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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transaction period from _____________ to _____________
Commission file number 1-12566
-----------------------------------------------
G & L REALTY CORP.
(Exact name of Registrant as specified in its charter)
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<S> <C>
Maryland 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
439 N. Bedford Drive
Beverly Hills, California 90210
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (310) 273-9930
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $.01 par value New York Stock Exchange
Series A Preferred Stock, $.01 par value New York Stock Exchange
Series B Preferred Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (based on the closing price of such stock, as reported on the New
York Stock Exchange, on March 24, 2000) was $15,579,000.
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value (the "Common Stock"), as of March 24, 2000, was 2,404,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference portions of the Registrant's Proxy
Statement relating to the 2000 Annual Meeting of Stockholders (the "Proxy
Statement").
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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PART I
ITEM 1. BUSINESS........................................................................................... 1
ITEM 2. PROPERTIES......................................................................................... 7
ITEM 3. LEGAL PROCEEDINGS.................................................................................. 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................ 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.............................................................................. 30
ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA............................................................... 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................................................ 33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................... 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA......................................................... 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUE................ 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................ 45
ITEM 11. EXECUTIVE COMPENSATION............................................................................ 45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................... 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................... 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................. 46
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PART I
ITEM 1. BUSINESS
The Company is a self-managed real estate investment trust ("REIT") that
owns, acquires, develops, manages and leases health care properties. The
Company's business currently consists of investments, made either directly or
through joint ventures, in health care properties and in debt obligations
secured by health care properties. The Company's operations focus primarily on
opportunities to own or develop medical office buildings ("MOB") through its MOB
operations, or own or finance senior care facilities ("Senior Care Facilities")
through its senior care operations. The Company was incorporated in Maryland on
September 15, 1993.
The MOB business strategy is to acquire, develop, manage and lease a
portfolio of medical office buildings. The Company currently seeks growth
opportunities mainly in Southern California through acquisition or development
of additional MOBs directly or through strategic joint ventures. The MOB
portfolio currently consists of approximately 957,000 rentable square feet. The
Company directly owns 27 high quality MOBs, an adjacent parking facility and two
retail facilities and indirectly owns three additional MOBs (collectively, the
"MOB Properties"). Twenty-five of the MOB Properties and the two retail
properties are located in California and six of the MOB Properties are located
in New Jersey. Several of the MOB Properties include retail space on the ground
level. As of January 31, 2000, the MOB Properties were 93.1% leased, not
including the six MOB Properties located in New Jersey. As of January 31, 2000,
the six MOB Properties located in New Jersey were approximately 19% leased.
The senior care business strategy is to capitalize on consolidation
opportunities in the senior care industry by making selected equity investments
in Senior Care Facilities. The Company directly and indirectly owns 12 Senior
Care Facilities, including projects under development, consisting of a skilled
nursing facility and a senior resident apartment complex located in Arizona,
four Senior Care Facilities in California, three nursing facilities in
Massachusetts, a hospital located in California, a Senior Care Facility in
Nebraska and a skilled nursing facility in Washington (the "Senior Care
Properties"). The Senior Care Properties have an aggregate of 1,167 beds or
units. In addition to the Senior Care Properties, the Company also holds a
first deed of trust on a 196-bed skilled nursing facility located in
Hyattsville, Maryland.
As part of its overall business strategy, the Company also develops both
MOBs and Senior Care Facilities, either directly or through joint ventures. The
Company has a long history of successful developments and believes that it can
maximize growth through a combination of development and acquisition. The
Company currently has one development project in progress consisting of a 50,000
square foot, 92-bed assisted living facility located in Yorba Linda, California.
This project is a joint venture with D.D.& F., Inc., who will operate the
facility upon its completion. The Company expects to complete this project
within the next twelve to eighteen months.
The Company's primary business objective is to maximize the total return to
stockholders through appreciation in the value of the Company's net assets and
capital stock through long-term investment in MOBs and Senior Care Facilities,
either directly or through affiliates. The Company seeks to achieve these
objectives by enhancing the operating performance of its existing properties as
well as through the selective acquisition and development of MOBs and Senior
Care Facilities. Key elements of the Company's MOB operating strategy include:
(i) improving rental income and cash flow by aggressively marketing available
space; (ii) designing and renovating tenant space to meet the unique needs of
medical practitioners; (iii) actively managing renovation costs and minimizing
other operating expenses such as leasing commissions by conducting management,
leasing, maintenance and marketing activities internally; (iv) maintaining a
diversified tenant base consisting of a cross section of medical specialties;
and (v) emphasizing regular maintenance, periodic renovation and capital
improvements to maximize long-term returns. Key elements of the Company's
Senior Care operating strategy include: (i) locating high-quality operators who
will effectively and efficiently operate the Senior Care Facilities in which the
Company has an investment interest to maximize their value and (ii) partnering
with local operators to develop and manage Senior Care Facilities in under-
served communities throughout the country.
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Medical Office Building Operations. In its acquisition analysis, management
reviews certain factors including: (i) location, particularly proximity to major
hospitals; (ii) construction quality and design; (iii) historical, current and
projected cash flow; (iv) potential for increased cash flow and capital
appreciation; (v) tenant mix and terms of the tenant leases, including the
potential for rent increases; (vi) occupancy rates and demand for medical office
properties in the vicinity; and (vii) prospects for liquidity through sale,
financing or refinancing. The Company anticipates that G&L Realty Partnership,
L.P. (the "Operating Partnership"), the subsidiary through which the Company
conducts its business, will continue to purchase fee interests in MOB
Properties; however, the Company may participate, on a selective basis, in joint
venture transactions, or acquire partnership interests as the Board of Directors
may determine from time to time to be in the best interests of the Company.
Such investments may be subject to existing mortgage financing and other
indebtedness that have priority over the equity interest of the Company and may
not afford the Company with the operating control it has with respect to the MOB
Properties.
Senior Care Operations. In connection with its acquisition of Senior Care
Facilities, management analyzes and reviews certain factors including: (i)
operating and financial history of the entity and the managers who will be
responsible for operating the Senior Care Facility; (ii) value of the property;
(iii) location of the property, particularly proximity to shops, markets and
other health care facilities; and (iv) anticipated potential for short-term gain
and long-term profits from investment in the property. The Company anticipates
that it will continue to acquire ownership interests, either directly or through
joint ventures, in Senior Care Facilities.
Development Activities. In connection with its development projects,
management analyzes and reviews certain factors including: (i) location,
particularly proximity to major medical centers; (ii) demand for MOBs or Senior
Care Facilities in the area; (iii) cost of construction in relation to direct
acquisition; (iv) potential for capital appreciation; (v) potential for
financing or sale; (vi) operating and development capabilities of potential
partners; and (vii) estimated return on investment. The Company considers
development to be a vital part of its operations and anticipates that it will
continue to seek development opportunities in the future.
See Item 14 for financial information about the Company's two main business
segments: investments in (i) healthcare properties and (ii) debt obligations
secured by Senior Care Facilities.
Competitive Strengths
In addition to the Company's investments in its existing MOB Properties,
the Company also seeks to make selective acquisitions of MOBs. From time to time
hospital owners sell their MOBs to raise capital. These sales create
opportunities for the Company to acquire MOBs on attractive terms. Because
hospitals will often seek a buyer with the operating skills necessary to meet
the needs of the medical practitioners located in the building, the Company
believes that its successful history of operating MOBs provides it with a
competitive advantage in the acquisition, development and management of MOBs.
Through its senior care operations, the Company seeks to selectively
acquire ownership interests in Senior Care Facilities that have characteristics
consistent with the Company's growth strategy. The Company believes that the
aging population in the United States has increased the demand for efficiently
operated Senior Care Facilities. The Company believes that it is in a position
to capitalize on this increased demand by selectively acquiring ownership
interests in attractively situated Senior Care Facilities. The Company also
believes that there is potential for the Company to make additional acquisitions
of Senior Care Facilities.
Financing for new acquisitions of MOB properties and Senior Care Facilities
may be provided through existing or new joint ventures with third parties or
third-party financing in the form of secured or unsecured debt. The Company's
capacity to obtain debt financing facilitates its ability to acquire ownership
interests in additional MOBs and Senior Care Facilities. However,
notwithstanding any business policies or objectives of the Company, no assurance
can be given that the Company, or its investment affiliates, will be able to
make acquisitions on favorable terms or that such properties will be profitably
operated. In addition, the Company and its investment affiliates will likely
incur additional indebtedness in connection with future acquisitions.
2
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Property Management
The Company provides a full range of management services for the operation
of MOBs. The ability of the Company to manage MOBs to meet the unique needs of
medical practitioners has been critical to its success to date. The Company has
experienced lease renewal rates of approximately 87.3%, 86.7% and 76.2% for the
years ended December 31, 1997, 1998 and 1999, respectively, with respect to
medical office space in the MOB Properties based on the medical office space
leases available for renewal in these periods. Developing and managing MOBs
differs from developing and managing general office properties due to the
special requirements of the tenants and their patients. MOBs generally have
higher maintenance requirements in the public areas due to heavy foot traffic,
many short appointments which increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more stringent
restrictions on the disposal of medical waste. The management of MOBs also
generally requires experience in specialized tenant improvements and higher
levels of responsiveness required by medical practitioners. Additional important
management functions include the placement of tenants within MOBs to accommodate
increased space needs and managing the tenant mix at properties so that
referrals by practitioners with different specialties within the building are
facilitated. The Company stresses meeting these and other special demands of
medical property tenants.
Tax Status
The Company believes that it has operated in such a manner as to qualify
for taxation as a REIT under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), commencing with its taxable year ended
December 31, 1993, and the Company intends to continue to operate in such a
manner. As long as the Company qualifies for taxation as a REIT under the Code,
the Company generally will not be taxed at the corporate level. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property and to federal income and excise taxes on its
undistributed income.
Employees
As of March 24, 2000, the Company (including the Operating Partnership)
employed 34 persons, 11 of whom are on-site building employees who provide
maintenance services for the MOB Properties and 9 of whom are professional
employees engaged in leasing, asset management and administration.
Dependence on Key Tenants
The Company's MOBs typically consist of several smaller tenants rather than
one or two large tenants. As of December 31, 1999, no MOB tenant accounted for
more than 10% of the Company's total revenues. Although no MOB tenant accounts
for more than 10% of the Company's total revenues, the risks associated with
smaller tenants include (i) less creditworthiness, (ii) greater tenant turnover
and (iii) greater property management needs.
The Senior Care Facilities are either leased to senior care companies or
managed by senior care companies that operate the facilities. For several of the
Senior Care Facilities, the Company is currently in the process of replacing the
lease agreements with management contracts. Once the Company replaces a Senior
Care Facility lease with a management contract, all of the revenues and expenses
relating to the operations of the Senior Care Facility will be reflected in the
consolidated financial statements of the Company. The Company expects its
consolidated financial statements for the first quarter of 2000 to reflect the
operations of one of its Senior Care Facilities in this manner. The Company
anticipates that two additional Senior Care Facilities will be presented in this
manner in its consolidated financial statements for the second quarter of 2000.
Although all of the Company's Senior Care Facilities are currently leased or
under management contracts, finding experienced senior care managers is a time-
consuming and difficult task. As of December 31, 1999, no Senior Care Facility
tenant or manager accounted for more than 10% of the Company's total revenues.
However, in January 2000, the Company replaced the manager of its three Hampden,
Massachusetts skilled nursing facilities due to the bankruptcy of the manager
and unhappiness with its performance. As a result, the Company recorded a $2.0
million addition to its bad debt reserves in 1999 to provide for the potential
impairment of rent and operating expense reimbursements receivable. Should any
of the
3
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Company's other Senior Care Facilities require a change in manager, the
Company's financial results could be materially impacted despite the fact that
no Senior Care Facility tenant or manager accounts for more than 10% of the
Company's total revenues.
Government Regulation
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in its property. These laws impose liability without regard to whether the
owner knew of, or was responsible for, the presence of any hazardous or toxic
substances. The presence of such substances, or the failure to properly
remediate these substances, may adversely affect the owner's ability to borrow
using the real estate as collateral and may subject the owner to material
remediation costs. All of the MOB Properties and Senior Care Properties have
been subject to Phase I environmental assessments (which involve inspection of
the subject property, but no soil sampling or groundwater analysis) by
independent environmental consultants. Although restricted in scope, these
independent assessments revealed no material evidence of existing environmental
liability, and the Company has not been notified by any governmental authority
of any noncompliance by, liability for, or other claim against the Company in
connection with environmental matters related to the MOB Properties or Senior
Care Properties. While the Company is not aware of any environmental liability
that it believes would have a material adverse effect on its business, assets or
results of operations, no assurance can be given that the environmental
assessments revealed all potential environmental liabilities or that a prior
owner did not create any material environmental condition not known to the
Company or that future uses or conditions (including changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability.
The independent environmental assessments include selective sampling for
asbestos where the age of the buildings or the types of materials warranted such
sampling. Limited quantities of non-friable asbestos were present in the
Sherman Oaks Medical Plaza. The Company removed the asbestos in 1994 in
connection with the renovation of this building. Limited quantities of non-
friable asbestos were also discovered in the Maryland Gardens facility and
Riverdale Gardens Nursing Home. Management believes that it has undertaken
adequate measures to ensure that the asbestos will remain undisturbed and that
it does not pose a current health risk. Management plans to continue to monitor
this situation.
Physicians generate medical waste in the normal course of their practice.
The Company's leases require the individual tenants to make arrangements for the
disposal of medical waste and require all tenants to provide proof that they
have contracted with a third party service to remove waste from the premises
each night. The handling and disposal of this waste is the responsibility of the
tenants; however, the Company remains responsible as the owner of the property.
There can be no assurance that all such medical waste will be properly handled
and disposed of or that the Company will not incur costs in connection with
improper disposal of medical waste by its tenants.
Healthcare Industry Regulation. Physicians and senior care operators are
subject to heavy government regulation including the determination of the level
of reimbursements for medical costs incurred and services provided under
government programs. Changes in government regulations regarding medical
reimbursements and other regulations affecting the healthcare industry can have
a dramatic impact on the operations of medical practitioners or senior care
operators under government programs. Both the federal government and many state
governments are exploring numerous reforms concerning the healthcare industry
that could have a significant impact on many healthcare-related businesses. If
legislation were enacted that decreased the level of government medical
reimbursements or increased the degree of regulatory oversight, thereby
increasing the expenses of healthcare businesses, the Company's tenant base
could be adversely affected. This, in turn, could negatively impact the ability
of the Company to make distributions.
Americans with Disabilities Act. All of the MOB Properties and Senior Care
Properties are required to comply with the Americans with Disabilities Act
("ADA"). The ADA generally requires that buildings be made accessible to people
with disabilities. Compliance with the ADA requirements could require removal of
access barriers and noncompliance could result in imposition of fines by the
federal government or an award of damages to private litigants. The Company
believes it is in substantial compliance with the ADA and that it will not be
required to
4
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make substantial capital expenditures to address the requirements of the ADA. If
required changes involve a greater expenditure than the Company currently
anticipates, the Company's ability to make distributions could be adversely
affected.
5
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G&L Realty Corp.
Organizational Chart
[CHART APPEARS HERE]
1) The Company, a Maryland corporation, was formed to continue the ownership,
management, acquisition and development activities previously conducted by
G&L Development, a California general partnership.
2) The Company is the sole general partner and 81% owner of the Operating
Partnership. Individual limited partners own the Operating Partnership's
remaining 19% partnership interest.
3) G&L Realty Financing II, Inc. a Delaware corporation and a wholly owned
subsidiary of the Company, is the sole general partner and 1% owner of the
Realty Financing Partnership.
4) G&L Medical, Inc. a Delaware corporation and a wholly owned subsidiary of
the Company, is the sole general partner and 1% owner of the Medical
Partnership.
5) The Operating Partnership is the sole general partner and 61.75% owner of
the Roxbury Partnership. Individual limited partners own the remaining
38.25% limited partnership interest.
6) G&L Management Delaware Corp., a Delaware corporation and a wholly owned
subsidiary of the Company, is the managing member and the owner of a 1%
membership interest of the GL/PHP.
7) G&L Senior Care Inc., a Delaware corporation and a wholly owned subsidiary
of the Company, is the managing member and the owner of a 1% membership
interest of G&L Gardens.
8) G&L Hampden, Inc., a Delaware corporation and a wholly owned subsidiary of
the Company, is the sole managing member and 1% owner of Hampden.
9) Holy Cross, Burbank, Tustin, Hoquiam, Lyons and Coronado are owned 100% by
the Operating Partnership.
10) The Operating Partnership is sole managing member and 80% owner of Valencia.
The remaining 20% is owned by Landmark Healthcare Facilities, LLC.
11) The Operating Partnership is co-managing member and 93% owner of Pacific
Gardens. The remaining 7% is owned by ASL Santa Monica, Inc.
12) The Operating Partnership is co-managing member and 85% owner of Tarzana.
The remaining 15% is owned by ASL Tarzana Wedgewood, LLC.
13) GLN Capital is a Delaware limited liability company owned 49.9% by the
Operating Partnership and 50.1% by Nomura Asset Capital Corp.
14) Valley Convalescent is a California limited liability company owned 50% by
the Operating Partnership and 50% by Continuum Healthcare, Inc.
15) San Pedro is a California limited liability company owned 50% by the
Operating Partnership and 50% by Gary Grabel.
16) Penasquitos LLC is a California limited liability company owned 50% by the
Operating Partnership and 50% by Parsons House, LLC.
17) Penasquitos Inc. is a California Corporation owned 50% by the Operating
Partnership and 50% by Parsons House, LLC.
18) Pacific Gardens Corp. is a California corporation owned 93% by the
Operating Partnership in the form of non-voting preferred stock and 7% by
ASL Santa Monica, Inc.
19) Eagle Run is a California limited liability company owned 50% by the
Operating Partnership and 50% by Parsons House, LLC.
20) Eagle Run Inc. is a California corporation owned 50% by the Operating
Partnership in the form of non-voting preferred stock and 50% by Parsons
House, LLC.
21) Lakeview is a California limited liability company owned 50% by the
Operating Partnership and 50% by D.D.&F., L.P.
22) Heritage Park is a California limited liability company owned 25% by the
Operating Partnership and 75% by American Senior Living, Inc.
6
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ITEM 2. PROPERTIES
The MOB Properties consist of 27 high quality MOBs directly owned by the
Company, three MOBs indirectly-owned by the Company, an adjacent parking
facility and two retail facilities. The Senior Care Properties consist of 11
Senior Care Facilities and one hospital. As of January 31, 2000, the MOB
Properties, not including the six New Jersey MOBs, were 93.1% leased to over 420
tenants and the Senior Care Properties were 100% leased to operators who
collectively had a weighted average occupancy of 70.8%. The Company's MOB
tenants are primarily established medical practitioners representing a cross
section of medical practices.
Description of the MOB Properties and Senior Care Properties
MOB Properties
The Company, through its MOB operations, acquires, develops, manages and
leases MOBs, a parking facility and two retail facilities. Developing and
managing MOBs differs from developing and managing conventional office buildings
due to the special requirements of physicians and their patients. Because
doctors now perform a variety of medical procedures in their offices, many MOBs
have become sophisticated ambulatory centers that allow for outpatient surgery
and procedures. In addition, MOBs generally have higher maintenance
requirements in the public areas due to heavy foot traffic, many short
appointments that increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more stringent
restrictions on the disposal of medical waste. The management of MOBs also
generally requires experience in specialized tenant improvements and higher
levels of responsiveness required by medical practitioners. Additional
important management functions include the placement of tenants to accommodate
increased space needs and managing the tenant mix at properties to facilitate
referrals by practitioners with different specialties within the building. The
Company stresses meeting these and other special demands of MOB tenants.
Senior Care Properties
The Company, as part of its overall strategy, acquires, develops and leases
Senior Care Facilities. The Company leases its Senior Care Properties to third
party senior care operators. The operation of Senior Care Facilities requires a
high level of experience and expertise due to the specific needs of the
residents and the complex administrative functions surrounding the admission and
care of residents and the administering of government programs. The operators
of Senior Care Facilities must also maintain a positive relationship with local
hospitals and other medical providers in order to attract new residents. The
Company considers all of the above factors when leasing its facilities to third
party operators.
The health care industry is facing various challenges, including increased
government and private payor pressure to reduce medical delivery costs.
Substantially all of the Company's tenants are in the medical profession and
could be or have been adversely affected by the new Medicare prospective payment
system, cost containment and other health care reform proposals. In the past
twelve months, the Company has changed managers at six of its Senior Care
Facilities in response to financial difficulties encountered by the managers or
dissatisfaction with the operating results of the managers. Any future
proposals that limit access to medical care or reduce reimbursement for
physicians' services may also impact the ability of the Company's tenants to pay
rent. However, the Company believes that the aging population in the United
States, combined with other recent trends in the health care industry, such as
the performance of non-acute procedures outside of hospitals, could spur
increased demand for space in full service MOBs that contain surgery centers and
out-patient facilities, such as those owned by the Company.
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The following tables set forth certain information regarding each of the
MOB Properties and Senior Care Properties as of January 31, 2000. All of the MOB
Properties and Senior Care Properties are held in fee by the Company or, in the
case of jointly-owned properties, by the joint venture property partnership or
limited liability company.
MOB Properties--Summary Data
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Number Year Rentable Rented Total Average
of Constructed or Square Square Annualized Rent per
Property Buildings Rehabilitated Feet(1) Feet(2) Occupancy(2) Rent(3) Sq. Ft.(4)
- ----------------------------------------- --------- -------------- -------- ------- ------------ ---------- -----------
Southern California
- -------------------
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405 N. Bedford, Beverly Hills,........ 1 1947/1987 41,378 39,879 96.4% $ 1,630,000 $40.86
415 N. Bedford, Beverly Hills(5)...... 1 1955 5,720 5,720 100.0 229,000 40.04
416 N. Bedford, Beverly Hills......... 1 1946/1986 40,332 40,242 99.8 1,540,000 38.27
435 N. Bedford, Beverly Hills......... 1 1950/63/84 52,122 50,103 96.1 1,673,000 33.39
435 N. Roxbury, Beverly Hills......... 1 1956/1983 42,455 39,027 91.9 1,491,000 38.21
436 N. Bedford, Beverly Hills......... 1 1987 73,660 72,374 98.3 3,150,000 43.53
Sherman Oaks Medical Plaza
4955 Van Nuys Blvd.
Sherman Oaks....................... 1 1969/1993 67,874 60,911 89.7 1,275,000 20.92
Cigna HealthCare Building
12701 Schabarum Ave.
Irwindale(6)....................... 1 1992 47,604 47,604 100.0 1,097,000 23.04
Coronado Plaza
1330 Orange Ave, Coronado 1 1977/1985 39,854 36,324 91.1 1,035,000 28.50
Holy Cross Medical Plaza
11550 Indian Hills Road
Mission Hills...................... 1 1985 72,146 65,672 91.0 1,751,000 26.66
St. Joseph's Medical Office Bldg.
2031 West Alameda Ave.
Burbank............................ 1 1987 25,769 25,769 100.0 699,000 27.11
Lyons Avenue Medical Building
24355 Lyons Avenue, Santa Clarita 1 1990 48,953 46,626 95.2 943,000 20.22
Tustin--Medical Office I
14591 Newport Avenue, Tustin....... 1 1969 18,092 12,701 70.2 201,000 15.80
Tustin--Medical Office II
14642 Newport Avenue, Tustin....... 1 1985 48,217 45,023 93.4 954,000 21.19
Pacific Park
5 Journey Road, Aliso Viejo 1 1998/1999 22,960 16,950 73.8 427,000 25.20
Pier One Retail Center
26771 Aliso Creek Road, Aliso 1 1998 9,100 9,100 100.0 182,000 20.00
Viejo
Regents Medical Center
4150 Regents Park Row , La Jolla... 1 1989 65,321 65,321 100.0 1,716,000 26.27
San Pedro Medical Plaza
1360 West 6th Street, San 3 1963/1979 59,110 53,712 90.9 1,232,000 22.93
Pedro....
1095 Irvine Boulevard, Tustin......... 1 1995 10,125 10,125 100.0 210,000 20.73
Santa Clarita Valley Medical Center
23861 McBean Pkwy, Santa Clarita 5 1981 42,183 34,426 81.6 704,000 20.46
Santa Clarita Valley Medical Center
23861 McBean Pkwy, Santa Clarita 1 1998/1999 43,912 38,909 88.6 958,000 24.62
--- ------ ------ -------
Total/Weighted average of all
California MOB Properties 27 876,887 816,518 93.1% $23,097,000 28.29
-- ------- ------- -----------
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See footnotes on following page Continued....
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<TABLE>
New Jersey
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
2103 Mt. Holly Rd, Burlington........... 1 1994 12,560 0 0.0 0 0.00
150 Century Parkway, Mt. Laurel......... 1 1995 12,560 2,500 19.9 60,000 24.00
274 Highway 35, South Eatontown......... 1 1995 12,560 0 0.0 0 0.00
80 Eisenhower Drive, Paramus............ 1 1994 12,675 12,675 100.0 342,000 27.00
16 Commerce Drive, Cranford............. 1 1963 17,500 0 0.0 0 0.00
4622 Black Horse Pike, May Landing...... 1 1994 12,560 0 0.0 0 0.00
------- ------- ------------
Total/Weighted average of New Jersey 6 80,415 15,175 18.9% 402,000 $26.51
-- ------- ------- -----------
MOB Properties
Total/Weighted average of all 33 957,302 831,693 86.9% $23,499,000 $28.25
== ======= ======= ===========
MOB Properties
</TABLE>
1) Rentable square feet includes space used for management purposes but does
not include storage space.
2) Occupancy includes occupied space and space used for management purposes.
Rented square feet includes space that is leased but not yet occupied.
Occupancy figures have been rounded to the nearest tenth of one percent.
3) Rent is based on third-party leased space billed in January 2000; no rent
is assumed from management space.
4) Average rent per square foot is calculated based upon third-party leased
space as of January 31, 2000.
5) This property consists of retail space and parking facilities.
6) Building is currently vacant although tenant continued paying rent through
November 1999. Tenant has been in default on rental payments since December
1999 and the Company has sued the tenant and the sub-tenant in order to
recover the delinquent rent.
9
<PAGE>
Senior Care Properties--Summary Data
<TABLE>
<CAPTION>
Purchase Average
Number Year Price/ Total Annual
of Constructed or Date Number of Development Annualized Rent per
Property Buildings Rehabilitated Leased Beds/Units Occupancy(1) Cost Rent Bed/Unit (2)
- ---------------------------- ---------- -------------- ------ ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Southern California
- -------------------
Pacific Gardens Santa Monica
1437 Seventh Street,
Santa Monica............... 1 1990 6/30/98 92 U 100.0% $11,210,000 $1,260,000 $13,696
Tustin Hospital
14662 Newport Avenue,
Tustin.(3)................. 1 1969 5/1/97 183 B 18.9 2,545,000 421,000 2,300
The Arbors
12979 Rancho Penasquitos
Boulevard,
San Diego ................ 1 1998/1999 4/1/99 97 U 66.0 4,200,000 767,000 7,907
Pacific Gardens Tarzana
18700 Burbank Boulevard
Tarzana(4) ................ 1 1989 1/6/00 80 U 87.5 10,300,000 1,000,000 12,500
Arizona
- -------
Maryland Gardens
31 West Maryland Avenue,
Phoenix .................. 1 1951-1957 2/1/98 98 B 87.1 4,647,000 204,000 2,082
Maryland Gardens II
39 West Maryland Avenue,
Phoenix................... 1 1968 N/A 20 U 100.0 1,024,000 108,000 5,400
Massachusetts
- -------------
Riverdale Gardens
42 Prospect Avenue,
West Springfield ......... 1 1957-1975 10/1/97 168 B 92.8 5,655,000 762,000 4,536
Chestnut Hill
32 Chestnut Street,
East Longmeadow........... 1 1984 10/1/97 123 B 90.1 10,627,000 1,433,000 11,650
Mary Lyon
34 Main Street,
Hampden................... 1 1986 10/1/97 100 B 92.3 3,744,000 505,000 5,050
Nebraska
- --------
Parsons House on Eagle Run
14325 Eagle Run Drive,
Omaha .................... 1 1999 11/1/99 88 U 22.5 1,100,000 698,000 7,972
Washington
- ----------
Pacific Care Center
3035 Cherry Street,
Hoquiam............. 1 1954 7/31/98 118 B 91.5 3,316,000 300,000 2,542
--- ----- ---- ------- ------
Total/Weighted average of all
Senior Care Properties...... 11 1,167 70.8% $7,458,000 6,391
== ===== ===== ========== =====
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Developments
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Southern California
- -------------------
Lakeview Courtyards
4792 Lakeview Ave,
Yorba Linda ............... 1 2000/2001 N/A 80 U N/A 946,000 N/A N/A
Heritage Park
1101 Sycamore Ave,
Tustin..................... 1 2000-2002 N/A 53 U N/A 500,000 N/A N/A
</TABLE>
_______________________________
1) Occupancy is on a per-bed or unit basis.
2) Average rent per bed is calculated based upon annualized rents as of
January 31, 2000.
3) Tustin Hospital is leased 100% to Pacific Health Corporation. Occupancy
percentage of 18.9% represents average hospital census for January 2000.
4) Property was acquired on January 6, 2000 in joint venture with ASL Tarzana,
Inc.
11
<PAGE>
MOB Properties
Southern California Properties
- ------------------------------
Six of the MOB Properties are located on North Bedford and North Roxbury
Drives in the "Golden Triangle" area of Beverly Hills, California, near three
major hospitals--Cedars Sinai Medical Center, Century City Hospital and UCLA
Medical Center. The buildings feature high quality interior improvements,
including rich wood paneling and brass hardware appointments, both in the common
areas and in most of the doctors' offices. These six MOB Properties include
twenty-one operating rooms. The 405, 416 and 436 North Bedford Drive buildings
each have emergency back-up generators. Parking for these six MOB Properties is
provided in the 415 North Bedford garage and in subterranean parking at 436
North Bedford and 435 North Roxbury Drives. Each of these MOBs has copper
insulated pipe with sufficient capacity for medical use, electrical systems
designed for extra load requirements and extensive security systems.
405 North Bedford Drive, Beverly Hills
The 405 North Bedford Drive MOB, built in 1947 and extensively remodeled in
1987, consists of four stories plus a penthouse and a basement. The reinforced
brick building, with ground floor retail space, features cherry wood paneled
walls and brass hardware in the common areas and decorative concrete trim on the
exterior.
Currently, only one tenant occupies more than 10% of the rentable square
footage of the building. A surgery center occupies 6,019 square feet
(approximately 14.5%) of the rentable square footage pursuant to a lease that
provides for monthly rent of $22,000. The lease expires on August 31, 2004 and
provides for a five-year renewal option.
415 North Bedford Drive, Beverly Hills
The 415 North Bedford Drive building is a four-level parking structure with
approximately 5,720 square feet of ground floor retail space for seven tenants.
The parking structure contains 316 spaces and is valet operated.
416 North Bedford Drive, Beverly Hills
The 416 North Bedford Drive property is a four-story reinforced brick MOB
with a basement and ground floor retail space. Built in 1946 and extensively
remodeled in 1986, the building features oak paneled walls and moldings, brass
hardware, tinted concrete borders on the exterior, and fourth floor skylights
that provide an open, airy atmosphere in the hallway and in some of the suites.
A plastic surgeon occupies 5,141 square feet or 12.7% of the rentable
square footage of the building, pursuant to a lease that provides for monthly
rent of $22,000. The lease expires on November 30, 2002 and contains a five-year
renewal option.
435 North Bedford Drive, Beverly Hills
The 435 North Bedford Drive property is a four-story, reinforced brick and
masonry MOB with a penthouse, basement, and ground floor retail space. Built in
1950 and extensively remodeled in 1984, the building features oak molding, wall
sconces and paneling in the hallways plus stained runner boards and built-in
stained hardwood cabinets in some of the medical office suites.
12
<PAGE>
435 North Roxbury Drive, Beverly Hills
The 435 North Roxbury Drive property is a four-story MOB with a penthouse,
subterranean parking and retail space on the ground floor. The building, which
was built in 1956 and extensively remodeled in 1983, features a reinforced brick
and masonry exterior and raised, oak-stained paneling and molding in the
hallways.
Two tenants in 435 North Roxbury each occupy more than 10% of the rentable
square footage. A dermatologist occupies 5,291 square feet (12.5% of the
rentable square footage) pursuant to a lease which provides for a monthly rental
of $18,000. The lease expires September 30, 2001 and contains a provision for a
five-year renewal option. An internist occupies 6,183 square feet (14.6% of the
rentable square footage) pursuant to a lease which provides for a monthly rental
of $19,000. The lease was renewed for five years during 1999 and expires on
November 30, 2004.
436 North Bedford Drive, Beverly Hills
The 436 North Bedford Drive property is a three-story MOB with three levels
of subterranean parking. Built in 1987, the building features ground floor
retail and office space surrounding a central courtyard and balconies at
selected locations on the second and third floors. The exterior is clad in rose
color sandstone with cast stone and granite trim. The central courtyard
features a cascading waterfall sculpture and stone pavers with intricate marble
and stone patterns. Cherry wood paneled walls also line the elevator lobbies on
all floors and portions of the hallways.
Sherman Oaks Medical Plaza, Sherman Oaks
The Sherman Oaks Medical Plaza is a seven-story office building,
constructed in 1969, that is adjacent to the Sherman Oaks Hospital and Health
Center, a 156-bed hospital which includes the major burn center for the San
Fernando Valley. A $1 million capital improvement program renovating the
building systems and common areas of the Sherman Oaks Medical Plaza was
completed in 1993. The Company also owns the adjacent air rights and three-level
parking structure behind the property which provides a total of 426 parking
spaces. The land beneath the parking structure is owned by Sherman Oaks Hospital
which also leases 150 parking spaces in the structure.
Cigna Health Care Building, Irwindale
The Cigna Health Care Building in Irwindale, California is a two-story MOB,
constructed in 1992, on a site that provides two parking areas with a total of
244 spaces. This property is 100% leased to 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,
which provides for monthly rent of $91,000 triple net, expires on November 30,
2004 and provides for two, five-year options. 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. In addition, the Company has received
full 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.
13
<PAGE>
Coronado Plaza
Coronado Plaza is a three-story, 40,000 square foot office and retail
complex located in Coronado, California. The building is located on the beach
across the street from the Hotel Del Coronado and the majority of the second and
third floor suites have unobstructed ocean views. The building has subterranean
parking for 96 vehicles plus street parking surrounding the entire property.
Two tenants each occupy more than 10% of the rentable square footage in
Coronado Plaza. Marie Calendar's Restaurant occupies 6,163 square feet
(approximately 15.5%) of the rentable area pursuant to a lease that provides for
monthly rent of $12,000. The leases expire on September 30, 2008 and provide
for two, five-year renewal options. G&L Coronado Managers Corp. occupies 7,596
square feet (approximately 19.1%) of the rentable area pursuant to a lease that
provides for monthly rent of $19,000. The lease expires on December 31, 2008.
G&L Coronado Managers Corp. operates the third-floor executive suites in the
building. G&L Coronado Managers Corp. is owned by Daniel M. Gottlieb and Steven
D. Lebowitz, both officers and directors of the Company.
Holy Cross Medical Plaza, Mission Hills
The Holy Cross Medical Plaza is situated on approximately 2.6 acres of the
15-acre campus of Holy Cross Medical Plaza, a 316-bed hospital. The campus also
includes the Villa de la Santa Cruz skilled nursing facility, another MOB, a
magnetic resonance imaging center, and an outpatient diagnostic center. Built
in 1985, the Holy Cross Medical Plaza is a three-story office building occupied
primarily by medical and dental practitioners. A two-story parking structure
and an open asphalt-paved lot can accommodate a total of 333 vehicles. The
surrounding site is landscaped with grass, trees, shrubs and planter boxes.
Two tenants each occupy more than 10% of the rentable square footage in the
Holy Cross Medical Plaza property. Holy Cross Surgical Center occupies 12,456
square feet (17.3% of the rentable square footage) pursuant to a lease that
provides for monthly rent of $42,000. The lease expires October 31, 2006 and
provides for a ten-year renewal option. Dialysis Center occupies 10,639 square
feet (14.7% of the rentable square footage) pursuant to a lease that provides
for monthly rent of $20,000. The lease expires March 31, 2006 and provides for
two, five-year renewal options.
St. Joseph's Professional Building, Burbank
The St. Joseph's Professional Building is a steel frame, brick-facade
building, constructed in 1987, that features two floors of office space over
three levels of subterranean parking which can accommodate up to 100 vehicles.
The building is located one-quarter of a mile from St. Joseph's Hospital and is
directly across the street from the Walt Disney Company's world headquarters
campus. Saint Joseph's Hospital includes 658 beds and is owned by the Sisters
of Providence, an organization which owns other hospitals throughout North
America.
Two tenants in the St. Joseph's Professional Building each occupy more than
10% of the rentable square footage. Total Renal Care occupies 9,067 square feet
(35.2% of the rentable square footage) pursuant to a lease which provides for a
monthly rental of $22,000 plus expense reimbursements for excess utility
consumption. This lease expires October 31, 2000. The Company is currently
negotiating a ten-year lease extension with Total Renal Care. Two internists
occupy an aggregate of 7,788 square feet (30.2%) of the rentable square footage
pursuant to three leases that provide for aggregate monthly rent of $17,000.
The leases expire on October 31, 2001 and November 30, 2001 and have five-year
renewal options.
14
<PAGE>
Lyons Avenue Medical Building
The Lyons Avenue Medical Building is a two-story, 49,000 square foot MOB
located in Valencia, California only 1/2 mile from the Henry Mayo Newhall
Memorial Hospital. The building has subterranean parking and a two-story atrium
entry. The building's excellent market position provides first class medical
space for those doctors that do not need an association with the hospital.
Three tenants each occupy more than 10% of the rentable square footage of
the building. Valencia Surgical Center occupies 7,212 square feet (approximately
14.7%) of the rentable area pursuant to a lease that provides for monthly rent
of $13,000. The lease expires on September 1, 2005. Santa Clarita Imaging
occupies 5,782 square feet (approximately 11.8%) of the rentable area pursuant
to a lease that provides for monthly rent of $9,000. The lease expires on June
30, 2009. Two orthopedists occupy 6,233 square feet (approximately 12.7%) of the
rentable area pursuant to a lease that provides for monthly rent of $10,000. The
lease expires on December 31, 2001 and provides for one, five-year renewal
option.
Tustin--MOB I
The 14591 Newport Avenue building in Tustin, California is a two-story MOB
that was constructed in 1969 on a 1.2-acre site. The site is landscaped with
grass lawns, shrubs, and trees and includes an asphalt-paved parking lot with
approximately 105 parking spaces, representing a parking ratio of 5.8 parking
spaces per 1,000 square feet of building area.
Three tenants each occupy more than 10% of the rentable square footage of
the building. A general practice physician occupies 2,604 square feet
(approximately 14.4%) of the rentable area of the building pursuant to a lease
that provides for monthly rent of $3,000. The lease expires on July 31, 2004. A
neurologist occupies 2,954 square feet (approximately 16.3%) of the rentable
area of the building pursuant to a lease that provides for monthly rent of
$4,500. The lease expires on January 31, 2001. Tri-Therapy Rehab occupies 2,019
square feet (approximately 11.2%) of the rentable area of the building pursuant
to a lease that provides for monthly rent of $3,000. The lease expires on March
31, 2002.
Tustin--MOB II
The 14642 Newport Avenue building in Tustin, California is a four-story
MOB, developed in 1985, that features a surgery center with three operating
rooms, a pharmacy, and an industrial clinic on the first floor. Medical offices
are located on all of the other floors.
Three tenants each occupy more than 10% of the rentable square footage in
the 14642 Newport Avenue Building. Pacific Health Corporation leases the surgery
center and occupies a total of 13,465 square feet (approximately 27.9%) of the
rentable area of the building pursuant to two leases that provide for monthly
rent of $29,000. The leases expire on November 30, 2001 and March 31, 2003. The
surgery center lease provides for one, five-year renewal option. Prospect
Medical Systems, Inc. occupies 6,004 square feet (approximately 12.5%) of the
rentable area pursuant to a lease that provides for monthly rent of $10,000. The
leases expire on September 30, 2003. Southern California Medical occupies 5,208
square feet (approximately 10.8%) of the rentable area of the building pursuant
to a lease that provides for monthly rent of $9,000. The lease expires on
December 31, 2004.
Regents Medical Center, La Jolla
The Regents Medical Center is a three-story building situated on
approximately 2.6 acres in the University Town Center area of San Diego, near
the University of California, San Diego. The building, which was constructed in
1989, has ground level retail spaces, two upper floors of medical offices, and
subterranean and ground level parking that can accommodate a total of 285
vehicles.
15
<PAGE>
UCSD Orthomed, an affiliate of the University of California, occupies
14,036 square feet (approximately 21.5%) of the rentable area of the building
pursuant to leases that provide for an aggregate monthly rent of $32,000. The
leases expire at various dates between January 31, 2000 and January 31, 2002.
Pier One Retail Center
The Pier One Retail Center is a one-story, 9,100 square foot retail
facility built by the Company in 1998 in Aliso Viejo, California. The building
is 100% leased to Pier One Imports, Inc. for ten years on a triple net basis.
Pacific Park
The Pacific Park building in Aliso Viejo, California is a 23,000 square
foot MOB, developed by the Company in 1999. The building was completed in
December 1999 and opened in January 2000. The building is 73% leased to a major
not-for-profit medical provider on a triple net basis. The remaining space is
currently under negotiations to be leased.
San Pedro Medical Plaza
The San Pedro Medical Plaza in San Pedro, California is a 59,000 square
foot complex consisting of three MOBs. The buildings are located across the
street from the San Pedro Peninsula Hospital and are situated on 7.85 acres
incorporating a 383 space surface parking lot.
One tenant occupies more than 10% of the rentable square footage of the
building. Cor Healthcare Medical Associates occupies 6,470 square feet
(approximately 10.9%) of the rentable area pursuant to a lease that provides for
monthly rent of $9,000. The lease is currently month-to-month.
1095 Irvine Boulevard, Tustin
The 1095 Irvine Boulevard building in Tustin, California was redeveloped in
1995 as a primary health care center for physicians who are part of the St.
Joseph Hospital of Orange health care network. The property is leased to St.
Joseph Hospital, Inc. under a net lease with a 15-year term, which began in
August 1995, and provides for annual cost of living rent escalations. The lease
provides for a monthly rental of $17,500 and expires on July 31, 2010.
Santa Clarita Valley Medical Center
The Santa Clarita Valley Medical Center in Valencia, California is a 42,000
square foot complex consisting of four one-story MOBs and one two-story MOB.
The buildings are located on the Henry Mayo Newhall Memorial Hospital Campus,
the only regional hospital in the area. The campus includes a 241-bed medical
center and another MOB. An open-air asphalt parking lot can accommodate up to
435 vehicles. The buildings are subject to a 60-year ground lease which
includes payments of $11,000 per month.
One tenant occupies more than 10% of the rentable square footage of the
buildings. A plastic surgeon occupies 4,428 square feet (approximately 10.5%)
of the rentable area of the buildings pursuant to a lease that provides for
monthly rent of $7,000. This space includes a surgery center. The lease
expires on November 30, 2005.
16
<PAGE>
Santa Clarita Valley Medical Center, Bldg F
Building F at the Santa Clarita Valley Medical Center is a two-story,
44,000 square foot MOB built by the Company in 1999. The building is located on
the Henry Mayo Newhall Memorial Hospital Campus and is adjacent to the other
five MOBs owned by the Company on the Hospital Campus. Building F is the premier
medical office building in the Santa Clarita Valley area. The building is
subject to a 60-year ground lease that includes payments of $11,000 per month.
Four tenants each occupy more than 10% of the rentable square footage of
the building. The Henry Mayo Newhall Memorial Hospital occupies 10,765 square
feet (approximately 24.5%) of the rentable area of the building pursuant to
three leases that provide for aggregate monthly rent of $23,500. All three
leases expire on May 31, 2009. Southern California Orthopedic Institute occupies
10,848 square feet (approximately 24.7%) of the rentable area of the building
pursuant to a lease that provides for monthly rent of $21,500. The lease expires
on February 28, 2009. SCV Quality Care occupies 5,257 square feet (approximately
12.0%) of the rentable area of the building pursuant to a lease that provides
for monthly rent of $10,500. The lease expires on February 28, 2009. The Regents
of UCLA occupy 4,454 square feet (approximately 10.1%) of the rentable area of
the building pursuant to a lease that provides for monthly rent of $9,000. The
lease expires on March 28, 2005.
New Jersey Properties
- ---------------------
As of August 15, 1997, Pinnacle Health Enterprises, LLC ("Pinnacle") leased
the New Jersey Properties from GL/PHP under the terms of a 17-year net operating
lease. PHP Healthcare Corporation ("PHP") guaranteed the obligations of its
subsidiary, Pinnacle, 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. The Commissioner of the New
Jersey Department of Banking and Insurance (the "Commissioner") took over the
operations of Pinnacle. The Commissioner acting as rehabilitator for the entity
operating the facilities under a medical services agreement with Pinnacle, paid
Pinnacle's administrative rent through the bankruptcy proceeding up to and
including March 5, 1999. After the Commissioner ceased paying rent, Pinnacle's
Chapter 7 trustee elected to reject the lease. The Commissioner continued to
occupy and lease certain of the buildings through March 31, 1999.
During 1999, GL/PHP leased one of the buildings and a portion of an
additional building. Also during 1999, GL/PHP attempted to restructure the
Nomura loan in order to attempt to preserve its investment in the New Jersey
Properties. See Item 7 for discussion of Nomura loan. On May 5, 1999, GL/PHP
presented a loan-restructuring plan to Amresco Management, Inc. ("Amresco"), the
loan servicer, in regards to the mortgage secured by the New Jersey Properties.
GL/PHP has been in default on this loan since May 1999. On May 10, 1999, Amresco
rejected the Company's restructuring plan.
On July 6, 1999, Amresco served GL/PHP with a complaint commencing a
judicial foreclosure and requesting the appointment of a receiver in the
Superior Court of New Jersey Chancery Division Bergen County. On September 15,
1999, the Superior Court ruled in Amresco's favor and appointed a receiver for
these buildings. Amresco filed a motion to foreclose its mortgage against the
New Jersey Properties. In February 2000, the court granted the motion and
transferred the matter to the foreclosure court of the New Jersey Superior
Court. New Jersey counsel has advised that the actual transfer of title should
be completed in approximately three to four months. A non-cash impairment loss
of $6.4 million was recorded in 1999 to reflect the decline in value of these
buildings as a result of the loss of current and future rental revenue due to
the Pinnacle and PHP bankruptcies in November 1998 and subsequent departure from
the buildings in March 1999. This impairment loss was recorded in the third
quarter of 1999 in response to the appointment of the receiver for the buildings
in September 1999 and their pending foreclosure.
17
<PAGE>
150 Century Parkway, Mount Laurel Township
The property is located in Burlington County and consists of a one-story
MOB containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 2.50 acres.
80 Eisenhower Drive, Paramus Borough
The property is located in Bergen County and consists of a one-story MOB
containing a net rentable area of approximately 12,675 square feet. The
building is situated on approximately 2.27 acres.
16 Commerce Drive, Cranford Township
The property is located in Union County and consists of a two level MOB
containing a net rentable area of approximately 17,500 square feet. The
building is situated on approximately 3.06 acres.
4622 Black Horse Pike, Hamilton Township
The property is located in Atlantic County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 2.73 acres.
2103 Mount Holly Road, Burlington Township
The property is located in Burlington County and consists of a one level
MOB containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 2.43 acres.
274 Route 35, Eaton Town Borough
The property is located in Monmouth County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet. The
building is situated on approximately 4.66 acres.
Senior Care Properties
Southern California Properties
- ------------------------------
Pacific Gardens Santa Monica
Pacific Gardens Santa Monica is a 92-unit, 61,000 square foot, four-story
assisted living facility located in Santa Monica, California just two blocks
from the beach. The building contains a 3-story, subterranean parking garage
for 112 vehicles. The facility features a kitchen, 150-seat dining room,
community room, TV lounges, library, beauty parlor and guest laundry areas on
each floor. The facility is in close proximity to nearby shopping, restaurants
and entertainment. Two major hospitals, Santa Monica Hospital Medical Center
and St. John's Hospital are located within two miles of the property.
18
<PAGE>
Tustin Hospital
The 14662 Newport Avenue building in Tustin, California is a single-story,
183-bed, 101,000 square foot hospital that was developed in two phases beginning
in 1969 and ending in 1974. The hospital includes a full service emergency
room, five operating rooms, an intensive care ward, administrative offices,
conference rooms, kitchen and cafeteria, pharmacy facilities, gift shop, x-ray
facilities and a basement service area. The hospital has an emergency back-up
generator with a 10,000-gallon underground fuel tank that complies with current
environmental requirements. The hospital was vacant when the Company acquired
the property on June 14, 1996. As of May 1, 1997, the hospital was 100% leased
to Pacific Health Corporation. The lease provides for triple net rental
payments that commenced in January 1998. Rental payments for the months of
October through December 1997 were deferred until July 1998, at which time the
monthly rent was increased from $33,000 to approximately $35,000. The lease
expires June 30, 2002 and provides for three, five-year renewal options. In
July 1997, the Company granted Pacific Health Corporation an option, which
expires on July 1, 2001, to purchase the hospital during the first six months of
2002 for $5.0 million.
The Arbors at Rancho Penasquitos
The Arbors at Rancho Penasquitos is a 97-unit, 52,000 square foot, three-
story assisted living facility located in Rancho Penasquitos, California. The
building was originally built in 1988 as a Ramada Hotel. In 1998, the Company,
in joint venture with Parsons House, LLC, purchased the property and converted
it into The Arbors at Rancho Penasquitos. The facility opened for business in
March 1999.
Each unit contains approximately 360 square feet and includes a small
kitchenette. The facility contains a kitchen, dining room, activity room and a
lounge. The 2.07-acre property also has a parking lot that can accommodate up
to 114 cars.
Pacific Gardens Tarzana
Pacific Gardens Tarzana is a two-story, 80-unit, 44,117 square foot
assisted living facility located in Tarzana, California. The facility features a
formal dining room, two living rooms, pharmaceutical services, daily maid
service and personal laundry service.
Lakeview Courtyards
Lakeview Courtyards is a to-be-constructed two story, 80-unit, 50,417
square foot assisted living facility located in Yorba Linda, California. The
project is a joint venture with Prestige Care Inc., an experienced assisted
living facility operator. Construction began on the facility in October 1999 and
is expected to be completed in Spring 2001.
Arizona Properties
- ------------------
Maryland Gardens
Maryland Gardens is a 98-bed skilled nursing facility located in Phoenix.
The facility is situated on approximately 1.84 acres. American Healthcare
Associates, Inc. has managed the facility on a month-to-month basis since April
1999. The Company is currently negotiating a management contract with a new
manager.
19
<PAGE>
Maryland Gardens II
Maryland Gardens II is a 20-unit, 30,000 square foot apartment complex
acquired by the Company in May 1998. The building is located on a 1.0-acre lot
adjacent to the Maryland Gardens skilled nursing facility. The building, named
the Winter Gardens Apartments, currently consists of residential tenants. The
property also includes a 1.0-acre vacant parcel of land and a duplex building.
Massachusetts Properties
- ------------------------
Hampden Properties
G&L Hampden, LLC, a wholly-owned subsidiary of the Company, acquired three
nursing home properties in Massachusetts on October 28, 1997 from Hampden
Nursing Homes, Inc. ("HNH"), a nonprofit corporation. Lenox Healthcare, Inc.
("Lenox") managed the three facilities from October 1998 through December 1999.
In November 1999, Lenox filed for bankruptcy protection. The Company
immediately moved to replace Lenox as the manager of the nursing homes. In
January 2000, the Company received the bankruptcy court's permission to replace
Lenox as the manager and a new management firm, a subsidiary of Roush &
Associates ("Roush"), was immediately retained. Since acquiring the properties
from HNH, HNH has held the licenses necessary to operate the facilities. In
March 2000, the Company successfully transferred the licenses to G&L
Massachusetts, LLC, a subsidiary of the Operating Partnership. G&L
Massachusetts, LLC subsequently leased the three facilities from the Company
while Roush continued to manage them. The lease requires monthly payments of
$225,000 net of property taxes, insurance and costs to maintain the facilities.
During the first quarter of 2000, the Company received payments totaling
$125,000.
Riverdale Gardens
Riverdale Gardens Nursing Home, located in West Springfield, Massachusetts,
is a 168-bed nursing facility currently licensed for 84 skilled care and 84
intermediate care beds with 16 private and 76 double occupancy rooms.
Constructed in various stages between 1957 and 1975, the property consists of a
single story 54,451 square foot building on approximately 3.85 acres as well as
a 3,366 square foot single family residence on an adjacent 30,000 square foot
lot.
Chestnut Hill
Chestnut Hill Nursing Home, located in East Longmeadow, Massachusetts, is a
123 bed nursing home consisting of 82 skilled nursing and 41 intermediate care
beds with 15 private and 54 double occupancy rooms. The facility is a 49,198
square foot single story building constructed in 1984 on approximately 11.9
acres of land.
Mary Lyon
Mary Lyon Nursing Home, located in Hampden, Massachusetts, occupies a
28,940 square foot building situated on 3.7 acres and was originally constructed
in 1959 and renovated in 1986. The facility is licensed for 100 beds of which 40
are skilled nursing and 60 are intermediate care beds with ten private rooms, 39
double occupancy rooms and three quadruple occupancy rooms.
20
<PAGE>
Nebraska Property
- -----------------
Parsons House on Eagle Run
Parsons House on Eagle Run is a 88-unit assisted living facility located
in Omaha. The facility was built through a joint venture between the Company and
Parsons House, LLC, who is also the manager, and was completed in October 1999.
The facility features private suites, dining room service, housekeeping and
laundry services, transportation and a wide range of activities for its
residents. The facility staff includes licensed nurses and caregivers who
provide assistance with medication, bathing and dressing twenty-four hours a
day.
Washington Property
- -------------------
Pacific Care Center
Pacific Care Center is a 118-bed skilled nursing facility located in
Hoquiam. American Healthcare Associates, Inc. has managed the facility on a
month-to-month basis since April 1999. The Company is currently negotiating a
management contract with a new manager.
Leases
MOB Properties
As of January 31, 2000, the MOB Properties were approximately 93.1% leased,
excluding the six MOB Properties located in New Jersey. New leases and
extensions are normally granted for a minimum of three to five years and provide
for annual rent increases. Office tenants generally have gross leases whereby
rents may be adjusted for a tenant's proportionate share of any increases in the
cost of operating the building. Most retail tenants have net leases and pay
their share of all operating expenses including property taxes and insurance.
The following is a lease expiration table setting forth the number, square feet
and associated annual rent for those leases expiring in future years.
MOB Properties--Lease Expirations
<TABLE>
<CAPTION>
Number of Approximate % of
Year of Lease Leases Total Rented Total Annual
Expiration Expiring (1) Square Feet (1) Annual Rent Rent
------------- ------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
2000............... 59 80,879 $ 2,443,000 11.1%
2001............... 78 127,270 3,645,000 16.5%
2002............... 61 100,199 2,942,000 13.3%
2003............... 51 91,083 2,523,000 11.4%
2004............... 45 147,778 4,005,000 18.2%
2005............... 18 38,083 1,151,000 5.2%
2006............... 17 50,239 1,568,000 7.1%
2007............... 9 20,982 911,000 4.1%
2008............... 7 32,801 943,000 4.3%
2009............... 13 64,546 1,706,000 7.7%
2010 or later...... 2 11,365 237,000 1.1%
--- ------- ----------- ------
Total 360 765,225 $22,074,000 100.0%
=== ======= =========== ======
</TABLE>
________________________________
1) Does not include month-to-month leases or vacant space. There are 63 month-
to-month tenants who occupy approximately 66,000 square feet of space and
pay approximately $119,000 per month in rent.
21
<PAGE>
The Company was successful in obtaining lease renewals, achieving a
weighted average renewal rate of approximately 76.2% on MOB leases that expired
during 1999. Although there can be no assurance that this renewal level will be
maintained, the Company believes this high renewal rate is due in part to the
tendency of medical practitioners to continue to practice in the same space over
a number of years. Also, the Company's tenants frequently invest large sums of
money in equipment and fixtures for their offices. Furthermore, relocating a
doctor's office can be disruptive to the patients who are familiar with the
doctor's office location.
The following table sets forth the scheduled annual rent increases for the
leases with respect to the MOB Properties in effect at January 31, 2000.
MOB Properties--Rent Increases
<TABLE>
<CAPTION>
% of Total Rented
Scheduled Annual Rent Increases Square Feet(1) Square Feet(1)(2)
------------------------------- -------------- -----------------
<S> <C> <C>
None (3)....................... 120,294 14.6%
Consumer Price Index........... 402,128 48.7%
2.00%.......................... 9,346 1.1%
2.50%.......................... 19,668 2.4%
2.75% ......................... 3,251 0.4%
3.00% ......................... 100,818 12.2%
3.20% ......................... 1,201 0.2%
3.50% ......................... 4,450 0.5%
4.00%.......................... 59,659 7.2%
5.00%.......................... 99,503 12.0%
8.00%.......................... 5,440 0.7%
------- -----
Total 825,758 100.0%
======= ======
</TABLE>
______________________________
1) Does not include 5,935 square feet, or 0.7% of the total rented square
feet, which is used as management space.
2) Percent of total rented square feet has been rounded to the nearest tenth
of one percent.
3) Approximately 55% of these leases are month-to-month.
22
<PAGE>
The historical occupancy, rounded to the nearest tenth of one percent, of
the MOB Properties is shown in the following table:
MOB Properties--Historical Occupancy
<TABLE>
<CAPTION>
MOB Property 1999 1998 1997 1996 1995
- ------------ --------- --------- --------- --------- ---------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C>
405 N. Bedford......................................... 96.4% 85.5% 97.4% 100.0% 100.0%
415 N. Bedford(1)...................................... 100.0 100.0 100.0 100.0 100.0
416 N. Bedford......................................... 99.8 90.2 90.7 97.6 100.0
435 N. Bedford......................................... 96.1 95.8 93.9 93.1 89.2
435 N. Roxbury......................................... 91.9 96.7 93.5 93.6 95.6
436 N. Bedford......................................... 98.3 100.0 100.0 98.4 90.0
Sherman Oaks Medical Plaza(2).......................... 89.7 97.3 93.9 86.7 90.0
Cigna Health Care Building(2).......................... 100.0 100.0 100.0 100.0 100.0
Coronado Plaza(6)...................................... 91.1 89.2 N/A N/A N/A
Holy Cross Medical Plaza(2)............................ 91.0 88.8 92.2 93.1 94.7
St. Joseph's Medical Building(3)....................... 100.0 96.8 100.0 100.0 100.0
24355 Lyons Avenue(6).................................. 95.2 85.3 N/A N/A N/A
14591 Newport Avenue, Medical Office I(5).............. 70.2 55.0 52.4 49.6 N/A
14642 Newport Avenue, Medical Office II(5)............. 93.4 80.5 71.5 85.1 N/A
Pacific Park(8)........................................ 73.8 N/A N/A N/A N/A
Pier One Retail Center(7).............................. 100.0 100.0 N/A N/A N/A
Regents Medical Center(2).............................. 100.0 100.0 100.0 100.0 90.9
San Pedro Medical Plaza(6)............................. 90.9 86.7 N/A N/A N/A
1095 Irvine Boulevard(4)............................... 100.0 100.0 100.0 100.0 100.0
Santa Clarita Valley Medical Center(6)................. 81.6 95.0 N/A N/A N/A
Santa Clarita Valley Medical Center, Bldg F(8)......... 88.6 62.3 N/A N/A N/A
----- ----- ----- ----- -----
Weighted Average of all California MOB Properties....... 93.1 90.2 93.0 94.2 90.9
----- ----- ----- ----- -----
New Jersey (9)
- --------------
2103 Mt. Holly Rd., Burlington......................... 0.0 100.0 100.0 N/A N/A
150 Century Parkway, Mt. Laurel........................ 19.9 100.0 100.0 N/A N/A
274 Highway 35, South Eatontown........................ 0.0 100.0 100.0 N/A N/A
80 Eisenhower Drive, Paramus........................... 100.0 100.0 100.0 N/A N/A
16 Commerce Drive, Cranford............................ 0.0 100.0 100.0 N/A N/A
4622 Black Horse Pike, May Landing..................... 0.0 100.0 100.0 N/A N/A
----- ----- ----- ----- -----
Weighted Average of New Jersey MOB Properties. 18.9 100.0 100.0 N/A N/A
----- ----- ----- ----- -----
Weighted Average of All MOB Properties.................. 86.9% 92.9% 93.7% 94.2% 90.9%
===== ===== ===== ===== =====
</TABLE>
______________________________
1) Retail space.
2) Acquired in 1994.
3) Acquired in December 1993.
4) Placed in service in 1995.
5) Acquired in June 1996 from a creditors committee. Previous operating
statistics were not available.
6) Property acquired in 1998.
7) Property was built in 1998.
8) Property was built in 1999.
9) All six facilities were acquired in February 1997.
23
<PAGE>
The following tables set forth the annualized base rent per square foot and
annualized base rent for the MOB Properties for the past five years.
MOB Properties--Annualized Average Base Rent Per Square Foot
<TABLE>
<CAPTION>
MOB Property 1999 1998 1997 1996 1995
- ------------ -------- -------- -------- -------- --------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C>
405 N. Bedford.................................... $40.86 $42.24 $47.58 $44.51 $41.64
415 N. Bedford(1)................................. 40.04 39.10 38.35 36.28 36.21
416 N. Bedford.................................... 38.27 37.72 38.05 36.89 37.04
435 N. Bedford.................................... 33.39 31.99 37.74 33.49 34.35
435 N. Roxbury.................................... 38.21 36.21 35.64 36.50 37.11
436 N. Bedford.................................... 43.53 41.12 42.08 39.84 42.13
Sherman Oaks Medical Plaza(2)..................... 20.92 20.37 20.19 22.90 23.32
Cigna Health Care Building(2)..................... 23.04 23.04 23.04 23.04 23.04
Coronado Plaza(6)................................. 28.50 27.01 N/A N/A N/A
Holy Cross Medical Plaza(2)....................... 26.66 28.44 28.04 28.07 25.91
St. Joseph's Medical Bldg.(3)..................... 27.11 26.82 27.19 27.03 29.12
24355 Lyons Avenue(6)............................. 20.22 20.39 N/A N/A N/A
14591 Newport Avenue, Medical Office I(5)......... 15.80 15.13 13.39 14.66 N/A
14642 Newport Avenue, Medical Office II(5)........ 21.19 16.54 13.19 12.34 N/A
Pacific Park(8)................................... 25.20 25.20 N/A N/A N/A
Pier One Retail Center(7)......................... 20.00 20.00 N/A N/A N/A
Regents Medical Center(2)......................... 26.27 24.77 24.18 24.93 27.11
San Pedro Medical Plaza(6)........................ 22.93 23.65 N/A N/A N/A
1095 Irvine Boulevard(4).......................... 20.73 20.30 19.87 19.46 17.14
Santa Clarita Valley Medical Center(6)............ 20.46 20.72 N/A N/A N/A
Santa Clarita Valley Medical Center, Bldg F(8).... 24.62 24.96 N/A N/A N/A
------ ------ -------- -------- --------
Weighted Average of all California MOB Properties.. 28.29 27.76 29.94 29.81 31.70
------ ------ ------ ------ ------
New Jersey (9)
- --------------
2103 Mt. Holly Rd., Burlington.................... 0.00 34.63 34.63 N/A N/A
150 Century Parkway, Mt. Laurel................... 24.00 31.16 31.16 N/A N/A
274 Highway 35, South Eatontown................... 0.00 38.30 38.30 N/A N/A
80 Eisenhower Drive, Paramus...................... 27.00 33.28 33.28 N/A N/A
16 Commerce Drive, Cranford....................... 0.00 28.10 28.10 N/A N/A
4622 Black Horse Pike, May Landing................ 0.00 34.83 34.83 N/A N/A
------ ------ ------ -------- --------
Weighted Average of New Jersey MOB Properties...... 26.51 33.07 33.07 N/A N/A
------ ------ ------ -------- --------
Weighted Average of All MOB Properties............. $28.25 $28.51 $30.69 $29.81 $31.70
====== ====== ====== ====== ======
</TABLE>
__________________________
1) Retail space.
2) Acquired in 1994.
3) Acquired in December 1993.
4) Placed in service in 1995.
5) Acquired in June 1996 from a creditors committee. Previous operating
statistics were not available.
6) Property acquired in 1998
7) Property was built in 1998.
8) Property was built in 1999.
9) All six facilities were acquired in February 1997.
24
<PAGE>
MOB Properties--Annualized Base Rent
(Amounts in Thousands)
<TABLE>
<CAPTION>
MOB Property 1999 1998 1997 1996 1995
- ------------ --------- --------- --------- --------- ---------
Southern California
- -------------------
<S> <C> <C> <C> <C> <C>
405 N. Bedford...................................... $ 1,630 $ 1,554 $ 2,125 $ 2,183 $ 2,033
415 N. Bedford(1)................................... 229 224 219 217 216
416 N. Bedford...................................... 1,540 1,380 1,399 1,468 1,511
435 N. Bedford...................................... 1,673 1,683 1,630 1,718 1,690
435 N. Roxbury...................................... 1,491 1,487 1,412 1,450 1,507
436 N. Bedford...................................... 3,150 3,030 3,101 3,090 2,988
Sherman Oaks Medical Plaza(2)....................... 1,275 1,364 1,291 1,378 1,457
Cigna Health Care Building(2)....................... 1,097 1,097 1,097 1,097 1,097
Coronado Plaza(6)................................... 1,035 983 N/A N/A N/A
Holy Cross Medical Plaza(2)......................... 1,751 1,822 1,864 1,896 1,749
St. Joseph's Medical Bldg.(3)....................... 699 667 698 694 758
24355 Lyons Avenue(6)............................... 943 851 N/A N/A N/A
14591 Newport Avenue, Medical Office I(5)........... 200 151 127 120 N/A
14642 Newport Avenue, Medical Office II(5).......... 954 636 452 504 N/A
Pacific Park(8)..................................... 427 427 N/A N/A N/A
Pier One Retail Center (7).......................... 182 182 N/A N/A N/A
Regents Medical Center(2)........................... 1,716 1,618 1,570 1,555 1,640
San Pedro Medical Plaza(6).......................... 1,232 1,199 N/A N/A N/A
1095 Irvine Boulevard(4)............................ 210 206 201 197 174
Santa Clarita Valley Medical Center(6).............. 704 834 N/A N/A N/A
Santa Clarita Valley Medical Center, Bldg F(8)...... 958 668 N/A N/A N/A
------- ------- --------- --------- ---------
Total of all California MOB Properties 23,097 22,063 17,186 17,567 16,820
------- ------- ------- ------- -------
New Jersey (9)
- --------------
2103 Mt. Holly Rd., Burlington...................... 0 435 435 N/A N/A
150 Century Parkway), Mt. Laurel.................... 60 391 391 N/A N/A
274 Highway 35, South Eatontown..................... 0 481 481 N/A N/A
80 Eisenhower Drive, Paramus........................ 342 422 422 N/A N/A
16 Commerce Drive, Cranford......................... 0 492 492 N/A N/A
4622 Black Horse Pike, May Landing.................. 0 438 438 N/A N/A
------- ------- ------- --------- ---------
Total of New Jersey MOB Properties................... 402 2,659 2,659 N/A N/A
------- ------- ------- --------- ---------
Total of All MOB Properties.......................... $23,499 $24,722 $19,845 $17,567 $16,820
======= ======= ======= ======= =======
</TABLE>
___________________________
1) Retail space
2) Acquired in 1994.
3) Acquired in December 1993.
4) Placed in service in 1995.
5) Acquired in June 1996 from a creditors committee. Previous operating
statistics were not available
6) Property acquired in 1998
7) Property built in 1998.
8) Property built in 1999.
9) All six facilities were acquired in February 1997.
25
<PAGE>
Senior Care Loans
Lending Operations
As of December 31, 1999, the Company had fourteen loans outstanding that total
approximately $20.6 million before reserves of $4.6 million. Two of the fourteen
loans, which total approximately $11.9 million before reserves, are first deeds
of trust secured by healthcare facilities in California and Maryland. The
fourteen loans are described in the following paragraphs.
In October 1999, the Company provided $1.65 million of bridge financing for a
$9.0 million apartment complex located in Tulsa, Oklahoma. The apartment
complex was purchased by G&L Realty Partners, LLC ("G&L Partners"), a company
controlled by Joe Carroll, a former Company employee, in which the Company has
no equity interest. G&L Partners sold the apartment complex in December 1999
through a tax-exempt bond offering to NVHF Park Chase, LLC ("NVHF"), a not-for-
profit company. As part of its loan repayment, the Company received
approximately $380,000 in cash. For the remaining balance, the Company received
$1.26 million in tax-exempt, subordinated B-bonds from the offering. The tax-
exempt bonds are due in December 2029 and bear interest at 8.75% per annum. In
addition, the Company received a 10-year, 10%, $500,000 unsecured note from NVHF
Affiliates, LLC, the parent company of NVHF. The Company is also the guarantor
on a $500,000 letter of credit in favor of NVHF Affiliates, LLC.
On June 17, 1996, the Company funded a $6.1 million loan for the acquisition
of a nursing home facility in Baltimore, Maryland (the "Carroll Manor facility")
by Heritage Care, Inc. ("Heritage Care"), a non-profit corporation. The Company
received a first deed of trust on that facility and Carroll Manor, Inc.
("Carroll Manor"), the seller, received a second deed of trust which secured its
$500,000 loan to Heritage Care. In addition to the $6.1 million, the Company
made additional advances in 1997, which total $2.6 million, to enable Heritage
Care to meet its payroll and other current expenses necessary to remain in
operation and thereby protect the value of the Company's security interest in
the Carroll Manor facility. On March 31, 1999, the Company refinanced the $6.1
million loan, the $2.6 million in additional advances and all accrued interest
into a $7.3 million,10-year, 12% promissory note secured by a first deed of
trust on the Carroll Manor facility and a $2.7 million, 10-year, 12% unsecured
promissory note. In September 1999, the Company purchased the $500,000 second
deed of trust from Carroll Manor for $503,000, including all unpaid interest and
late fees. In December 1999, the Company consolidated the $7.3 million first
deed of trust and the $500,000 second deed of trust into an $7.8 million
promissory note with the same terms and conditions as the previous $7.3 million
promissory note. Principal and interest payments on the $7.8 million and the
$2.7 million promissory notes due monthly total $125,000. The facility is
currently being operated by Future Care, an experienced Maryland operator of
nursing homes. Future Care took over operations in June 1997 and has turned
around the operations and substantially increased the occupancy and the
profitability of the facility. As a result, the Company received $0.9 million
in debt service payments from the facility in 1999. In 1999, the Carroll Manor
facility was appraised for $11.8 million.
In December 1997, the Company funded $4.6 million into an escrow, to be loaned
to Aspen Paso Robles, Inc. ("Aspen") at the close of escrow. This loan was to
be secured by (i) a 59-bed nursing and rehabilitation center in Chico,
California; (ii) a 38-bed skilled nursing facility in Paso Robles, California;
and (iii) a 57-bed intermediate care center in Beaumont, California. The loan
closed on February 25, 1998 although certain funds were held in escrow pending
the close of the real estate in which the Chico and Beaumont facilities were
located. The purchase of the Chico real estate subsequently closed. The funds
for the Beaumont real estate remained in escrow until October 1998 at which time
the Company secured the return of those funds and applied them to pay down the
loan balance to $3.6 million. The borrower subsequently filed a Chapter 11
proceeding under the U.S. Bankruptcy Code. The remaining $3.6 million balance
of the loan is currently in default and the two facilities securing the loan
have been closed. The Company is currently in the process of taking title to
the facilities through two deeds in lieu of foreclosure after securing
permission from the bankruptcy court and the agreement of the trustee. Once the
Company obtains title to these facilities, the Company intends to lease them to
an operator or sell them. In addition, the Company is pursuing legal action
against the borrower and other parties involved in the transaction based on
26
<PAGE>
allegations of fraud and negligent misrepresentation. In December 1998, due to
the uncertainty surrounding the recovery of the loan, the Company increased its
loan loss reserves by $1 million.
On April 25, 1996, the Company entered into a loan participation agreement
with Iatros to fund two loans secured by third and fifth trust deeds in the
amount of approximately $750,000 and $1.1 million, respectively, to facilitate
the purchase of a nursing home in Olathe, Kansas (the "Crystal Park facility").
Following the acquisition of the Crystal Park facility, the borrower engaged an
affiliate of Iatros to operate the facility. On May 16, 1997, the borrower
filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and engaged a
new operator for the Crystal Park facility, which subsequently closed. In
October 1997, the Company assigned its remaining interest in the participation
agreement and the promissory notes to Iatros in exchange for an $800,000 note
and title to the accounts receivable of the former owner of the facility which
had served as additional collateral for the promissory note. The $800,000 note
is due October 1, 2004 and accrues interest at 10.0% per annum. Interest
payments are due monthly based upon 5.0% per annum of the outstanding balance.
In addition, the Company holds two other promissory notes from Iatros in the
amounts of $300,000 and $47,000. All of the Iatros promissory notes are
currently in default. In December 1998, the Company established a reserve for
the full amount of all these notes.
In addition to the notes on the Tulsa, Carroll Manor and Aspen facilities and
the three notes due from Iatros, the Company had six other loans outstanding at
December 31, 1999, with an aggregate face value of $1.7 million, excluding
approximately $0.6 million of additional accrued, unpaid interest. The
following is a summary of the six other loans as of December 31, 1999:
. $425,000 note secured by a first deed of trust due June 30, 2000, interest
payable monthly at a rate of 10% per annum.
. $150,000 note secured by second deed of trust, interest payable
semiannually at a rate of 10.0% per annum.
. $300,000 unsecured promissory note due April 1, 2003, interest payable
quarterly at 8.0% per annum. This note is currently in default and accrues
interest at the default rate of 12.0% per annum. This note was fully
reserved for in December 1998.
. $1,356,000 unsecured promissory notes payable upon demand, interest
accrues at 12.0% per annum. In December 1998, the Company established a
reserve for a portion of these notes.
. $115,000 unsecured credit line due May 31, 1998, interest payable annually
at 12.0% per annum. Unpaid principal accrues interest at 12.0% per annum
after maturity date. This amount is currently in default. In December
1998, the Company established a reserve for the full amount of this credit
line.
. $44,000 unsecured promissory note due June 30, 1999, interest payable at
10.0% per annum. This amount is currently in default.
As of December 31, 1999, the Company had reserves of $4.6 million for
doubtful notes receivable. Management believes that $4.6 million is appropriate
in relation to the status of the loans in the Company's portfolio as of March
24, 2000.
GLN
GLN was formed with Nomura Asset Capital Corp. ("Nomura") for the purpose of
making short-term loans to third parties to purchase senior care facilities.
Due to market conditions and other financial constraints, it does not appear
likely that the Company or Nomura will use GLN to make future loans. As of
December 31, 1999, GLN had one loan outstanding. In May 1997, GLN acquired a 50%
limited partnership interest in a limited partnership created to acquire a
recreational vehicle ("RV") park in Florida for approximately $1.2 million.
In connection with the acquisition of the RV park, GLN funded a secured loan of
approximately $1.5 million to the limited partnership. This loan bears interest
at a rate of approximately 9.0% per annum and matured on May 1, 1999. The loan
provided for monthly payments of interest only. As of December 31, 1999, the
borrower was in default on the interest payments. Management is currently in
the process of negotiating its exit strategy with the borrower with respect to
this loan. The Company believes that it will recover its full investment in the
loan. The RV park is operated by
27
<PAGE>
Camper Clubs of America, Inc., ("Camper Clubs") the largest RV park operator
in the U.S. and a limited partner in the limited partnership.
Insurance
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to the MOB Properties and Senior Care
Properties. There are certain types of losses that may either be uninsurable or
not economically insurable; moreover, there can be no assurance that policies
maintained by the Company will be adequate in the event of a loss. The Company
carries earthquake and flood insurance for coverage of losses up to $35 million
on the MOB Properties and Senior Care Properties located in California and
Arizona, which amount represents approximately 24% of the net book value of
these properties. This coverage is subject to a 10% deductible up to the amount
of insured loss. The Senior Care Properties located in Washington and
Massachusetts do not carry earthquake or flood insurance. Thirty-two of the 45
properties directly or indirectly owned by the Company are located in Southern
California, which has a history of seismic activity, including the 1994
Northridge earthquake that damaged the Holy Cross Medical Plaza property. Two
Senior Care Properties owned by the Company are located in Phoenix, Arizona, in
an area with a history of flood activity. Should an uninsured loss occur, the
Company could lose its investment in, and anticipated earnings and cash flow
from, a property.
ITEM 3. LEGAL PROCEEDINGS
There is no material pending litigation to which the Company or its
consolidated or unconsolidated subsidiaries is a defendant or to which any of
their properties is subject other than routine litigation arising in the
ordinary course of business, most, if not all, of which is expected to be
covered by insurance, except as discussed below.
On August 15, 1997, a subsidiary of the Company, GL/PHP, LLC ("GL/PHP")
borrowed $16 Million from 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.
The note by its terms is nonnegotiable and provides 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 Columbia. The Commissioner of the New
Jersey Department of Banking and Insurance (the "Commissioner") took over the
operations of Pinnacle. The Commissioner acting as rehabilitator for the entity
operating the facilities under a medical services agreement with Pinnacle, paid
Pinnacle's administrative rent through the bankruptcy proceeding up to and
including March 5, 1999. After the Commissioner ceased paying rent, Pinnacle's
Chapter 7 trustee elected to reject the lease. The Commissioner continued to
occupy and lease certain of the buildings through March 31, 1999.
During 1999, GL/PHP leased one of the buildings and a portion of an
additional building. Also during 1999, GL/PHP attempted to restructure the
Nomura loan in order to attempt to preserve its investment in the New Jersey
Properties. See Item 7 for discussion of Nomura loan. On May 5, 1999, GL/PHP
presented a loan-restructuring plan to Amresco Management, Inc. ("Amresco"), the
loan servicer, in regards to the mortgage secured by the New Jersey Properties.
GL/PHP has been in default on this loan since May 1999. On May 10, 1999,
Amresco rejected the Company's restructuring plan.
28
<PAGE>
On July 6, 1999, Amresco served GL/PHP with a complaint commencing a judicial
foreclosure and requesting the appointment of a receiver in the Superior Court
of New Jersey Chancery Division Bergen County. On September 15, 1999, the
Superior Court ruled in Amresco's favor and appointed a receiver for these
buildings. Amresco filed a motion to foreclose its mortgage against the New
Jersey Properties. In February 2000, the court granted the motion and
transferred the matter to the foreclosure court of the New Jersey Superior
Court. New Jersey counsel has advised that the actual transfer of title should
be completed in approximately three to four months. A non-cash impairment loss
of $6.4 million was recorded in 1999 to reflect the decline in value of these
buildings as a result of the loss of current and future rental revenue because
of the Pinnacle and PHP bankruptcies in November 1998 and their subsequent
departure from the buildings in March 1999. This impairment loss was recorded
in the third quarter of 1999 in response to the appointment of the receiver for
the buildings in September 1999 and their pending foreclosure.
LaSalle National Bank ("LaSalle"), as trustee in trust for the holders of
certain obligations including the Nomura loan by and through Amresco, has also
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 to LaSalle as part of the security LaSalle
claims it is entitled to under the deed of trust and assignment of rent with
GL/PHP. 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.
Landmark Healthcare Facilities, LLC ("Landmark") filed a lawsuit against a
subsidiary of the Company, G&L Valencia, LLC, claiming that Landmark is entitled
to approximately $600,000 plus interest costs under a development agreement
entered into between G&L Valencia, LLC and Landmark for development of an MOB
project 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 G&L Valencia,
LLC has been terminated or assigned to the Company. The litigation is in its
earliest stages and the likelihood of recovery by either party is therefore
inestimable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders of the Company during the
quarter ended December 31, 1999.
29
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol GLR. It has been the Company's policy to declare quarterly
distributions to holders of the Company's Common Stock so as to comply with
applicable sections of the Code governing REITs. Operating Partnership units
("Units") and shares of Common Stock receive equal distributions. Distributions
are declared and paid at the discretion of the Company's Board of Directors and
generally depend on the Company's cash flow, its financial condition, capital
requirements, the distribution requirements under the REIT provisions of the
Code and such other factors as the directors of the Company deem relevant.
The table below sets forth the high and low sales prices of the Company's
stock for each full quarterly period from January 1, 1998 to March 24, 2000 as
reported by the New York Stock Exchange. The table also includes, on a per
share basis, the quarterly cash distribution declared and paid to holders of the
Company's Common Stock and Units for each of the last two fiscal years and the
current year to date.
<TABLE>
<CAPTION>
High Low Distribution
-----------------------------------------
<S> <C> <C> <C> <C>
2000 First quarter (to March 24, $ 9 9/16 $ 8 5/8 0.125
2000).............
1999 Fourth quarter............. 9 3/4 7 1/2 0.125
Third quarter.............. 12 1/8 8 13/16 0.125
Second quarter............. 12 15/16 10 1/16 0.39
First quarter.............. 15 3/16 11 7/8 0.39
1998 Fourth quarter............. 15 15/16 12 7/8 0.39
Third quarter.............. 17 7/16 14 11/16 0.39
Second quarter............. 18 1/8 17 3/16 0.39
First quarter.............. 21 1/2 16 7/8 0.39
</TABLE>
______________________________
The Company also paid monthly dividends to holders of the Company's Series
A and Series B Preferred Stock on the fifteenth day of each month. Dividends are
paid monthly at the rate of $2.56 and $2.45 per annum on shares of the Company's
Series A and Series B Preferred Stock, respectively. Distributions on the
Company's Series A and Series B Preferred Stock are senior to all classes of the
Company's Common Stock.
At various times during the year ending December 31, 1999, the Company
repurchased a total of 1,359,300 shares of the Company's Common Stock at an
average price of approximately $10.44 per share, including 1,000,000 shares that
were purchased pursuant to a tender offer by the Company in November 1999 at a
price of $10.50.
During 1999, the Company also purchased 3,500 shares of its Series A
Preferred Stock at an average price of $15.24 and 4,200 shares of its Series B
Preferred Stock at an average price of $14.36.
The approximate number of holders of record of the shares of Common Stock
was 1,747 as of March 24, 2000. This number does not represent the total number
of beneficial holders of Common Stock.
30
<PAGE>
ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA
The following table sets forth consolidated selected financial and
operating information for the Company for each of the years ended December 31,
1999, 1998, 1997, 1996 and 1995. The following information should be read in
conjunction with all of the financial statements and notes thereto included in
this Form 10-K. This data also should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K. The consolidated selected financial and
operating data as of December 31, 1999, 1998, 1997, 1996 and 1995 and for each
of the years ended December 31, 1999, 1998, 1997, 1996 and 1995 have been
derived from audited financial statements.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Operating Data:
- --------------
Revenues:
Rental................................................... $27,928 $24,639 $20,307 $15,796 $16,801
Tenant reimbursements.................................... 1,275 781 707 728 732
Parking.................................................. 1,148 1,501 1,439 1,251 1,388
Interest, loan fees and other............................ 2,797 4,517 4,322 6,712 1,835
Other.................................................... 398 254 274 549 652
------- ------- ------- ------- -------
Total revenues.................................. 33,546 31,692 27,049 25,036 21,408
------- ------- ------- ------- -------
Expenses:
Property operations...................................... 7,569 6,171 6,280 5,696 5,199
Earthquake costs (reimbursements)........................ --- --- --- --- (133)
Depreciation and amortization............................ 5,690 4,597 3,570 2,773 3,433
Interest................................................. 12,393 8,683 9,088 9,322 6,986
General and administrative............................... 3,196 2,554 2,044 1,787 1,640
Provision for doubtful accounts, notes and bonds
receivable............................................. 2,000 5,603 --- --- ---
Impairment of long-lived assets 6,400 --- --- --- ---
Loss on disposition of real estate....................... --- --- --- 4,874 ---
------- ------- ------- ------- -------
Total expenses.................................. 37,248 27,608 20,982 24,452 17,125
------- ------- ------- ------- -------
(Loss) income from operations before minority interests,
equity in earnings of unconsolidated affiliates and
extraordinary (losses) gains........................... (3,702) 4,084 6,067 584 4,283
Equity in (loss) earnings of unconsolidated affiliates... (269) 80 1,195 --- ---
Minority interest in consolidated affiliates............. (175) (225) (156) (129) (131)
Minority interest in Operating Partnership............... 2,202 404 (545) (65) (418)
------- ------- ------- ------- -------
(Loss) income before extraordinary gains (losses)........ (1,944) 4,343 6,561 390 3,734
Extraordinary (losses) gains (net of minority interest).. (171) --- --- 9,311 (393)
------- ------- ------- ------- -------
Net (loss) income........................................ $(2,115) $ 4,343 $ 6,561 $ 9,701 $ 3,341
======= ======= ======= ======= =======
Per share data:.............................................
Basic:
Before extraordinary (losses) gains.................... $ (2.44) $ (0.70) $ 0.91 $ 0.10 $ 0.91
Extraordinary (losses) gains........................... (0.04) --- --- 2.29 (0.09)
------- ------- ------- ------- -------
Net (loss) income...................................... $ (2.48) $ (0.70) $ 0.91 $ 2.39 $ 0.82
======= ======= ======= ======= =======
Fully Diluted:
Before extraordinary (losses) gains.................... $ (2.44) $ (0.70) $ 0.89 $ 0.09 $ 0.91
Extraordinary (losses) gains........................... (0.04) --- --- 2.24 (0.09)
------- ------- ------- ------- -------
Net (loss) income...................................... $ (2.48) $ (0.70) $ 0.89 $ 2.33 $ 0.82
======= ======= ======= ======= =======
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
At or for the Year ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Funds From Operations (1):
- --------------------------
Operating Partnership funds from operations............... $ (5,966) $ 798 $ 8,366 $ 8,028 $ 7,397
Minority interest in consolidated partnership............. 956 36 (917) (847) (747)
-------- -------- -------- -------- --------
Funds from operations..................................... $ (5,010) $ 834 $ 7,449 $ 7,181 $ 6,650
======== ======== ======== ======== ========
Dividends paid on common stock............................ $ 3,890 $ 6,354 $ 5,953 $ 5,525 $ 5,067
======== ======== ======== ======== ========
Payout ratio.............................................. N/A 761.9% 79.9% 76.9% 76.2%
Dividends/distributions declared per share/unit........... $1.03 $1.56 $1.47 $1.36 $1.24
Cash Flow Data:
- ---------------
Net cash provided by operating activities................. $ 8,708 $ 12,666 $ 9,045 $ 5,726 $ 7,862
Net cash used in investing activities..................... (12,330) (51,094) (49,534) (23,413) (37,037)
Net cash provided by financing activities................. 9,788 26,198 53,833 17,283 28,675
Balance Sheet Data:
- -------------------
Land, buildings and improvements, net..................... $180,367 $186,751 $139,082 $ 93,231 $ 92,147
Mortgage loans and bonds receivable, net.................. 16,026 12,101 14,098 34,576 33,634
Total investments......................................... 197,336 198,852 153,180 127,807 125,781
Total assets.............................................. 232,396 219,499 189,380 135,996 133,347
Total debt................................................ 177,371 134,880 95,172 109,025 111,627
Total stockholders' equity................................ 51,385 79,584 88,924 22,448 18,267
Other Data:
- -----------
Ratio of earnings to fixed charges and preferred
dividends (2)............................................ 0.53x 0.82x 1.36x 1.59x 1.61x
Ratio of funds from operations to fixed
charges and preferred dividends (3)...................... 0.70x 1.05x 1.77x 1.88x 2.09x
Ratio of total debt to total market
capitalization (4)....................................... 63.8% 50.6% 35.9% 63.8% 79.0%
Number of properties...................................... 45 36 25 15 12
</TABLE>
______________________________
1) Funds from operations ("FFO") represents net income (computed in accordance
with generally accepted accounting principles, consistently applied
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property, less preferred stock
dividends paid to holders of preferred stock during the period and after
adjustments for consolidated and unconsolidated entities in which the
Company holds a partial interest. FFO is computed in accordance with the
definition adopted by the National Association of Real Estate Investment
Trusts ("NAREIT"). FFO should not be considered as an alternative to net
income or any other indicator developed in compliance with GAAP, including
measures of liquidity such as cash flows from operations, investing and
financing activities. FFO is helpful in evaluating the performance of a
real estate portfolio considering the fact that historical cost accounting
assumes that the value of real estate diminishes predictably over time. FFO
is only one of a range of indicators which should be considered in
determining a company's operating performance. The methods of calculating
FFO among different companies are subject to variation, and FFO therefore
may be an invalid measure for purposes of comparing companies. Also, the
elimination of depreciation and gains and losses on sales of property may
not be a true indication of an entity's ability to recover its investment
in properties. The Company implemented the new method of calculating FFO
effective as of the NAREIT-suggested adoption date of January 1, 1996. FFO
has been restated for all prior periods under the new method.
2) For purposes of these computations, earnings consist of net income plus
fixed charges. Fixed charges and preferred dividends consist of interest
expense, capitalized interest, amortization of deferred financing costs and
preferred dividends paid to preferred stockholders during the period. The
deficit of earnings to fixed charges and preferred dividends for the years
ended December 31, 1999 and 1998 was $9,327,000 and $3,038,000,
respectively.
3) For purposes of these computations, ratio of funds from operations to fixed
charges consists of FFO as defined in note (1) plus fixed charges and
preferred dividends paid to preferred stock holders during the period.
Fixed charges and preferred dividends consist of interest expense,
capitalized interest, amortization of deferred financing costs and
preferred dividends paid to preferred stockholders during the period. The
deficit of funds from operations to fixed charges for the year ended
December 31, 1999 was $5,966,000.
4) Total market capitalization as of the dates presented is long-term debt
plus the aggregate market value of the Company's Common Stock and Units not
owned by the Company, assuming one Unit is equivalent in value to one share
of Common Stock plus the liquidation value of the Preferred Stock
outstanding.
32
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Selected Financial Data and the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Form 10-K.
Information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements. These
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other comparable terminology. Any one factor or combination of
factors could cause the Company's actual operating performance or financial
results to differ substantially from those anticipated by management. Factors
influencing the Company's operating performance and financial results include,
but are not limited to, changes in the general economy, the supply of, and
demand for, healthcare related real estate in markets in which the Company has
investments, the availability of financing, governmental regulations concerning,
but not limited to, new construction and development, the creditworthiness of
tenants and borrowers, environmental issues, healthcare services and government
participation in the financing thereof, and other risks and unforeseen
circumstances affecting the Company's investments which may be discussed
elsewhere in this Annual Report on Form 10-K.
Results of Operations
Comparison of the Year Ended December 31, 1999 Versus the Year Ended December
31, 1998
Total revenues increased by $1.8 million, or 6%, from $31.7 million for the
year ended December 31, 1998, to $33.5 million in 1999. Rents, tenant
reimbursements and parking revenues increased an aggregate $3.5 million, or 13%,
from a combined total of $26.9 million for the year ended December 31, 1998, to
$30.4 million in 1999. The purchase of a 49,000 square foot MOB in Valencia,
California and a 40,000 square foot office and retail complex in Coronado,
California in December 1998 accounted for $2.4 million of this increase. The
purchase of two senior care facilities located in Santa Monica, California and
Hoquiam, Washington during June and August 1998, respectively, accounted for an
additional $0.9 million increase. In addition, recently completed construction
projects in Valencia and Aliso Viejo accounted for $0.8 million of this
increase. These increases were offset by a decrease of $0.7 million in rental
revenue due to the vacancy of the Company's six MOBs located in New Jersey.
Interest, loan fees and related revenues derived from loans secured by Senior
Care Facilities decreased by $1.7 million, or 38%, from $4.5 million for the
year ended December 31, 1998, to $2.8 million for the same period in 1999. This
decrease was partially due to the repayment during 1998 of seven outstanding
loans, representing a total decrease of $0.5 million in interest and loan fee
income. An additional $0.9 million of this decrease was due to the loss of
interest, during 1999, on non-performing loans for which the Company had
previously reserved approximately $2.8 million in December 1998. Furthermore,
interest earned on cash on hand decreased during 1999 by approximately $0.3
million as the Company had an average of approximately $11.0 million in cash on
hand during 1998 and only $8.0 million during 1999. Other income increased by
$0.1 million, or 33%, from $0.3 million in 1998, to $0.4 million in 1999. This
increase was due to the gain on sale of a vacant parcel of land located in
Tustin, California by the Company of $0.2 million.
Total expenses increased by $9.6 million, or 35%, from $27.6 million for the
year ended December 31, 1998, to $37.2 million in 1999. $6.4 million of this
increase was due to an impairment loss recognized during 1999 on the Company's
six MOBs located in New Jersey. Property operating expenses increased by $1.4
million, or 23%, from $6.2 million for the year ended December 31, 1998, to $7.6
million for the same period in 1999. Property acquisitions and development
projects completed by the Company during 1998 and 1999 accounted for $1.0
million of this increase. Management and overhead expenses associated with a
wholly-owned subsidiary formed by the Company in November 1998 for the purpose
of making loans to Senior Care Facilities accounted for $0.2 million of this
increase. The joint venture ceased operations in April 1999. The remaining
increase was due to legal and administrative costs relating to the six MOBs
located in New Jersey. Depreciation and amortization increased $1.1 million, or
24%, from $4.6 million for the year ended December 31, 1998, to $5.7 million for
same period in 1999.
33
<PAGE>
This increase was attributable to property acquisitions made by the Company
during 1998 and new building developments placed into service during 1999.
Interest expense increased $3.7 million, or 43%, from $8.7 million for the year
ended December 31, 1998 to $12.4 million in 1999. This increase was mainly due
to interest incurred on net new borrowings of approximately $45.9 million made
by the Company during 1999. General and administrative expenses increased $0.6
million, or 23%, from $2.6 million for the year ended December 31, 1998, to $3.2
million for the same period in 1999. This increase was related to the addition
of new administrative personnel, greater external accounting expenses, an
increase in costs associated with failed acquisitions and an increase in costs
associated with the Company's annual report and other SEC filings. These
increases were offset by a $3.6 million decrease in provisions for doubtful
accounts, notes and bonds receivable as the Company increased its bad debt
reserves by $2.0 million for the year ended December 31, 1999, and $5.6 million
for the same period in 1998.
Equity in earnings (loss) of unconsolidated affiliates decreased $0.4
million, or 400%, from $0.1 million for the year ended December 31, 1998 to
$(0.3) million for the same period in 1999. This decrease was primarily the
result of start-up losses associated with the Company's 75% investment in G&L
Penasquitos, Inc. and the Company's 50% investment in G&L Parsons on Eagle Run,
Inc. In March 1999, The Arbors at Rancho Penasquitos, an assisted living
facility operated by G&L Penasquitos, Inc., commenced operations. The facility
has been in a lease-up phase since its opening in March 1999 and therefore
produced a net operating loss. Eagle Run commenced operations in November 1999
and also produced a net loss for 1999. Occupancy rates at both facilities are
increasing on a monthly basis and are expected to stabilize during 2000, at
which time both facilities are expected to produce income for the Company.
Net income decreased $6.5 million, or 148%, from $4.4 million for the twelve
months ended December 31, 1998 to $(2.1) million in 1999. This decrease was
primarily due to the $6.4 million impairment of the Company's six MOBs in New
Jersey, the $3.7 million increase in interest expense, the $2.5 million increase
in property operating expenses and depreciation as well as the $1.7 million
decrease in interest and loan fee income. These amounts were offset by a $3.4
million increase in rents, tenant reimbursements and parking revenues and a $3.6
million decrease in provisions for doubtful accounts, notes and bonds
receivable.
Comparison of the Year Ended December 31, 1998 Versus the Year Ended December
31, 1997
Total revenues increased by $4.6 million, or 17%, from $27.1 million for the
year ended December 31, 1997, to $31.7 million in 1998. Rents, tenant
reimbursements and parking revenues increased an aggregate $4.5 million, or 20%,
from a combined total of $22.4 million for the year ended December 31, 1997, to
$26.9 million in 1998. Three million of the aggregate increase in rents, tenant
reimbursements and parking revenues was related to the acquisition of $23.2
million in rental properties and the remaining 19.5% interest in six New Jersey
MOBs since June 30, 1997. The acquisition of five MOBs located in Valencia,
California in March 1998 accounted for an additional $0.8 million of this
increase and the purchase of two Senior Care Facilities located in Santa Monica,
California and Hoquiam, Washington during 1998 resulted in the remaining $0.7
million increase. Interest, loan fees and related revenues derived from loans
secured by Senior Care Facilities increased $0.2 million for the year ended
December 31, 1998 compared to 1997. Interest and loan fee income increased $1.0
million due to interest and loan fees related to five loans that were originated
in late 1997 or early 1998 and increased $0.3 million due to interest earned on
excess cash from the November 1997 Preferred Stock offering and the April 1998
debt refinancing. These increases were offset by a decrease of $0.6 million
related to a gain from the sale of bonds on March 31, 1997 and a decrease of
$0.4 million related to the repayment of $4.6 million of notes receivable during
1998.
Total expenses increased by $6.6 million, or 32%, from $21.0 million for the
year ended December 31, 1997, to $27.6 million in 1998. The primary reason for
this increase was a $5.6 million increase in the Company's allowance for
doubtful accounts, notes and bonds receivable as of December 31, 1998.
Excluding this increase in the Company's allowance during the year ended
December 31, 1998, operating expenses increased by $1.0 million, or 5%, from
$21.0 million for the year ended December 31, 1997 to $22.0 million in 1998.
Property operating expenses decreased $0.1 million, or 2%, from $6.3 million
for the year ended December 31, 1997, to $6.2 million in 1998, despite a $0.4
million increase in operating costs related to the five MOBs acquired in
34
<PAGE>
March 1998. This reduction is part of management's ongoing efforts to reduce
property operating costs and includes a $0.1 million reduction of property taxes
as a result of the Company's successful efforts in appealing the assessed value
of its MOB properties. Furthermore, the $18.8 million in MOB Properties and
Senior Care Properties acquired between June 30 and December 31, 1997 and the
two Senior Care Properties acquired during 1998 were leased on a triple-net
basis, thus the Company incurred no operating costs related to these buildings.
Depreciation and amortization increased $1.0 million, or 28%, from $3.6
million for the year ended December 31, 1997 to $4.6 million in 1998. Of this
increase, $0.7 million was attributable to property acquisitions made by the
Company since June 30, 1997. The remaining $0.3 million increase consisted of
depreciation on building and tenant improvements, non-real estate assets and the
amortization of leasing commissions.
Interest expense decreased $0.4 million, or 4%, from $9.1 million for the year
ended December 31, 1997, to $8.7 million in 1998. This decrease in interest
expense was attributable to the reduction of $40 million of the Company's notes
payable and $19 million of borrowings on a line of credit which were paid down
with the net proceeds of $71.9 million from the two preferred stock offerings in
1997 resulting in a $1.3 million decrease in interest expense. Interest expense
also decreased due to the write-off of $0.4 million in loan costs in 1997
associated with these notes payable and the capitalization of $0.5 million of
interest related to development projects in 1998. This decrease was offset by
interest incurred of $1.5 million on $66.1 million of new borrowings in 1998.
General and administrative expense increased by $0.5 million, or 25%, from
$2.0 million for the year ended December 31, 1997 to $2.5 million in 1998. This
increase is related to the Company's addition of acquisition, development and
support personnel.
Net income decreased $2.2 million, or 34%, from $6.5 million for the twelve
months ended December 31, 1997 to $4.3 million in 1998. This decrease is
primarily due to an increase in the Company's reserves of $5.6 million and a
decrease in equity in earnings from unconsolidated affiliates of $1.1 million
offset by a $4.5 million increase in rental revenues, tenant reimbursements and
parking revenues.
Liquidity and Capital Resources
The Company's goal is to create wealth through growth in cash flow from its
real estate investments. The Company believes that this goal is being realized
through its management expertise in the areas of acquisition, development,
financing, leasing and strategic management of the MOB Properties and Senior
Care Facilities. The Company seeks to maximize cash flow from its existing
properties and make new investments that are accretive to cash flow over the
long-term. The Company's use of leverage is viewed as a means to grow its asset
base without diluting shareholder value.
As of December 31, 1999, the Company's direct investment in net real estate
assets totaled approximately $180.4 million, $9.7 million in joint ventures and
$16.0 million invested in notes receivable. Total debt outstanding at year-end
totaled $177.4 million.
During 1999, the Company completed more than $30 million in new development
projects, either directly or through joint ventures. Since January 1, 1999, the
Company has completed the following development projects:
. $7.5 million MOB in Valencia, California totaling 43,912 square feet. The
building is adjacent to the Company's five existing MOBs on the Henry Mayo
Newhall Hospital Campus. The building was completed in March 1999.
. $7.0 million MOB in Aliso Viejo, California totaling 33,000 square feet.
The building was 100% pre-leased to Hoag Memorial Hospital and was
completed in May 1999. The building was sold to Hoag Hospital for $8.3
million in January 2000.
35
<PAGE>
. $3.5 million MOB in Aliso Viejo, California totaling 22,960 square feet.
The building was 73% pre-leased to a major not-for-profit medical provider.
As of March 24, 2000, the remaining space has outstanding proposals. The
building was completed in December 1999.
. $7.2 million 97-unit, 52,000 square foot, three-story assisted living
facility located in Rancho Penasquitos, California. The building was
originally built in 1988 as a Ramada Hotel. In 1998, the Company, in joint
venture with Parsons House, LLC, purchased the property and converted it
into The Arbors at Rancho Penasquitos. The facility was completed and
opened for business in March 1999.
. $5.9 million 88-unit assisted living facility located in Omaha, Nebraska.
The facility was completed in October 1999 and opened for business in
November 1999.
In January 2000, the Company, in joint venture with ASL Tarzana Wedgewood,
LLC, purchased a two-story, 80-unit, 44,117 square foot assisted living facility
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. The
facility is operated by ASL Tarzana, Inc., an affiliate of ASL Tarzana
Wedgewood, LLC.
Since January 1, 1999, the Company has sold the following assets:
. In June 1999, the Company sold a vacant parcel of land located in Tustin,
California for $500,000 to Tustin Heritage Park, LLC. The Company received
$75,000 in cash and a $425,000 first deed of trust on the land. The Company
also received a 25% equity interest in Tustin Heritage Park, LLC which
intends to develop a 53-unit senior apartment residence on the land.
. In October 1999, the Company sold a 50% tenants-in-common interest in a
23,000 square foot MOB under construction in Aliso Viejo, California to
Triad Partners/SCP, LLC, whose President is Joseph D. Carroll, a former
officer of the Company, for $2.85 million. The purchase price consisted of
$1.05 million in cash and the assumption of $1.8 million in mortgage debt.
. 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.
Due to uncertainties related to the Company's receivables, the Company
increased its allowance for doubtful accounts from $1.3 million at the end of
1998 to $3.4 million as of December 31, 1999. Management believes that $3.4
million is appropriate in relation to the status of certain receivables as of
March 24, 2000.
The Company increased its bad debt reserves in 1999 mainly to reflect the
potential impairment of delinquent rent and operating expense reimbursements
owed to the Company related to the Hampden skilled nursing facilities in
Massachusetts. This increase in the reserves was in response to the November
1999 bankruptcy filing of nursing home operator Lenox. From November 1998 until
December 1999, Lenox operated these skilled nursing facilities. At December 31,
1999, Lenox owed the Company approximately $2.0 million in delinquent rent and
operating expense reimbursements. G&L is pursuing all available means to
recover its losses. However, due to the uncertainty surrounding the
collectibility of the receivables, the company increased its bad debt reserves
by the entire $2.0 million.
At various times during the year ending December 31, 1999, the Company
repurchased a total of 1,359,300 shares of the Company's Common Stock,
including 1.0 million shares repurchased pursuant to a tender offer discussed
below, at an average price of approximately $10.44 per share. In addition, the
Company repurchased a total of 3,500 shares of its Series A Preferred Stock at
an average price of $15.24 per share and total of 4,200 shares of its Series B
Preferred Stock at an average price of $14.36 per share.
On October 1, 1999 the Company made a tender offer for up to 1.0 million
shares, or approximately 26%, of its outstanding Common Stock at the time at a
purchase price of $10.50 per share. The purpose of the offer was to provide
liquidity for those stockholders whose investment objectives may be inconsistent
with the Company's new dividend policy. (See "Distributions" below.) The offer
expired on October 29, 1999. On November 4, 1999, the
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<PAGE>
Company announced that 2,047,756 shares of Common Stock had been validly
tendered and that the Company would repurchase approximately 48.7% of the shares
tendered. The Company completed the tender offer by repurchasing 1.0 million
shares of its Common Stock on November 8, 1999. The total cost of the tender
offer was approximately $10.6 million including all offering fees.
The Company obtains its liquidity from multiple internal and external sources.
Internally, funds are derived from the operation of MOBs and Senior Care
Facilities. 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 lines of credit as well as access to public equity
markets. The Company's ability to expand its MOB and Senior Care Facility
operations requires continued access to capital to fund new investments.
In general, the Company expects to continue meeting its short-term liquidity
requirements through its working capital, cash flow provided by operations and,
if necessary, from its line of credit. The Company considers its ability to
generate cash to be good and expects to continue meeting all operating
requirements as well as providing sufficient funds to maintain stockholder
distributions in accordance with REIT requirements. Long-term liquidity
requirements such as refinancing mortgages, financing acquisitions and financing
capital improvements will be accomplished through long-term borrowings, the sale
of assets, the issuance of debt securities and the offering of additional equity
securities.
Historical Cash Flows
The Company's net cash from operating activities decreased $4.0 million, or
32%, from $12.7 million for the year ended December 31, 1998 to $8.7 million for
the same period in 1999. Changes include a $6.5 million decrease in net income,
a decrease in minority interests of $1.8 million and a decrease in provisions
for doubtful accounts, notes and bonds receivables of $3.4 million. These
decreases were offset by an increase of $6.4 million in impairment of long-lived
assets, a $1.1 million increase in depreciation and amortization and an increase
of $1.5 million in accounts payable and other liabilities.
Net cash used in investing activities decreased $38.8 million, or 76%, from
$51.1 million for the year ended December 31, 1998 to $12.3 million for the same
period in 1999. The decrease was primarily due to a $37.8 million decrease in
rental property acquisitions, a $2.1 million decrease in investments in notes
and bonds receivable, a $10.8 million decrease in contributions to
unconsolidated affiliates and a $1.2 million decrease in investments in
marketable securities. These decreases were offset by a $2.0 million increase
in additions to rental properties, a $4.9 million decrease in principal payments
on notes receivable and a $7.2 million decrease in distributions from
unconsolidated affiliates.
Cash flows provided by financing activities decreased $16.4 million, or 63%,
from $26.2 million for the twelve months ended December 31, 1998, to $9.8
million for the same period in 1999. The decrease was due primarily to a $8.5
million increase in restricted cash, a $12.0 million increase in purchases of
the Company's Common Stock and a $20.1 million increase in notes payable
repayments. These were offset by an increase in notes payable proceeds of $22.3
million.
Debt Structure
As of December 31, 1999, the Company had twenty loans approximating $177.4
million. The terms of these twenty loans are described below.
In August 1995, the Company borrowed $30.0 million from Nomura for ten years
at a fixed rate of 7.89%. As of December 31, 1999, the outstanding balance
under this loan was approximately $28.2 million, requiring monthly principal and
interest payments of approximately $229,000 (25-year amortization), and will
have a balance of $24.7 million on August 11, 2005, when the note is due.
Pursuant to the loan agreement, the Company has the option to prepay this loan
at any time upon the payment of a premium which, when added to the remaining
principal amount of the note, will be sufficient to purchase non-callable
obligations of the U.S. government sufficient to provide for the scheduled
payments remaining under the note. No prepayment premium is required during the
90-day period
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<PAGE>
prior to the note's due date. The properties located at 405 North Bedford, 415
North Bedford, 416 North Bedford and 435 North Bedford have been pledged as
security for this note.
During 1996, the Company borrowed $35.0 million from Nomura for ten years at a
fixed rate of 8.492%. This note had an outstanding balance of approximately
$33.6 million as of December 31, 1999, requires monthly principal and interest
payments of approximately $282,000 (25-year amortization), and will have a
balance of $29.4 million on August 11, 2006, when the note is due. Pursuant to
this loan agreement, the Company has the option to prepay this loan at any time
after August 30, 1999 upon the payment of a premium which, when added to the
remaining principal amount of the note, will be sufficient to purchase non-
callable obligations of the U.S. government sufficient to provide for the
scheduled payments remaining under this note. The Sherman Oaks Medical Plaza,
Regents Medical Center, Cigna HealthCare Building and the 436 North Bedford
Drive MOB have been pledged as security for this note.
On August 15, 1997, a subsidiary of the Company, GL/PHP, LLC ("GL/PHP")
borrowed $16 Million from 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. On October 11, 1997,
the Company began making monthly principal and interest payments on this loan of
approximately $155,000 (16 1/2 -year amortization). The loan had a balance of
$15.3 million at December 31, 1999. Concurrently with the $16 Million loan, the
Operating Partnership obtained a new $2 Million loan from PHP. The note by its
terms is nonnegotiable and provides 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 PHP's subsidiary, Pinnacle Health Enterprises, LLC ("Pinnacle");
under its lease with GL/PHP, discussed below. The loan is unsecured and requires
interest-only payments quarterly at the end of October, January, April and July
at the rate of 8.5% a year. The full $2.0 million is due on July 31, 2007, but
may be prepaid at any time prior to maturity without penalty. Since PHP filed a
bankruptcy petition in December 1998, the Company has made no payments on this
loan.
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. The Commissioner of the New Jersey
Department of Banking and Insurance (the "Commissioner") took over the
operations of Pinnacle. The Commissioner acting as rehabilitator for the entity
operating the facilities under a medical services agreement with Pinnacle, paid
Pinnacle's administrative rent through the bankruptcy proceeding through March
5, 1999. After the Commissioner ceased paying rent, Pinnacle's Chapter 7 trustee
elected to reject the Lease. The Commissioner continued to occupy and lease
certain of the buildings through March 31, 1999.
During 1999, GL/PHP leased one of the buildings and a portion of an additional
building. Also during 1999, GL/PHP attempted to restructure the Nomura loan in
order to attempt to preserve its investment in the New Jersey Properties. On
May 5, 1999, GL/PHP presented a loan-restructuring plan to Amresco Management,
Inc. ("Amresco"), the loan servicer, in regards to the mortgage secured by the
New Jersey Properties. GL/PHP has been in default on this loan since May 1999.
On May 10, 1999, Amresco rejected the Company's restructuring plan.
On July 6, 1999, Amresco served GL/PHP with a complaint commencing a judicial
foreclosure and requesting the appointment of a receiver in the Superior Court
of New Jersey Chancery Division Bergen County. On September 15, 1999, the
Superior Court ruled in Amresco's favor and appointed a receiver for these
buildings. Amresco filed a motion to foreclose its mortgage against the New
Jersey Properties. In February 2000, the Court granted the motion and
transferred the matter to the foreclosure court of the New Jersey Superior
Court. New Jersey counsel has advised that the actual transfer of title should
be completed in approximately three to four months. A non-cash impairment loss
of $6.4 million was recorded in September 1999 to reflect the decline in value
of these buildings as a result of the loss of current and future rental revenue
due to the Pinnacle and PHP bankruptcies in November 1998 and their subsequent
departure from the buildings in March 1999. This impairment loss was recorded in
the third quarter of 1999 in response to the appointment of the receiver for the
buildings in September 1999 and their pending foreclosure.
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<PAGE>
On October 28, 1997, the Company acquired the Hampden Properties for a total
consideration of approximately $20.0 million. Of this amount, the Company
borrowed $6.0 million from Nomura at an interest rate of 8.62% per annum. The
three properties were pledged as security for the repayment of this loan and the
loan is also guaranteed by the Company. During the fourth quarter of 1999, the
Company obtained a $13.92 million loan from GMAC Commercial Mortgage Corp.
("GMAC") secured by the Hampden properties and repaid the $6.0 million Nomura
loan. The new loan bears interest at LIBOR plus 2.75% and is due in three
years.
On April 22, 1998, 435 North Roxbury Drive, Ltd. (the "Roxbury Partnership"),
of which the Operating Partnership is the sole general partner with an ownership
interest of 61.75%, refinanced the 435 North Roxbury Drive property. The
Roxbury Partnership refinanced the property with a new $7.83 million loan from
Tokai Bank of California ("Tokai"). The Roxbury Partnership repaid the
remaining balance on the old loan of $7.5 million with the new loan, which bears
interest at a fixed rate of 7.05% and is due on April 1, 2008. This loan, which
had an outstanding balance of $7.6 million as of December 31, 1999, requires
monthly principal and interest payments of approximately $56,000 (25-year
amortization), and will have a balance at maturity of $6.2 million. The 435
North Roxbury Drive property has been pledged as security for this loan.
On April 22, 1998, the Company borrowed an additional $12.7 million from Tokai
at a fixed rate of 7.05%. On June 1, 1998, the Company began making monthly
principal and interest payments on these loans of approximately $91,000 (25-year
amortization). These notes, which will have a balance at maturity of $10.0
million, are due on April 1, 2008. As of December 31, 1999, the balance on
these notes was $12.4 million. The Holy Cross Medical Plaza, the St. Joseph's
Medical Office Building and the Tustin Medical Plaza have been pledged as
security for these loans.
On June 30, 1998, the Company, through GLH Pacific Gardens, LLC, acquired
Pacific Gardens, a 92-unit senior care facility in Santa Monica, California for
$11.2 million. Of this amount, GLH Pacific Gardens, LLC borrowed $8.5 million
from GMAC at an interest rate of 30-day LIBOR plus 2.35%. The note required
monthly interest-only payments. In August 1999, the Company refinanced this
mortgage with an $11.4 million 35-year HUD loan at an interest rate of 8%. The
loan requires monthly principal and interest payments of approximately $77,000.
As of December 31, 1999, the unpaid balance on this loan was $11.4 million.
On August 6, 1998, the Company acquired a 110-bed skilled nursing facility in
Hoquiam, Washington for $3.3 million. Of this amount, the Company borrowed $2.5
million from GMAC at a fixed rate of 7.49%. On October 1, 1998, the Company
began making monthly principal and interest payments of approximately $18,000
(25-year amortization). This note, which will have a balance at maturity of
$2.0 million, is due on September 1, 2008. The Pacific Care Center has been
pledged as security for this note. As of December 31, 1999, the unpaid balance
on this note was $2.4 million.
On November 3, 1998, the Company obtained a new $4.6 million unsecured credit
line from Tokai. The credit line requires monthly interest payments at 30-day
LIBOR plus 2.25% and is due on August 31, 2000. The Company has the option to
prepay the outstanding balance, or increments thereof, at any time upon not less
than 30 days notice to Tokai. As of December 31, 1999, the Company had an
outstanding balance on the credit line of $4.6 million. On January 26, 2000,
the Company repaid $3.0 million of the outstanding balance. The outstanding
balance as of March 24, 2000 was $1.6 million.
On December 22, 1998, the Company acquired a 49,000 square foot MOB in
Valencia, California for $7.4 million. Of this amount, the Company borrowed $5.2
million from The Life Insurance Co. of Virginia at a fixed rate of 6.75%. On
February 1, 1999, the Company began making monthly principal and interest
payments of approximately $38,000 (25-year amortization). This note, which will
have a balance at maturity of $0.9 million, is due on January 1, 2019. The Lyons
Avenue Medical Building has been pledged as security for this note. As of
December 31, 1999, the unpaid balance on this note was $5.1 million.
On December 31, 1998, the Company acquired a 40,000 square foot office and
retail complex in Coronado, California for $9.5 million. Of this amount, the
Company borrowed $7.5 million from GMAC at a fixed rate of 6.90%. On February
10, 1999, the Company began making monthly principal and interest payments of
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<PAGE>
approximately $50,000 (25-year amortization). This note, which will have a
balance at maturity of $6.4 million, is due on December 11, 2008. The Coronado
Plaza has been pledged as security for this note. The unpaid balance on this
note was $7.4 million as of December 31, 1999.
On June 11, 1999, the Company obtained a $5.5 million loan secured by a 33,000
square foot medical office building in Aliso Viejo, California. The loan bore
interest at a rate of LIBOR plus 3.0% and was due on February 1, 2001. The
building is 100% leased by Hoag Memorial Hospital Presbyterian ("Hoag"). On
January 25, 2000 Hoag purchased the building at a price of $8.3 million. The
Company used a portion of the proceeds to repay the $5.5 million loan.
On June 30, 1999, the Company obtained a $1.44 million loan from American
United Life Insurance Company. The loan, which is secured by the Pier One
Retail Center in Aliso Viejo, California, bears interest at a rate of 7.375% and
is due on July 1, 2009. On July 1, 1999, the Company began making monthly
principal and interest payments of approximately $10,525. As of December 31,
1999, the unpaid balance on this note was $1.4 million.
On July 2, 1999, the Company obtained a $10 million long-term loan secured by
its six building portfolio of MOBs located at the Henry Mayo Newhall Hospital
campus in Valencia, California. The Company used $5.0 million of the total
proceeds to repay a short-term loan secured by these buildings while an
additional $2.5 million was escrowed by the lender until the Company meets
certain occupancy thresholds at the collateralized buildings. The loan, which is
due on July 1, 2009, bears an interest rate of 6.85% and had an unpaid balance
of $9.9 million as of December 31, 1999.
On July 26, 1999, the Company obtained a $7.5 million short-term loan secured
by three of its properties located in Tustin, California, at an interest rate of
prime plus 0.75%. The loan is also guaranteed by the Company. On August 1,
1999, the Company began making monthly principal and interest payments of
approximately $64,000. The loan is due on January 21, 2002 and had an unpaid
balance of $7.5 million as of December 31, 1999.
On October 22, 1999, the Company obtained a $4.2 million loan secured by a
newly-constructed 23,000 square foot MOB in Aliso Viejo, California. The loan
is also guaranteed by the Company. On October 1, 1999, the Company sold a 50%
tenants-in-common interest in this building to Triad Partners/SCP, LLC. The
purchase price included the assumption of 50% of the mortgage debt. The loan
bears an interest rate of LIBOR plus 3.40% and is due on November 1, 2002. As
of December 31, 1999, the Company's 50% portion of the unpaid balance was $2.1
million.
On December 21, 1999, the Company obtained a loan in the amount of $8.5
million from GMAC secured by its first deed of trust on the Carroll Manor
Facility. The loan is also guaranteed by the Company. The loan, which bears
interest at LIBOR plus 2.75%, is due on July 1, 2001. On February 1, 2000, the
Company began making monthly principal and interest payments of approximately
$71,000.
Capital Commitments
As of March 24, 2000, the Company had no commitments to acquire, either
directly of indirectly, any MOBs or Senior Care Facilities. However, the
Company is actively searching for acquisitions that will be accretive to the
Company's stockholders. In general, the Company expects to continue meeting its
short-term liquidity requirements through its working capital, cash flow
provided by operations and, if necessary, from its line of credit. The Company
considers its ability to generate cash to be good and expects to continue
meeting all operating requirements as well as providing sufficient funds to
maintain stockholder distributions in accordance with REIT requirements. Long-
term liquidity requirements such as refinancing mortgages, financing
acquisitions and financing capital improvements will be accomplished through
long-term borrowings, the sale of assets and the issuance of debt securities.
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Distributions
The Company declared a quarterly distribution payable to holders of the
Company's Common Stock for the first and second quarter of 1999 in the amount of
$0.39 per common share, which was paid on April 15 and July 15, 1999 to
stockholders of record on March 31 and June 30, respectively. For the third and
fourth quarters of 1999, the Company declared a distribution payable to holders
of the Company's Common Stock in the amount of $0.125 per common share, which
was paid on October 15, 1999 and January 15, 2000 to stockholders of record on
September 30 and December 31, 1999 respectively. The board of directors of the
Company reduced the Company's Common Stock distribution in the third quarter of
1999 in order to preserve more of the Company's cash flow for acquisition and
development activities. In prior years, the Company has maintained a relatively
constant quarterly dividend. However, this has resulted in a return of capital
to stockholders because the Company's earnings have not kept pace with such
distributions. In order to maximize its cash flow in the future, the Company
expects to pay a Common Stock dividend in the amount that approximates the
minimum dividend required to maintain its status as a real estate investment
trust. This may result in fluctuations in total dividends from year to year or
even quarter to quarter depending upon variations in the Company's taxable
income resulting from such factors as sales of properties or adjustments to
reserves.
The Company also paid monthly dividends to holders of the Company's Series A
and Series B Preferred Stock on the fifteenth day of each month. Dividends are
paid monthly at the rate of $2.56 and $2.45 per annum on shares of the Company's
Series A and Series B Preferred Stock, respectively. The Company distributed
dividends of $4.5 million to holders of the Company's Common Stock during 1999
while the Company's FFO was $(6.0) million for the same period. However,
excluding the $6.4 million non-cash impairment loss and the $2.0 million
increase in bad debt reserves, the Company's FFO for 1999 was $2.4 million. The
Company believes that the reduced Common Stock dividend rate will benefit
stockholders in the future by allowing the Company to preserve its cash flow to
invest in new acquisition and development projects. However, the Company can
offer no assurances that the reduced Common Stock dividend will allow the
Company to consistently produce a level of FFO at least equal to the current
level of distributions in the future. The dividends paid to the Company's
preferred stockholders remain unchanged.
Financing Policies
The Company's ratio of debt to total market capitalization was 63.8% based
upon the closing price of the Common Stock at December 31, 1999. Total market
capitalization is based on the long-term debt of the Operating Partnership, plus
(i) the aggregate market value of the Company's Common Stock and Operating
Partnership Units not owned by the Company assuming one Unit is equivalent in
value to one share of Common Stock, and (ii) the aggregate liquidation value of
the Series A Preferred Stock and the Series B Preferred Stock.
To the extent that the Board of Directors of the Company decides to seek
additional funding, the Company may raise such capital using various means,
including retention of internally generated funds (subject to the distribution
requirements in the Code with respect to REITs), existing working capital and
possibly the issuance of additional debt (secured or unsecured) or any
combination of the above. It is anticipated that borrowings will continue to be
made through the Operating Partnership or other entities, although the Company
may also incur indebtedness that may be re-borrowed by the Operating Partnership
on the same terms and conditions as are applicable to the Company's borrowing of
such funds. Except as required pursuant to existing financing agreements, the
Company has not established any limit on the number or amount of mortgages or
unsecured debt that may be placed on any single property or on its portfolio as
a whole.
The Board of Directors of the Company also has the authority to cause the
Operating Partnership to issue additional Units in any manner (and subject to
certain limitations in the Partnership Agreement on such terms and for such
consideration) as it deems appropriate and may also decide to seek financing for
the purposes of managing the Company's balance sheet by adjusting the Company's
existing capitalization. The refinancing of the Company's balance sheet may
entail the issuance and/or retirement of debt, equity or hybrid securities.
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Inflation
The majority of the Company's leases are long-term leases designed to mitigate
the adverse effect of inflation. Approximately 50% of the Company's leases
contain provisions that call for annual rent increases equal to the increase in
the Consumer Price Index and the majority of the remaining leases allow for
specific annual rent increases. Furthermore, many of the Company's leases
require tenants to pay a pro rata share of building operating expenses,
including real estate taxes, insurance and common area maintenance. The effect
of such provisions is to reduce the Company's exposure to increases in costs and
operating expenses resulting from inflation.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and requires all derivatives to be recorded on the
balance sheet at fair value as either assets or liabilities depending on the
rights or obligations under the contract. SFAS 133 also establishes new
accounting methodologies for the following three classifications of hedges: fair
value, cash flow and net investment in foreign operations. Management believes
the adoption of SFAS 133 will not have a material impact on the Company's
financial position or results of operations.
Year 2000 Compliance
The information provided below contains Year 2000 statements and is a Year
2000 Readiness Disclosure pursuant to Pub. L. No. 105-271.
Many computers, software programs and other equipment which utilize
microprocessors (collectively referred to as "Systems" and individually as a
"System") process date sensitive data in the normal course of operations. Some
of these Systems use a 2-digit field to designate the year. As the year 2000
approached, there was concern these Systems might not be capable of
distinguishing between events occurring in the year 1900 and the year 2000, and
that these Systems might become inoperable or produce information that was
unreliable.
The Company experienced no adverse affects related to the Year 2000 problem.
None of the Company's Systems nor any of its vendors' or tenants' Systems have
adversely affected the Company. The Company believes that it is not at risk for
any Year 2000 related problems, but will continue to monitor all Systems that
could, but have not, been affected. The cost to the Company to make its
internal Systems Year 2000 compliant was not material to the Company's financial
position.
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 since the Operating Partnership's net income is
allocated proportionately among all owners of Operating Partnership Units. The
number of Operating Partnership Units held by the Company is identical to the
number of outstanding shares of the Company's Common Stock, and owners of
Operating Partnership Units may, at their discretion, convert their Units into
shares of Common Stock on a one-for-one basis.
The Company believes that, in order to facilitate a clear understanding of
the operating results of the Company, FFO should be examined in conjunction with
the Company's net income as presented in the Selected Financial Data and
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K and the additional data presented below. The table on the following
page presents an analysis of FFO and additional data for each of the four
quarters and the year ended December 31, 1999 for the Operating Partnership:
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G&L REALTY CORP.
FUNDS FROM OPERATIONS
FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 Fiscal Quarter Year
------------------------------------------ ---------
1st 2nd 3rd 4th 1999
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Funds from Operations (1):
- --------------------------
Net income (loss) $ 1,651 $ 1,415 $(4,250) $ (931) $ (2,115)
Minority interest in Operating Partnership (24) (62) (986) (1,130) (2,202)
------- ------- ------- ------- --------
Operating Partnership income (loss) 1,627 1,353 (5,236) (2,061) (4,317)
Depreciation of real estate assets 1,170 1,231 1,301 1,299 5,001
Amortization of deferred lease costs 54 63 69 80 266
Extraordinary loss on early extinguishment of debt --- --- --- 171 171
Depreciation of real estate assets from
unconsolidated affiliates 21 79 47 94 241
Adjustment for minority interest in
Consolidated affiliates (22) (28) (14) (52) (116)
Dividends paid on Preferred Stock (1,803) (1,803) (1,803) (1,803) (7,212)
------- ------- ------- ------- --------
Operating Partnership funds from operations 1,047 895 (5,636) (2,272) (5,966)
Minority interest in Operating Partnership (144) (124) 788 436 956
------- ------- ------- ------- --------
Funds from (used in) operations $ 903 $ 771 $(4,848) $(1,836) $ (5,010)
======= ======= ======= ======= ========
Dividends declared $ 0.39 $ 0.39 $ 0.125 $ 0.125 $ 1.03
Dividends paid on Common Stock $ 1,547 $ 1,533 $ 481 $ 329 $ 3,890
Pay-out ratio 171.3% 198.9% N/A N/A N/A
Weighted average shares/unit outstanding:
- -----------------------------------------
Basic 4,609 4,570 4,514 3,870 4,385
Fully Diluted 4,627 4,582 4,523 3,870 4,395
Additional Data
- ---------------
Cash Flows:
- -----------
Operating activities 3,611 1,256 4,616 (775) 8,708
Investing activities (4,006) (3,384) (4,281) (659) (12,330)
Financing activities 724 2,305 5,093 1,666 9,788
Capital Expenditures:
- ---------------------
Building improvements 330 345 595 (654) 616
Tenant improvements 438 480 620 321 1,859
Furniture, fixtures & equipment 85 18 --- 5 108
Leasing commissions 156 197 55 30 438
Depreciation and Amortization:
- ------------------------------
Depreciation of real estate assets 1,170 1,231 1,301 1,299 5,001
Depreciation of non-real estate assets 109 108 103 103 423
Amortization of deferred lease costs 54 63 69 80 266
Amortization of capitalized financing costs 54 69 135 138 396
Rents:
- ------
Straight-line rent 6,912 7,064 7,237 6,715 27,928
Billed rent 6,921 6,903 7,078 6,526 27,428
</TABLE>
______________________________
1) FFO represents net income (computed in accordance with GAAP, consistently
applied), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property, less preferred stock
dividends paid to holders of preferred stock during the period and after
adjustments for consolidated and unconsolidated entities in which the
Company holds a partial interest. FFO is computed in accordance with the
definition adopted by NAREIT. FFO should not be considered as an
alternative to net income or any other indicator developed in compliance
with GAAP, including measures of liquidity such as cash flows from
operations, investing and financing activities. FFO is helpful in
evaluating the performance of a real estate portfolio considering the fact
that historical cost accounting assumes that the value of real estate
diminishes predictably over time. FFO is only one of a range of indicators
which should be considered in determining a company's operating
performance. The methods of calculating FFO among different companies are
subject to variation, and FFO therefore may be an invalid measure for
purposes of comparing companies. Also, the elimination of depreciation and
gains and losses on sales of property may not be a true indication of an
entity's ability to recover its investment in properties. The Company
implemented the new method of calculating FFO effective as of the NAREIT-
suggested adoption date of January 1, 1996. FFO has been restated for all
prior periods under the new method.
43
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary risk inherent in the Company's market sensitive instruments is
the risk of loss resulting from interest rate fluctuations. Approximately 10%
of the Company's notes payable bear interest at a rate indexed to the one-month
LIBOR rate. The tables below provide information as of December 31, 1999 and
1998 about the Company's long-term debt obligations that are sensitive to
changes in interest rates, including principal cash flows by scheduled maturity,
weighted average interest rate and estimated fair value. The weighted average
interest rates presented are the actual rates as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Fair Market
PRINCIPAL MATURING IN: Value
------------------------------------------------------------------ December 31,
2000 2001 2002 2003 2004 Thereafter Total 1999
---- ---- ---- ---- ---- ---------- ----- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Mortgage debt:
Fixed rate $2,385 $ 2,602 $ 2,813 $3,049 $3,279 $121,201 $135,329 $130,738
Average interest rate 7.87% 7.87% 7.87% 7.87% 7.87% 7.87% 7.87%
Variable rate 283 14,327 22,832 37,442 37,442
Average interest rate 8.79% 8.79% 8.79% 8.79%
Line of credit:
Variable rate 4,600 4,600 4,600
Average interest rate 7.31% 7.31%
------ ------- ------- ------ ------ -------- --------- --------
$7,268 $16,929 $25,645 $3,049 $3,279 $121,201 $177,371 $172,780
======= ======= ======= ====== ====== ======== ======== ========
</TABLE>
The Company's future earnings and cash flows relating to market sensitive
instruments are primarily dependent upon prevailing LIBOR market interest rate.
Based upon interest rates as of December 31, 1999, a 1% increase in the LIBOR
rate would decrease future earnings by $420,000 and future cash flow by
$101,000. A 1% decrease in the LIBOR rate would increase future earnings by
$420,000 and future cash flow by $101,000. A 1% change in the LIBOR rate would
not have a material impact on the fair value of the Company's debt.
<TABLE>
<CAPTION>
Fair Market
PRINCIPAL MATURING IN: Value
---------------------------------------------------------------- December 31,
1999 2000 2001 2002 2003 Thereafter Total 1998
---- ---- ---- ---- ---- ---------- ----- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Mortgage debt:
Fixed rate $1,971 $2,089 $ 2,292 $2,483 $2,698 $110,247 $121,780 $121,780
Average interest rate 8.04% 8.06% 8.07% 8.07% 8.08% 7.98% 7.99%
Variable rate 55 117 8,328 8,500 8,500
Average interest rate 7.41% 7.41% 7.41% 7.41%
Line of credit:
Variable rate 4,600 4,600 4,600
Average interest rate 7.31% 7.31%
------ ------ ------- ------ ------ -------- -------- --------
$2,026 $6,806 $10,620 $2,483 $2,698 $110,247 $134,880 $134,880
====== ====== ======= ====== ====== ======== ======== ========
</TABLE>
The Company's future earnings and cash flows relating to market sensitive
instruments are primarily dependent upon prevailing LIBOR market interest rate.
Based upon interest rates as of December 31, 1998, a 1% increase in the LIBOR
rate would decrease future earnings and cash flow by $131,000. A 1% decrease in
the LIBOR rate would increase future earnings and cash flow by $131,000. A 1%
change in the LIBOR rate would not have a material impact on the fair value of
the Company's debt.
44
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See Index to Consolidated Financial Statements and Schedules on Page 46.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is provided under the captions
"Election of Directors," "Executive Officers" and "Section 16 Reporting" of the
Company's definitive proxy statement for its 2000 annual meeting of stockholders
which will be filed on or before April 30, 2000 and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is provided under the caption of
"Executive Compensation" of the Company's definitive proxy statement for its
2000 annual meeting of stockholders which will be filed on or before April 30,
2000 and is incorporated herein by reference; provided, however, that neither
the Report of the Compensation Committee on executive compensation nor the Stock
Performance Graph set forth therein shall be incorporated by reference herein,
in any of the Company's past or future filings under the Securities Act of 1933,
as amended, or the Securities Act of 1934, as amended, except to the extent the
Company specifically incorporates such report or Stock Performance Graph by
reference therein and should not be otherwise deemed filed under either such
Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is provided under the captions
"Principal Stockholders," "Information Regarding Nominees and Directors" and
"Executive Officers" of the Company's definitive proxy statement for its 2000
annual meeting of stockholders that will be filed on or before April 30, 2000
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is provided under the caption "Certain
Transactions" of the Company's definitive proxy statement for its 2000 annual
meeting of stockholders that will be filed on or before April 30, 2000 and is
incorporated herein by reference.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements and Schedules:
<TABLE>
<CAPTION>
Page
Reference
Form 10-K
---------
<S> <C> <C>
1. Consolidated Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-3
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-5 to 7
Notes to Consolidated Financial Statements F-8 to 35
2. Consolidated Financial Statement Schedules:
All schedules have been omitted because the required information
is not present in amounts sufficient to require submission of
the schedule or because the required information is included
elsewhere in the Consolidated Financial Statements or the Notes
thereto.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended December
31, 1999.
</TABLE>
46
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Note Description
------------- ------ ----------------------------------------------------------------------------
<S> <C> <C>
3.1 (1) Amended and Restated Articles of Incorporation of G&L Realty Corp.
3.2 (3) Amended and Restated Bylaws of G&L Realty Corp.
10.1 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Daniel M. Gottlieb.
10.2 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Steven D. Lebowitz.
10.3 (2) Agreement of Limited Partnership of G&L Realty Partnership, L.P.
10.4 (c) (1) 1993 Employee Stock Incentive Plan
10.5 (1) Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.
10.8.2 (2) Option Notice with respect to Sherman Oaks Medical Plaza.
10.9.2 (1) Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.)
between the Selling Partner (as defined therein) and G&L Development, dated as of October 29,
1993.
10.11 (1) Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp.
and Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29, 1993.
10.12 (1) Nomura Commitment Letter with respect to the Acquisition Facility.
10.12.2 (3) Amended and Restated Mortgage Loan Agreement dated as of January 11, 1995 among G&L Financing
Partnership, L.P., Nomura Asset Capital Corporation and Bankers Trust Company of New York.
10.16 (1) Investment Banking and Financial Advisory Agreement between G&L Development and Gruntal & Co.,
Incorporated.
10.17 (1) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Milner Investment Corporation.
10.18 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.19 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.20 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II, Helen Milner and John Milner, as Trustees of the Milner Trust.
10.21 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.22 (4) Amended and Restated Mortgage Loan Agreement by and between G&L Realty Financing Partnership II,
L.P., as Borrower, and Nomura Asset Capital Corporation, as Lender, dated as of October 31, 1995.
</TABLE>
47
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
- --------------- ---- ------------------------------------------------------------------------------------------------
<S> <C> <C>
10.24 (4) Property Management Agreement between G&L Realty Financing Partnership II, L.P., as owner, and
G&L Realty Partnership, L.P., as agent, made August 10, 1995
10.25 (5) Commitment Letter between G&L Realty Partnership, L. P. and Nomura Asset Capital Corporation,
dated as of September 29, 1995.
10.30 (6) Mortgage Loan Agreement dated as of May 24, 1996 by and between G&L Medical Partnership, L.P. as
Borrower and Nomura Asset Capital Corporation as Lender.
10.38 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware
limited partnership, and Property Acquisition Trust I, a Delaware business trust, for the purpose
of creating a Limited Liability Company to be named GLN Capital Co., LLC, dated as of November
25, 1996.
10.39 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware
limited partnership, and PHP Healthcare Corporation, a Delaware corporation, for the purpose of
creating a Limited Liability Company to be named GL/PHP, LLC, dated as of February 26, 1997.
10.40 (7) First Amendment To Limited Liability Company Agreement entered into as of March 31, 1997 by and
between G&L Realty Partnership, L.P., a Delaware limited partnership, and Property Acquisition
Trust I, a Delaware business trust, for the purpose of amending that certain Limited Liability
Company Agreement of GLN Capital Co., LLC dated as of November 25, 1996.
10.41 (7) Bond Purchase Agreement dated as of March 31, 1997 by and between GLN Capital Co., LLC (as Buyer)
and G&L Realty Partnership, L.P. (as Seller).
10.42 (8) Option Agreement, dated February 28, 1997, by and among G&L Realty Partnership, L.P., GLN Capital
Co., LLC and PHP Healthcare Corporation
10.44 (9) Loan and Security Agreement by GLN Capital Co., LLC, a Delaware limited liability Company, and
G&L Realty Partnership, L.P., a Delaware limited partnership, dated as of June 1, 1997.
10.45 (10) First Amendment to GL/PHP, LLC Limited Liability Company Agreement by and among G&L Realty
Partnership, L.P., a Delaware limited partnership (the "Retiring Manager"), G&L Realty
Partnership, L.P., a Delaware limited partnership ("G&L Member"), and G&L Management Delaware
Corp., a Delaware corporation ("Manager Member"), made as of August 15, 1997.
10.46 (10) Lease Agreement between GL/PHP, a Delaware limited liability company (the "Landlord") and
Pinnacle Health Enterprises, LLC, a Delaware limited liability company wholly owned by PHP
Healthcare Corporation, a Delaware corporation (the "Tenant"), dated August 15, 1997
10.47 (10) Guaranty of Lease by PHP Healthcare Corporation, a Delaware corporation (the "Guarantor"), dated
February 15, 1997.
</TABLE>
48
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
------------ ---- --------------------------------------------------------------------------------------------------
<S> <C> <C>
10.48 (10) Non-Negotiable 8.5% Note Due July 31, 2007 in which G&L Realty Partnership, L.P., a Delaware
limited partnership (the "Maker"), promises to pay to PHP Healthcare Corporation (the "Payee")
the principal sum of $2,000,000.00, dated August 15, 1997.
10.49 (10) Mortgage Note in which GL/PHP, LLC a Delaware limited liability company (the "Maker") promises to
pay to the order of Nomura Asset Capital Corporation, a Delaware corporation, the principal sum
of $16,000,000.00, dated August 15, 1997.
10.50 (10) Mortgage, Assignment of Leases and Rents and Security Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Mortgagor") to Nomura Asset Capital Corporation, a Delaware corporation
(the "Mortgagee"), dated August 15, 1997.
10.51 (10) Assignment of Leases and Rents by GL/PHP, LLC a Delaware limited liability company (the
"Assignor") to Nomura Asset Capital Corporation, a Delaware corporation (the "Assignee"), dated
August 15, 1997.
10.52 (10) Environmental and Hazardous Substance Indemnification Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Borrower") to Nomura Asset Capital Corporation, a Delaware corporation
(the "Lender"), dated August 15, 1997.
10.53 (11) Purchase and Sale Agreement, dated October 1, 1997, by and between Hampden Nursing Homes, Inc.
and G&L Senior Care, LLC.
10.54 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Holding
Group, Inc.
10.55 (11) Loan Commitment, dated October 23, 1997, by and between G&L Realty Partnership, L.P. and Iatros
Health Network, Inc.
10.56 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Nursing
Homes, Inc.
10.57 (11) Guaranty of Lease, dated October 1, 1997, by Iatros Health Network, Inc.
10.58 (11) Limited Liability Company Agreement of G&L Hampden, LLC.
10.59 (11) Loan Agreement by and between Nomura Asset Capital Corporation and G&L Hampden, LLC.
10.60 (11) Promissory Note in the amount of $6,000,000.00 given by G&L Hampden, LLC in favor of Nomura Asset
Capital Corporation.
10.61 (11) Form of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing for each of the 3
Hampden Properties.
10.62 (12) Operating Agreement of AV Medical Associates, LLC, dated as of September 25, 1997.
10.63 (12) Real Estate Lease by and between AV Medical Associates, LLC and Hoag Memorial Hospital
Presbyterian.
</TABLE>
49
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
------------- ------ ---------------------------------------------------------------------------------------------------
<S> <C> <C>
10.64 (12) Assignment of Purchase Agreement and Development Management Agreement by and between G&L Realty
Partnership, L.P., Centrium Associates LLC and M&Z Aliso Associates, LLC.
10.68 (12) Promissory Note in the Amount of $2,799,490.00 given by Valley Convalescent, LLC in favor of G&L
Realty Partnership, L.P.
10.69 (12) Deed of Trust, Security Agreement, Fixture Filing with Assignment of Rents and Agreements, dated
as of August 29, 1997, by and between Valley Convalescent, LLC and G&L Realty Partnership, L.P.
10.70 (12) Assignment of Leases and Rents, dated as of August 29, 1997, by and between Valley Convalescent,
LLC and G&L Realty Partnership, L.P.
10.77 (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
12 Computation of Ratio of Earnings to Fixed Charges
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
50
<PAGE>
1) Previously filed as an exhibit of like number to the Registrant's
Registration Statement on Form S-11 and amendments thereto (File No. 33-
68984) and incorporated herein by reference.
2) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.
3) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference.
4) Previously filed as Exhibits 10.1 (with respect to Exhibit 10.22), 10.2
(with respect to Exhibit 10.23), and 10.3 (with respect to Exhibit 10.24) to
the Registrant's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1995 and incorporated herein by reference.
5) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
6) Previously filed as an exhibit of like number to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference.
7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.
8) Filed as an exhibit to the Company's Registration Statement on Form S-11 and
amendments thereto (File No. 333-24911) and incorporated herein by
reference.
9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.
10) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as
of August 15, 1997) and incorporated herein by reference.
11) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as
of October 28, 1997) and incorporated herein by reference.
12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed
as of November 5, 1997) for the quarter ended September 30, 1997 and
incorporated herein by reference.
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.
51
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
G&L Realty Corp.:
We have audited the accompanying consolidated balance sheets of G&L Realty
Corp. and subsidiaries (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 10, 2000
F-1
<PAGE>
G&L REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------------------------
ASSETS
------
<S> <C> <C>
Rental properties (Notes 3, 18 and 20):
Land $ 33,388 $ 35,059
Building and improvements, net 146,821 142,531
Projects under development 158 9,161
-------- --------
Total rental properties 180,367 186,751
Cash and cash equivalents 7,545 1,379
Restricted cash 8,763 4,007
Tenant rent and reimbursements receivable, net (Note 4) 2,478 2,050
Unbilled rent receivable, net (Note 5) 2,346 1,892
Other receivables, net (Note 6) 171 208
Mortgage loans and bonds receivable, net (Note 7) 16,026 12,101
Investments in unconsolidated affiliates (Note 8) 9,736 7,469
Deferred charges and other assets, net (Note 10) 4,964 3,642
-------- --------
TOTAL ASSETS $232,396 $219,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable (Note 11) $177,371 $134,880
Accounts payable and other liabilities 3,279 2,296
Distributions payable 452 1,768
Tenant security deposits 1,329 1,270
-------- --------
Total liabilities 182,431 140,214
Commitments and Contingencies (Note 12)
Minority interest in consolidated affiliates (862) (2,033)
Minority interest in Operating Partnership (558) 1,734
STOCKHOLDERS' EQUITY (Notes 13 and 14):
Preferred shares - $.01 par value, 10,000,000 shares
authorized, liquidation preference of $25.00 per share
. Series A Preferred - 1,495,000 shares issued and outstanding as
of December 31, 1999 and 1998, respectively 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding as
of December 31, 1999 and 1998, respectively 14 14
Common shares - $.01 par value, 50,000,000 shares authorized,
2,636,000 and 3,995,000 shares issued and outstanding as of
December 31, 1999 and 1998, respectively 26 40
Additional paid-in capital 75,412 91,709
Distributions in excess of net income (24,082) (12,194)
-------- --------
Total stockholders' equity 51,385 79,584
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $232,396 $219,499
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-2
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rent (Notes 5 and 15) $27,928 $24,639 $20,307
Tenant reimbursements 1,275 781 707
Parking 1,148 1,501 1,439
Interest, loan fees and other 2,797 4,517 4,322
Other 398 254 274
------- ------- -------
Total revenues 33,546 31,692 27,049
------- ------- -------
EXPENSES:
Property operations 7,569 6,171 6,280
Depreciation and amortization 5,690 4,597 3,570
Interest 12,393 8,683 9,088
General and administrative 3,196 2,554 2,044
Provision for doubtful accounts, notes and bonds
receivable (Notes 4,6,7 and 9) 2,000 5,603 ---
Impairment of long-lived assets (Note 3) 6,400 --- ---
------- ------- -------
Total expenses 37,248 27,608 20,982
------- ------- -------
(Loss) income from operations before minority
interests, equity in (loss) earnings of
unconsolidated affiliates and extraordinary loss (3,702) 4,084 6,067
Equity in (loss) earnings of unconsolidated affiliates (269) 80 1,195
Minority interest in consolidated affiliates (175) (225) (156)
Minority interest in Operating Partnership 2,202 404 (545)
------- ------- -------
(Loss) income before extraordinary loss (1,944) 4,343 6,561
Extraordinary loss on early retirement of long-term
debt (net of minority interest) (Note 17) (171) --- ---
------- ------- -------
Net (loss) income $(2,115) $ 4,343 $ 6,561
======= ======= =======
Per share data (Note 13):
Basic:
(Loss) income before extraordinary loss $ (2.44) $ (0.70) $ 0.91
Extraordinary loss (0.04) --- ---
------- ------- -------
Net (loss) income $ (2.48) $ (0.70) $ 0.91
======= ======= =======
Fully diluted:
(Loss) income before extraordinary loss $ (2.44) $ (0.70) $ 0.89
Extraordinary loss (0.04) --- ---
------- ------- -------
Net (loss) income $ (2.48) $ (0.70) $ 0.89
======= ======= =======
Weighted average outstanding shares:
Basic 3,760 4,092 4,049
Fully diluted 3,770 4,135 4,129
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-3
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Additional Distributions Total
Series A Series B Common Stock paid-in in excess of stockholders'
Shares Amount Shares Amount Shares Amount capital net income equity
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997 --- --- --- --- 4,062 $ 41 $ 23,710 $ (1,303) $ 22,448
Repurchase of common stock (76) (1) (1,277) (1,278)
Stock options exercised 134 1 1,288 1,289
Series A Preferred Stock issued 1,495 $15 35,383 35,398
Series B Preferred Stock issued 1,380 $14 32,552 32,566
Net Income 6,561 6,561
Distributions declared (8,060) (8,060)
------- ------ ------- ---- ------ ---- -------- ------- --------
BALANCE DECEMBER 31, 1997 1,495 15 1,380 14 4,120 41 91,656 (2,802) 88,924
Repurchase of common stock (152) (1) (2,336) (2,337)
Stock options exercised 27 389 389
Issuance of common stock 2,000 2,000
Net Income 4,343 4,343
Distributions declared (13,735) (13,735)
------- ------ ------- ---- ------ ---- -------- --------- --------
BALANCE DECEMBER 31, 1998 1,495 15 1,380 14 3,995 40 91,709 (12,194) 79,584
Repurchase of common stock (1,359) (14) (16,297) (16,311)
Net Loss (2,115) (2,115)
Adjustment to Minority Interest in
Operating Partnership 1,330
Distributions declared (11,103) (11,103)
------- ------ ------- ---- ------ ---- -------- -------- --------
BALANCE DECEMBER 31, 1999 1,495 $15 1,380 $14 2,636 $ 26 $ 75,412 $(24,082) $ 51,385
===============================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-4
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,115) $ 4,343 $ 6,561
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss on early retirement of long-term debt 171 --- ---
Depreciation and amortization 5,690 4,597 3,570
Amortization of deferred financing costs 394 188 252
Amortization of discount on marketable securities --- (152) ---
Impairment of long-lived assets 6,400 --- ---
Minority interests (2,027) (179) 701
Unbilled rent receivable (454) (77) (400)
Equity in loss (earnings) of unconsolidated affiliates 269 (80) (1,195)
Provision for doubtful accounts, notes and bonds receivables 2,210 5,603 339
(Increase) decrease in:
Prepaid expense and other assets 419 (204) 16
Other receivables, net (73) 489 231
Tenant rent and reimbursements receivable (2,638) (1,594) (112)
Accrued interest and loan fees receivable (580) (875) (1,488)
Increase (decrease) in:
Accounts payable and other liabilities 983 383 558
Tenant security deposits 59 224 12
---------- ---------- ----------
Net cash provided by operating activities 8,708 12,666 9,045
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental properties (3,656) (1,699) (987)
Purchases of real estate assets --- (37,790) (26,440)
Construction in progress (5,297) (4,990) (300)
Disposition of assets available for sale 1,792 --- 3,944
Pre-acquisition costs, net (571) (49) ---
Contributions to unconsolidated affiliates (1,135) (11,996) (11,386)
Distributions from unconsolidated affiliates 320 7,553 3,990
Investment in marketable securities --- (1,154) ---
Leasing commissions (438) (441) (174)
Investments in notes and bonds receivable (3,496) (5,573) (19,822)
Principal payments received from notes and bonds receivable 151 5,045 1,641
---------- ---------- ----------
Net cash used in investing activities (12,330) (51,094) (49,534)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 71,550 48,832 47,300
Repayment of notes payable (29,188) (9,124) (47,153)
Payment of deferred loan costs (1,434) (896) (41)
Decrease (Increase) in restricted cash (4,756) 3,738 (5,778)
Sale of preferred stock --- --- 67,964
Minority interest equity contribution 1,237 195 226
Purchase of common and preferred stock and partnership units (14,311) (2,337) (1,277)
Exercise of common stock options --- 389 1,288
Distributions (13,310) (14,599) (8,696)
---------- ---------- ----------
Net cash provided by financing activities 9,788 26,198 53,833
---------- ---------- ----------
</TABLE>
F-5
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,166 (12,230) 13,344
BEGINNING CASH AND CASH EQUIVALENTS 1,379 13,609 265
--------- ---------- ---------
ENDING CASH AND CASH EQUIVALENTS $ 7,545 $ 1,379 $13,609
========= ========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $13,375 $ 9,028 $ 8,709
--------- ---------- ---------
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Distributions declared not yet paid $ 407 $1,751 $2,370
======= ====== ======
Transfers from projects under development to building $13,526 $1,185 $ ---
======= ====== ======
Preferred distributions due to minority partner $ 29 $ 17 $ ---
======= ====== ======
NONCASH INVESTING ACTIVITIES:
The Company acquired an interest in an unconsolidated
Affiliate for the following noncash consideration:
Land $ 947
Construction in progress 774
--------
$ 1,721
========
The Company exchanged its interest in land and
construction in progress for the following noncash
consideration:
Investment in unconsolidated affiliates $ 1,721
========
Net cost of assets transferred to Company (Note 18):
Accounts receivable $ 295
Land 1,751
Construction in progress 3,871
Deferred leasing costs 250
Deferred loan costs 20
Note receivable 44
Accounts payable 8
---------
$6,239
=========
</TABLE>
F-6
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Net cost of assets transferred from Company (Note
18):
Investment in unconsolidated $5,645
affiliates
Note receivable 594
--------
$6,239
========
Property acquired in satisfaction of note
receivable $ 4,650
=======
The Company exchanged its interest in Series
A and B Bonds for the following noncash
consideration (Note 18):
Assignment of note payable $14,000
Investment in affiliate, net of deferred
gain 2,653
-------
$16,653
=======
The Company acquired an interest in three
Massachusetts nursing homes for the
following noncash consideration (Note 18):
Note Receivable $14,000
Investment in affiliate, net of deferred
gain 2,653
-------
$16,653
=======
Property acquired in exchange for partnership
units (Note 18) $2,000
========
</TABLE>
Concluded
F-7
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1. General
G&L Realty Corp. (the "Company") was formed as a Maryland corporation to
continue the ownership, management, acquisition and development activities
previously conducted by G&L Development, a California general partnership, the
Company's predecessor. All of the Company's assets are held by, and all of its
operations are conducted through, the following entities:
G&L Realty Partnership, L.P., a Delaware limited partnership
(the "Operating Partnership")
G&L Realty Financing Partnership II, L.P., a Delaware limited
partnership
(the "Realty Financing Partnership")*
G&L Medical Partnership, L.P., a Delaware limited partnership
(the "Medical Partnership")*
G&L Gardens, LLC, an Arizona limited liability company
("Maryland Gardens")*
435 North Roxbury Drive, Ltd., a California limited partnership
(the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
G&L Hampden, LLC, a Delaware limited liability company ("Hampden")*
G&L Valencia, LLC, a California limited liability company
("Valencia")
G&L Holy Cross, LLC, a California limited liability company ("Holy
Cross")*
G&L Burbank, LLC, a California limited liability company
("Burbank")*
G&L Tustin, LLC, a California limited liability company ("Tustin")*
GLH Pacific Gardens, LLC, a California limited liability company
("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company ("Hoquiam")
G&L Lyons, LLC, a California limited liability company ("Lyons")
G&L Coronado (1998), LLC, a California limited liability company
("Coronado")
* The Realty Financing Partnership, the Medical Partnership, Maryland
Gardens, GL/PHP, Hampden, Holy Cross, Burbank and Tustin are herein defined
collectively as the "Financing Entities" and individually as the "Financing
Entity".
The Company, as the sole general partner and as owner of an approximately
81% ownership interest, controls the Operating Partnership. The Company controls
the Financing Entities through wholly owned subsidiaries incorporated in either
the State of Delaware or the State of California (collectively, the
"Subsidiaries" and individually, a "Subsidiary"). Each Subsidiary either (i)
owns, as sole general partner or sole managing member, a 1% ownership interest
in its related Financing Entity or (ii) owns no interest and acts as the manager
of the Financing Entity. The remaining 99% ownership interest in each Financing
Entity which is owned 1% by a Subsidiary is owned by the Operating Partnership,
acting as sole limited partner or member. Financing Entities in which a
Subsidiary owns no interest are 100% owned by the Operating Partnership.
References in these consolidated financial statements to the Company include
its operations, assets and liabilities including the operations, assets and
liabilities of the Operating Partnership, the Subsidiaries, the Financing
Entities, the Roxbury Partnership (in which the Operating Partnership owns a
61.75% partnership interest and is the sole general partner), Valencia (in which
the Operating Partnership owns an 80% membership interest and is the sole
managing member), Pacific
F-8
<PAGE>
Gardens (in which the Operating Partnership owns a 93% membership interest and
is a co-managing member) and Hoquiam, Lyons and Coronado (in which the Operating
Partnership owns a 100% interest).
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 affiliates and the Company exercises
significant influence over the activities of these entities, the Company does
not have the requisite level of voting control to include the assets,
liabilities and operating activities of these affiliates in the consolidated
financial statements of the Company. The 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.
. Valley Convalescent, LLC ("Valley Convalescent") is a California limited
liability company formed by the Company, through the Operating
Partnership, and Continuum Health Incorporated, a Delaware corporation
("Continuum"). Both the Operating Partnership and Continuum hold a 50%
ownership interest in Valley Convalescent. Continuum is the managing
member of Valley Convalescent, which was formed for the purpose of
acquiring Valley Convalescent Center located in El Centro, California.
. G&L Grabel San Pedro, LLC ("San Pedro") is a California limited liability
company, formed on March 10, 1998 by the Company through the Operating
Partnership, and Gary Grabel, an experienced MOB manager. 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 through preferred distributions. San Pedro was
formed for the purpose of acquiring three MOBs located at 1360 West 6th
street in San Pedro, California.
. G&L Penasquitos, LLC ("Penasquitos LLC") is a California limited
liability company, formed by the Company on April 24, 1998, through the
Operating Partnership, and Parsons House, LLC, a California limited
liability company ("Parsons"). The Company and Parsons contributed to
Penasquitos LLC 75% and 25% of the equity, respectively. However, the
initial ownership interests of the parties will be adjusted to 50% as
each partner receives a return of its initial capital contribution
through preferred distributions. Penasquitos LLC was formed for the
purpose of acquiring and converting a building located in Rancho
Penasquitos, California into a senior care facility.
. G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California corporation
formed on April 21, 1998 by the Company, through the Operating
Partnership, and Parsons 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 a senior care facility located in
Santa Monica, California, which was purchased by the Company.
. G&L Parsons on Eagle Run, LLC ("Eagle Run") is a California limited
liability company, formed on December 29, 1998, through the Operating
Partnership and Parsons. The Company and Parsons each contributed 50% of
the total equity in Eagle Run. Eagle Run was formed for the purpose of
acquiring a vacant piece of land in Omaha, Nebraska upon which the
members developed a senior care facility.
F-9
<PAGE>
. 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 a senior care 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 total
equity of Lakeview. The Company contributed land and construction in
progress in exchange for 50% of the equity of Lakeview and a $1.4 million
note receivable. 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.
. 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. Heritage Park intends to develop a 53-unit senior
apartment residence on the land.
GLN, Valley Convalescent, San Pedro, Penasquitos LLC, Penasquitos Inc.,
Pacific Gardens Corp., Eagle Run, Eagle Run, Inc., Lakeview and Heritage Park
are herein defined collectively as the "Unconsolidated Affiliates" and
individually as "Unconsolidated Affiliate".
F-10
<PAGE>
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 health care
properties. The Company's business currently consists of investments in
healthcare properties and in debt obligations secured by healthcare properties.
Investments in healthcare property consists of acquisitions, made either
directly or through joint ventures, in MOBs or senior care facilities which are
leased to healthcare providers. The Company's lending activities consist of
providing short-term secured loans to facilitate third party acquisitions.
Basis of presentation-- The accompanying condensed consolidated financial
statements include the accounts of the Company. The interests in the Roxbury
Partnership, Valencia and Pacific Gardens which are not owned by the Company,
have been reflected as minority interests. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Properties-- The Operating Partnership, the Realty Financing Partnership, the
Medical Partnership, Maryland Gardens, the Roxbury Partnership, GL/PHP, Hampden,
Valencia, Holy Cross, Burbank, Tustin, Pacific Gardens, Hoquiam, Lyons and
Coronado own a 100% fee simple interest in all of the properties.
Income taxes-- The Company expects to qualify as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a
REIT, the Company is generally not subject to corporate Federal income taxes so
long as it distributes at least 95% of its taxable income to stockholders and
meets certain other requirements relating to its income and assets. For the
years ended December 31, 1999, 1998 and 1997, the Company met all of these
requirements. Therefore, no provisions for Federal income taxes are included in
the accompanying financial statements. State income tax requirements are
similar to Federal requirements.
Real estate and depreciation-- Rental property is recorded at cost less
accumulated depreciation. Depreciation is computed on a straight-line basis
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements........................................... 40 years
Tenant improvements.................................................. Life of lease
Furniture, fixtures and equipment.................................... 5 years
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and 1997 was
$5,424,000, $4,432,000 and $3,484,000 respectively. Expenditures for
maintenance and repairs are charged to operations as incurred. Significant
renovations and all costs directly related to acquisitions are capitalized.
Revenue recognition-- Base rental income is recognized on a straight-line
basis over the term of the lease regardless of when payments are due. Certain
leases include rent concessions and escalation clauses creating an effective
rent that is included in unbilled rent receivable (Note 5).
Cash and cash equivalents-- All demand and money market accounts and short-
term investments in governmental funds with a maturity of three months or less
are considered to be cash and cash equivalents. Cash equivalents are carried at
cost, which approximates fair value due to the short period of time to maturity.
The Company invests its excess cash balances in commercial paper and auction
notes issued by companies with investment grade ratings. Throughout the year,
the Company also maintained cash balances at banks in excess of federally
insured limits.
Restricted Cash-- Pursuant to various loan agreements, the Company is
required to fund segregated interest bearing accounts to be used for debt
service payments, tenant security deposits, property taxes, insurance premiums
and property improvements.
Marketable Securities-- The Company determines the appropriate classification
of marketable securities at the time of purchase. Securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the
F-11
<PAGE>
securities to maturity. Held-to-maturity securities are stated at cost, adjusted
for amortization of premiums and discounts to maturity. Marketable securities
not classified as held-to-maturity are classified as available-for-sale or
trading securities. As of December 31, 1999, the Company has no securities
classified as available-for-sale or trading. Interest and amortization of
premiums and discounts for all securities are included in interest income.
Deferred charges and other assets-- Deferred charges and other assets consist
of leasing commissions, deferred loan fees, financing costs, construction-in-
progress, investments, deposits and prepaid expenses. Leasing commissions are
amortized on a straight-line basis over the lives of the leases which range
typically from five to ten years. Deferred loan fees are amortized over the
terms of the respective agreements. Expenses incurred to obtain financing are
capitalized and amortized over the term of the related loan as a yield
adjustment. Interest rate protection agreement fees are capitalized and
amortized over the term of the agreements.
Minority interest in consolidated affiliates-- The Operating Partnership, as
sole general partner, has a 61.75% ownership interest in the Roxbury Partnership
which owns the property located at 435 North Roxbury Drive. The minority
interest is a debit balance that resulted from depreciation allocations and cash
distributed to partners in excess of their original investment and subsequent
accumulated earnings. It is management's opinion that the deficit is adequately
secured by the unrecognized appreciated value of the Roxbury property and will
be recovered through an accumulation of undistributed earnings or sale of the
property. The Operating Partnership, as sole general partner, also owns an 80%
interest in Valencia and a 93% interest in Pacific Gardens.
Long-lived assets-- The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that an asset's book value
exceeds the undiscounted expected future cash flows to be derived from that
asset. Whenever undiscounted expected future cash flows are less than the book
value, the asset will be reduced to estimated fair value and an impairment loss
will be recognized. During 1999, the Company recorded a $6.4 million impairment
loss related to its six New Jersey MOBs. (See Note 3).
Per share data-- Earnings per share are computed based upon the weighted
average number of shares of the Company's Common Stock, $.01 par value (the
"Common Stock") outstanding during the period. The treasury stock method is
used to determine the number of incremental common equivalent shares resulting
from options granted under the Company's stock incentive plan. Computation of
the number of shares is included in Note 14.
Financial instruments--The estimated fair value of the Company's financial
instruments is determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessary to
interpret market data and develop the related estimates of fair value. The use
of different market assumptions or estimation methodologies may have a material
impact on the estimated fair value amounts. Cash, cash equivalents, tenant rent
and other accounts receivable, accounts payable and other liabilities are
carried at book value as the amount of these instruments approximates fair value
due to their short-term maturities. The carrying amount of the Company's
variable rate notes payable as of December 31, 1999 and 1998 and the carrying
amount of the Company's fixed rate notes payable as of December 31, 1998
approximate fair value because the interest rates are comparable to rates
currently being offered to the Company. The fair value of the Company's fixed
rate notes payable as of December 31, 1999 was $130.7 million because the
interest rates on the Company's fixed rate notes payable are lower than the
rates currently being offered to the Company. The estimated fair values of the
company's mortgage loans and bonds receivable, are based upon market values of
loans and bonds receivable with similar characteristics adjusted for risk
inherent in the underlying transactions. Management estimates that the fair
value of the Company's mortgage loans and bonds receivable approximate their
amortized cost basis, after adjustment for the allowance for amounts deemed to
be uncollectible. There are no realized or unrealized gains or losses included
in the accompanying financial statements.
Use of estimates-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent accounting pronouncements-- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133").
F-12
<PAGE>
SFAS 133 is effective for fiscal years beginning after June 15, 1999 and
requires all derivatives to be recorded on the balance sheet at fair value as
either assets or liabilities depending on the rights or obligations under the
contract. SFAS 133 also establishes new accounting methodologies for the
following three classifications of hedges: fair value, cash flow and net
investment in foreign operations. Management believes the adoption of SFAS 133
will not have a material impact on the Company's financial position or results
of operations.
3. Buildings and Improvements
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------------
(in thousands)
<S> <C> <C>
Buildings and improvements $160,360 $152,618
Tenant improvements 7,705 5,846
Furniture, fixtures and equipment 2,668 2,560
----------- ---------
170,733 161,024
Less accumulated depreciation
and amortization (23,912) (18,493)
----------- ---------
Total $146,821 $142,531
=========== =========
</TABLE>
Impairment loss - In 1999, the Company recorded a non-cash impairment charge
related to six New Jersey medical office buildings owned by the Company as
required by SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." Recording these buildings at their
estimated fair market value resulted in a write down of the carrying value of
these buildings of $6.4 million.
4. Tenant Rent and Reimbursements Receivable
Tenant rent and reimbursements receivable are net of an allowance for
uncollectible amounts of $3,409,000 and $1,261,000 as of December 31, 1999 and
1998, respectively. The activity in the allowance for uncollectible tenant
accounts for the three years ending December 31, 1999, was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $1,261 $ 88 $ 261
Additions 2,210 1,210 150
Charge-offs (62) (37) (323)
----------- --------- --------
Balance, end of year $3,409 $1,261 $ 88
=========== ========= ========
</TABLE>
During the year ended December 31, 1999, the Company increased its allowance
for uncollectible amounts by $2.2 million. This increase was mainly related to
delinquent rents and operating expense reimbursements due from the operator of
the Company's three skilled nursing facilities in Hampden, Massachusetts (See
Note 15). The remaining balance represents increases for the Company's MOB
tenants incurred through the normal course of business.
F-13
<PAGE>
5. Unbilled Rent Receivable
The Company has operating leases with tenants that expire at various dates
through 2011. The minimum rents due under these leases are subject to either
scheduled fixed increases or adjustments based on the Consumer Price Index. In
general, the retail leases require tenants to pay their pro-rata share of
property taxes, insurance and common area operating costs, while the medical
office leases require tenants to reimburse the Company for annual increases in
property taxes, insurance and specified operating expenses over a base year
amount.
Generally accepted accounting principles require that rents due under
operating leases with fixed increases be averaged over the life of the lease.
This practice, known as "straight-line rents" creates an unbilled rent
receivable in any period during which the amount of straight-line rent exceeds
the actual rent billed (this occurs primarily at the inception of the lease
period). As the lease approaches its expiration date, billed rent will
eventually exceed the amount of straight-line rent causing the unbilled rent
receivable to decline. The straight-line rent calculation assumes no new or re-
negotiated rents or extension periods during the life of the lease and excludes
operating cost reimbursements. The following table summarizes future rents due
under existing leases and the corresponding straight-line rent calculation:
<TABLE>
<CAPTION>
Year Ending December 31, Future Minimum Straight-line Unbilled Rent
Rent Rent Receivable
-----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
2000......................... $19,663 $19,869 $ (206)
2001......................... 17,217 17,127 90
2002......................... 14,100 13,864 236
2003......................... 11,587 11,245 342
2004......................... 9,143 8,675 468
Thereafter................... 20,581 18,459 2,122
---------------------------------------------------------
Total........................... $92,291 $89,239 $3,052
=========================================================
</TABLE>
The activity in the allowance for unbilled rent, recorded as a reduction of
rental revenue for the three years ending December 31, 1999, consisted of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
----------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 474 $ 476 $ 414
Additions 232 12 62
Charge-offs --- (14) ---
-------- ------- --------
Balance, end of year $ 706 $ 474 $ 476
======== ======= ========
</TABLE>
6. Other Receivables
Other receivables consist of all outstanding balances due to the Company
other than amounts due from current tenants and are net of the allowance for
uncollectible amounts of $205,000 and $330,000 as of December 31, 1999 and 1998.
The activity in the allowance for uncollectible accounts for the three years
ending December 31, 1999, is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 330 $ 248 $ 248
Additions --- 282 ---
Charge-offs (125) (200) ---
----- ----- -----
Balance, end of year $ 205 $ 330 $ 248
===== ===== =====
</TABLE>
F-14
<PAGE>
7. Mortgage Loans and Bonds Receivable
Mortgage loans and bonds receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------------
(in thousands)
<S> <C> <C>
Secured Promissory Note due March 31, 2009, collateralized by deed of
trust, principal and interest payable monthly at 12% per annum................. $ 7,751 $ 6,825
Unsecured Promissory Note due March 31, 2009, principal and interest
payable monthly at 12% per annum............................................... 2,700 ---
Secured Note due April 1, 2008, interest payable semiannually at 10%
per annum (This note is currently in default).................................. 150 150
Unsecured promissory note receivable due October 1, 2004. (This note
is currently in default)....................................................... 800 800
Unsecured promissory note receivable due May 31, 1999. (This note is
currently in default).......................................................... 300 300
Unsecured promissory note receivable due January 23, 1998. (This note
is currently in default)....................................................... 47 47
Unsecured promissory note receivable due April 1, 2003. (This note is
currently in default).......................................................... 300 300
Unsecured promissory notes receivable payable upon demand. (Amount is
currently in default).......................................................... 1,356 715
Unsecured credit line receivable due May 31, 1998. (Amount is
currently in default).......................................................... 115 115
Secured promissory note due August 25, 1998, interest payable at 12%
per annum (This note is currently in default).................................. 3,695 3,589
Secured promissory note due June 30, 2000, interest payable at 10% per
annum.......................................................................... 425 ---
Secured bond receivable due December 15, 2029, interest payable
semiannually at 8.75% per annum................................................ 1,218 ---
Unsecured promissory note due January 31, 2010, principal and interest
payable monthly at 10% per annum............................................... 513 ---
Unsecured promissory note receivable due June 30, 1999. (This note is
currently in default).......................................................... 44 44
--------- ---------
Face value of mortgage loans and bonds receivable 19,414 12,885
Accrued interest 1,188 2,733
Allowance for uncollectible amounts (4,576) (3,517)
--------- ---------
Total mortgage loans and bonds interest receivable $16,026 $12,101
========= =========
</TABLE>
As of December 31, 1999, the principal balance on notes receivable of
$6,807,000 was either past due or currently due as a result of default. The
$3.7 million promissory note in default is secured by two skilled nursing
facilities upon which the Company is in the process of taking title. Thus, the
$6.8 million of notes receivable in default are not reserved in total.
The activity in the allowance for uncollectible notes receivable for the
three years ending December 31, 1999, is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
----------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $3,517 $ 825 $ 375
Additions 1,059 2,792 450
Charge-offs --- (100) ---
---------- ----------- -----------
Balance, end of year $4,576 $3,517 $ 825
========== =========== ===========
</TABLE>
F-15
<PAGE>
8. Investments In Unconsolidated Affiliates
The Company has investments in various unconsolidated affiliates as described
in Note 1. The following tables provide a summary of the Company's investment
in each of these entities as of December 31, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
As of December 31, 1999
----------------------------------------------------------------------------------------
Valley Penasquitos Tustin
GLN Capital Convalescent San Pedro Penasquitos LLC Inc. Heritage
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Opening balance at beginning of year $708 $ 76 $1,165 $1,229 $ 270 $ ---
Equity in earnings (loss) of affiliates 62 (28) 202 25 (277) ---
Cash contributions 6 312 --- 125 113 ---
Cash distributions --- (37) (297) --- --- ---
-------- -------- --------- -------- -------- ----------
Equity, before inter-company adjustments 776 323 1,070 1,379 106 ---
Intercompany receivable (payable), net 61 3,370 8 219 (1) 13
-------- -------- --------- -------- -------- ----------
Investment in unconsolidated affiliates $837 $3,693 $1,078 $1,598 $ 105 $ 13
======== ======== ========= ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------------------------------------------------
Pacific Gardens Eagle Run EagleRun, Lakeview
Inc. Inc. LLC Assoc. Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opening balance at beginning of year $(149) $150 $650 $ --- $4,099
Equity in earnings (loss) of affiliates (163) (89) (1) --- (269)
Cash contributions --- --- 5 250 811
Cash distributions --- --- --- --- (334)
-------- ------- ------- -------- ---------
Equity, before inter-company adjustments (312) 61 654 250 4,307
Intercompany receivable (payable), net 110 6 47 1,596 5,429
-------- ------- ------- -------- ---------
Investment in unconsolidated affiliates $(202) $ 67 $701 $1,846 $9,736
======== ======= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------------------------------------------------------------
Valley
GLN Capital Convalescent AV Medical Aliso Partners San Pedro
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opening balance at beginning of year $ 2,730 $ 311 $ 600 $ 550 $ ---
Equity in earnings of affiliates 91 83 --- --- 78
Contributions --- --- --- --- 6,300
Distributions (2,113) (318) (600) (550) (5,213)
--------- -------- -------- ------- ----------
Equity, net of inter-company
transactions 708 76 --- --- 1,165
Intercompany receivable (payable), net 58 3,116 --- --- (16)
--------- -------- -------- ------- ----------
Investment in unconsolidated affiliates $ 766 $3,192 $ --- $ --- $ 1,149
========= ======== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
-------------------------------------------------------------------------
Penasquitos Penasquitos Pacific Gardens Eagle Run,
LLC Inc. Corp. LLC Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opening balance at beginning of year $ --- $ --- $ --- $ $ 4,191
---
Equity in earnings of affiliates --- --- (172) --- 80
Contributions 1,229 270 23 800 8,622
Distributions --- --- --- --- (8,794)
-------- ------- ------- ------- ----------
Equity, net of inter-company
transactions 1,229 270 (149) 800 4,099
Intercompany receivable (payable), net 170 --- 42 --- 3,370
-------- ------- ------- ------- ----------
Investment in unconsolidated affiliates $1,399 $ 270 $(107) $ 800 $ 7,469
======== ======= ======= ======= ==========
</TABLE>
F-16
<PAGE>
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the year ended December 31, 1999 (in
thousands).
<TABLE>
<CAPTION>
Valley Penasquitos Tustin
GLN Capital Convalescent San Pedro Penasquitos LLC Inc. Heritage
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Land $ --- $ 382 $ 1,882 $ 641 $ --- $ 500
Buildings --- 2,636 4,315 6,678 --- ---
Notes receivable, net 1,585 --- --- --- --- ---
Other Assets 38 720 172 732 --- 68
Notes payable --- (2,799) (4,814) (6,180) --- (554)
Other liabilities (75) (331) (197) (523) (10) (14)
------ ------- ------- ------- ----- --------
Net assets $1,548 $ 608 $ 1,358 $ 1,348 $ (10) $ ---
====== ======= ======= ======= ===== ========
Partner's equity:
- -----------------
G&L Realty Partnership, L.P. $ 776 $ 323 $ 1,070 $ 1,379 $ 106 $ ---
Others 772 285 288 (31) (116) ---
------ ------- ------- ------- ----- --------
Total Equity $1,548 $ 608 $ 1,358 $ 1,348 $ (10) $ ---
====== ======= ======= ======= ===== ========
</TABLE>
<TABLE>
<CAPTION>
Pacific
Gardens Eagle Run Eagle Run Lakeview
Corp. Inc. LLC Associates Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Land $ --- $ --- $ 1,191 $ 947 $ 5,543
Buildings --- --- 4,612 --- 18,241
Notes receivable, net --- --- --- --- 1,585
Other Assets --- 193 688 996 3,607
Notes payable --- --- (4,986) (1,443) (20,776)
Other liabilities (349) (167) (208) --- (1,874)
--------- -------- --------- --------- ----------
Net assets $(349) $ 26 $ 1,297 $ 500 $ 6,326
========= ======== ========= ========= ==========
Partner's equity:
- -----------------
G&L Realty Partnership, L.P. $(312) $ 61 $ 654 $ 250 $ 4,307
Others (37) (35) 643 250 2,019
--------- -------- --------- --------- ----------
Total Equity $(349) $ 26 $ 1,297 $ 500 $ 6,326
========= ======== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Valley Penasquitos Tustin
GLN Capital Convalescent San Pedro Penasquitos LLC Inc. Heritage
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
- -----------
Revenues $103 $ 600 $1,165 $ 629 $ 190 $ ---
Expenses (14) (668) (963) (578) (560) ---
---- ----- ------ ----- ----- ---------
Net income (loss) $ 89 $ (68) $ 202 $ 51 $(370) $ ---
==== ===== ====== ===== ===== =========
Allocation of net income (loss):
- --------------------------------
G&L Realty Partnership, L.P. $ 62 $ (28) $ 202 $ 25 $(277) $ ---
Others 27 (40) --- 26 (93) ---
---- ----- ------ ----- -----
Net income (loss) $ 89 $ (68) $ 202 $ 51 $(370) $ ---
==== ===== ====== ===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Pacific
Gardens Eagle Run Eagle Run Lakeview
Corp. Inc. LLC Associates Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
- -----------
Revenues $ 1,371 $ 117 $ 118 $ --- $ 4,293
Expenses (1,546) (293) (121) --- (4,743)
--------- -------- -------- ---------- ----------
Net income (loss) $ (175) $(176) $ (3) $ --- $ (450)
========= ======== ======== ========== ==========
Allocation of net income (loss):
- --------------------------------
G&L Realty Partnership, L.P. $ (163) $ (89) $ (1) $ --- $ (269)
Others (12) (87) (2) --- (181)
--------- -------- -------- ---------- ----------
Net income (loss) $ (175) $(176) $ (3) $ --- $ (450)
========= ======== ======== ========== ==========
</TABLE>
F-17
<PAGE>
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the year ended December 31, 1998 (in
thousands).
<TABLE>
<CAPTION>
Valley Aliso
GLN Capital Convalescent AV Medical Partners San Pedro
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Land $ --- $ 382 $ --- $ --- $ 1,882
Buildings --- 2,690 --- --- 4,334
Notes and bonds receivable, net 1,473 --- --- --- ---
Other Assets 31 310 --- --- 434
Notes payable --- (2,799) --- --- (4,899)
Other liabilities (90) (146) --- --- (299)
--------- --------- ----------- --------- ----------
Net assets $ 1,414 $ 437 $ --- $ --- $ 1,452
========= ========= =========== ========= ==========
Partner's equity:
- -----------------
G&L Realty Partnership, L.P. $ 708 $ 76 $ --- $ --- $ 1,165
Others 706 361 --- --- 287
--------- --------- ----------- --------- ----------
Total Equity $ 1,414 $ 437 $ --- $ --- $ 1,452
========= ========= =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Pacific
Penasquitos Penasquitos Gardens Eagle Run,
LLC Inc. Corp. LLC Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
- ------------------
Land $ --- $--- $ --- $ --- $ 2,264
Buildings --- --- --- --- 7,024
Notes and bonds receivable, net --- --- --- --- 1,473
Other Assets 6,878 411 157 1,709 9,930
Notes payable (4,800) --- --- --- (12,498)
Other liabilities (440) (51) (317) (109) (1,452)
--------- -------- -------- -------- ---------
Net assets $ 1,638 $360 $(160) $1,600 $ 6,741
========= ======== ======== ======== =========
Partner's equity:
- ----------------
G&L Realty Partnership, L.P. $ 1,229 $270 $(149) $ 800 $ 4,099
Others 409 90 (11) 800 2,642
--------- -------- -------- -------- ---------
Total Equity $ 1,638 $360 $(160) $1,600 $ 6,741
========= ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Valley Aliso
GLN Capital Convalescent AV Medical Partners San Pedro
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
- -----------
Revenues $352 $603 $ --- $ --- $948
Expenses 170 437 --- --- 792
------- ------- -------- -------- -------
Net income $182 $166 $ --- $ --- $156
======= ======= ======== ========= =======
Allocation of net income:
- -------------------------
G&L Realty Partnership, L.P. $ 91 $ 83 $ --- $ --- $ 78
Others 91 83 --- --- 78
------- ------- -------- -------- -------
$182 $166 $ --- $ --- $156
======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Pacific
Penasquitos Penasquitos Gardens Eagle Run
LLC Inc. Corp. LLC Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
- -----------
Revenues $ --- $ --- $ 1,185 $ --- $ 3,088
Expenses --- --- 1,369 --- 2,768
-------- --------- --------- -------- ----------
Net income $ --- $ --- $ (184) $ --- $ 320
======== ========= ========= ======== ==========
Allocation of net income:
- ------------------------
G&L Realty Partnership, L.P. $ --- $ --- $ (172) $ --- $ 80
Others --- --- (12) --- 240
-------- --------- --------- -------- ----------
$ --- $ --- $ (184) $ --- $ 320
======== ========= ========= ======== ==========
</TABLE>
F-18
<PAGE>
9. Marketable Securities
Marketable securities consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------------
(in thousands)
<S> <C> <C>
PHP Healthcare Corporation subordinated
debentures, $2,800,000 face value,
interest at 6.50%, due December 15,
2002, at cost $ 1,154 $ 1,154
Accrued interest 58 58
Amortized discount 152 152
--------- ----------
1,364 1,364
Less reserve for uncollectible amounts (1,364) (1,364)
--------- ----------
Total $ --- $ ---
========= ==========
</TABLE>
See Footnote 15 for additional discussion of marketable securities.
10. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------------------------
(in thousands)
<S> <C> <C>
Deferred financing costs $ 3,844 $2,558
Pre-acquisition costs 621 ---
Leasing commissions 1,711 1,272
Prepaid expense and other assets 57 527
--------- ---------
6,233 4,357
Less accumulated amortization (1,269) (715)
--------- ---------
Total $ 4,964 $3,642
========= =========
</TABLE>
F-19
<PAGE>
11. Notes Payable
<TABLE>
<CAPTION>
December 31,
Notes payable consist of the following: 1999 1998
-------------------------------------
(in thousands)
<S> <C> <C>
$7,831,000 Note due April 1, 2008 collateralized by deed of trust, monthly
principal and interest payments of $56,000, interest at 7.05% per annum. $ 7,634 $ 7,766
$7,500,000 Note due December 11, 2008, collateralized by deed of trust, monthly
principal and interest payments of $50,000, interest at 6.90% per annum. 7,423 7,500
$8,500,000 Note due July 1, 2001, collateralized by deed of trust, interest
payable monthly at 30-day LIBOR plus 2.35%. --- 8,500
$4,600,000 Unsecured credit line due August 31, 2000, interest payable monthly
at LIBOR plus 2.25% per annum. 4,600 4,600
$8,100,000 Note due April 1, 2008, collateralized by deed of trust, monthly
principal and interest payments of $58,000, interest at 7.05% per annum. 7,896 8,032
$2,475,000 Note due September 1, 2008 collateralized by deed of trust, monthly
principal and interest payments of $18,000, interest at 7.49% per annum. 2,428 2,466
$3,267,000 Note due April 1, 2008 collateralized by deed of trust, monthly
principal and interest payments of $23,000, interest at 7.05% per annum. 3,185 3,240
$5,225,000 Note due January 1, 2019 collateralized by deed of trust, monthly
principal and interest payments of $38,209, interest at 6.75% per annum. 5,113 5,225
$1,333,125 Note due April 1, 2008 collateralized by deed of trust, monthly
principal and interest payments of $9,554, interest at 7.05% per annum. 1,299 1,322
$35,000,000 Note due August 11, 2006, collateralized by deed of trust, monthly
payments of $282,000 of principal and interest, interest at 8.492% per annum. 33,629 34,092
$30,000,000 Note due August 11, 2005, collateralized by deed of trust, monthly
principal and interest payments of $229,000, interest at 7.89% per annum. 28,193 28,669
$11,400,000 Note due September 1, 2034, collateralized by deed of trust, monthly
principal and interest payments of $77,000, interest at 8% per annum. 11,373 ---
$5,500,000 Note due on February 1, 2001, collateralized by deed of trust,
interest payable monthly at LIBOR plus 3.0% per annum. 5,500 ---
$10,000,000 Note due July 1, 2009 collateralized by deed of trust, monthly
principal and interest payments of $58,000, interest at 6.85% per annum. 9,905 ---
$1,440,000 Note due July 1, 2009 collateralized by deed of trust, monthly
principal and interest payments of $11,000, interest at 7.375% per annum. 1,430 ---
$7,500,000 Note due January 21, 2002 collateralized by deed of trust, monthly
principal and interest payments of approximately $64,000, interest at Prime
plus 0.75% per annum. 7,458 ---
$13,920,000 Note due October 1, 2002 collateralized by deed of trust, monthly
principal and interest payments of approximately $115,000, interest at LIBOR
plus 2.75% per annum. 13,889 ---
$8,500,000 Note due July 1, 2001, collateralized by deed of trust, monthly
principal and interest payments of approximately $71,000, interest at LIBOR
plus 2.75% per annum. 8,500 ---
$2,100,000 Note due November 1, 2002, collateralized by deed of trust, monthly
principal and interest payments of approximately $17,000, interest at LIBOR
plus 3.40% per annum. 2,096 ---
$16,000,000 Note due March 11, 2014, collateralized by deed of trust, monthly
principal and interest payments of $155,000, interest at 8.98% per annum. 15,312 15,468
$14,000,000 Note due November 11, 2009, collateralized by deed of trust with
interest payable monthly at 8.62% per annum. --- 6,000
$2,000,000 Unsecured note due July 31, 2007, interest rate of 8.5% per annum. 508 2,000
----------- -----------
Total $177,371 $134,880
=========== ===========
</TABLE>
F-20
<PAGE>
As of December 31, 1999, 30-day LIBOR was 5.832% and the prime rate was
8.50%.
Aggregate future principal payments as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Years Ending December 31
------------------------
(in thousands)
<S> <C>
2000........................... $ 7,268
2001........................... 16,929
2002........................... 25,645
2003........................... 3,049
2004........................... 3,279
Thereafter..................... 121,201
--------
Total......................... $177,371
========
</TABLE>
As of December 31, 1999 the Company was in default on its $4.6 million
unsecured line of credit with Tokai Bank of California due to a loan covenant
violation. The loan covenant requires that the Company maintain a ratio of
EBITDA less distributions to debt service of at least 1.20 to 1.0. The Company
believes it will receive a waiver from Tokai Bank for the violation of this loan
covenant as of December 31, 1999 and that the loan will not be declared due and
payable. Furthermore, the Company repaid $3.0 million of the $4.6 million
outstanding to Tokai Bank in January 2000 and is not in default on its monthly
interest payments. The Company believes that the reduction in the Common Stock
dividend in 1999 will allow the Company to comply with the loan covenant in the
future.
During 1999 and 1998, the Company capitalized interest relating to
development projects, either directly owned by the Company or through joint
ventures of $430,000 and $545,000, respectively.
12. Commitments and Contingencies
Neither the Company, the Operating Partnership, the Financing Entities, the
Subsidiaries, Maryland Gardens, the Roxbury Partnership, Valencia, Pacific
Gardens, Hoquiam, Lyons, Coronado, the Unconsolidated Affiliates nor any of the
assets within their portfolios of MOBs, parking facilities, and retail space
(the "Properties") is currently a party to any material litigation, except as
discussed below.
On August 15, 1997, a subsidiary of the Company, GL/PHP, LLC ("GL/PHP")
borrowed $16 Million from 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.
The note by its terms is nonnegotiable and provides 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. The Commissioner of the New Jersey
Department of Banking and Insurance (the "Commissioner") took over the
operations of Pinnacle. The Commissioner acting as rehabilitator for the entity
operating the facilities under a medical services agreement with Pinnacle, paid
Pinnacle's administrative rent through the bankruptcy proceeding up to and
including March 5, 1999. After the Commissioner ceased paying rent, Pinnacle's
Chapter 7 trustee elected to reject the lease. The Commissioner continued to
occupy and lease certain of the buildings through March 31, 1999.
F-21
<PAGE>
During 1999, GL/PHP leased one of the buildings and a portion of an
additional building. Also during 1999, GL/PHP attempted to restructure the
Nomura loan in order to attempt to preserve its investment in the New Jersey
Properties. On May 5, 1999, GL/PHP presented a loan-restructuring plan to
Amresco Management, Inc. ("Amresco"), the loan servicer, in regards to the
mortgage secured by the New Jersey Properties. GL/PHP has been in default on
this loan since May 1999. On May 10, 1999, Amresco rejected the Company's
restructuring plan.
On July 6, 1999, Amresco served GL/PHP with a complaint commencing a
judicial foreclosure and requesting the appointment of a receiver in the
Superior Court of New Jersey Chancery Division Bergen County. On September 15,
1999, the Superior Court ruled in Amresco's favor and appointed a receiver for
these buildings. Amresco filed a motion to foreclose its mortgage against the
New Jersey Properties. In February 2000, the court granted the motion and
transferred the matter to the foreclosure court of the New Jersey Superior
Court. New Jersey counsel has advised that the actual transfer of title should
be completed in approximately three to four months. A non-cash impairment loss
of $6.4 million was recorded in September 1999 to reflect the decline in value
of these buildings as a result of the loss of current and future rental revenue
due to the Pinnacle and PHP bankruptcies in November 1998 and their subsequent
departure from the buildings in March 1999. This impairment loss was recorded in
the third quarter of 1999 in response to the appointment of the receiver for the
buildings in September 1999 and their pending foreclosure.
LaSalle National Bank ("LaSalle"), as trustee in trust for the holders of
certain obligations including the Nomura loan by and through Amresco, has also
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 to LaSalle as part of the security LaSalle
claims it is entitled to under the deed of trust and assignment of rent with
GL/PHP. 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.
Landmark Healthcare Facilities, LLC ("Landmark") filed a lawsuit against a
subsidiary of the Company, G&L Valencia, LLC, claiming that Landmark is entitled
to approximately $600,000 plus interest costs under a development agreement
entered into between G&L Valencia, LLC and Landmark for development of an MOB
project 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 G&L Valencia,
LLC has been terminated or assigned to the Company. The litigation is in its
earliest stages and the likelihood of recovery by either party is therefore
inestimable.
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.
13. Stockholders' Equity
In May 1997, the Company issued 1,495,000 shares of the 10.25% Series A
Preferred Stock, from which it received net proceeds of $35.4 million. In
November 1997, the Company issued 1,380,000 shares of 9.8% Series B Preferred
Stock and received net proceeds of $32.6 million. The Company's preferred
stock has no stated maturity, is not subject to any sinking fund requirements
and is not convertible into or exchangeable for any property or other securities
of the Company. The Company, at its sole discretion, may call the Series A and
Series B Preferred Stock at any time after June 1, 2001 and January 1, 2002,
respectively. All classes of the Company's preferred stock have a par value of
$0.01 and rank senior to the Company's common stock with respect to payment of
dividends and upon liquidation. All classes of Preferred Stock are on parity
with all other classes of the Company's Preferred Stock for payment of dividends
and liquidation purposes. In the event of liquidation, or if the Company elects
to call the Preferred Stock, holders of the Company's Preferred Stock are
entitled to receive $25.00 per share plus any accrued and unpaid dividends,
whether or not such dividends have been declared by the Company's Board of
Directors. Holders of the Company's Series A Preferred Stock are entitled to
receive monthly dividends at an annual rate of $2.56 per share. Series B
Preferred Stockholders are entitled to receive monthly dividends at an annual
rate of $2.45 per share.
F-22
<PAGE>
Distributions in excess of net income-- As described in Note 2, the Company
has elected to be treated as a REIT for Federal income tax purposes. As such,
the Company is required to distribute at least 95% of its annual taxable income.
For years ended December 31, 1999, 1998 and 1997, cash distributed in the
form of dividends to holders of the Company's Common Stock exceeded the
Company's taxable income and is therefore considered to be a return of capital.
In 1999, 4.46% of the Company's dividend was taxable as long-term capital gains
and 95.54% was considered a return of capital to Common shareholders. For 1998,
18.55% of the dividend was taxable as ordinary income and the remaining 81.45%
represented a return of capital. For 1997, 30.83% of the dividend was taxable
as ordinary income, 21.66% was capital gains and 47.51% represented a return of
capital. Dividends paid to holders of the Company's Preferred Stock are fully
taxable as ordinary income.
Earnings per share-- Basic earnings per share is computed by dividing net
income less preferred stock dividends by the weighted average number of common
shares outstanding during each year. Fully diluted earnings per share is
computed by dividing net income less preferred stock dividends by the weighted
average number of common shares outstanding during each year plus the
incremental shares that would have been outstanding upon the assumed exercise of
dilutive stock options. In 1999 and 1998, the incremental shares that would
have been outstanding upon the assumed exercise of stock options would have been
anti-dilutive and, therefore, were not considered in the computation of fully
diluted earnings per share. The following table reconciles the numerator and
denominator of the basic and fully diluted per-share computations for net income
for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Numerator:
----------
Net (loss) income $(2,115) $ 4,343 $ 6,561
Preferred stock dividends (7,212) (7,212) (2,875)
---------- --------- ---------
Net (loss) income available to
common stockholders $(9,327) $(2,869) $ 3,686
========== ========= =========
Denominator:
------------
Weighted average shares - basic 3,760 4,092 4,049
Dilutive effect of stock options 10 43 80
---------- --------- ---------
Weighted average shares - fully
diluted 3,770 4,135 4,129
========== ========= =========
Per share:
----------
Basic $ (2.48) $ (0.70) $ 0.91
Dilutive effect of stock options --- --- (0.02)
---------- --------- ---------
Fully diluted $ (2.48) $ (0.70) $ 0.89
========== ========= =========
</TABLE>
On March 10, 2000, the Company's board of directors declared a quarterly
distribution for the first quarter of 2000 in the amount of $0.125 per Common
share to be paid on April 15, 2000 to holders of the Company's Common Stock on
March 31, 2000. This quarterly dividend is equal to an annualized distribution
of $0.50 per share.
F-23
<PAGE>
14. Stock Incentive Plan
As of December 31, 1999, the Company had a stock incentive plan under which
an aggregate of 308,500 shares of the Company's Common Stock are reserved for
issuance. Options are granted at per share amounts not less than fair market
value at the date of grant and expire ten years thereafter. Granted options vest
in even increments over a two or three year period beginning one year from the
grant date. The Company does not charge the estimated compensation cost of
options granted against income. Compensation cost is estimated to be the fair
value of all options granted based on the Binary option-pricing model. Based
upon the closing stock price at the end of the year, the costs associated with
options granted in each of the years ended December 31, 1999, 1998, and 1997 are
$5,000, $77,000, and $143,000, respectively. If the compensation costs had been
charged against income at the time of vesting, adjusted for shares exercised and
canceled during the period, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------ ---------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net Income:
As reported $(2,115) $4,343 $6,561
Pro forma $(2,120) $4,266 $6,418
Earnings per share:
As reported:
Basic $(2.48) $(0.70) $0.91
Fully diluted $(2.48) $(0.70) $0.89
Pro forma:
Basic $(2.48) $(0.72) $0.87
Fully diluted $(2.48) $(0.72) $0.86
</TABLE>
A summary of the status of the Company's stock incentive plan as of
December 31, 1999, 1998, 1997, and changes during the years ending on those
dates is presented in the following table. The average price presented below
represents the weighted average exercise price based upon the market value at
the grant date.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ----------------------- ------------------------
Average Average Average
Shares Price Shares Price Shares Price
------------ ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
Beginning of year 214,000 $14.49 244,000 $14.25 367,000 $11.95
Granted
Exercised 2,000 10.50 49,000 17.34 60,000 18.75
--- --- (27,000) 14.66 (134,000) 9.65
Forfeited or canceled (65,000) 18.11 (52,000) 16.09 (49,000) 15.00
Outstanding, --------- -------- -------- -------- -------- -------
End of year 151,000 $12.88 214,000 $14.49 244,000 $14.25
========= ======== ======== ======== ======== ========
Options exercisable
At year-end 130,998 $14.79 123,667 $12.34 57,000 $14.60
Weighted-average fair
Value of options
granted during
the year $2.40 $2.44 $2.25
</TABLE>
F-24
<PAGE>
The following table summarizes information relating to the Company's stock
incentive plan as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Average
Remaining life
Exercise Price Number (in months) Number Exercisable
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 9.125 1,000 65 1,000
9.625 72,000 72 72,000
10.375 3,000 71 3,000
10.500 2,000 116 1,332
12.917 2,000 108 500
13.099 1,000 108 333
13.625 22,000 76 21,500
15.750 1,000 89 889
16.750 1,000 89 1,334
17.375 20,000 99 11,110
17.500 10,000 101 6,000
17.625 6,000 48 6,000
18.125 6,000 99 3,333
20.125 4,000 96 2,667
--------- ---------
151,000 130,998
========= =========
</TABLE>
Fair value of the plan- The Company estimated the fair value of the options
granted in 1999, 1998 and 1997 based on the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate................... 6.80% 5.01% 5.77%
Expected life of the option............... 3 years 3 years 3 years
Expected volatility of stock.............. 36.00% 24.00% 21.00%
Expected dividends........................ $ 0.50 $ 1.56 $ 1.56
</TABLE>
The Company assumes that the equivalent risk-free interest rate is the
closing market rate, on the last trading day of the year, for three-year
treasury bills.
The Company's stock incentive plan was introduced in conjunction with its
initial public offering on December 16, 1993. Based upon the number of options
exercised and cancelled since the inception of the plan, the Company assumes the
estimated life of the outstanding option agreements to be three years.
The Company uses the treasury stock method for purposes of determining the
number of shares to be issued to in conjunction with the Company's stock
incentive plan. Based upon the number and amounts of vested and unvested options
outstanding, the dilutive effect on the Company's outstanding shares for the
years ended December 31, 1999, 1998 and 1997 is 10,000, 43,000 and 80,000
shares, respectively.
F-25
<PAGE>
15. Concentration of Credit Risk
The Company is subject to the all risks associated with leasing property,
including but not limited to, the risk that upon the expiration of leases for
space located in the Company's properties, the leases may not be renewed, the
space may not be re-leased or the terms of renewal or re-leasing (including any
cost of required renovations or concessions to tenants) may be less favorable
than current lease terms. If the Company is unable to promptly re-lease or renew
leases for a significant portion of its space or if the rental rates upon
renewal or re-leasing are significantly lower than expected, the Company's
earnings and the ability to make distributions to stockholders may be adversely
affected. Most of the tenants in the Company's healthcare properties provide
specialized health care services. The ability of the tenants to honor the terms
of their respective leases is dependent upon the economic, regulatory and social
factors affecting the communities and industry in which the tenants operate.
Many of the Company's medical office properties are in close proximity to
one or more local hospitals. Relocation or closure of a local hospital could
make the Company's nearby properties (particularly those outside of the Beverly
Hills area) less desirable to doctors and healthcare providers affiliated with
the hospital and affect the Company's ability to collect rent due under existing
leases, renew leases and attract new business.
A portion of the Company's assets are invested in debt instruments secured
by long-term senior care or skilled nursing facilities. The ability of the
facility owners to pay their obligations as they come due, as well as their
ability to obtain other permanent financing through the sale of bonds or other
forms of long-term financing is dependent upon their ability to attract patients
who are able to pay for the services they require. These facilities have complex
licensing requirements as do the professionals they employ. The majority of the
services rendered are paid by various federal, state and local agencies. Each of
these facilities function in a complex environment of changing government
regulations which have a significant impact on economic viability.
G&L Hampden, LLC, a wholly-owned subsidiary of the Company, acquired three
nursing home properties in Massachusetts on October 28, 1997 from Hampden
Nursing Homes, Inc. ("HNH"), a nonprofit corporation. Lenox Healthcare, Inc.
("Lenox") managed the three facilities from October 1998 through December 1999.
In November 1999, Lenox filed for bankruptcy protection. The Company immediately
moved to replace Lenox as the manager of the nursing homes. In January 2000, the
Company received the bankruptcy court's permission to replace Lenox as the
manager and a new management firm, a subsidiary of Roush & Associates ("Roush"),
was immediately retained. Although Lenox managed these Massachusetts nursing
homes, HNH held the licenses necessary to operate the facilities. In March 2000,
the Company successfully transferred the licenses to G&L Massachusetts, LLC, a
subsidiary of the Operating Partnership. G&L Massachusetts, LLC subsequently
leased the three facilities from the Company while Roush continued to manage
them. The lease requires monthly payments of $225,000 net of property taxes,
insurance and costs to maintain the facilities. Rents from the three
Massachusetts nursing homes represented approximately 9.7%, 11.0% and 13.3% of
the Company's rental revenues in 1999, 1998 and 1997, respectively. The
Company's management believes that the current management of Roush is
experienced and that Roush will be able to pay the lease obligations under the
lease as they become due; however, the financial position of the Company, and
its ability to make expected distributions to stockholders, may be adversely
affected in the event that Roush experiences financial difficulties.
In addition to the nursing homes in Massachusetts, the Company owns other
senior care facilities that it leases to operators. In the event that the
operators of these facilities are unable to effectively operate the facilities,
the ability of the operators to make rental payments to the Company may become
impaired. If any of these operators experience financial difficulty, the
financial position of the Company and the ability of the Company to make
expected distributions may be adversely affected.
16. Segment Information
The Company's business currently consists of investments in healthcare
properties and in debt obligations secured by healthcare properties. Investments
in healthcare property consists of acquisitions, made either directly or
indirectly through
F-26
<PAGE>
joint ventures, in MOBs or Senior Care Facilities which are leased to healthcare
providers. The Company's lending activities consist of providing short-term
secured loans to facilitate third party acquisitions either directly or through
GLN, an unconsolidated operating venture with Nomura Asset Capital Corporation.
The following table reconciles the Company's income and expense activity for the
year ending December 31, 1999 and balance sheet data as of December 31, 1999.
1999 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
--------------- -------------- ------------- ----------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking $ 30,351 $ 30,351
Interest, loan fees and related revenues. 305 $ 2,242 $ 250 2,797
Other ................................ 398 398
-------- -------- -------- ---------
Total revenues..................... 31,054 2,242 250 33,546
-------- -------- -------- ---------
Expenses:
Property operations................... 7,569 7,569
Depreciation and amortization......... 5,609 81 5,690
Interest.............................. 12,393 12,393
General and administrative............ 3,196 3,196
Provision for doubtful accounts....... 2,000 2,000
Impairment of long-lived assets 6,400 6,400
-------- -------- -------- ---------
Total expenses..................... 21,578 --- 15,670 37,248
-------- -------- -------- ---------
Income (loss) from operations before minority interest s $ 9,476 $ 2,242 $(15,420) $ (3,702)
======== ======== ======== =========
</TABLE>
1999 Reconciliation of Reportable Segment Information - (Continued)
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
-------------- --------------- ------------- ---------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Rental properties....................... $180,209 $180,209
Mortgage loans and bonds receivable, net $ 16,026 16,026
Other Assets............................ 24,602 837 $ 10,722 36,161
Total assets....................... $204,811 $ 16,863 $ 10,722 $232,396
Other Assets:
Cash and cash equivalents $ 7,545 $ 7,545
Restricted cash $ 8,763 8,763
Tenant rent and reimbursements receivable, net 2,478 2,478
Unbilled rent receivable, net 2,346 2,346
Other receivables, net 171 171
Investment in unconsolidated affiliates 8,899 $ 837 9,736
Deferred financing costs, net 3,177 3,177
Pre-acquisition costs 621 621
Construction in progress 158 158
Deferred lease costs, net 1,109 1,109
-------- --------
Prepaid expense and other 57 57
-------- -------- -------- --------
Total other assets............... $ 24,602 $ 837 $ 10,722 $ 36,161
======== ======== ======== ========
Capital Expenditures
- -------------------
Purchases of real estate assets $ $
--- ---
Additions to rental properties 3,656 3,656
-------- --------
Total capital expenditures......... $ 3,656 $ 3,656
======== ========
</TABLE>
F-27
<PAGE>
The following table reconciles the Company's income and expense activity
for the year ending December 31, 1998 and balance sheet data as of December 31,
1998.
1998 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
----------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking.................. $ 26,921 $ 26,921
Interest, loan fees and related revenues.................. 523 $ 3,002 $ 992 4,517
Other..................................................... 250 4 254
-------- -------- -------- --------
Total revenues......................................... 27,694 3,002 996 31,692
-------- -------- -------- --------
Expenses:
Property operations....................................... 6,171 6,171
Depreciation and amortization............................. 4,229 368 4,597
Interest.................................................. 8,683 8,683
General and administrative................................ 2,554 2,554
Reserves.................................................. 1,447 2,792 1,364 5,603
-------- -------- -------- --------
Total expenses......................................... 11,847 2,792 12,969 27,608
-------- -------- -------- --------
Income (loss) from operations before minority interests..... $ 15,847 $ 210 $(11,973) $ 4,084
======== ======== ======== ========
</TABLE>
1998 Reconciliation of Reportable Segment Information - (Continued)
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
---------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Rental properties....................... $ 186,751 $ 186,751
Mortgage loans and bonds receivable, net $ 12,101 12,101
Other Assets............................ 16,185 766 $ 3,696 20,647
--------- -------- -------- --------
Total assets....................... $ 202,936 $ 12,867 $ 3,696 $ 219,499
========= ======== ======== ========
Other Assets:
Cash and cash equivalents $ 1,379 $ 1,379
Restricted cash $ 4,007 4,007
Tenant rent and reimbursements receivable, net
2,050 2,050
Unbilled rent receivable, net 1,892 1,892
Other receivables, net 121 87 208
Investment in unconsolidated affiliates 6,703 $ 766 7,469
Investment in marketable securities, net --- ---
Deferred financing costs, net 2,179 2,179
Deferred lease costs, net 937 937
Prepaid expense and other 475 51 526
-------- -------- -------- --------
Total other assets............... $ 16,185 $ 766 $ 3,696 $ 20,647
========= ======== ======== ========
Capital Expenditures
Purchases of real estate assets $ 37,790 $ 37,790
Additions to rental properties 1,559 $ 140 1,699
--------- -------- --------
Total capital expenditures......... $ 39,349 $ 140 $ 39,489
========= ======== ========
</TABLE>
F-28
<PAGE>
The following table reconciles the Company's income and expense activity
for the year ending December 31, 1997 and balance sheet data as of December 31,
1997.
1997 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
--------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking................. $ 22,453 $ 22,453
Interest, loan fees and related revenues................. 161 $ 3,999 $ 162 4,322
Other.................................................... 240 34 274
-------- -------- --------- ---------
Total revenues........................................ 22,854 3,999 196 27,049
-------- -------- --------- ---------
Expenses:
Property operations...................................... 6,043 237 6,280
Depreciation and amortization............................ 3,443 127 3,570
Interest................................................. 9,088 9,088
General and administrative............................... 2,044 2,044
-------- -------- --------- ---------
Total expenses........................................ 9,486 237 11,259 20,982
-------- -------- --------- ---------
Income (loss) from operations before minority interests.... $ 13,368 $ 3,762 $(11,063) $ 6,067
======== ======== ========= =========
Rental properties.......................................... $ 139,082 $ 139,082
Mortgage loans and bonds receivable, net................... $ 14,098 14,098
Other Assets............................................... 13,073 8,006 $ 15,121 36,200
-------- -------- --------- ---------
</TABLE>
17. Extraordinary Loss on Early Retirement of Debt
On November 2, 1999, the Company obtained a $13.92 million short-term loan
secured by three skilled nursing facilities located in Massachusetts at an
interest rate of LIBOR plus 2.75%. The first portion of the loan closed on
October 4, 1999 and was used to repay a $6.0 million loan secured by the three
facilities. In repaying the $6.0 million loan, the Company incurred prepayment
fees of approximately $129,000 and wrote off an additional $42,000 in loan fees
relating to the loan. These amounts have been presented as an extraordinary loss
on the statement of operations.
18. Related Party Transactions
In 1995, the Company acquired all of the outstanding 1989 Series A and B
Health Care Revenue (the "Bonds") issued by the Massachusetts Industrial Finance
Agency for $19.9 million. At the time of acquisition, the Series A and B Bonds
had face values of $21.0 million and $5.0 million, respectively. The Bonds were
backed by mortgages on three nursing homes owned by Hampden. Principal and
interest payments due on these Bonds were paid by the bond trustee out of the
debt service payments received from Hampden.
In March 1997, the Company sold the Bonds to GLN, a joint venture between
the Company and Nomura Asset Capital Corporation ("Nomura"), for total
consideration of $21.7 million. The Bonds, which had a book value of $20.7
million, had a combined outstanding balance of $27.7 million, including
principal and accrued interest at the time of the sale. The Bonds were sold for
$7.7 million and an assumption of $14.0 million in indebtedness owed to GMAC
Commercial Mortgage Corporation ("GMAC-CM"). The $7.7 million amount consisted
of a cash payment of $4.5 million and $3.2 million which was deemed a capital
contribution to GLN. In June 1997, the Company loaned $14.0 million to GLN,
which was used by GLN to retire the $14.0 million loan due to GMAC-CM.
The Operating Partnership's gain on sale of the Bonds to GLN was
approximately $1.0 million, of which the Operating Partnership recognized
approximately $500,000 during the first quarter of 1997 and deferred recognition
of the remaining $500,000.
F-29
<PAGE>
In October 1997, the Company acquired the three Massachusetts nursing homes
from Hampden for a total aggregate consideration of approximately $20.0 million.
Of this amount, the Company borrowed $6.0 million from Nomura at an interest
rate of 8.62% per annum. The Massachusetts nursing homes were pledged as
security for the repayment of this loan.
On June 30, 1998, GLH Pacific Gardens, LLC, a joint venture between the
Company and American Senior Care, Inc., purchased a 92-unit senior care facility
located in Santa Monica, California. Upon acquisition, this facility was leased
to GLH Pacific Gardens Corp., an unconsolidated joint venture of the Company's
in which the Company owns 93% of the equity in the form of non-voting preferred
stock. On July 1, 1999, the lease was transferred to ASL Santa Monica Inc., an
unaffiliated entity. During 1999 and 1998, GLH Pacific Gardens Corp. made lease
payments of $480,000 and $420,000 to the Company, respectively.
During 1998, the Company owned 50% of the equity in AV Medical, LLC ("AV
Medical") and G&L/M&Z Aliso Partners ("G&L/M&Z"), unconsolidated joint ventures
formed in 1997 with M&Z Aliso Associates, LLC ("M&Z") for the purposes of buying
undeveloped parcels of land in Aliso Viejo and building a 33,000 square foot MOB
and a retail complex, respectively. In December 1998, the Company exchanged its
50% interest in G&L/M&Z Aliso Partners for M&Z's 50% interest in AV Medical,
LLC. This transaction was treated as a non-taxable exchange of like-kind real
estate assets under Section 1031 of the Internal Revenue Service Tax Code. As
part of the exchange, M&Z paid the Company $295,000 in accrued distributions and
accrued interest due on loans made by the Company to AV Medical and G&L/M&Z and
signed a $44,000 promissory note due on June 30, 1999 for the remaining balance
owed. Upon closing the exchange, AV Medical was dissolved and the property
previously owned by AV Medical was owned 100% by the Operating Partnership.
On December 31, 1998, the Company acquired a 40,000 square foot office and
retail complex located in Coronado, California. The property was acquired from a
limited liability company (the "LLC") owned by Daniel M. Gottlieb and Steven D.
Lebowitz, both directors and officers of the Company, who held interests in the
LLC of 30% and 70%, respectively. The property was acquired for an aggregate
purchase price of $9.5 million. The Company assumed $7.5 million in long-term
debt and issued 134,499 Partnership Units valued at $2,000,000. These new units
were issued at an effective rate of $14.87 per unit, a 15.5% premium over the
$12.875 closing price of the Company's stock on December 31, 1998, the closing
date of the transaction, effectively reducing the number of units issued to
Messrs. Gottlieb and Lebowitz. In connection with the purchase of the property,
G&L Coronado Managers Corp. ("Coronado Corp."), an entity owned 30% and 70% by
Messrs. Gottlieb and Lebowitz, respectively, signed a lease (the "Master Lease
Agreement") for the entire third floor of the building with the Company. Under
the terms of the Master Lease Agreement, Coronado Corp. will operate the
Executive Suites located on the third floor of the building on behalf of the
Company for lease payments of $19,000 per month until November 30, 2010.
On April 15, 1999, the Company borrowed $2.0 million from Reese L. Milner,
a director and an Operating Partnership unit holder of the Company. The loan
bore interest at 12% per annum and was due on May 15, 1999. The Company also
paid a loan fee of $20,000 to Mr. Milner. The loan was secured by a first trust
deed against a parcel of real property owned by the Company. On May 13, 1999,
the loan was extended until new financing on the collateralized property was
obtained. The Company repaid the loan plus all accrued interest on June 13,
1999.
On May 4, 1999, the Company sold a vacant parcel of real property for $1.6
million to the Craig Corporation, whose president is S. Craig Tompkins, a
director of the Company. The Company had the option to repurchase the property
beginning on November 5, 1999 and ending on December 3, 1999 for $1.8 million
plus any costs incurred by the Craig Corporation with respect to the property.
Beginning on January 24, 2000 and ending on January 31, 2000, the Craig
Corporation had the option to sell the property to the Company for $1.9 million.
Thereafter, the option sale price would have increased at a rate of 3% per
month, adjusted pro rata for any periods of less than one month. The Company
accounted for this transaction in accordance with FAS 66 "Accounting for Sales
of Real Estate" and treated this sale as a financing transaction. This amount
was repaid on November 2, 1999 for $1.76 million.
On May 18, 1999, the Company entered into an agreement with the Craig
Corporation, whose president is S. Craig Tompkins, a director of the Company,
whereby the Craig Corporation would purchase up to 36,000 shares of the
Company's common stock on the open market and the Company would have the option
to purchase these shares from the Craig Corporation on or before December 3,
1999 at the Craig Corporation's cost plus a premium of 20% per annum, less any
dividends received. After December 3, 1999, the Craig Corporation had the option
to sell the shares to the Company
F-30
<PAGE>
between January 24 and January 31, 2000 at its cost plus a premium of 25% per
annum. Thereafter, the option sale price would have increased at a rate of 3%
per month. The exercise of the Company's option was contingent upon the exercise
of the Company's option to repurchase the vacant parcel of land from the Craig
Corporation discussed above. On December 29, 1999, the Company purchased 34,400
shares of the Company's common stock for $404,000. This amount included $44,000
in interest.
On February 7, 2000, the board of directors of the Company unanimously
approved the guarantee of a $500,000 line of credit from Tokai Bank to each of
Daniel M. Gottlieb and Steven D. Lebowitz, both directors and officers of the
Company, for a total of $1 million. In addition, on February 29, 2000, the board
of directors granted 50,000 non-qualified Common Stock options to each of
Messrs. Gottlieb and Lebowitz. The exercise price of the options was $8.875, the
closing price of the Company's Common Stock on February 29, 2000.
19. Unaudited Consolidated Quarterly Information
Unaudited consolidated quarterly financial information for the periods as
follows:
<TABLE>
<CAPTION>
1999 Fiscal Quarter
----------------------------------------
1st 2nd 3rd 4th
--------- --------- --------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue:
Rental................................... $6,912 $7,064 $7,237 $6,715
Tenant reimbursements.................... 371 239 335 330
Parking ................................. 264 274 313 297
Interest, loan fees and other............ 581 714 833 669
Other.................................... 36 254 65 43
------- ------ ------ ------
Total revenues........................ 8,164 8,545 8,783 8,054
------- ------ ------ ------
Expenses:
Property operations...................... 1,904 1,762 1,951 1,952
Depreciation and amortization............ 1,333 1,402 1,473 1,482
Interest................................. 2,616 2,896 3,315 3,566
General and administrative............... 641 816 857 882
Provision for doubtful accounts.......... --- --- --- 2,000
Impairment of long-lived assets.......... --- --- 6,400 ---
------- ------ ------ ------
Total expenses........................ 6,494 6,876 13,996 9,882
------- ------ ------ ------
Income (loss) from operations before
minority interests..................... 1,670 1,669 (5,213) (1,828)
Equity in earnings of unconsolidated
affiliates............................. 7 (277) 23 (22)
Minority interest in consolidated (50) (39) (46) (40)
affiliates.............................
Minority interest in Operating Partnership 24 62 986 1,130
------- ------ ------ ------
Income (loss) before extraordinary item.. 1,651 1,415 (4,250) (760)
------- ------ ------ ------
Extraordinary loss on early
extinguishment of debt .................. --- --- --- (171)
------- ------ ------ ------
Net income (loss) ....................... $ 1,651 $ 1,415 $(4,250) $ (931)
======= ====== ====== ======
Per share data:
Basic ................................... $(0.04) $(0.10) $(1.56) $(0.84)
Fully Diluted ........................... $(0.04) $(0.10) $(1.56) $(0.84)
Weighted average shares outstanding:
Basic ................................... 3,976 3,937 3,889 3,245
Fully Diluted ........................... 3,994 3,949 3,898 3,245
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
1998 Fiscal Quarter
---------------------------------------
1st 2nd 3rd 4th
-------- -------- --------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue:
Rental................................................... $5,882 $6,113 $6,386 $6,258
Tenant reimbursements.................................... 129 209 219 224
Parking.................................................. 359 374 378 390
Interest, loan fees and other............................ 1,056 1,267 1,095 1,099
Other.................................................... 58 113 33 50
------ ------ ------ ------
Total revenues....................................... 7,484 8,076 8,111 8,021
====== ====== ====== ======
Expenses:
Property operations...................................... 1,411 1,506 1,628 1,626
Depreciation and amortization............................ 1,060 1,083 1,213 1,241
Interest................................................. 1,916 2,093 2,210 2,464
General and administrative............................... 689 734 545 586
Provision for doubtful accounts, notes and bonds
Receivable........................................... --- --- --- 5,603
------ ------ ------ ------
Total expenses....................................... 5,076 5,416 5,596 11,520
------ ------ ------ ------
Income (loss) from operations before minority
interests.............................................. 2,408 2,660 2,515 (3,499)
Equity in earnings of unconsolidated affiliates......... 52 101 43 (116)
Minority interest in consolidated affiliates............ (46) (69) (46) (64)
Minority interest in Operating Partnership.............. (48) (95) (78) 625
------- ------- ------- -------
Net income (loss)....................................... $ 2,366 $ 2,597 $ 2,434 $(3,054)
======= ======= ======= =======
Per share data:
Basic.................................................. $0.14 $0.19 $0.15 $(1.21)
Fully Diluted.......................................... $0.13 $0.19 $0.15 $(1.21)
Weighted average shares outstanding:
Basic.................................................. 4,129 4,122 4,090 4,030
Fully Diluted.......................................... 4,174 4,163 4,125 4,053
</TABLE>
F-32
<PAGE>
20. SCHEDULE OF CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF
DECEMBER 31, 1999 (In Thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to
Initial Cost to Company Acquisition
------------------------ ---------------------
Encumbrances Building and Building and
Description (See Notes) Land Improvements Land Improvement
- ----------------------------------- -------------- --------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Medical Office Buildings
California Properties:
- ----------------------
405 North Bedford Drive (See Note A) $2,186 $4,076 $452 $9,935
415 North Bedford Drive (See Note A) 292 573 --- 600
416 North Bedford Drive (See Note A) 427 247 --- 2,513
435 North Bedford Drive (See Note A) 1,144 2,853 --- 2,610
435 North Roxbury Drive $7,634 162 390 39 2,543
436 North Bedford Drive (See Note B) 2,675 15,317 --- 353
439 North Bedford Drive --- --- 109 --- 487
Holy Cross Medical Plaza 7,896 2,556 10,256 --- 1,285
St. Joseph's Professional 3,185 1,300 3,936 --- 257
Building.
Sherman Oaks Medical Plaza (See Note B) 1,454 8,278 --- 2,233
Regents Medical Center (See Note B) 1,470 8,390 --- 1,281
Cigna HealthCare Bldg. (See Note B) 1,260 7,282 --- 48
1095 Irvine Boulevard 1,299 474 663 --- 453
14662 Newport Avenue (See Note E) 645 1,900 --- 57
14591 Newport Avenue (See Note E) 160 36 --- 200
14642 Newport Avenue (See Note E) 400 1,033 --- 528
15225 Aliso Creek Road 1,430 585 (25) 1,333
23861 McBean Parkway 9,905 --- 4,164 --- 7,346
24355 Lyons Avenue 5,113 623 6,752 --- 214
1330 Orange Avenue 7,423 809 8,753 --- 254
5 Journey Road 2,096 411 --- 1,086
26671 Aliso Creek Road 5,500 1,751 --- 4,839
New Jersey Properties:
- ---------------------
2103 Mt. Holly Road (See Note C) 775 1,837 --- 4
150 Century Parkway (See Note C) 600 1,642 --- 3
274 Highway 35, South --- 1,200 1,800 --- 3
80 Eisenhower Drive (See Note C) 975 1,524 --- 3
16 Commerce Drive (See Note C) 1,240 1,865 --- ---
4622 Black Horse Pike (See Note C) 850 1,782 --- ---
Senior Care Facilities
Arizona Properties:
- ------------------
31 West Maryland Avenue 800 3,847 --- 78
39 West Maryland Avenue 172 835 --- 112
<CAPTION>
Gross amount at which carried at close of Period
(See Note G)
-------------------------------------------------- Date of
Construction
Building and Accumulated Acquisition or
Description Land Improvements Total Depreciation Date Rehabilitation
- -------------------------- ---------- ------------ ----- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Medical Office Buildings
California Properties:
- ---------------------
405 North Bedford Drive $2,638 $14,011 $16,649 $3,988 1993 1947/1987
415 North Bedford Drive 292 1,173 1,465 552 1993 1955
416 North Bedford Drive 427 2,760 3,187 1,003 1993 1946/1986
435 North Bedford Drive 1,144 5,463 6,607 2,729 1993 1950/1963/1984
435 North Roxbury Drive 201 2,933 3,134 1,192 1993 1956/1983
436 North Bedford Drive 2,675 15,670 18,345 1,415 1990 1980
439 North Bedford Drive --- 596 596 303 1993 1956/1983
Holy Cross Medical Plaza 2,556 11,541 14,097 2,128 1994 1985
St. Joseph's Professional 1,300 4,193 5,493 679 1993 1987
Building.
Sherman Oaks Medical Plaza 1,454 10,511 11,965 2,196 1994 1969/1993
Regents Medical Center 1,470 9,671 11,141 1,879 1994 1989
Cigna HealthCare Bldg. 1,260 7,330 8,590 989 1994 1992
1095 Irvine Boulevard 474 1,116 1,590 265 1994 1994/1995
14662 Newport Avenue 645 1,957 2,602 170 1996 1969/1974
14591 Newport Avenue 160 236 396 23 1996 1969
14642 Newport Avenue 400 1,561 1,961 246 1996 1985
15225 Aliso Creek Road 560 1,333 1,893 39 1997 1998
23861 McBean Parkway --- 11,510 11,510 359 1998 1981/1999
24355 Lyons Avenue 623 6,966 7,589 204 1998 1990
1330 Orange Avenue 809 9,007 9,816 214 1998 1977/1985
5 Journey Road 411 1,086 1,497 5 1998 1998/1999
26671 Aliso Creek Road 1,751 4,839 6,590 59 1997 1998/1999
New Jersey Properties:
- ---------------------
2103 Mt. Holly Road 775 1,841 2,616 206 1997 1994
150 Century Parkway 600 1,645 2,245 195 1997 1995
274 Highway 35, South 1,200 1,803 3,003 207 1997 1995
80 Eisenhower Drive 975 1,527 2,502 190 1997 1994
16 Commerce Drive 1,240 1,865 3,105 183 1997 1963
4622 Black Horse Pike 850 1,782 2,632 179 1997 1994
Senior Care Facilities
Arizona Properties:
- ------------------
31 West Maryland Avenue 800 3,925 4,725 337 1997 1951-1957
39 West Maryland Avenue 172 947 1,119 42 1998 1968
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
California Properties:
- ---------------------
<S> <C> <C> <C> <C> <C>
1437 Seventh Street 11,373 2,357 8,427 --- 1,304
Massachusetts Properties:
- ------------------------
42 Prospect Avenue (See Note D) 1,048 4,609 --- 1
32 Chestnut Street (See Note D) 1,319 9,307 --- 6
34 Main Street (See Note D) 702 3,040 --- ---
Washington Properties:
- ---------------------
3035 Cherry Street 2,428 100 3,216 --- 25
------------ ------- -------- --------- --------
Total......... $ 65,282 $32,922 $128,739 $466 41,994
============ ======= ======== ========= ========
Realty Financing Partnership
(See Note A) 28,193
Medical Partnership (See
Note B) 33,629
GL/PHP, LLC (See Note C) 15,313
G&L Hampden, LLC
(See Note D) 13,889
G&l Realty Partnership
(See Note E) 7,458
Per Above 65,282
---------
Total encumbrances $163,764
=========
<CAPTION>
California Properties:
- ---------------------
<S> <C> <C> <C> <C> <C> <C>
1437 Seventh Street 2,357 9,731 12,088 386 1998 1990
Massachusetts Properties:
- ------------------------
42 Prospect Avenue 1,048 4,610 5,658 435 1997 1957/65/78/85
32 Chestnut Street 1,319 9,313 10,632 474 1997 1985
34 Main Street 702 3,040 3,742 277 1997 1965/1985
Washington Properties:
- ---------------------
3035 Cherry Street 100 3,241 3,341 164 1998 1954
-------- -------- -------- -------
Total......... $33,388 $170,733 $204,121 $23,912
======== ======== ======== =======
</TABLE>
The changes in total real estate assets and accumulated depreciation for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
Total Real Estate Assets
-----------------------------------------
1999 1998 1997
-----------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 196,083 $ 151,214 $ 103,481
Improvements and acquisitions 15,673 44,869 47,963
Impairment of long-lived assets (6,400) --- ---
Dispositions (1,235) --- (230)
---------- ---------- -----------
Balance at end of year $ 204,121 $ 196,083 $ 151,214
========== ========== ===========
<CAPTION>
Accumulated Depreciation
-------------------------------------------
1999 1998 1997
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beg. of year $ 18,493 $ 13,808 $ 10,500
Depreciation 5,419 4,685 3,343
Dispositions --- --- (35)
---------- ---------- ----------
Balance at end of year $ 23,912 $ 18,493 $ 13,808
========== ========== ==========
</TABLE>
_______________________
Note A: The Realty Financing Partnership owns the following properties which are
security for a blanket first trust deed: 405 North Bedford, 415 North
Bedford, 416 North Bedford and 435 North Bedford.
Note B: The Medical Partnership owns the following properties, which are each
security for a blanket first trust deed: Sherman Oaks Medical Plaza,
Cigna HealthCare Building, Regents Medical Center and 436 North Bedford
Drive.
Note C: GL/PHP, LLC owns the following properties which are security for a
blanket first trust deed: 2103 Mt. Holly Road, 150 Century Parkway, 274
Highway 35, South, 80 Eisenhower Drive, 16 Commerce Drive, and 4622
Black Horse Pike.
Note D: G&L Hampden, LLC owns the following properties, which are security for a
first trust deed: 42 Prospect Avenue, 32 Chestnut Street, and 34 Main
Street.
Note E: G&L Realty Partnership, L.P. owns the following properties which are
security for a first trust deed: 14662 Newport Avenue, 14591 Newport
Avenue, and 14642 Newport Avenue.
F-34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
G&L REALTY CORP.
Date: March 30, 2000 By: /s/ David E. Hamer
---------------------------
David E. Hamer
Controller and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Daniel M. Gottlieb Chief Executive Officer,
- --------------------------------------- Co-Chairman of the Board and March 30, 2000
Daniel M. Gottlieb Director (Principal Executive
Officer)
/s/ Steven D. Lebowitz
- ---------------------------------------
Steven D. Lebowitz President, Co-Chairman of the March 30, 2000
Board and Director
/s/ Richard L. Lesher Director March 30, 2000
- ---------------------------------------
Richard L. Lesher
/s/ Leslie D. Michelson Director March 30, 2000
- ---------------------------------------
Leslie D. Michelson
/s/ Charles P. Reilly Director March 30, 2000
- ---------------------------------------
Charles P. Reilly
/s/ S. Craig Tompkins Director March 30, 2000
- ---------------------------------------
S. Craig Tompkins
</TABLE>
F-35
<PAGE>
Exhibit 11
G&L Realty Corp.
Computation of Per Share Earnings (Loss)
Annual Report on Form 10-K
December 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (Loss) Income $ (931) $ (3,054) $ (2,115) $ 4,343
Less: Preferred Dividends
10.25% Series A Cumulative Preferred (958) (958) (3,832) (3,832)
9.8% Series B Cumulative Preferred (845) (845) (3,380) (3,380)
-------- -------- -------- --------
Net (loss) income available to common
shareholders $(2,734) $ (4,857) $(9,327) $ (2,869)
======== ======== ======== ========
Options outstanding 151 214 151 214
======== ======== ======== ========
Weighted average exercise price $12.88 $ 14.49 $ 12.88 $14.49
======== ======== ======== ========
Proceeds upon exercise price $ 1,945 $ 3,094 $ 1,945 $ 3,094
======== ======== ======== ========
Treasury stock shares 151 191 141 171
======== ======== ======== ========
Common share equivalents --- 23 10 43
Average shares outstanding 3,245 4,030 3,760 4,092
======== ======== ======== ========
Total common and common share equivalents
outstanding
3,245 4,053 3,770 4,135
======== ======== ======== ========
Per share (loss) earnings data:
Basic $(0.84) $(1.21) $(2.48) $(0.70)
======== ======== ======== ========
Fully diluted $(0.84) $(1.21) $(2.48) $(0.70)
======== ======== ======== ========
</TABLE>
<PAGE>
Exhibit 12
G&L Realty Corp.
Computation of Ratio of Earnings to Fixed Charges
Annual Report on Form 10-K
December 31, 1999
(In thousands)
<TABLE>
<S> <C>
Net Loss $ (2,115)
========
Fixed Charges:
Interest expense $11,997
Capitalized interest 430
Amortization of deferred financing costs 396
--------
Total fixed charges $ 12,823
========
Total Fixed Charges and Preferred Dividends:
Total fixed charges $ 12,823
Preferred dividends 7,212
--------
Total fixed charges and preferred dividends $20,035
========
Ratio of earnings to fixed charges and preferred dividends 0.53x
========
</TABLE>
<PAGE>
Exhibit 21
G&L Realty Corp.
List of Subsidiaries
February 29, 2000
<TABLE>
<S> <C>
1. G&L Hampden, Inc., a Delaware corporation
2. G&L Hampden, LLC a Delaware limited liability company
3. G&L Realty Partnership, L.P., a Delaware limited partnership
4. G&L Realty Financing II, Inc., a Delaware corporation
5. G&L Realty Financing Partnership II, L.P., a Delaware limited partnership
6. G&L Medical, Inc., a Delaware corporation
7. G&L Gardens, LLC, an Arizona limited liability company
8. G&L Management Delaware Corp., a Delaware corporation
9. G&L Senior Care, Inc., a Delaware corporation
10. G&L Medical Partnership, L.P., a Delaware limited partnership
11. GLN Capital Co. LLC, a Delaware limited liability company
12. GL/PHP, LLC a Delaware limited liability company
13. Theme World, L.P., a New Jersey limited partnership
14. Valley Convalescent, LLC, a California limited liability company
15. 435 N. Roxbury Drive, Ltd., a California limited partnership
16. G&L - Grabel San Pedro, LLC
17. G&L Burbank, LLC
18. G&L Burbank Managers Corp., a California corporation
19. G&L Holy Cross, LLC
20. G&L Holy Cross Managers Corp., a California corporation
21. G&L Tustin, LLC
22. G&L Tustin Managers Corp., a California corporation
23. G&L Valencia, LLC
24. G&L Penasquitos, LLC
25. G&L Penasquitos, Inc.
26. GLH Pacific Gardens, LLC
27. GLH Pacific Gardens Corp., a California corporation
28. G&L Hoquiam, LLC
29. G&L Lyon, LLC
30. G&L Coronado (1998), LLC
31. G&L Parsons on Eagle Run, LLC
32. G&L Parsons on Eagle Run, Inc.
33. GLR/Yorba Linda, LLC
34. Lakeview Associates, LLC
35. G&L Aliso Viejo, LLC
36. G&L Massachusetts, LLC
37. G&L Heritage Care, LLC
38. G&L Heritage Care, Inc.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 16,308
<SECURITIES> 0
<RECEIVABLES> 39,654
<ALLOWANCES> 8,897
<INVENTORY> 0
<CURRENT-ASSETS> 4,964
<PP&E> 204,279
<DEPRECIATION> 23,912
<TOTAL-ASSETS> 232,396
<CURRENT-LIABILITIES> 5,060
<BONDS> 177,371
0
29
<COMMON> 26
<OTHER-SE> 49,910
<TOTAL-LIABILITY-AND-EQUITY> 232,396
<SALES> 0
<TOTAL-REVENUES> 33,546
<CGS> 0
<TOTAL-COSTS> 7,569
<OTHER-EXPENSES> 17,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,393
<INCOME-PRETAX> (3,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,944)
<DISCONTINUED> 0
<EXTRAORDINARY> (171)
<CHANGES> 0
<NET-INCOME> (2,115)
<EPS-BASIC> (2.48)
<EPS-DILUTED> (2.48)
</TABLE>
