into the Lease with
Tenant were it not for the agreements of Guarantor hereunder, Guarantor hereby
agrees as follows:
a. Guarantor hereby guarantees the full, faithful and timely
payment and performance by Tenant of all of the payments, covenants and other
obligations of Tenant under or pursuant to the Lease (all of which shall
hereinafter be referred to as the "Obligations"). If Tenant shall default at any
time in the payment of any rent or any other sums, costs, or charges whatsoever,
or in the performance of any of the other covenants and obligations of Tenant,
under or pursuant to the Lease, then Guarantor(s), at Guarantor's expense, shall
on demand of Landlord fully and promptly, and pay all rent, sums, costs and
charges to be paid by Tenant, and perform all the other covenants and
obligations to be performed by Tenant under or pursuant to the Lease. In
addition, Guarantor shall, on Landlord's demand, pay to Landlord any and all
sums due to Landlord, including (without limitation) all interest and late
charges with respect to past due obligations of Tenant, costs advanced by
Landlord, and damages and all expenses (including attorneys' fees and litigation
costs) that may arise in consequence of Tenant's default. Guarantor hereby
waives all requirements of notice of the acceptance of this Guaranty. Guarantor
specifically agrees that this is a guaranty of payment and performance, not of
collection or satisfaction of judgment.
b. In case of the dissolution, liquidation or insolvency
(howsoever evidenced) of, or the institution of bankruptcy or receivership
proceedings against Tenant or Guarantor, all of the Obligations then existing
shall, at the option of Landlord, immediately become due or accrued and payable
from Guarantor. In the event of a default by Tenant under the Lease, all
dividends or other payments received thereafter by Guarantor from Tenant or on
account of the Obligations from whatsoever source, shall be taken and applied as
payment in gross, and this Guaranty shall apply to and secure any ultimate
balance that shall remain owing to Landlord.
<PAGE>
c. The liability hereunder shall in no way be terminated, diminished,
affected or impaired by (and Landlord is hereby authorized to maker from time to
time, without notice to Guarantor) any extensions, renewals, amendments,
indulgences, modifications, transfers or assignments in whole or in part of the
Lease by Landlord, whether or not notice thereof is given to Guarantor, by
reason of sums paid or payable to Landlord from the proceeds of any insurance
policy or condemnation award, sale, pledge, surrender, compromise, settlement,
release, renewal, extension, indulgence, alteration, substitution, exchange,
change in, modification or other disposition of any of the Obligations, either
express or implied, or of any security, additional security or collateral
therefor. The liability hereunder shall in no way be terminated, diminished,
affected or impaired by any acceptance by Landlord of any security or additional
security for, or other guarantors, or by the invalidity, unenforceability, loss
of, change in priority or reduction in value in or loss of value of any of the
security or additional security, or by any failure, neglect or omission on the
part of Landlord to realize upon or protect any of the Obligations, or any
collateral or security or additional security therefor, or to exercise any lien
upon or right of appropriation of any monies, credits or property of Tenant,
possessed by Landlord, toward the liquidation of the Obligations, or by any
application of payments or credits thereon or by any failure, neglect or
omission on the party of Landlord to enforce the obligations of the other
Guarantors or by the surrender, compromise, settlement, release, change,
modification or other disposition of the obligations of the other Guarantors.
Landlord shall have the exclusive right to determine how, when and what
application of payments and credits, if any, shall be made on the Obligations,
or any part thereof. In order to hold Guarantor liable hereunder, there shall be
no obligation on the part of Landlord, at any time, to resort for payment to
Tenant or to any other Guaranty, or to any other persons or corporations, their
properties or estates, or resort to any collateral, security, property liens or
other rights or remedies whatsoever, and Landlord shall have the right to
enforce this Guaranty irrespective of whether or not other proceedings or steps
seeking resort to or realization upon or from any of the foregoing are pending.
d. All Landlord's diligence in collection or protection, and all
Landlord's demand and notice, as to any and everyone, whether or not Tenant or
Guarantor or others, of default and of non-payment and of the creation and
existence of any and all of the Obligations, and of any security and collateral
therefor, and of the acceptance of this Guaranty, and of any and all extensions
of credit and indulgence hereunder, are waived.
3. Notwithstanding any other provision of this Guaranty to the contrary,
Guarantor hereby waives any claim or other rights which Guarantor may now have
or hereafter acquire against Tenant or any other guarantor of all or any of
Tenant's obligations under the Lease that arise from the existence or
performance of Guarantor's obligations under this Guaranty or otherwise (all
such claims and rights are referred to as "Guarantor's Conditional Rights").
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, or indemnification, any right to participate in any
claim or remedy of Landlord against Tenant or any collateral which Landlord now
has or hereafter acquires, whether or not such claim, remedy, or right arises in
equity or under contract, statute or common law, by any payment made hereunder
or otherwise, including without litigation, the right to take or receive from
Tenant, director or indirectly, in cash or other property or by setoff or in any
other manner payment, or security on account of such claim or other rights. If,
notwithstanding the foregoing provisions, any amount shall be paid to Guarantor
on account of any such Guarantors conditional rights and either (a) such amount
is paid to Guarantor at any time when any of
2
<PAGE>
Tenant's obligations under the Lease shall not have been paid or performed in
full, or (b) regardless of when such amount is paid to Guarantor, any payment
made by Tenant to landlord is at any time determined to be a Preferential
Payment, then such amount paid to Guarantor shall be held in trust for the
benefit of Landlord and shall forthwith be paid to landlord to be credited and
applied upon Tenant's obligations under the Lease, whether matured or unmatured,
in such order as Landlord, in its sole and absolute discretion, shall determine,
To the extent that any of the foregoing provisions of this Section 4 shall not
---------
be enforceable, Guarantor agrees that until the period of time has expired
during which any payment made by Tenant or Guarantor to Landlord may be
determined to be a Preferential Payment, Guarantor's Conditional Rights to the
extent not validly waived shall be subordinate to Landlord's right to full
payment and performance of all the obligations of Tenant under the Lease and
Guarantor shall not enforce Guarantor's Conditional Rights during such period.
4. Landlord may, without any notice whatsoever to any, sell, mortgage,
encumber, hypothecate, assign or transfer the Lease and all of the Obligations,
or any part thereof, or grant participation therein, and in that event each and
every immediate and successive grantor, mortgagor, trustee under a trust deed in
the nature of a mortgage, assignee, transferee, or holder or participant in all
or any part of the Lease or Obligations, shall have the right to enforce this
Guaranty, by suit or otherwise, for the benefit of such grantor, mortgagor,
trustee under a trust deed in the nature of a mortgage, assignee, transferee,
holder or participant, as fully as if such grantor, mortgagor, trustee under a
trust deed in the nature of the mortgage, assignee, transferee, holder or
participant were herein by name specifically given such rights, powers and
benefits; but Landlord shall have an unimpaired right to enforce this Guaranty
for the benefit of Landlord or any such participant, as to so much of the
Obligations that it has not sold, assigned or transferred.
5. Guarantor waives any and all defenses, claims and discharges of Tenant,
or any other obligor, pertaining to the Obligations, except the defense of
discharge by payment in full. Without limiting the generality of the foregoing,
Guarantor will not assert, plead or enforce against Landlord any defense of
waiver, release, discharge in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to Tenant or any other
person liable in respect of any of the Obligations, or any setoff available
against Landlord to Tenant or any such other person, whether or not on account
of a related transaction, Guarantor agrees that Guarantor shall be and remain
liable for any deficiency remaining after foreclosure of any collateral securing
the Obligations, whether or not the liability of Tenant or any other obligor for
such deficiency is discharged pursuant to statute or judicial decision.
6. Landlord's rights under this Guaranty will not be exhausted by any
action by Landlord until all of the Obligations have been fully paid and
performed and the period of time has expired during which any payment made by
Tenant or Guarantor to Landlord may be determined to be a Preferential Payment
(hereinafter defined). Guarantor further agrees that to the extent Tenant or
Guarantor makes any payment to Landlord in connection with the obligations of
Tenant under the Lease and all or any part of such payment is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid by Landlord or paid over to a trustee, receiver, or any other entity,
whether under any bankruptcy act or otherwise (any such payment is hereinafter
referred to as a "Preferential Payment"), then this Guaranty shall continue to
be effective or shall be reinstated, as the case may be, and, to
3
<PAGE>
the extent of such payment or repayment by Landlord, the obligations or part
thereof intended to be satisfied by such Preferential Payment shall be revived
and continued in full force and effect as if said Preferential Payment had not
been made.
7. Any debt, Obligations, obligations and liabilities (the "Debts") of
Tenant now or hereafter held by Guarantor, is hereby subordinated to the
Obligations of Tenant to Landlord; and, in the event of a default by Tenant
under the Lease, such Debts of Tenant to Guarantor if Landlord so requests shall
be collected, enforced and received by Guarantor as trustee for Landlord and
shall be paid over to Landlord on account of the Obligations of Tenant to
Landlord, but without reducing or affecting in any manner the liability of
Guarantor under the other provisions of this Guaranty.
8. Guarantor agrees at any time and from time to time, on not less than
fourteen (14) days prior request by Landlord, to execute, acknowledge and
deliver to Landlord and such Landlord's proposed grantors, mortgagees, trustee
under a trust deed in a nature of a mortgage, successor or Tenant of the
Obligations a statement in writing certifying that this Guaranty is unmodified
and in full force or effect (or if the same has been modified, that the same is
in full force and effect as modified and stating the modifications) and stating
whether Guarantor claims any defenses, offsets or counterclaims against the
enforcement of this Guaranty (and if so, the nature and amount of such defense,
offset or counterclaim). Guarantor understands that the written certificate
delivered pursuant to this paragraph may be relied upon by any prospective
purchaser, mortgagee or trustee under a trust deed in the nature of a mortgage
of the Lease or Obligations.
9. Guarantor hereby consents to any remedy pursued by Landlord or its
successor in interest to enforce its rights under the Lease, in whatever order
such party may choose, including any remedies which may affect or destroy
Guarantor's right of subrogation, contribution or reimbursement or the right of
Guarantor to proceed against Tenant for reimbursement. Without limiting the
generality of the foregoing, Guarantor hereby waives any rights Guarantor may
have under California Civil Code sections 2809, 2819, 2845, 2849, and 2850, as
they may be amended or modified from time to time, and any similar or successor
statutes, Landlord shall have no obligation to protect, secure or insure the
real estate, including all improvements thereon, described in the Lease or any
security or additional security, security interests, liens or encumbrances of
any collateral or additional collateral or interests in properties subject
thereto. Guarantor agrees that there are no conditions or limitations to
Landlord's right to enforce this Guaranty.
10. Any invalidity or unenforceability of any provision or application of
this Guaranty shall not affect other lawful provisions and applications hereof,
and to this end the provisions of this Guaranty are declared to be severable.
This Guaranty shall be construed according to the laws of the State of
California, in which State it shall be performed by Guarantor and may not be
waived, amended, released or otherwise changed except by a writing signed by
Landlord.
11. Guarantor agrees that Landlord shall have the right to file lawsuits
from time to time against Guarantor to enforce this Guaranty in any court or
courts of competent jurisdiction in Los Angeles County, State of California, and
in furtherance thereof, Guarantor hereby submits itself to and consents to the
jurisdiction of any such court of competent jurisdiction for lawsuits in Los
Angeles County, State of California.
4
<PAGE>
12. If any legal action is brought to enforce or interpret any part of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs in connection therewith. Any judgment
shall include an attorneys' fees clause which shall entitle the judgment
creditor to recover attorneys' fees incurred to enforce a judgment hereon, which
attorneys' fees shall be an element of post-judgment costs. The "prevailing
party" shall be the party who is entitled to recover his costs of suit whether
or not the suit proceeds to final judgment. The successful or prevailing party
in any legal action brought to enforce or interpret any part of this Agreement
shall be entitled to recover reasonable attorneys' fees and other costs incurred
after a judgment has been entered in defending, perfecting or enforcing the
judgment, which attorneys' fees shall be an element of post-judgment costs. The
parties agree that this post-judgment attorneys' fee provision is a distinct
contractual agreement severable from the rights set forth elsewhere in this
Agreement and shall not merge into any judgment enforcing or interpreting any
other part of this agreement.
13. This Guaranty and every part thereof shall be effective upon delivery
to Landlord, without further act, condition or acceptance by Landlord, shall be
binding upon Guarantor and upon its successors and assigns and shall inure to
the benefit of Landlord, its grantors, mortgagees, trustees under a trust deed
in nature of a mortgage, successors and assigns. Guarantor waives notice of
Landlord's acceptance hereof.
SIGNED AND DELIVERED by Guarantor, at Beverly Hills, California, this 1/st/
day of December, 1998.
/s/ Steven D. Lebowitz
-----------------------------
STEVEN D. LEBOWITZ
439 N. Bedford Drive
Beverly Hills, CA 90210
/s/ Daniel M. Gottlieb
-----------------------------
DANIEL M. GOTTLIEB
439 N. Bedford Drive
Beverly Hills, CA 90210
5
<PAGE>
Exhibit 11
G&L Realty Corp.
Computation of Per Share Earnings
Annual Report on Form 10-K
December 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
-------------------------- -----------------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net (Loss) Income $(3,054) $2,181 $ 4,343 $ 6,561
Less: Preferred Dividends
10.25% Series A Cumulative Preferred (958) (958) (3,832) (2,094)
9.8% Series B Cumulative Preferred (845) (781) (3,380) (781)
------- ------ ------- -------
Net (loss) income available to common
shareholders $(4,857) $ 441 $(4,857) $ 3,686
======= ====== ======= =======
Options outstanding 214 244 214 244
======= ====== ======= =======
Weighted average exercise price $ 14.49 $14.25 $ 14.49 $ 14.25
======= ====== ======= =======
Proceeds upon exercise price $ 3,094 $3,477 $ 3,094 $ 3,477
======= ====== ======= =======
Treasury stock shares 191 153 171 164
======= ====== ======= =======
Common share equivalents 23 91 43 80
Average shares outstanding 4,030 4,020 4,092 4,049
------- ------ ------- -------
Total common and common share equivalents
outstanding 4,053 4,111 4,135 4,129
======= ====== ======= =======
Per share earnings data:
- ------------------------
Basic $ (1.21) $ 0.19 $ (0.70) $ 0.91
======= ====== ======= =======
Fully diluted $ (1.21) $ 0.19 $ (0.70) $ 0.89
======= ====== ======= =======
</TABLE>
<PAGE>
Exhibit 12
G&L Realty Corp.
Computation of Ratio of Earnings to Fixed Charges
Annual Report on Form 10-K
December 31, 1998
(In thousands)
<TABLE>
<S> <C>
Net Income (earnings) $ 4,313
=======
Fixed Charges:
- --------------
Interest expense 8,495
Capitalized interest 545
Amortization of deferred financing costs 188
-------
Total fixed charges $ 9,228
=======
Total Fixed Charges and Preferred Dividends:
- --------------------------------------------
Total fixed charges $ 9,228
Preferred dividends 7,381
-------
Total fixed charges and preferred dividends $16,609
=======
Ratio of earnings to fixed charges and preferred dividends 0.82x
=======
</TABLE>
<PAGE>
Exhibit 21
G&L Realty Corp.
List of Subsidiaries
February 28, 1999
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
31. G&L Lyon, LLC
32. G&L Coronado (1998), LLC
33. G&L Parsons on Eagle Run, LLC
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,386
<SECURITIES> 0
<RECEIVABLES> 21,833
<ALLOWANCES> 5,582
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 196,083
<DEPRECIATION> 18,493
<TOTAL-ASSETS> 219,499
<CURRENT-LIABILITIES> 5,334
<BONDS> 134,880
0
29
<COMMON> 40
<OTHER-SE> 79,515
<TOTAL-LIABILITY-AND-EQUITY> 219,499
<SALES> 0
<TOTAL-REVENUES> 31,692
<CGS> 0
<TOTAL-COSTS> 6,171
<OTHER-EXPENSES> 12,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,683
<INCOME-PRETAX> 4,084
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,343
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
