<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-12566
______________
G & L REALTY CORP.
(Exact name of Registrant as specified in its charter)
Maryland 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
439 N. Bedford Drive
Beverly Hills, California 90210
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (310) 273-9930
______________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
The number of shares outstanding of the Registrant's Common Stock as of
November 13, 2000 was 2,333,800 shares.
================================================================================
<PAGE>
G&L REALTY CORP.
INDEX
<TABLE>
<CAPTION>
Page
Part I Financial Information Number
<S> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999........................................................ 3
Condensed Consolidated Statements of Operations for the Three and Nine
Month Periods Ended September 30, 2000 and 1999 (unaudited).................. 4
Condensed Consolidated Statements of Cash Flows for the Nine Month Periods
Ended September 30, 2000 and 1999 (unaudited)................................ 5 - 6
Notes to Condensed Consolidated Financial Statements (unaudited)............... 7 - 19
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 20 - 26
Item 3 Quantitative and Qualitative Disclosures About Market Risk..................... 27
Part II Other Information
Item 1 Legal Proceedings.............................................................. 28
Item 2 Changes in Securities.......................................................... 28
Item 3 Defaults Upon Senior Securities................................................ 28
Item 4 Submission of Matters to a Vote of Security Holders............................ 28
Item 5 Other Information.............................................................. 28
Item 6 Exhibits and Reports on Form 8-K............................................... 29 - 32
Signature ............................................................................... 33
</TABLE>
Page 2
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-----------------------------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Rental properties (Note 3):
Land $34,239 $33,388
Buildings and improvements, net 149,146 146,821
Projects under development 491 158
------- -------
Total rental properties 183,876 180,367
Cash and cash equivalents 259 7,545
Restricted cash 6,176 8,763
Tenant rent and reimbursements receivable, net 6,150 2,478
Unbilled rent receivable, net 2,377 2,346
Other receivables, net 68 171
Mortgage loans and notes receivable, net 15,756 16,026
Investments in unconsolidated affiliates (Note 6) 4,685 9,736
Deferred charges and other assets, net (Note 4) 5,242 4,964
-------- --------
TOTAL ASSETS $224,589 $232,396
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable $174,737 $177,371
Accounts payable and other liabilities 7,615 3,279
Distributions payable 419 452
Tenant security deposits 1,340 1,329
-------- --------
Total liabilities 184,111 182,431
Commitments and Contingencies (Note 8) --- ---
Minority interest in consolidated affiliates (1,020) (862)
Minority interest in Operating Partnership --- 772
STOCKHOLDERS' EQUITY (Note 5):
Preferred shares - $.01 par value, 10,000,000 shares authorized,
liquidation preference of $25.00 per share
. Series A Preferred - 1,495,000 shares issued and outstanding as
of September 30, 2000 and December 31, 1999 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding as
of September 30, 2000 and December 31, 1999 14 14
Common shares - $.01 par value, 50,000,000 shares authorized,
2,333,800 and 2,635,600 shares issued and outstanding as of
September 30, 2000 and December 31, 1999, respectively 23 26
Additional paid-in capital 72,441 75,412
Distributions in excess of net income (30,995) (25,412)
--------- --------
Total stockholders' equity 41,498 50,055
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $224,589 $232,396
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 3
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
2000 1999 2000 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental $ 6,275 $ 7,237 $ 19,325 $ 21,213
Patient revenues 5,681 --- 12,032 ---
Tenant reimbursements 401 335 1,127 945
Parking 322 313 932 851
Interest and loan fees 590 833 1,972 2,128
Net gain on sale of assets --- --- 1,263 ---
Other income 99 65 331 355
--------- -------- -------- --------
Total revenues 13,368 8,783 36,982 25,492
--------- -------- -------- --------
EXPENSES:
Property operations 1,906 1,951 5,841 5,617
Skilled nursing operations 5,235 --- 10,990 ---
Depreciation and amortization 1,472 1,473 4,538 4,208
Interest 3,491 3,315 10,335 8,827
Impairment of long-lived assets --- 6,400 --- 6,400
Provision for doubtful accounts and notes
receivable --- --- 2,288 ---
General and administrative 702 857 2,170 2,314
--------- -------- -------- --------
Total expenses 12,806 13,996 36,162 27,366
--------- -------- -------- --------
Income (loss) from operations before minority
interests, equity in (loss) earnings of
unconsolidated affiliates and extraordinary loss 562 (5,213) 820 (1,874)
Equity in (loss) earnings of unconsolidated affiliates (45) 23 (393) (247)
Minority interest in consolidated affiliates (27) (46) (133) (135)
Minority interest in Operating Partnership (78) 986 538 1,072
Income before extraordinary loss 412 (4,250) 832 (1,184)
Extraordinary loss on early retirement of long-term
debt --- --- (158) ---
--------- -------- -------- --------
Net income (loss) 412 (4,250) 674 (1,184)
Dividends on preferred stock (1,791) (1,803) (5,374) (5,409)
--------- -------- -------- --------
Net loss available to common stockholders $ (1,379) $ (6,053) $ (4,700) $ (6,593)
========= ======== ======== ========
Per common share data:
Basic:
-----
Loss before extraordinary loss $ (0.59) $ (1.56) $ (1.90) $ (1.68)
Extraordinary loss -- -- (0.06) ---
--------- -------- -------- --------
Net loss $ (0.59) $ (1.56) $ (1.96) $ (1.68)
========= ======== ======== ========
Fully diluted:
-------------
Loss before extraordinary loss $ (0.59) $ (1.56) $ (1.90) $ (1.68)
Extraordinary loss -- -- (0.06) --
--------- -------- -------- --------
Net loss $ (0.59) $ (1.56) $ (1.96) $ (1.68)
========= ======== ======== ========
Weighted average shares outstanding:
Basic 2,334 3,889 2,394 3,934
========= ======== ======== ========
Fully diluted 2,334 3,898 2,394 3,946
========= ======== ======== ========
</TABLE>
See accompanying notes to Condensed Financial Statements.
Page 4
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
--------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $674 $(1,184)
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 4,538 4,208
Amortization of deferred loan costs 449 257
Impairment of long-lived assets --- 6,400
Extraordinary loss on early retirement of long-term debt 158 ---
Net gain on sale of assets (1,263) ---
Minority interests (405) (937)
Equity in loss of unconsolidated affiliates 393 247
Provision for doubtful accounts and notes receivables 2,288 101
Unbilled rent receivable, net (141) (311)
(Increase) decrease in:
Other receivables 103 (116)
Tenant rent and reimbursements receivable (4,271) (463)
Prepaid expense and other assets (1,236) 101
Accrued interest receivable and loan fees 165 (906)
Increase (decrease) in:
Accounts payable and other liabilities 4,336 2,087
Tenant security deposits 11 (1)
----------------- ------------------
Net cash provided by operating activities 5,799 9,483
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate assets (10,385) ---
Sale of real estate assets 8,794 295
Additions to rental properties (2,326) (2,894)
Pre-acquisition costs 385 (850)
Construction-in-progress (333) (4,425)
Leasing commissions (97) (408)
Investment in mortgage loans and notes receivable, net (279) (2,709)
Distributions from unconsolidated affiliates 1,262 236
Principal repayments on notes receivable 468 101
Contributions to unconsolidated affiliates (292) (1,017)
----------------- ------------------
Net cash used in investing activities (2,803) (11,671)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 9,195 47,030
Repayment of notes payable (11,829) (20,949)
Payment of deferred financing costs (398) (778)
Decrease (increase) in restricted cash 2,587 (4,583)
Minority interest equity contribution 486 ---
Purchase of common and preferred stock and partnership units (2,974) (1,684)
Distributions (7,349) (10,914)
----------------- ------------------
Net cash (used in) provided by financing activities (10,282) 8,122
----------------- ------------------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 5
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
----------------- -------------------
(Unaudited)
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,286) 5,934
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,545 1,379
----------------- -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 259 $ 7,313
================= ===================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 9,916 $ 9,738
================= ===================
NONCASH INVESTING AND FINANCING ACTIVITIES
Distributions declared not yet paid $ 370 $ 559
================= ===================
Preferred distributions due to minority partner $ 43 $ 21
================= ===================
Transfer from investments in unconsolidated affiliates to notes receivable $ 3,070 ---
================= ===================
Transfer from projects under development to building --- $ 11,262
================= ===================
The Company acquired an interest in an unconsolidated affiliate for the
Following noncash consideration (Note 1):
Land $ 947
Construction in progress
775
-------------------
$ 1,722
===================
The Company exchanged its interest in land and construction in progress
For the following noncash consideration (Note 1):
Investment in unconsolidated affiliates $ 1,722
===================
Transfer note receivable to land and building:
Land $ 252
Building 1,009
-----------------
Total $ 1,261
=================
Notes receivable $ 1,261
=================
Concluded.
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 6
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
G&L Realty Corp. (the "Company") was formed as a Maryland corporation to
continue the ownership, management, acquisition and development activities
previously conducted by G&L Development, a California general partnership, the
Company's predecessor. All of the Company's assets are held by, and all of its
operations are conducted through, the following entities:
G&L Realty Partnership, L.P., a Delaware limited partnership
(the "Operating Partnership")
G&L Realty Financing Partnership II, L.P., a Delaware limited
partnership (the "Realty Financing Partnership")*
G&L Medical Partnership, L.P., a Delaware limited partnership
(the "Medical Partnership")*
G&L Gardens, LLC, an Arizona limited liability company
("Maryland Gardens")*
435 North Roxbury Drive, Ltd., a California limited partnership
(the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
G&L Hampden, LLC, a Delaware limited liability company ("Hampden")*
G&L Valencia, LLC, a California limited liability company ("Valencia")
G&L Tustin, LLC, a California limited liability company ("Tustin")*
G&L Holy Cross, LLC, a California limited liability company ("Holy
Cross")*
G&L Burbank, LLC, a California limited liability company ("Burbank")*
GLH Pacific Gardens, LLC, a California limited liability company
("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company ("Hoquiam")
G&L Lyon, LLC, a California limited liability company ("Lyon")
G&L Coronado (1998), LLC, a California limited liability company
("Coronado")
GLH Tarzana, LLC, a California limited liability company ("Tarzana")
G&L Heritage Care, LLC, a Delaware limited liability company
("Heritage")
G&L Massachusetts, LLC, a Delaware limited liability company
("Massachusetts")
G&L Aspen, LLC, a California limited liability company ("Aspen")
* The Realty Financing Partnership, the Medical Partnership, Maryland
Gardens, GL/PHP, Hampden, Tustin, Holy Cross, and Burbank are herein
collectively referred to as the "Financing Entities" and individually as
the "Financing Entity."
The Company, as the sole general partner and as owner of an approximately
79% ownership interest, controls the Operating Partnership. The Company controls
the Financing Entities through wholly owned subsidiaries incorporated either in
the State of Delaware or the State of California (collectively, the
"Subsidiaries" and individually, a "Subsidiary"). Each Subsidiary either (i)
owns, as sole general partner or sole managing member, a 1% ownership interest
in its related Financing Entity or (ii) owns no interest and acts as the manager
of the Financing Entity. The remaining 99% ownership interest in each Financing
Entity, which is owned 1% by a Subsidiary, is owned by the Operating
Partnership, acting as sole limited partner or member. Financing Entities in
which a Subsidiary owns no interest are 100% owned by the Operating Partnership.
References in these condensed 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), Tarzana (in which the
Operating Partnership owns a 85% membership interest and is a co-managing
member)
Page 7
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
and Hoquiam, Lyon, Coronado, Heritage, Massachusetts and Aspen (in which
the Operating Partnership owns a 100% interest).
In addition to the Subsidiaries, the Company also owns interests in
various unconsolidated affiliates. Although the Company's investment represents
a significant portion of the capital of such unconsolidated affiliates and the
Company exercises significant influence over the activities of these entities,
the Company does not have the requisite level of voting control to include the
assets, liabilities and operating activities of these entities in the condensed
consolidated financial statements of the Company. The entities in which the
Company has unconsolidated financial interests are as follows:
. GLN Capital Co., LLC ("GLN") is a Delaware limited liability company
formed in 1996. GLN 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.
. 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 medical office
building ("MOB") manager. The Company and Gary Grabel contributed to San
Pedro 84% and 16% 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 plus
preferred distributions equal to 17% per annum on their capital
contribution. San Pedro was formed for the purpose of acquiring three
MOBs located at 1360 West 6/th/ 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 plus
preferred distributions equal to 15% per annum on their capital
contribution. Penasquitos LLC was formed for the purpose of acquiring
and converting a building located in Rancho Penasquitos, California into
an assisted living facility.
. G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California corporation
formed on April 21, 1998 by the Company, through the Operating
Partnership, and Parsons House, LLC, a California limited liability
company. The Company owns 75% of the total equity in Penasquitos Inc.
in the form of non-voting preferred stock. Parsons holds 25% of the
total equity and all of the voting common stock. Penasquitos Inc. was
formed for the purpose of operating a senior care facility 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 an assisted living facility located
in Santa Monica, California, which was purchased by the Company. Since
July 1, 1999, Pacific Gardens Corp. has not operated the assisted living
facility and a wholly owned subsidiary of ASL assumed all of the assets
and liabilities of Pacific Gardens Corp. in order to operate the
facility.
. 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 developed an assisted living facility.
. G&L Parsons on Eagle Run, Inc. ("Eagle Run Inc.") is a California
corporation formed on December 20, 1998 by the Company, through the
Operating Partnership, and Parsons. Eagle Run Inc. was formed for the
purpose of operating an assisted living facility in Omaha, Nebraska on
the land acquired by Eagle Run.
. Lakeview Associates, LLC ("Lakeview") is a California limited liability
company, formed on September 2, 1999 by the Company, through the
Operating Partnership and D.D.&F. ("Prestige"), an Oregon general
partnership. The Company and Prestige each contributed 50% of the equity
of Lakeview. The Company contributed land and construction in progress
in exchange for 50% of the equity of Lakeview and two notes totaling
$1.4 million. Prestige contributed $250,000 for a 50% interest in
Lakeview. Lakeview was formed for the purpose of developing a two-story,
80 unit, 92 bed assisted living facility in Yorba Linda, California.
Page 8
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
. Tustin Heritage Park, LLC ("Heritage Park") is a California limited
liability company in which the Company has a 25% equity ownership
interest. In June 1999, the Company sold a vacant piece of land in
Tustin to Heritage Park. In exchange, the Company received $75,000 in
cash, a $425,000 first deed of trust and a 25% equity ownership interest
in Heritage Park. In September 2000, the first deed of trust was
increased to $675,000 in exchange for unearned development fees and an
extension of the note. Heritage Park intends to develop a 53-unit senior
apartment residence on the land.
GLN, San Pedro, Penasquitos Inc., Penasquitos LLC, Pacific Gardens Corp., Eagle
Run, Eagle Run, Inc., Lakeview and Heritage Park are herein collectively
referred to as the "Unconsolidated Affiliates" and individually as
"Unconsolidated Affiliate".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is a self-managed Real Estate Investment Trust
("REIT") that acquires, develops, manages, finances and leases healthcare
properties. The Company's business currently consists of investments in
healthcare properties and in debt obligations secured by healthcare properties.
Investments in healthcare properties consist of acquisitions, made either
directly or through joint ventures, in medical office buildings ("MOBs"),
skilled nursing facilities ("SNFs") or assisted living facilities ("ALFs"). The
Company's lending activities consist of providing short-term secured loans to
facilitate third party acquisitions of healthcare properties.
Basis of Presentation - The accompanying condensed consolidated
financial statements include the accounts of the Company. The interests in the
Roxbury Partnership, Valencia, Pacific Gardens and Tarzana that are not owned by
the Company, have been reflected as minority interests. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The information presented as of and for the nine-month periods ended
September 30, 2000 and 1999 has not been audited by independent accountants, but
includes all adjustments (consisting of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the results
for such periods. The results of operations for the nine months ended September
30, 2000 are not necessarily indicative of results that might be expected for
the full fiscal year.
Certain information and footnote disclosures normally included in
annual financial statements have been omitted. The Company believes that the
disclosures included in these financial statements are adequate for a fair
presentation and conform to reporting requirements established by the Securities
and Exchange Commission ("SEC"). These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes included in the Company's annual report on Form 10-K as
filed with the SEC.
New Accounting Pronouncements - In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." SAB 101 provides guidance on
applying generally accepted accounting principles to revenue recognition issues
in financial statements. The Company is required to adopt SAB 101 in the fourth
quarter of 2000. Management does not expect the adoption of SAB 101 to have a
material effect on the Company's results of operations or financial position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transaction Involving
Stock Compensation." The Company is required to adopt FIN 44 effective July 1,
2000 with respect to certain provisions applicable to new awards, exchanges of
awards in a business combination, modifications to outstanding awards and
changes in grantee status that occur on or after that date. FIN 44 addresses
practice issues related to the application of Accounting Practice Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company does not
expect the application of FIN 44 to have a material impact on its consolidated
financial position or results of operations.
Page 9
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. BUILDINGS AND IMPROVEMENTS
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------------------
(in thousands)
<S> <C> <C>
Buildings and improvements.................................... $ 165,212 $ 160,360
Tenant improvements........................................... 8,917 7,705
Furniture, fixtures and equipment............................. 3,118 2,668
--------------- --------------
177,247 170,733
Less accumulated depreciation and amortization................ (28,101) (23,912)
--------------- --------------
Total.................................................. $ 149,146 $ 146,821
=============== ==============
</TABLE>
Rental property is recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets as follows:
Buildings and improvements.................... 40 years
Tenant improvements........................... Life of lease
Furniture, fixtures and equipment............. 5 to 7 years
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and all external costs directly related to
acquisitions are capitalized.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION> September 30, December 31,
2000 1999
---------------------------------------
(in thousands)
<S> <C> <C>
Deferred financing costs..................................... $ 4,078 $ 3,844
Pre-acquisition costs........................................ 236 621
Leasing commissions.......................................... 1,553 1,711
Prepaid expense and other assets............................. 1,223 57
----------------- ---------------
7,090 6,233
Less accumulated amortization................................ (1,848) (1,269)
----------------- ---------------
Total................................................... $ 5,242 $ 4,964
================= ===============
</TABLE>
Page 10
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. STOCKHOLDERS' EQUITY
Distributions in excess of net income-- The Company has elected to be
treated, for federal income tax purposes, as a REIT. As such, the Company is
required to distribute annually, in the form of distributions to its
stockholders, at least 95% of its taxable income. In reporting periods in which
distributions exceed net income, stockholders' equity will be reduced by the
distributions in excess of net income in such period and will be increased by
the excess of net income over distributions in reporting periods in which net
income exceeds distributions. For tax reporting purposes, a portion of the
dividends declared represents a return of capital. The following table
reconciles net income and distributions in excess of net income for the nine
months ended September 30, 2000 and for the year ended December 31, 1999:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------------------------
(in thousands)
<S> <C> <C>
Distributions in excess of net income at beginning of period...... $ (25,412) $ (12,194)
Net income (loss) during period................................... 674 (2,115)
Less: Distributions declared...................................... (6,257) (11,103)
--------------- -------------
Distributions in excess of net income (loss)...................... $ (30,995) $ (25,412)
=============== =============
</TABLE>
Earnings per common 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 period. 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. The treasury stock method is used to
determine the number of incremental common equivalent shares resulting from
options to purchase shares of common stock granted under the Company's 1993
Stock Incentive Plan, as amended. As of September 30, 2000 and 1999 there were
approximately 250,500 and 213,500 stock options outstanding with weighted
average exercise prices of $11.31 and $14.49, respectively. For the nine months
ended September 30, 2000 and 1999, 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 three and nine months ended September 30, 2000 and 1999:
Page 11
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Numerator:
----------
Net income $ 412 $ (4,250) $ 674 $ (1,184)
Preferred stock dividends (1,791) (1,803) (5,374) (5,409)
---------- ----------- ---------- ----------
Net loss available to common stockholders $ (1,379) $ (6,053) $ (4,700) $ (6,593)
========== =========== ========== ==========
Denominator:
------------
Weighted average shares - basic 2,334 3,889 2,394 3,934
Dilutive effect of stock options --- 9 --- 12
---------- ----------- ---------- ----------
Weighted average shares - fully diluted 2,334 3,898 2,394 3,946
========== =========== ========== ==========
Per share:
----------
Basic $ (0.59) $ (1.56) $ (1.96) $ (1.68)
Dilutive effect of stock options --- --- --- ---
---------- ----------- ---------- ----------
Fully diluted $ (0.59) $ (1.56) $ (1.96) $ (1.68)
========== =========== ========== ==========
</TABLE>
At various times during the nine months ended September 30, 2000 the
Company repurchased a total of 301,800 shares of the Company's Common Stock at
an average price of approximately $9.16 per share.
During the nine months ended September 30, 2000 the Company also
purchased 7,700 shares of its Series A Preferred Stock at an average price of
$15.03 and 4,600 shares of its Series B Preferred Stock at an average price of
$14.68.
Page 12
<PAGE>
G&L REALITY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in various unconsolidated affiliates as described in
Note 1. The following table provides a summary of the Company's investment in
each of these entities as of September 30, 2000. (In thousands).
<TABLE>
<CAPTION>
Valley San Penasquitos Penasquitos Tustin Pacific
GLN Convalescent Pedro LLC Inc. Heritage Gardens, Inc.
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Opening balance at beginning
of period ............. $ 776 $ 323 $ 1,070 $ 1,379 $ 106 $ -- $ (312)
Equity in (loss) earnings of
affiliates ............ (9) (8) 79 (101) -- -- --
Cash contributions ......... -- -- -- -- -- --
Cash distributions ......... -- (315) (48) (1,128) (86) -- --
Equity, before inter-company
------- ------------ ---------- ---------- ---------- --------- -----------
adjustments ........... 767 -- 1,101 150 20 -- (312)
------- ------------ ---------- ---------- ---------- --------- -----------
Intercompany transactions:
Receivable (payable), net .. 64 -- 57 241 (20) 13 1
Investment in unconsolidated
------- ------------ ---------- ---------- ---------- --------- -----------
affiliates ............ $ 831 $ -- $ 1,158 $ 391 $ -- $ 13 $ (311)
======= ============ ========== ========== ========== ========= ===========
<CAPTION>
Eagle Run, Eagle Run, Lakeview
Inc. LLC Assoc. Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Opening balance at beginning
of period ............. $ 61 $ 654 $ 250 $ 4,307
Equity in (loss) earnings of
affiliates ............ (346) (8) -- (393)
Cash contributions .........
Cash distributions ......... -- -- -- (1,577)
Equity, before inter-company
----------- ------------ ------------ ----------
adjustments ........... (285) 646 250 2,337
----------- ------------ ------------ ----------
Intercompany transactions:
Receivable (payable), net .. 6 47 1,939 2,348
Investment in unconsolidated
----------- ------------ ------------ ----------
affiliates ............ $ (279) $ 693 $ 2,189 $ 4,685
=========== ============ ============ ==========
</TABLE>
Page 13
<PAGE>
G&L REALITY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Following is a summary of the condensed financial information of each of
the unconsolidated affiliates as of and for the nine months ended September 30,
2000. (In thousands).
<TABLE>
<CAPTION>
Pacific
Valley San Penasquitos Penasquitos Tustin Gardens Eagle Run
GLN Convalescent Pedro LLC Inc. Heritage Corp. Inc.
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Position:
------------------
Land ........................ $ -- $ -- $ 1,882 $ 641 $ -- $ 750 $ -- $ --
Buildings ................... -- -- 4,255 6,477 -- -- -- --
Notes receivable, net ....... 1,551 -- -- -- -- -- -- --
Other assets ................ -- -- 177 1,104 -- 134 -- 392
Notes payable ............... -- -- (4,751) (7,976) -- (829) -- --
Other liabilities ........... (21) -- (350) (124) (10) (55) (349) (960)
------ ------- ------- -------- ----- ------- ------ -------
Net assets ....................... $1,530 $ -- $ 1,213 $ 122 $ (10) $ -- $ (349) $ (568)
====== ======= ======= ======== ===== ======= ====== =======
Partner's equity:
----------------
G&L Realty Partnership, L.P. $ 767 $ -- $ 1,101 $ 150 $ 20 $ -- $ (312) $ (285)
Others ...................... 763 -- 112 (28) (30) -- (37) (283)
------ ------- ------- -------- ----- ------- ------ -------
Total equity ..................... $1,530 $ -- $ 1,213 $ 122 $ (10) $ -- $ (349) $ (568)
====== ======= ======= ======== ===== ======= ====== =======
Operations:
----------
Revenues .................... $ -- $ 83 $ 879 $ 622 $ -- $ -- $ -- $ 1,232
Expenses .................... (17) (99) (800) (824) -- -- -- (1,924)
------ ------- ------- -------- ----- ------- ------ -------
Net (loss) income ................ $ (17) $ (16) $ 79 $ (202) $ -- $ -- $ -- $ (692)
====== ======= ======= ======== ===== ======= ====== =======
Allocation of net (loss) income:
-------------------------------
G&L Realty Partnership, L.P. $ (9) $ (8) $ 79 $ (101) $ -- $ -- $ -- $ (346)
Others ...................... (8) (8) -- (101) -- -- -- (346)
------ ------- ------- -------- ----- ------- ------ -------
Net (loss) income ................ $ (17) $ (16) $ 79 $ (202) $ -- $ -- $ -- $ (692)
====== ======= ======= ======== ===== ======= ====== =======
<CAPTION>
Eagle Rum Lakeview
Inc. Associates Total
-------------------------------
<S> <C> <C> <C>
Financial Position
------------------
Land ........................ $ 1,191 $ 947 $ 5,411
Buildings ................... 4,997 -- 15,729
Notes receivable, net ....... -- -- 1,551
Other assets ................ 836 1,681 4,324
Notes payable ............... (5,730) (1,506) (20,792)
Other liabilities ........... (15) (568) (2,452)
------- -------- --------
Net assets ....................... $ 1,279 $ 554 $ 3,771
======= ======== ========
Partner's equity:
G&L Realty Partnership, L.P. $ 646 $ 250 $ 2,337
Others ...................... 633 304 1,434
------- -------- --------
Total equity ..................... $ 1,279 $ 554 $ 3,771
======= ======== ========
Operations:
----------
Revenues .................... $ 622 $ -- $ 3,438
Expenses .................... (639) -- (4,303)
------- -------- --------
Net (loss) income ................ $ (17) $ -- $ (865)
======= ======== ========
Allocation of net (loss) income:
-------------------------------
G&L Realty Partnership, L.P. $ (8) $ -- $ (393)
Others ...................... (9) -- (472)
------- -------- --------
Net (loss) income ................ $ (17) $ -- $ (865)
======= ======== ========
</TABLE>
Page 14
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. SEGMENT INFORMATION
In prior years, the Company has presented segment information based on the
following types of investments: direct real estate investments in healthcare
properties and debt obligations secured by healthcare properties. The Company
believes that the composition of its direct real estate investments has changed
to the extent that greater segment disclosure is necessary. The Company's
business currently consists of the following segments:
. Medical office buildings - These investments consist of 24 high
quality MOBs, two retail facilities and . one parking facility
totaling approximately 890,000 square feet and all located in Southern
California. These properties are owned either directly by the Company
or indirectly through joint ventures.
. Skilled nursing facilities - These investments consist of seven SNFs,
one senior apartment complex which is located adjacent to the SNF in
Phoenix, Arizona and one hospital located in Tustin, California. The
SNFs are located in Hampden, Massachusetts, Phoenix, Arizona, Hoquiam,
Washington and Chico and Paso Robles, California. Two of the SNFs were
acquired through foreclosure in the first quarter of 2000 and are
currently not operating. The five operating SNFs contain over 600 beds
that are typically occupied by residents who require a high level of
daily nursing care. The hospital consists of 183 beds and is 100%
leased to a third-party operator. All of the SNFs, the apartment
complex and the hospital are owned 100% by the Company. In addition,
the Company currently holds the operating license in four of the seven
SNFs. On March 15, 2000, the Company obtained licenses from the
Commonwealth of Massachusetts to operate the three SNFs owned by the
Company in Hampden, Massachusetts. The Company then entered into a
management agreement with a third-party company to manage the
facility. As a result, all of the assets, liabilities, revenues and
expenses of these SNFs for the period from March 15, 2000 through
September 30, 2000 are reflected in the condensed consolidated
financial statements of the Company and the segment information
provided below. The Company also holds the license to operate its SNF
located in Phoenix, Arizona. On April 1, 2000, the Company terminated
its lease with the operator of this SNF and entered into a management
agreement with a new manager. For the nine months ended September 30,
2000, the assets, liabilities, revenues and expenses of this SNF are
also included in the condensed consolidated financial statements of
the Company. Furthermore, the Company will be required to pay the
applicable corporate income tax on any net income produced by these
SNFs, although the Company's REIT status will not be affected. While
the Company does not intend to hold these operating licenses for the
long term, the Company believes it is currently in the best interests
to own the licenses to operate these facilities.
. Assisted living facilities - These investments consist of four ALFs,
all owned through joint ventures. The four ALFs contain over 350 units
that are typically occupied by residents who require a less intense
level of care in comparison to the SNFs. The Company's joint venture
partner in each of these ALFs operates the facility.
. Debt obligations - These investments consist of short-term secured
loans made to third parties to facilitate the acquisition of
healthcare facilities. As of September 30, 2000, the Company had eight
loans outstanding totaling $15.5 million.
The tables on the following pages reconcile the Company's income and
expense activity for the nine months ended September 30, 2000 and 1999 and
balance sheet data as of September 30, 2000.
Page 15
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2000 Reconciliation of Reportable Segment Information
For the nine months ended September 30, 2000
<TABLE>
<CAPTION>
Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ ------- -------- ----------- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and
parking ............................. $ 18,366 $ 1,084 $ 1,934 $ --- $ --- $ 21,384
Patient revenues....................... --- 12,032 --- --- --- 12,032
Interest and loan fees................. 187 10 --- 1,714 61 1,972
Net gain on sale of assets............. 1,405 (142) --- --- --- 1,263
Other income........................... 173 111 --- --- 47 331
--------- -------- -------- ----------- ------- --------
Total revenues...................... 20,131 13,095 1,934 1,714 108 36,982
--------- -------- -------- ----------- ------- --------
Expenses:
Property operations.................... 5,264 360 110 107 --- 5,841
Skilled nursing operations............. --- 10,990 --- --- --- 10,990
Depreciation and amortization.......... 3,424 700 364 --- 50 4,538
Interest............................... 6,864 1,557 1,141 651 122 10,335
Provision for doubtful accounts and
notes receivable..................... --- 563 --- 1,725 --- 2,288
General and administrative............. --- --- --- --- 2,170 2,170
--------- -------- -------- ----------- ------- --------
Total expenses...................... 15,552 14,170 1,615 2,483 2,342 36,162
--------- -------- -------- ----------- ------- --------
Income (loss) from operations............. 4,579 (1,075) 319 (769) (2,234) 820
Equity in earnings (loss) of
unconsolidated affiliates.............. 79 (8) (455) (9) --- (393)
--------- -------- -------- ----------- ------- --------
Income (loss) from operations before
minority interests..................... $ 4,658 $ (1,083) $ (136) $ (778) $(2,234) $ 427
======== ======== ======== =========== ======= ========
</TABLE>
1999 Reconciliation of Reportable Segment Information
For the nine months ended September 30, 1999
<TABLE>
<CAPTION>
Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ ------- ------ ----------- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and
parking .............................. $ 19,197 $ 2,879 $ 933 $ --- $ --- $ 23,009
Interest and loan fees.................. 220 19 1 1,795 93 2,128
Other income............................ 108 --- --- --- 247 355
--------- -------- -------- ----------- ------- --------
Total revenues....................... 19,525 2,898 934 1,795 340 25,492
--------- -------- -------- ----------- ------- --------
Expenses:
Property operations..................... 5,421 160 6 30 --- 5,617
Depreciation and amortization........... 3,282 661 201 --- 64 4,208
Impairment of long-lived assets......... 6,400 --- --- --- --- 6,400
Interest................................ 7,205 605 580 (33) 470 8,827
General and administrative.............. --- --- --- --- 2,314 2,314
--------- -------- -------- ----------- ------- --------
Total expenses....................... 22,308 1,426 787 (3) 2,848 27,366
--------- -------- -------- ----------- ------- --------
(Loss) income from operations.............. (2,783) 1,472 147 1,798 (2,508) (1,874)
Equity in earnings (loss) of
unconsolidated affiliates............... 216 (25) (492) 54 --- (247)
--------- -------- -------- ----------- ------- --------
(Loss) income from operations before
minority interests......................... $ (2,567) $ 1,447 $ (345) $ 1,852 $(2,508) $ (2,121)
========= ======== ======== =========== ======= ========
</TABLE>
Page 16
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2000 Reconciliation of Reportable Segment Information
As of September 30, 2000
<TABLE>
<CAPTION>
Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ ------- ------ ----------- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental properties......................... $ 130,419 $ 30,763 $ 21,952 $ --- $ 251 $183,385
Mortgage loans and notes receivable, net.. --- --- --- 15,756 --- 15,756
Other assets.............................. 13,782 6,107 4,002 2,017 (460) 25,448
---------- ---------- --------- ----------- ------- --------
Total assets......................... $ 144,201 $ 36,870 $ 25,954 $ 17,773 $ (209) $224,589
========== ========== ========= =========== ======= ========
Other assets:
Cash and cash equivalents............... $ 452 $ 126 $ 206 $ --- $ (525) $ 259
Restricted cash ........................ 4,654 681 49 792 --- 6,176
Tenant rent and reimbursement
receivable, net...................... 1,594 3,883 641 21 11 6,150
Unbilled rent receivable, net........... 2,278 99 --- --- --- 2,377
Other receivables, net.................. 13 --- --- 55 --- 68
Investment in unconsolidated affiliates 1,158 --- 2,696 831 --- 4,685
Deferred financing costs, net........... 1,703 693 367 255 --- 3,018
Pre-acquisition costs................... 124 49 --- 63 --- 236
Construction in progress................ 164 327 --- --- --- 491
Deferred lease costs, net............... 753 12 --- --- --- 765
Prepaid expense and other............... 889 237 43 --- 54 1,223
---------- ---------- --------- ----------- ------- --------
Total other assets................. $ 13,782 $ 6,107 $ 4,002 $ 2,017 $ (460) $ 25,448
========== ========== ========= =========== ======= ========
</TABLE>
8. 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, Tarzana, Heritage, Massachusetts, Aspen, 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, except as discussed below.
On August 15, 1997, a subsidiary of the Company, GL/PHP, LLC ("GL/PHP")
borrowed $16 Million from Nomura Asset Capital Corp. ("Nomura"), the proceeds of
which were used to repay a loan made by PHP Healthcare Corporation ("PHP") in
connection with the purchase by GL/PHP of six New Jersey primary care centers
(the "New Jersey Properties"). Nomura received a first lien against the real
properties. The New Jersey Properties were leased by Pinnacle Health
Enterprises, LLC ("Pinnacle"), a subsidiary of PHP, and PHP guaranteed the
lease. Concurrently with the $16 million loan, the Operating Partnership
obtained a new $2 million loan from PHP evidenced by a $2 million promissory
note payable to PHP. The note by its terms was nonnegotiable and provided for a
right of offset against payments of interest and principal in an amount equal to
any losses sustained by reason of any defaults by Pinnacle under its lease with
GL/PHP, discussed below.
As of August 15, 1997, Pinnacle leased the New Jersey Properties from
GL/PHP under the terms of a 17-year net operating lease. PHP guaranteed the
obligations of its subsidiary under the lease. In November 1998, Pinnacle filed
a Chapter 11 bankruptcy petition in the United States Bankruptcy Court of the
District of Delaware and its case was voluntarily converted to a Chapter 7 case.
Also in November 1998, PHP filed a Chapter 11 bankruptcy petition in the United
States Bankruptcy Court of the District of Delaware. CapMark Services, L.P.
("CapMark"), the loan servicer and successor to Amresco Management Inc., has
since foreclosed on its security and is in the process of taking title to the
New Jersey Properties.
The Operating Partnership filed a declaratory relief action in the New
Jersey State Court seeking a determination that LaSalle National Bank
("LaSalle"), the successor to Nomura, as trustee for the holders of certain
obligations including the
Page 17
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Nomura loan, did not have any rights against said $2 million note. LaSalle, by
and through CapMark, filed an action in March 2000 in the United States District
Court, Central District of California seeking to cause the Operating Partnership
to turn over the $2 Million borrowed from PHP as part of the security LaSalle
claims it is entitled to under the deed of trust and assignment of rent with
GL/PHP. After proceedings in both California and New Jersey, it was determined
that this matter will be heard in the Federal District Court in New Jersey. The
Operating Partnership believes that LaSalle is not entitled to these funds and
that LaSalle will not be successful in its claims but no assurances can be given
at this time that this result will be obtained.
In November 1999, Landmark Healthcare Facilities, LLC ("Landmark") filed a
lawsuit against Valencia, a subsidiary of the Company, claiming that Landmark is
entitled to approximately $600,000 plus interest under a development agreement
entered into between Valencia and Landmark for the development of an MOB in
Valencia, California. The Company is vigorously opposing the lawsuit and has
filed a counter suit to recover approximately $400,000 plus interest that was
already paid under the development agreement and for a judgment and declaration
that all of Landmark's rights, title and interest in Valencia have been
terminated or assigned to the Company. The litigation is in its earliest stages
and the likelihood of recovery by either party is therefore difficult to
determine at present.
The Company is the guarantor on a $500,000 letter of credit in favor of
NVHF Affiliates, LLC, a non-profit low-income apartment owner. The Company holds
an unsecured promissory note from NVHF Affiliates, LLC in the same amount. The
Company at this time does not anticipate having to pay anything under this
letter of credit.
The Cigna Health Care Building in Irwindale, California is a two-story MOB
which is 100% leased to Cigna Healthcare of California ("Cigna"). Rent
obligations under the lease are guaranteed by Cigna Health Care, Inc., the
parent company of Cigna. The lease also provides for certain rights against Med
Partners, Inc., a former sub-tenant of Cigna. The lease provides for monthly
rent of $91,000 triple net and expires on November 30, 2004. The property was
vacated in stages by Med Partners beginning in September 1998, but Med Partners
continued to pay rent until December 1999. In December 1999, Cigna and Med
Partners defaulted on the rent and the Company has sued both Cigna and Med
Partners to recover the delinquent rent payments. As of September 30, 2000, the
total delinquent amount was approximately $1.0 million. In addition, the Company
has received possession of the building and has hired a broker to lease the
building. Cigna, as lessee, and Cigna Health Care, Inc., as guarantor, both
remain liable for all future rent through the lease expiration date and all
costs of re-leasing the premises. Summary judgement proceedings are expected to
commence in November 2000. The Company believes that it is entitled a favorable
judgement, but no assurances can be given at this time that this result will be
obtained.
9. PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE
In November 1999, Lenox Healthcare, the manager of the Company's three
skilled nursing facilities located in Hampden, Massachusetts, filed for
bankruptcy. In December 1999, the Company reserved $2.0 million related to
delinquent rent and operating expense reimbursements from these facilities. In
January 2000, the bankruptcy court approved the cancellation of the Lenox
Healthcare management contract and the Company selected a new manager whose
initial performance has been very positive. The Company intends to retain the
new manager to continue to manage these facilities. On March 15, 2000, the
Company obtained licenses from the Commonwealth of Massachusetts to operate
these three SNFs. The Company believes that after the bankruptcy of the previous
two managers of these SNFs it was in the best interest of the facilities for the
Company to obtain the licenses. However, because the Company now owns the
operating licenses for these facilities, all of the assets, liabilities,
revenues and expenses of these facilities are reflected in the condensed
consolidated financial statements of the Company. Previously, the Company rented
these three facilities to the prior license holder for monthly rent of $225,000,
which was the only amount reported in previous financial statements. At the time
of the license transfers, the prior license holder owed delinquent rent of
approximately $0.6 million to the Company. As a result, the Company reserved
$0.6 million against this unpaid rent receivable. Since the prior license holder
no longer operates these facilities, the Company believes its ability to collect
these unpaid rent obligations is doubtful and that the addition to the reserve
is appropriate.
During the first quarter of 2000, the Company also established a reserve of
$1.7 million to reflect the impairment of a delinquent note receivable. Since
February 1998, the Company has held a $3.9 million note receivable secured by a
first mortgage on two SNFs located in Chico and Paso Robles, California. In
December 1998, the Company reserved $1.0 million with respect to the note
because of the borrower's financial instability. In April 1999, the borrower
filed for bankruptcy. However, the Company believed that it would recover the
remaining $2.9 million through foreclosure of the
Page 18
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
SNFs and litigation against the various parties involved in the transaction. In
March 2000, the Company obtained title to the two SNFs from the bankruptcy
court. Because these two SNFs are not currently operating, the Company valued
these two facilities at $1.2 million and an additional reserve of $1.7 million
was established. Although the Company is currently pursuing the re-opening of
these facilities as well as legal action against the borrower and other parties
involved in the transaction, the Company now believes that the outcome of these
pursuits is not certain and the addition to the reserve is appropriate.
10. EXTRAORDINARY LOSS ON EARLY RETIREMENT OF LONG-TERM DEBT
In January 2000, the Company sold a 33,000 square foot MOB in Aliso Viejo,
California for $8.3 million. A portion of the proceeds were used to repay a $5.5
million loan secured by the MOB. In repaying the loan, the Company incurred fees
of approximately $28,000 and wrote off an additional $130,000 in loan fees
relating to the loan. These amounts have been presented as an extraordinary loss
on the statement of operations.
11. ACQUISITIONS, DISPOSITIONS AND FINANCINGS
In January 2000, the Company, in a joint venture with ASL Tarzana
Wedgewood, LLC, purchased a two-story, 80-unit, 44,117 square foot ALF located
in Tarzana, California for $10.3 million. The Company contributed $2.5 million
for an 85% equity interest in the newly formed joint venture. However, the
Company's ownership interest will be reduced to 65% after the Company's initial
capital contribution plus preferred returns equal to 12% per annum of the
Company's capital contribution is repaid by the joint venture. ASL Tarzana,
Inc., an affiliate of ASL Tarzana Wedgewood, LLC, operates the facility. As part
of the acquisition, the Company assumed three loans totaling $7.5 million. The
loans bear interest at rates ranging from 7.5% to 8.5% and are due in 2006.
In January 2000, the Company sold a 33,000 square foot MOB located in Aliso
Viejo, California to Hoag Memorial Hospital for $8.3 million. The Company used
the proceeds to repay a $5.5 million loan that was secured by the MOB and
recognized a gain on sale of $1.4 million.
During the first three quarters of 2000, the Company repaid its $4.6
million line of credit with Tokai Bank of California in full. On October 16,
2000, the Company established a new unsecured line of credit in the amount of
$0.5 million with Tokai Bank. The new note is due on February 1, 2001.
In March 2000, the Company refinanced its existing $6.3 million mortgage on
one of its joint venture ALFs with an $8.5 million, 35-year HUD loan at an
interest rate of 8.3%. The Company received net proceeds of $1.1 million from
the refinancing.
In March 2000, the Company sold its 50% interest in Valley Convalescent, a
joint venture that owned a 118-bed SNF located in El Centro, California, to its
joint venture partner. The transaction included a sale price of $500,000,
consisting of $200,000 in cash and a $300,000 mortgage note. The $300,000
mortgage note was consolidated with the $2.8 million mortgage that the Company
already holds on the facility. The Company now holds a $3.1 million first
mortgage on the property, which pays interest at 12% per annum and matures in
three years. In prior periods, the Company's first mortgage was presented as
part of the Company's investment in unconsolidated affiliates. Since the Company
no longer holds an equity interest in the joint venture, the first mortgage is
presented as part of the Company's mortgage loans and notes receivable in these
condensed consolidated financial statements.
In April 2000, a lender released to the Company from escrow $1.25 million
in loan proceeds. The lender had reserved a total of $2.5 million from a $10
million loan until the Company leased a certain percentage of the secured
property. The remaining $1.25 million in loan proceeds was released by the
lender in July 2000.
In July 2000, the Company obtained a line of credit secured by the
accounts receivable at the Company's three SNFs located in Massachusetts. The
Company received net proceeds of $1.25 million from the line of credit. The line
of credit is guaranteed by the Company.
Page 19
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Unaudited Condensed Consolidated Financial Statements and Notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1999 Annual
Report on Form 10-K as previously filed with the SEC.
Information contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements. 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 Quarterly Report on Form
10-Q and the Company's 1999 Annual Report on Form 10-K as previously filed with
the SEC.
Results of Operations
---------------------
Comparison of the Nine Month Period Ended September 30, 2000 versus the
Nine Month Period Ended September 30, 1999.
Total revenues increased by $11.5 million, or 45%, from $25.5 million in
the first three quarters of 1999, to $37.0 million for the same period in 2000.
Patient revenues relating to the skilled nursing facilities in which the Company
currently owns the license to operate accounted for $12.0 million of this
increase. On March 15, 2000, the Company obtained licenses from the Commonwealth
of Massachusetts to operate the three SNFs comprising 383 beds owned by the
Company and located in Hampden, Massachusetts. As a result of the license
transfer, all of the assets, liabilities, revenues and expenses of these SNFs
for the period from March 15, 2000 through September 30, 2000 are reflected in
the condensed consolidated financial statements of the Company. In addition, the
Company holds the license to operate its 98-bed SNF located in Phoenix, Arizona.
On April 1, 2000, the Company terminated its lease with the previous manager and
entered into a management agreement with a new manager. As a result, all of the
assets, liabilities, revenues and expenses of this SNF for the period of April
1, 2000 through September 30, 2000 are also reflected in the condensed
consolidated financial statements of the Company. The consolidation of the
operating revenues and expenses related to the three SNFs in Massachusetts
accounted for a $10.7 million increase in rental revenues while the SNF in
Arizona accounted for an additional $1.3 million.
Rents, tenant reimbursements and parking revenues decreased by $1.6
million, or 7%, from $23.0 million in the first three quarters of 1999, to $21.4
million for the same period in 2000. $1.6 million of this decrease is related to
the loss of rental revenue from the skilled nursing facilities discussed above
in which the Company now owns the license to operate. Previously, the Company
collected monthly rent for these facilities in the form of lease payments from
the prior operator. Excluding the loss of these lease payments, rents, tenant
reimbursements and parking revenues remained unchanged in the first three
quarters of 2000 compared to the same period in 1999. Increases in rental
revenues resulting from recently completed construction projects in Valencia and
Aliso Viejo of $0.9 million, revenues of $0.8 million relating to the January
2000 acquisition of an 80-unit, 44,117 square foot ALF located in Tarzana,
California and revenues of $0.3 million resulting from increased occupancy at
the ALF in Santa Monica were offset by a decrease of $2.0 million in rental
revenue related to the foreclosure of the Company's six MOBs located in New
Jersey as discussed in Footnote 8 of the Notes to the Condensed Consolidated
Financial Statements.
Interest and loan fee income decreased approximately $0.2 million, or 10%,
from $2.1 million in the first three quarters of 1999, to $1.9 million for the
same period in 2000. This decrease was due to a $0.6 million decrease in
interest income related to the March 31, 1999 long-term refinancing of the
Company's note receivable secured by the St. Thomas More SNF in Hyattsville,
Maryland. This decrease was offset by
Page 20
<PAGE>
an increase of $0.3 million in interest income related to the financing of an
apartment complex located in Tulsa, Oklahoma by the Company in December 1999 as
well as a $0.1 million increase in interest earned on cash on hand.
The Company recognized a net gain on the sale of assets in the amount of
$1.3 million in the first three quarters of 2000. The sale, in January 2000, of
a 33,000 square foot MOB located in Aliso Viejo, California to Hoag Memorial
Hospital accounted for $1.4 million of the gain. This gain was offset by the
loss of $142,000 on the sale of the Company's 50% interest in Valley
Convalescent, LLC, an unconsolidated affiliate.
Total expenses increased by $8.8 million, or 32%, from $27.4 million for
the nine months ended September 30, 1999, to $36.2 million for the same period
in 2000. A portion of the increase in expenses was due to an increase of $2.3
million in the Company's allowance for doubtful accounts and notes receivable.
In addition, a $6.4 million decrease resulted from the impairment of the
Company's six MOBs located in New Jersey in the third quarter of 1999. The
consolidation of the operating revenues and expenses of the three Hampden SNFs
from March 15 through September 30, 2000 and the Arizona SNF from April 1, 2000
through September 30, 2000 as discussed above accounted for $11.0 million of
this increase in total expenses.
Property operating expenses increased by $0.2 million in the first three
quarters of 2000 compared to the same period in 1999. Development projects
completed by the Company during 1999 and 2000 accounted for a $0.3 million
increase in property expenses. In addition, the acquisition of an ALF in
Tarzana, California accounted for a $0.1 million increase. These increases were
offset by a $0.2 million decrease in management and overhead expenses associated
with a wholly-owned subsidiary formed by the Company in November 1998 for the
purpose of making loans to obtain healthcare facilities. This subsidiary ceased
operations in April 1999.
Depreciation and amortization increased $0.3 million, or 7%, from $4.2
million for the nine months ended September 30, 1999, to $4.5 million for the
same period in 2000. This increase was attributable to property acquisitions
made by the Company during 2000 as well as new property developments opened
during 1999 and 2000.
Interest expense increased $1.5 million, or 17%, from $8.9 million for the
nine months ended September 30, 1999, to $10.4 million for the same period in
2000. This increase was mainly due to interest incurred on new borrowings of $48
million made by the Company in 1999 and 2000, as well as the assumption of $7.5
million in debt associated with the acquisition of the ALF in Tarzana,
California.
General & Administrative costs decreased $0.1 million, or 4%, from $2.3
million for the nine months ended September 30, 1999, to $2.2 million for the
same period in 2000. This decrease was attributed to lower payroll costs as well
as lower costs associated with the Company's annual report.
Equity in loss of unconsolidated affiliates decreased $0.1 million for the
nine months ended September 30, 2000 compared to the same period in 1999. This
decrease was primarily the result of start-up losses associated with the
Company's 50% investment in Penasquitos LLC and the Company's 50% investment in
Eagle Run Inc. In March 1999, The Arbors at Rancho Penasquitos, an ALF owned by
the Company through Penasquitos LLC, commenced operations. The facility has been
in a lease-up phase since opening in March 1999 and therefore has been producing
a net loss. Eagle Run commenced operations in November 1999 and also produced a
net loss for the first three quarters of 2000. Occupancy rates at both
facilities are increasing on a monthly basis and are expected to stabilize by
the end of 2000 or early 2001, at which time both facilities are expected to
produce income for the Company.
During the first quarter of 2000, the Company recorded an extraordinary
loss on the early retirement of long-term debt in the amount of $0.2 million.
This loss was a result of pre-payment fees and the write-off of deferred loan
fees relating to the repayment of a $5.5 million loan secured by a 33,000 square
foot MOB in Aliso Viejo, California. The building was sold to Hoag Memorial
Hospital Presbyterian on January 25, 2000 for a price of $8.3 million. The
Company used a portion of the proceeds to repay the $5.5 million loan.
Net income increased $1.9 million, from a net loss of $1.2 million for the
nine months ended September 30, 1999 to a gain of $0.7 million for the same
period in 2000. This increase was primarily due to the $6.4 million decrease in
impairment of assets and the $1.3 million increase in gains on sale of assets.
These were
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<PAGE>
offset by the $2.3 million increase in provisions for doubtful accounts and
notes receivable, the $1.5 million increase in interest expense, the $1.6
million decrease in rents, tenant reimbursements and parking revenues, the $0.3
million increase in depreciation and amortization expense, the $0.2 million
increase in operating expenses and the $0.2 million decrease in interest and
loan fee income.
Comparison of the Three Month Period Ended September 30, 2000 versus the
Three Month Period Ended September 30, 1999.
Total revenues increased by $4.6 million, or 52%, from $8.8 million in the
three months ended September 30, 1999, to $13.4 million for the same period in
2000. Patient revenues relating to the skilled nursing facilities in which the
Company currently owns the license to operate accounted for $5.7 million of this
increase. On March 15, 2000, the Company obtained licenses from the Commonwealth
of Massachusetts to operate the three SNFs comprising 383 beds owned by the
Company and located in Hampden, Massachusetts. As a result of the license
transfer, all of the assets, liabilities, revenues and expenses of these SNFs
for the period from March 15, 2000 through September 30, 2000 are reflected in
the consolidated financial statements of the Company. In addition, the Company
holds the license to operate its 98-bed SNF located in Phoenix, Arizona. On
April 1, 2000, the Company terminated its lease with the previous manager and
entered into a management agreement with a new manager. As a result, all of the
assets, liabilities, revenues and expenses of this SNF for the period of April
1, 2000 through September 30, 2000 are also reflected in the consolidated
financial statements of the Company. The consolidation of the operating revenues
and expenses related to the three SNFs in Massachusetts accounted for a $5.0
million increase in rental revenues while the SNF in Arizona accounted for an
additional $0.7 million.
Rents, tenant reimbursements and parking revenues decreased by $0.9
million, or 11%, from $7.9 million in the three months ended September 30, 1999,
to $7.0 million for the same period in 2000. $0.7 million of this decrease is
related to the loss of rental revenue from the skilled nursing facilities
discussed above in which the Company now owns the license to operate.
Previously, the Company collected monthly rent for these facilities in the form
of lease payments from the prior operator. Excluding the loss of these lease
payments, rents, tenant reimbursements and parking revenues decreased
approximately $0.2 million. A decrease of $0.7 million in rental revenue
resulted from the foreclosure of the Company's six MOBs located in New Jersey as
discussed in Footnote 8 of the Notes to the Condensed Consolidated Financial
Statements. This decrease was offset by increases in rental revenues resulting
from recently completed construction projects in Valencia and Aliso Viejo of
$0.2 million as well as revenues of $0.3 million relating to the January 2000
acquisition of an 80-unit, 44,117 square foot ALF located in Tarzana,
California.
Interest and loan fee income decreased approximately $0.2 million, or 25%,
from $0.8 million in the three months ended September 30, 1999 to $0.6 million
for the same period in 2000. This decrease was related to a $0.3 million
decrease in interest income related to the long-term refinancing of the
Company's notes receivable secured by the St. Thomas More SNF in Hyattsville,
Maryland. This decrease was offset by additional interest income of $0.1 million
related to the financing of an apartment complex located in Tulsa, Oklahoma by
the Company in December 1999.
Total expenses decreased by $1.2 million, or 9%, from $14.0 million for
the three months ended September 30, 1999, to $12.8 million for the same period
in 2000. The consolidation of the operating revenues and expenses of the three
Hampden SNFs from March 15 through September 30, 2000 and the Arizona SNF from
April 1, 2000 through September 30, 2000 as discussed above accounted for $5.2
million of this increase in total expenses.
Property operating expenses decreased by $0.1 million, or 5%, from $2.0
million for the three months ended September 30, 1999, to $ $1.9 million for the
same period in 2000. This decrease is primarily related to the foreclosure of
the Company's six MOBs located in New Jersey.
Depreciation and amortization remained unchanged for the three months
ended September 30, 1999 compared to the same period in 2000. Increases of $0.1
million attributable to property acquisitions made by the Company during 2000 as
well as new property developments opened during 1999 and 2000 were offset by a
$0.1 million decrease in depreciation expense related to the foreclosure of the
Company's six MOBs located in New Jersey.
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<PAGE>
Interest expense increased $0.2 million, or 6%, from $3.3 million for the
three months ended September 30, 1999, to $3.5 million for the same period in
2000. This increase was mainly due to interest incurred on new borrowings of $38
million made by the Company in 1999 and 2000, as well as the assumption of $7.5
million in debt associated with the acquisition of an ALF in Tarzana,
California.
General & administrative costs decreased $0.2 million, or 22%, from $0.9
million for the three months ended September 30, 1999, to $0.7 million for the
same period in 2000. This decrease was attributed to lower payroll costs as well
as lower costs associated with the Company's annual report.
The impairment of long-lived assets decreased by $6.4 million in the third
quarter of 2000 compared to the same period in 1999. In the third quarter of
1999, the Company recorded a non-cash accounting charge related to the
impairment of the six MOBs located in New Jersey. The fair market value of these
buildings were calculated on the basis of estimated future cash flows and
resulted in a write down of the carrying vale of these buildings of $6.4
million.
Equity in loss of unconsolidated affiliates decreased $0.1 million for the
three months ended September 30, 2000 compared to the same period in 1999. This
decrease was primarily the result of start-up losses associated with the
Company's 50% investment in Penasquitos LLC and the Company's 50% investment in
Eagle Run Inc. In March 1999, The Arbors at Rancho Penasquitos, an ALF owned by
the Company through Penasquitos LLC, commenced operations. The facility has been
in a lease-up phase since opening in March 1999 and therefore has been producing
a net loss. Eagle Run commenced operations in November 1999 and also produced a
net loss for the third quarter of 2000. Occupancy rates at both facilities are
increasing on a monthly basis and are expected to stabilize by the end of 2000
or early 2001, at which time both facilities are expected to produce income for
the Company.
Net income increased $4.6 million from a net loss of $4.2 million for the
three months ended September 30, 1999 to a net gain of $0.4 million for the same
period in 2000. This increase was primarily due to the $6.4 million decrease in
the impairment of long-lived assets offset by the $0.9 million decrease in
rents, tenant reimbursements and parking revenues, the $0.2 million decrease in
interest and loan fee income, the $0.2 million increase in interest expense and
the $0.1 million decrease in equity in losses from unconsolidated affiliates.
Liquidity and Capital Resources
-------------------------------
As of September 30, 2000, the Company's direct investment in net real
estate assets totaled $183.9 million, $4.7 million in joint ventures and $15.8
million invested in mortgage loans and notes receivable. Debt outstanding as of
September 30, 2000 totaled $174.7 million.
The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of MOBs, SNFs, ALFs
and senior care lending activities. These funds 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 a line of credit. During the
first nine months of 2000, the Company sold a 33,000 square foot MOB located in
Aliso Viejo, Caliornia for $8.3 million. The Company used the proceeds to repay
a $5.5 million loan that was secured by the MOB. The Company used the remaining
proceeds to repay $3.0 million on its line of credit with Tokai Bank of
California. On August 24, 2000, the Company repaid the remaining balance of $1.6
million. The line of credit expired on August 31, 2000. In October 2000, the
Company obtained a new unsecured line of credit with Tokai Bank of California in
the amount of $0.5 million. The line of credit is due on February 1, 2001 and
currently has an outstanding balance of $0.5 million. In January 2000, as part
of its acquisition of a $10.4 million, 80-unit ALF in Tarzana, California, the
Company assumed three loans totaling $7.5 million. The loans bear interest at
rates ranging from 7.5% to 8.5% and are due in 2006. In March 2000, the Company
refinanced its existing $6.3 million mortgage on one of its joint venture ALFs
with an $8.5 million long-term HUD loan at an interest rate of 8.3%. The Company
received net proceeds of $1.1 million from the refinancing. In April 2000, a
lender released to the Company from escrow $1.25 million in loan proceeds. The
lender reserved a total of $2.5 million from a $10 million loan until the
Company leased a certain percentage of the secured property. The remaining $1.25
million in loan proceeds was released by the lender in July 2000. In July 2000,
the Company also obtained a line of credit secured by the accounts receivable at
the Company's three SNFs
Page 23
<PAGE>
located in Massachusetts. The Company received net proceeds of $1.25 million
from the line of credit. The line of credit is guaranteed by the Company.
The Company declared a quarterly distribution payable to holders of the
Company's Common Stock for the first, second and third quarters of 2000 in the
amount of $0.125 per common share. These distributions were paid on April 15,
July 15 and October 15, 2000 to stockholders of record on March 31, June 30 and
September 30, 2000, respectively. The Company also paid monthly dividends of
$0.6 million to holders of the Company's Preferred Stock on the fifteenth day of
each month during the first, second and third quarters to holders of record on
the first day of each month. The Company distributed dividends of $1.1 million
to holders of the Company's Common Stock during the first nine months of 2000
while the Company's FFO was a negative $1.9 million for the same period.
However, excluding the $2.3 million increase in the provision for doubtful
accounts and notes receivable, the Company's FFO for the first three quarters of
2000 was $0.4 million.
In general, the Company expects to continue meeting its short-term
liquidity requirements through its working capital, cash flow provided by
operations, its line of credit and through the long-term financing of its
unencumbered properties. 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 sale of assets.
Historical Cash Flows
---------------------
The Company's net cash provided by operating activities decreased $3.7
million, or 39%, from $9.5 million for the nine months ended September 30, 1999
to $5.8 million for the same period in 2000. The decrease is due primarily to a
$6.4 million decrease in the impairment of long-lived assets, a $3.8 million
increase in tenant rent and reimbursements receivable, a $1.3 million increase
in net gain on sale of assets offset by a $1.9 million increase in net income, a
$2.1 million increase in provisions for doubtful accounts and notes receivables,
a $1.1 decrease in accrued interest receivable and a $2.2 million increase in
accounts payable and other liabilities.
Net cash used in investing activities decreased $8.9 million, or 76%, from
$11.7 million for the nine months ended September 30, 1999 to $2.8 million for
the same period in 2000. The decrease was primarily due to a $8.5 million
increase in the sale of real estate assets, the $4.1 million decrease in
construction-in-progress expenditures, a $1.0 million increase in distributions
from unconsolidated affiliates, a $1.2 million decrease in pre-acquisition
costs, a $2.4 million decrease in investments in mortgage loans and notes
receivable, a $0.7 million decrease in contributions to unconsolidated
affiliates, a $0.4 million increase in principal repayments on notes receivable
and a $0.3 million decrease in leasing commission costs. These were offset by a
$10.4 million increase in purchases of real estate assets.
Cash flows used in or provided by financing activities decreased by
approximately $18.4 million from cash provided of $8.1 million for the nine
months ended September 30, 1999, to cash used of $10.3 million for the same
period in 2000. The decrease is due primarily to a decrease in notes payable
proceeds of $37.8 million and an increase in purchases of the Company's Common
Stock of $1.3 million. These were offset by a decrease in repayments of notes
payable of $9.1 million, a decrease in restricted cash of $7.1 million, a
decrease in distributions of $3.6 million and an increase in minority interest
contributions of $0.5 million.
New Accounting Pronouncements
-----------------------------
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company is
required to adopt SAB 101 in the fourth quarter of 2000. Management does not
expect the adoption of SAB 101 to have a material effect on the Company's
results of operations or financial position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transaction Involving
Stock Compensation." The Company is required to adopt FIN 44 effective July 1,
2000 with respect to certain provisions applicable to new awards, exchanges of
awards in a business combination, modifications to outstanding awards and
changes in grantee status that occur on or after that date. FIN 44 addresses
practice issues related to the application of Accounting Practice Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company does not
expect the application of FIN 44 to have a material impact on its consolidated
financial position or results of operations.
Page 24
<PAGE>
Funds from Operations
---------------------
Industry analysts generally consider FFO to be an appropriate measure of
the performance of a REIT. The Company's financial statements use the concept of
FFO as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO is calculated to include the minority
interests' share of income from the Operating Partnership since the Operating
Partnership's net income is allocated proportionately among all owners of
Operating Partnership units. The number of Operating Partnership units held by
the Company is identical to the number of outstanding shares of the Company's
Common Stock, and owners of Operating Partnership units may, at their
discretion, convert their units into shares of Common Stock on a one-for-one
basis.
The Company believes that in order to facilitate a clear understanding of
the operating results of the Company, FFO should be examined in conjunction with
the Company's net income as presented in this Form 10-Q, the Selected Financial
Data and Consolidated Financial Statements and Notes thereto included in the
Company's 1999 Annual Report on Form 10-K and the additional data presented
below. The table on the following page presents an analysis of FFO and
additional data for the three and nine- month periods ended September 30, 2000
and 1999.
Page 25
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS AND ADDITIONAL DATA
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30
2000 1999 2000 1999
------------- -------------- -------------- -------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Funds from Operations/(1)/
--------------------------
Net income (loss)...................................... $ 412 $ (4,250) $ 674 $ (1,184)
Minority interest in Operating Partnership............. 78 (986) (538) (1,072)
----------------------------------------------------------
Income (loss) for Operating Partnership................ 490 (5,236) 136 (2,256)
Depreciation of real estate assets..................... 1,285 1,301 3,979 3,702
Amortization of deferred lease costs................... 65 69 217 186
Net gain on sale of assets............................. --- --- (1,263) ---
Depreciation from unconsolidated affiliates............ 70 47 326 147
Extraordinary loss on early retirement of debt......... --- --- 158 ---
Adjustment for minority interest in consolidated
affiliates......................................... (36) (14) (103) (64)
Dividends on preferred stock........................... (1,791) (1,803) (5,374) (5,409)
----------------------------------------------------------
Funds from Operations/(1)/............................. $ 83 $ (5,636) $ (1,924) $ (3,694)
===========================================================
Weighted average shares outstanding/(2)/
----------------------------------------
Basic 2,959 4,514 3,019 4,559
==========================================================
Fully diluted 2,959 4,523 3,019 4,571
==========================================================
Additional Data
---------------
Cash flows:
----------
Operating activities............................... $ 1,792 $ 4,616 $ 5,799 $ 9,483
Investing activities............................... (893) (4,281) (2,803) (11,671)
Financing activities............................... (1,770) 5,093 (10,282) 8,122
Capital expenditures
--------------------
Building improvements.............................. $ 86 $ 595 $ 806 $ 1,270
Tenant improvements................................ 110 620 1,212 1,538
Furniture, fixtures & equipment.................... 215 --- 308 103
Leasing commissions................................ 28 55 97 408
Depreciation and amortization
-----------------------------
Depreciation of real estate assets................. $ 1,285 $ 1,301 $ 3,979 $ 3,702
Depreciation of non-real estate assets............. 122 103 342 320
Amortization of deferred lease costs............... 65 69 217 186
Amortization of deferred licensing costs........... 13 --- 22 ---
Amortization of capitalized financing costs........ 160 134 449 257
Accrued rent in excess of billed rent.............. $ 58 $ 159 $ 150 $ 311
</TABLE>
1) funds from operations ("FFO") represents net income (computed in accordance
with generally accepted accounting principles, consistently applied
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property, less preferred stock
dividends paid to holders of preferred stock during the period and after
adjustments for consolidated and unconsolidated entities in which the
Company holds a partial interest. FFO should not be considered as an
alternative to net income or any other indicator developed in compliance
with GAAP, including measures of liquidity such as cash flows from
operations, investing and financing activities. FFO is helpful in
evaluating the performance of a real estate portfolio considering the fact
that historical cost accounting assumes that the value of real estate
diminishes predictably over time. FFO is only one of a range of indicators
which should be considered in determining a company's operating
performance. The methods of calculating FFO among different companies are
subject to variation, and FFO therefore may be an invalid measure for
purposes of comparing companies. Also, the elimination of depreciation and
gains and losses on sales of property may not be a true indication of an
entity's ability to recover its investment in properties. The Company
implemented NAREIT's new method of calculating FFO effective as of the
NAREIT-suggested adoption date of January 1, 1996.
2) Assumes that all outstanding Operating Partnership units have been
converted to common stock.
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<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk as
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 filed on March 30, 2000.
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<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company or any of its consolidated or unconsolidated
affiliates nor any of the assets within their portfolios of MOBs,
skilled nursing facilities, assisted living facilities, parking
facilities, and retail space is currently a party to any material
litigation, except as discussed in Note 8 to the Consolidated
Financial Statements.
Item 2 Changes in Securities.
None.
Item 3 Defaults Upon Senior Securities.
As discussed in Note 8 to the Consolidated Financial Statements and
in Management's Discussion and Analysis of Financial Condition and
Results of Operations -Liquidity and Capital Resources, GL/PHP
defaulted on the $15.5 million loan, which is secured by the six
MOBs in New Jersey. The amount in default is $15.5 million.
Item 4 Submission of Matters to a Vote of Security Holders.
None.
Item 5 Other Information.
None.
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<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Note Description
----------- ------ --------------------------------------------------
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.
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<PAGE>
(c) Exhibits - (continued from previous page)
Exhibit No. Note Description
----------- ---- --------------------------------------------------
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.
10.45 (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.
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.
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<PAGE>
(c) Exhibits - (continued from previous page)
Exhibit No. Note Description
----------- ---- --------------------------------------------------
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.
10.58 (11) Limited Liability Company Agreement of G&L
Hampden, 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 (13) 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 (13) 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 (13) Guaranty of Lease between Steven D. Lebowitz and
Daniel M. Gottlieb (collectively "Guarantor") in
favor of G&L Coronado, LLC ("Landlord").
10.80 (14) Promissory Note in the Amount of $2,000,000 given
by G&L Realty Corporation in favor of Reese L.
Milner, as Trustee of The Milner Trust.
10.81 (15) Loan Agreement in the amount of $13.92 million
between G&L Hampden, LLC, as Borrower, and GMAC
Commercial Mortgage Corporation, as Lender.
11 Computation of Per Share Earnings
21 Subsidiaries of the registrant.
27 Financial Data Schedule
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.
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<PAGE>
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.
13) Filed as an exhibit to the Company's Annual Report on Form 10-K (filed as
of April 9, 1999) for the year ended December 31, 1998 and incorporated
herein by reference.
14) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed
as of May 17, 1999) for the quarter ended March 31, 1999 and incorporated
herein by reference.
15) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed
as of November 12, 1999) for the quarter ended September 30, 1999 and
incorporated herein by reference.
c) Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
There have been no reports filed on Form 8-K during the quarter ended
September 30, 2000.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
G&L REALTY CORP.
Date: November 14, 2000 By: /s/ David E. Hamer
-----------------------------
David E. Hamer
Chief Accounting Officer
Page 33
