<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-12566
---------------------
G & L REALTY CORP.
(Exact name of Registrant as specified in its charter)
Maryland 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
439 N. Bedford Drive
Beverly Hills, California 90210
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 273-9930
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
August 14, 2000 was 2,333,800 shares.
================================================================================
<PAGE>
G&L REALTY CORP.
INDEX
<TABLE>
<CAPTION>
Page
Part I Financial Information Number
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited) and
December 31, 1999.................................................................. 3
Condensed Consolidated Statements of Operations for the Three and Six Month
Periods Ended June 30, 2000 and 1999 (unaudited)................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Month Periods
Ended June 30, 2000 and 1999 (unaudited)........................................... 5 - 6
Notes to Condensed Consolidated Financial Statements (unaudited)..................... 7 - 20
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 21 - 27
Item 3 Quantitative and Qualitative Disclosures About Market Risk........................... 28
Part II Other Information
Item 1 Legal Proceedings.................................................................. 29
Item 2 Changes in Securities.............................................................. 29
Item 3 Defaults Upon Senior Securities.................................................... 29
Item 4 Submission of Matters to a Vote of Security Holders................................ 29 - 30
Item 5 Other Information.................................................................. 30
Item 6 Exhibits and Reports on Form 8-K................................................... 31 - 34
Signature................................................................................................. 35
</TABLE>
Page 2
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
June 30, December 31,
2000 1999
---------------------------------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Rental properties (Note 3):
Land $ 34,239 $ 33,388
Buildings and improvements, net 150,119 146,821
Projects under development 257 158
-------- --------
Total rental properties 184,615 180,367
Cash and cash equivalents 1,130 7,545
Restricted cash 7,295 8,763
Tenant rent and reimbursements receivable, net 4,988 2,478
Unbilled rent receivable, net 2,328 2,346
Other receivables, net 61 171
Mortgage loans and notes receivable, net 15,650 16,026
Investments in unconsolidated affiliates (Note 6) 4,605 9,736
Deferred charges and other assets, net (Note 4) 4,736 4,964
-------- --------
TOTAL ASSETS $225,408 $232,396
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable $175,224 $177,371
Accounts payable and other liabilities 6,235 3,279
Distributions payable 404 452
Tenant security deposits 1,335 1,329
-------- --------
Total liabilities 183,198 182,431
Commitments and Contingencies (Note 8) --- ---
Minority interest in consolidated affiliates (958) (862)
Minority interest in Operating Partnership --- 772
STOCKHOLDERS' EQUITY (Note 5):
Preferred shares - $.01 par value, 10,000,000 shares authorized,
liquidation preference of $25.00 per share
. Series A Preferred - 1,495,000 shares issued and outstanding as of
June 30, 2000 and December 31, 1999 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding as of
June 30, 2000 and December 31, 1999 14 14
Common shares - $.01 par value, 50,000,000 shares authorized,
2,333,800 and 2,635,600 shares issued and outstanding as of
June 30, 2000 and December 31, 1999, respectively 23 26
Additional paid-in capital 72,441 75,412
Distributions in excess of net income (29,325) (25,412)
-------- --------
Total stockholders' equity 43,168 50,055
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $225,408 $232,396
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 3
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Six Month
Periods Ended June 30, Periods Ended June 30,
2000 1999 2000 1999
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental $11,713 $ 7,064 $19,401 $13,976
Tenant reimbursements 371 239 726 610
Parking 307 274 610 538
Interest and loan fees 898 714 1,382 1,295
Net gain on sale of assets --- 197 1,263 197
Other income 123 57 232 93
------- ------ ------- -------
Total revenues 13,412 8,545 23,614 16,709
------- ------ ------- -------
EXPENSES:
Property operations 7,017 1,762 9,690 3,666
Depreciation and amortization 1,533 1,402 3,066 2,735
Interest 3,421 2,896 6,844 5,512
Provision for doubtful accounts and notes
receivable --- --- 2,288 ---
General and administrative 768 816 1,468 1,457
------- ------ ------- -------
Total expenses 12,739 6,876 23,356 13,370
------- ------ ------- -------
Income from operations before minority
interests, equity in loss of
unconsolidated affiliates and extraordinary
loss 673 1,669 258 3,339
Equity in loss of unconsolidated
affiliates (205) (277) (348) (270)
Minority interest in consolidated affiliates (39) (39) (106) (89)
Minority interest in Operating Partnership 83 62 616 86
------- ------- ------- -------
Income before extraordinary loss $ 512 $ 1,415 420 3,066
Extraordinary loss on early retirement of
long-term debt --- --- (158) ---
------- ------- ------- -------
Net income $ 512 $ 1,415 262 3,066
Dividends on preferred stock (1,790) (1,803) (3,583) (3,606)
------- ------- ------- -------
Net loss available to common stockholders $(1,278) $ (388) $(3,321) $ (540)
======= ======= ======= =======
Per common share data:
Basic:
------
Loss before extraordinary loss $ (0.55) $(0.10) $ (1.30) $(0.14)
Extraordinary loss --- --- (0.07) ---
------- ------ ------- ------
Net loss $ (0.55) $(0.10) (1.37) (0.14)
======= ====== ======= ======
Fully diluted:
--------------
Loss before extraordinary loss $ (0.55) $(0.10) $ (1.30) $(0.14)
Extraordinary loss --- --- (0.07) ---
======= ====== ======= ======
Net loss $ (0.55) $(0.10) (1.37) (0.14)
======= ====== ======= ======
Weighted average shares outstanding:
Basic 2,337 3,937 2,424 3,957
======= ====== ======= ======
Fully diluted 2,337 3,949 2,425 3,971
======= ====== ======= ======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 4
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
-----------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 262 $ 3,066
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 3,066 2,735
Amortization of deferred loan costs 289 123
Extraordinary loss on early retirement of long-term debt 158 ---
Net gain on sale of assets (1,263) ---
Minority interests (510) 3
Equity in loss of unconsolidated affiliates 348 270
Provision for doubtful accounts and notes receivables 2,288 8
Unbilled rent receivable, net (92) (151)
(Increase) decrease in:
Other receivables 110 (127)
Tenant rent and reimbursements receivable (3,109) (52)
Prepaid expense and other assets (678) (75)
Accrued interest receivable and loan fees 176 (540)
Increase (decrease) in:
Accounts payable and other liabilities 2,956 (181)
Tenant security deposits 6 (15)
-------- -------
Net cash provided by operating activities 4,007 5,064
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate assets (10,385) ---
Sale of real estate assets 8,794 295
Additions to rental properties (1,915) (1,679)
Pre-acquisition costs 385 (611)
Construction-in-progress (99) (3,643)
Leasing commissions (69) (353)
Investment in mortgage loans and notes receivable, net (24) (960)
Distributions from unconsolidated affiliates 1,262 148
Principal repayments on notes receivable 308 101
Contributions to unconsolidated affiliates (167) (885)
-------- -------
Net cash used in investing activities (1,910) (7,587)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 7,513 16,700
Repayment of notes payable (9,660) (3,851)
Payment of deferred financing costs (251) (258)
Decrease (increase) in restricted cash 1,468 (1,498)
Minority interest equity contribution 486 ---
Purchase of common and preferred stock and partnership units (2,974) (767)
Distributions (5,094) (7,297)
-------- -------
Net cash (used in) provided by financing activities (8,512) 3,029
-------- -------
Continued...
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 5
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
-----------------------------------------
(Unaudited)
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,415) 506
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,545 1,379
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,130 $ 1,885
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 6,894 $ 6,028
======== =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Distributions declared not yet paid $ 370 $ 1,780
======== =======
Preferred distributions due to minority partner $ 28 $ 14
======== =======
Transfer from investments in unconsolidated affiliates to notes
receivable $ 3,070 ---
======== =======
Transfer from projects under development to building --- $11,262
======== =======
Transfer note receivable to land and building:
Land $ 252
Building 1,009
--------
Total $ 1,261
========
Notes receivable $ 1,261
========
Concluded.
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 6
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
G&L Realty Corp. (the "Company") was formed as a Maryland corporation to
continue the ownership, management, acquisition and development activities
previously conducted by G&L Development, a California general partnership, the
Company's predecessor. All of the Company's assets are held by, and all of its
operations are conducted through, the following entities:
G&L Realty Partnership, L.P., a Delaware limited partnership
(the "Operating Partnership")
G&L Realty Financing Partnership II, L.P., a Delaware limited partnership
(the "Realty Financing Partnership")*
G&L Medical Partnership, L.P., a Delaware limited partnership
(the "Medical Partnership")*
G&L Gardens, LLC, an Arizona limited liability company
("Maryland Gardens")*
435 North Roxbury Drive, Ltd., a California limited partnership
(the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
G&L Hampden, LLC, a Delaware limited liability company ("Hampden")*
G&L Valencia, LLC, a California limited liability company ("Valencia")
G&L Tustin, LLC, a California limited liability company ("Tustin")*
G&L Holy Cross, LLC, a California limited liability company ("Holy Cross")*
G&L Burbank, LLC, a California limited liability company ("Burbank")*
GLH Pacific Gardens, LLC, a California limited liability company
("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company ("Hoquiam")
G&L Lyon, LLC, a California limited liability company ("Lyon")
G&L Coronado (1998), LLC, a California limited liability company ("Coronado")
GLH Tarzana, LLC, a California limited liability company ("Tarzana")
G&L Heritage Care, LLC, a Delaware limited liability company ("Heritage")
G&L Massachusetts, LLC, a Delaware limited liability company
("Massachusetts")
G&L Aspen, LLC, a California limited liability company ("Aspen")
* The Realty Financing Partnership, the Medical Partnership, Maryland
Gardens, GL/PHP, Hampden, Tustin, Holy Cross, and Burbank are herein
collectively referred to as the "Financing Entities" and individually as
the "Financing Entity."
The Company, as the sole general partner and as owner of an approximately 79%
ownership interest, controls the Operating Partnership. The Company controls
the Financing Entities through wholly owned subsidiaries incorporated either in
the State of Delaware or the State of California (collectively, the
"Subsidiaries" and individually, a "Subsidiary"). Each Subsidiary either (i)
owns, as sole general partner or sole managing member, a 1% ownership interest
in its related Financing Entity or (ii) owns no interest and acts as the manager
of the Financing Entity. The remaining 99% ownership interest in each Financing
Entity, which is owned 1% by a Subsidiary, is owned by the Operating
Partnership, acting as sole limited partner or member. Financing Entities in
which a Subsidiary owns no interest are 100% owned by the Operating Partnership.
References in these condensed consolidated financial statements to the Company
include its operations, assets and liabilities including the operations, assets
and liabilities of the Operating Partnership, the Subsidiaries, the Financing
Entities, the Roxbury Partnership (in which the Operating Partnership owns a
61.75% partnership interest
Page 7
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
and is the sole general partner), Valencia (in which the Operating Partnership
owns an 80% membership interest and is the sole managing member), Pacific
Gardens (in which the Operating Partnership owns a 93% membership interest and
is a co-managing member), Tarzana (in which the Operating Partnership owns a 85%
membership interest and is a co-managing member) and Hoquiam, Lyon, Coronado,
Heritage, Massachusetts and Aspen (in which the Operating Partnership owns a
100% interest).
In addition to the Subsidiaries, the Company also owns interests in various
unconsolidated affiliates. Although the Company's investment represents a
significant portion of the capital of such unconsolidated affiliates and the
Company exercises significant influence over the activities of these entities,
the Company does not have the requisite level of voting control to include the
assets, liabilities and operating activities of these entities in the condensed
consolidated financial statements of the Company. The entities in which the
Company has unconsolidated financial interests are as follows:
. GLN Capital Co., LLC ("GLN") is a Delaware limited liability company formed
in 1996. GLN is owned 49.9% by the Operating Partnership and 50.1% by an
affiliate of Nomura Asset Capital Corp. ("Nomura"). The purpose of GLN is
to fund loans to the senior care industry.
. G&L - Grabel, San Pedro, LLC ("San Pedro") is a California limited
liability company formed on March 10, 1998 by the Company through the
Operating Partnership, and Gary Grabel, an experienced medical office
building ("MOB") manager. The Company and Gary Grabel contributed to San
Pedro 84% and 16% of the equity, respectively. However, the initial
ownership interests of the parties will be adjusted to 50% as each partner
receives a return of its initial capital contribution plus preferred
distributions equal to 17% per annum on their capital contribution. San
Pedro was formed for the purpose of acquiring three MOBs located at 1360
West 6/th/ Street in San Pedro, California.
. G&L Penasquitos, LLC ("Penasquitos LLC") is a California limited liability
company, formed by the Company on April 24, 1998, through the Operating
Partnership, and Parsons House, LLC, a California limited liability company
("Parsons"). The Company and Parsons contributed to Penasquitos LLC 75% and
25% of the equity, respectively. However, the initial ownership interests
of the parties will be adjusted to 50% as each partner receives a return of
its initial capital contribution plus preferred distributions equal to 15%
per annum on their capital contribution. Penasquitos LLC was formed for the
purpose of acquiring and converting a building located in Rancho
Penasquitos, California into an assisted living facility.
. G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California corporation
formed on April 21, 1998 by the Company, through the Operating Partnership,
and Parsons House, LLC, a California limited liability company. The
Company owns 75% of the total equity in Penasquitos Inc. in the form of
non-voting preferred stock. Parsons holds 25% of the total equity and all
of the voting common stock. Penasquitos Inc. was formed for the purpose of
operating a senior care facility in Rancho Penasquitos, California.
. GLH Pacific Gardens Corp. ("Pacific Gardens Corp.") is a California
corporation formed on June 25, 1998 by the Company, through the Operating
Partnership, and ASL Santa Monica, Inc., a California corporation ("ASL").
The Company owns 93% of the total equity in Pacific Gardens Corp. in the
form of non-voting preferred stock. ASL holds 7% of the total equity in the
form of common stock. Pacific Gardens Corp. was formed for the purpose of
operating an assisted living facility located in Santa Monica, California,
which was purchased by the Company. Since July 1, 1999, Pacific Gardens
Corp. has not operated the assisted living facility and a wholly owned
subsidiary of ASL assumed all of the assets and liabilities of Pacific
Gardens Corp. in order to operate the facility.
. G&L Parsons on Eagle Run, LLC ("Eagle Run") is a California limited
liability company, formed on December 29, 1998, through the Operating
Partnership and Parsons. The Company and Parsons each contributed 50% of
the total equity in Eagle Run. Eagle Run was formed for the purpose of
acquiring a vacant piece of land in Omaha, Nebraska upon which the members
developed an assisted living facility.
. G&L Parsons on Eagle Run, Inc. ("Eagle Run Inc.") is a California
corporation formed on December 20, 1998 by the Company, through the
Operating Partnership, and Parsons. Eagle Run Inc. was formed for the
purpose of operating an assisted living facility in Omaha, Nebraska on the
land acquired by Eagle Run.
Page 8
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
. Lakeview Associates, LLC ("Lakeview") is a California limited liability
company, formed on September 2, 1999 by the Company, through the Operating
Partnership and D.D.&F. ("Prestige"), an Oregon general partnership. The
Company and Prestige each contributed 50% of the equity of Lakeview. The
Company contributed land and construction in progress in exchange for 50%
of the equity of Lakeview and two notes totaling $1.4 million. Prestige
contributed $250,000 for a 50% interest in Lakeview. Lakeview was formed
for the purpose of developing a two-story, 80 unit, 92 bed assisted living
facility in Yorba Linda, California.
. 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, San Pedro, Penasquitos Inc., Penasquitos LLC, Pacific Gardens Corp., Eagle
Run, Eagle Run, Inc., Lakeview and Heritage Park are herein collectively
referred to as the "Unconsolidated Affiliates" and individually as
"Unconsolidated Affiliate".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is a self-managed Real Estate Investment Trust
("REIT") that acquires, develops, manages, finances and leases healthcare
properties. The Company's business currently consists of investments in
healthcare properties and in debt obligations secured by healthcare properties.
Investments in healthcare properties consist of acquisitions, made either
directly or through joint ventures, in medical office buildings ("MOBs"),
skilled nursing facilities ("SNFs") or assisted living facilities ("ALFs"). The
Company's lending activities consist of providing short-term secured loans to
facilitate third party acquisitions of healthcare properties.
Basis of Presentation - The accompanying condensed consolidated financial
statements include the accounts of the Company. The interests in the Roxbury
Partnership, Valencia, Pacific Gardens and Tarzana that are not owned by the
Company, have been reflected as minority interests. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The information presented as of and for the six-month periods ended June
30, 2000 and 1999 has not been audited by independent accountants, but includes
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the results for such
periods. The results of operations for the six months ended June 30, 2000 are
not necessarily indicative of results that might be expected for the full fiscal
year.
Certain information and footnote disclosures normally included in annual
financial statements have been omitted. The Company believes that the
disclosures included in these financial statements are adequate for a fair
presentation and conform to reporting requirements established by the Securities
and Exchange Commission ("SEC"). These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes included in the Company's annual report on Form 10-K as
filed with the SEC.
Page 9
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. BUILDINGS AND IMPROVEMENTS
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------------------------
(in thousands)
<S> <C> <C>
Buildings and improvements...................................................... $165,070 $160,360
Tenant improvements............................................................. 8,807 7,705
Furniture, fixtures and equipment............................................... 2,959 2,668
--------------- ----------------
176,836 170,733
Less accumulated depreciation and amortization.................................. (26,717) (23,912)
--------------- ----------------
Total................................................................... $150,119 $146,821
=============== ================
</TABLE>
Rental property is recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements............................................ 40 years
Tenant improvements................................................... Life of lease
Furniture, fixtures and equipment..................................... 5 to 7 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and all external costs directly related to
acquisitions are capitalized.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------------------------------
(in thousands)
<S> <C> <C>
Deferred financing costs............................................ $ 3,930 $ 3,844
Pre-acquisition costs............................................... 236 621
Leasing commissions................................................. 1,526 1,711
Prepaid expense and other assets.................................... 685 57
--------------- ----------------
6,377 6,233
Less accumulated amortization....................................... (1,641) (1,269)
--------------- ----------------
Total....................................................... $ 4,736 $ 4,964
=============== ================
</TABLE>
Page 10
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
STOCKHOLDERS' EQUITY
Distributions in excess of net income--The Company has elected to be
treated, for federal income tax purposes, as a REIT. As such, the Company is
required to distribute annually, in the form of distributions to its
stockholders, at least 95% of its taxable income. In reporting periods in which
distributions exceed net income, stockholders' equity will be reduced by the
distributions in excess of net income in such period and will be increased by
the excess of net income over distributions in reporting periods in which net
income exceeds distributions. For tax reporting purposes, a portion of the
dividends declared represents a return of capital. The following table
reconciles net income and distributions in excess of net income for the six
months ended June 30, 2000 and for the year ended December 31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------------------------
(in thousands)
<S> <C> <C>
Distributions in excess of net income at beginning of period.............. $(25,412) $(12,194)
Net income (loss) during period........................................... 262 (2,115)
Less: Distributions declared.............................................. (4,175) (11,103)
--------------- ----------------
Distributions in excess of net income..................................... $(29,325) $(25,412)
=============== ================
</TABLE>
Earnings per common share--Basic earnings per share is computed by dividing
net income less preferred stock dividends by the weighted average number of
common shares outstanding during each period. Fully diluted earnings per share
is computed by dividing net income less preferred stock dividends by the
weighted average number of common shares outstanding during each year plus the
incremental shares that would have been outstanding upon the assumed exercise of
dilutive stock options. The treasury stock method is used to determine the
number of incremental common equivalent shares resulting from options to
purchase shares of common stock granted under the Company's 1993 Stock Incentive
Plan, as amended. As of June 30, 2000 and 1999 there were approximately 250,500
and 213,500 stock options outstanding with weighted average exercise prices of
$11.31 and $14.49, respectively. For the six months ended June 30, 2000 and
1999, the incremental shares that would have been outstanding upon the assumed
exercise of stock options would have been anti-dilutive and, therefore, were not
considered in the computation of fully diluted earnings per share. The
following table reconciles the numerator and denominator of the basic and fully
diluted per share computations for net income for the three and six months ended
June 30, 2000 and 1999:
Page 11
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
----------------------------------------------------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Numerator:
----------
Net income $ 512 $ 1,415 $ 262 $ 3,066
Preferred stock dividends (1,790) (1,803) (3,583) (3,606)
--------------- -------------- -------------- ----------------
Net loss available to common stockholders $(1,278) $ (388) $(3,321) $ (540)
=============== ============== ============== ================
Denominator:
------------
Weighted average shares - basic 2,337 3,937 2,424 3,957
Dilutive effect of stock options --- 12 1 14
--------------- -------------- -------------- ----------------
Weighted average shares - fully diluted 2,337 3,949 2,425 3,971
=============== ============== ============== ================
Per share:
----------
Basic $ (0.55) $ (0.10) $ (1.37) $ (0.14)
Dilutive effect of stock options --- --- --- ---
--------------- -------------- -------------- ----------------
Fully diluted $ (0.55) $ (0.10) $ (1.37) $ (0.14)
=============== ============== ============== ================
</TABLE>
At various times during the six months ended June 30, 2000 the Company
repurchased a total of 301,800 shares of the Company's Common Stock at an
average price of approximately $9.16 per share.
During the six months ended June 30, 2000 the Company also purchased 7,700
shares of its Series A Preferred Stock at an average price of $15.03 and 4,600
shares of its Series B Preferred Stock at an average price of $14.68.
Page 12
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in various unconsolidated affiliates as described in
Note 1. The following table provides a summary of the Company's investment in
each of these entities as of June 30, 2000. (In thousands).
<TABLE>
<CAPTION>
Valley San Penasquitos Penasquitos Tustin Pacific
GLN Convalescent Pedro LLC Inc. Heritage Gardens, Inc.
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Opening balance at beginning
of period....................... $ 776 $ 323 $1,070 $ 1,379 $ 106 $ --- $ (312)
Equity in earnings (loss) of
affiliates...................... (3) (8) 22 (73) --- --- ---
Cash contributions............... --- --- --- --- --- ---
Cash distributions............... --- (315) (48) (1,128) (86) --- ---
--------- ------------ ------- ------------ ------------ --------- -------------
Equity, before inter-company
adjustments..................... 773 --- 1,044 178 20 --- (312)
--------- ------------ ------- ------------ ------------ --------- -------------
Intercompany transactions:
Receivable (payable), net........ 61 --- 43 240 (20) 13 1
--------- ------------ ------- ------------ ------------ --------- -------------
Investment in unconsolidated
affiliates...................... $ 834 $ --- $1,087 $ 418 $ --- $ 13 $ (311)
========= ============ ======= -==========- ============ ========= =============
<CAPTION>
Eagle Run, Eagle Run Lakeview
Inc. LLC Assoc. Total
-----------------------------------------------
<S> <C> <C> <C> <C>
Opening balance at beginning
of period...................... $ 61 $ 654 $ 250 $ 4,307
Equity in earnings (loss) of
affiliates..................... (255) (31) --- (348)
Cash contributions.............. --- --- --- ---
Cash distributions.............. --- --- --- (1,577)
------- -------- -------- -------
Equity, before inter-company
adjustments.................... (194) 623 250 2,382
------- -------- -------- -------
Intercompany transactions:
Receivable (payable), net....... 6 48 1,831 2,223
------- -------- -------- -------
Investment in unconsolidated
affiliates..................... $(188) $ 671 $ 2,081 $ 4,605
======= ======== ======== =======
</TABLE>
Page 13
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the six months ended June 30, 2000. (In
thousands).
<TABLE>
<CAPTION>
Valley San Penasquitos Penasquitos Tustin
GLN Convalescent Pedro LLC Inc. Heritage
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
-------------------
Land........................... $ --- $ --- $ 1,882 $ 641 $ --- $ 500
Buildings...................... --- --- 4,281 6,530 --- ---
Notes receivable, net.......... 1,559 --- --- --- --- ---
Other assets................... --- --- 107 1,196 --- 68
Notes payable.................. --- --- (4,772) (7,986) --- (554)
Other liabilities.............. (17) --- (241) (145) (10) (14)
------- ------------ -------- ----------- ---------- ---------
Net assets......................... $ 1,542 $ --- $ 1,257 $ 236 $ (10) $ ---
------- ------------ -------- ----------- ---------- ---------
Partner's equity:
----------------
G&L Realty Partnership, L.P .. $ 773 $ --- $ 1,044 $ 178 $ 20 $ ---
Others......................... 769 --- 213 58 (30) ---
------- ------------ -------- ----------- ---------- ---------
Total equity....................... $ 1,542 $ --- $ 1,257 $ 236 $ (10) $ ---
------- ------------ -------- ----------- ---------- ---------
Operations:
----------
Revenues...................... $ --- $ 83 $ 572 $ 414 $ --- $ ---
Expenses...................... (5) (99) (550) (559) --- ---
------- ------------ -------- ----------- ---------- ---------
Net (loss) income.................. $ (5) $ (16) $ 22 $ (145) $ --- $ ---
------- ------------ -------- ----------- ---------- ---------
Allocation of net (loss) income:
-------------------------------
G&L Realty Partnership, L.P.... $ (3) $ (8) $ 22 $ (73) $ --- $ ---
Others......................... (2) (8) --- (72) --- ---
------- ------------ -------- ----------- ---------- ---------
Net (loss) income.................. $ (5) $ (16) $ 22 $ (145) $ --- $ ---
------- ------------ -------- ----------- ---------- ---------
<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 $ 5,161
Buildings...................... --- --- 5,044 --- 15,855
Notes receivable, net.......... --- --- --- --- 1,559
Other assets................... --- 314 609 1,491 3,785
Notes payable.................. --- --- (5,593) (1,443) (20,348)
Other liabilities.............. (349) (702) (15) (484) (1,977)
---------- --------- --------- ---------- ---------
Net assets......................... $ (349) $ (388) $ 1,236 $ 511 $ 4,035
========== ========= ========= ========== =========
Partner's equity:
----------------
G&L Realty Partnership, L.P .. $ (312) $ (194) $ 623 $ 250 $ 2,382
Others......................... (37) (194) 613 261 1,653
---------- --------- --------- ---------- ---------
Total equity....................... $ (349) $ (388) $ 1,236 $ 511 $ 4,035
========== ========= ========= ========== =========
Operations:
----------
Revenues....................... $ --- $ 726 $ 362 $ --- $ 2,157
Expenses....................... --- (1,237) (423) --- (2,873)
---------- --------- --------- ---------- ---------
Net (loss) income.................. $ --- $ (511) $ (61) $ --- $ (716)
========== ========= ========= ========== =========
Allocation of net (loss) income:
-------------------------------
G&L Realty Partnership, L.P.... $ --- $ (255) $ (31) $ --- $ (348)
Others......................... --- (256) (30) --- (368)
---------- --------- --------- ---------- ---------
Net (loss) income.................. $ --- $ (511) $ (61) $ --- $ (716)
========== ========= ========= ========== =========
</TABLE>
Page 14
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. SEGMENT INFORMATION
In prior years, the Company has presented segment information based on the
following types of investments: direct real estate investments in healthcare
properties and debt obligations secured by healthcare properties. The Company
believes that the composition of its direct real estate investments has changed
to the extent that greater segment disclosure is necessary. The Company's
business currently consists of the following segments:
. Medical office buildings - These investments consist of 24 high quality
MOBs, two retail facilities and one parking facility totaling
approximately 890,000 square feet and all located in Southern California.
These properties are owned either directly by the Company or indirectly
through joint ventures.
. Skilled nursing facilities - These investments consist of seven SNFs, one
senior apartment complex which is located adjacent to the SNF in Phoenix,
Arizona and one hospital located in Tustin, California. The SNFs are
located in Hampden, Massachusetts, Phoenix, Arizona, Hoquiam, Washington
and Chico and Paso Robles, California. Two of the SNFs were acquired
through foreclosure in the first quarter of 2000 and are currently not
operating. The five operating SNFs contain over 600 beds that are
typically occupied by residents who require a high level of daily nursing
care. The hospital consists of 183 beds and is 100% leased to a third-
party operator. All of the SNFs, the apartment complex and the hospital
are owned 100% by the Company. In addition, the Company currently holds
the operating license in four of the seven SNFs. On March 15, 2000, the
Company obtained licenses from the Commonwealth of Massachusetts to
operate the three SNFs owned by the Company in Hampden, Massachusetts. The
Company then entered into a management agreement with a third-party
company to manage the facility. As a result, all of the assets,
liabilities, revenues and expenses of these SNFs for the period from March
15, 2000 through June 30, 2000 are reflected in the condensed consolidated
financial statements of the Company and the segment information provided
below. The Company also holds the license to operate its SNF located in
Phoenix, Arizona. On April 1, 2000, the Company terminated its lease with
the operator of this SNF and entered into a management agreement with a
new manager. For the three months ended June 30, 2000, the assets,
liabilities, revenues and expenses of this SNF are also included in the
condensed consolidated financial statements of the Company. Furthermore,
the Company will be required to pay the applicable corporate income tax on
any net income produced by theses SNFs, although the Company's REIT status
will not be affected. While the Company does not intend to hold these
operating licenses for the long term, the Company believes it is currently
in the best interests to own the licenses to operate these facilities.
. Assisted living facilities - These investments consist of four ALFs and
one hospital. All of the ALFs are owned through joint ventures. The four
ALFs contain over 350 units that are typically occupied by residents who
require a less intense level of care in comparison to the SNFs. The
Company's joint venture partner in each of these ALFs operates the
facility. The hospital, owned 100% by the Company, consists of 183 beds
and is 100% leased to a third-party operator.
. Debt obligations - These investments consist of short-term secured loans
made to third parties to facilitate the acquisition of healthcare
facilities. As of June 30, 2000, the Company had eight loans outstanding
totaling $15.7 million.
The tables on the following pages reconcile the Company's income and expense
activity for the six months ended June 30, 2000 and 1999 and balance sheet data
as of June 30, 2000.
Page 15
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
2000 Reconciliation of Reportable Segment Information
For the six months ended June 30, 2000
Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
-------- -------- --------- ------------ -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking.. $12,148 $7,307 $1,282 $ --- $ --- $20,737
Interest and loan fees.................... 120 7 --- 1,167 88 1,382
Net gain on sale of assets................ 1,405 (142) --- --- --- 1,263
Other income.............................. 164 36 --- --- 32 232
------- ------ ------ ------- ------- -------
Total revenues......................... 13,837 7,208 1,282 1,167 120 23,614
------- ------ ------ ------- ------- -------
Expenses:
Property operations....................... 3,484 6,061 79 66 --- 9,690
Depreciation and amortization............. 2,334 458 237 --- 37 3,066
Interest.................................. 4,554 1,016 752 426 96 6,844
Provision for doubtful accounts and notes
receivable.............................. --- 563 --- 1,725 --- 2,288
General and administrative................ --- --- --- --- 1,468 1,468
------- ------ ------ ------- ------- -------
Total expenses........................... 10,372 8,098 1,068 2,217 1,601 23,356
------- ------ ------ ------- ------- -------
Income (loss) from operations............... 3,465 (890) 214 (1,050) (1,481) 258
Equity in earnings (loss) of
unconsolidated affiliates.................. 22 (8) (359) (3) --- (348)
-------- ------ ------ ------ ------- -------
Income (loss) from operations before
minority interests......................... $ 3,487 $ (898) $ (145) $(1,053) (1,481) $ (90)
======== ====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 Reconciliation of Reportable Segment Information
For the three months ended June 30, 1999
Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
-------- -------- --------- ------------ -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking.... $12,547 $1,960 $ 617 $ --- $ $ 15,124
Interest and loan fees...................... 90 12 --- 1,183 10 1,295
Net gain on sale of assets.................. --- --- --- --- 197 197
Other income................................ 66 --- --- --- 27 93
------- ----- ----- ------- ------ ---------
Total revenues 12,703 1,972 617 1,183 234 16,709
------- ----- ----- ------- ------ ---------
Expenses:
Property operations......................... 3,374 58 4 230 --- 3,666
Depreciation and amortization............... 2,118 440 134 --- 43 2,735
Interest.................................... 4,574 358 324 (33) 289 5,512
General and administrative.................. --- --- --- --- 1,457 1,457
------- ----- ----- ------- ------ ---------
Total expenses........................... 10,066 856 462 197 1,789 13,370
------- ----- ----- ------- ------ ---------
Income (loss) from operations................. 2,637 1,116 155 986 (1,555) 3,339
Equity in earnings (loss) of unconsolidated
affiliates................................... 167 (17) (456) 36 --- (270)
-------- ------- ----- ------- ------ --------
Income (loss) from operations before
minority interests........................... $ 2,804 $1,099 $(301) $1,022 (1,555) $ 3,069
======= ====== ===== ====== ======= =======
</TABLE>
Page 16
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
2000 Reconciliation of Reportable Segment Information
As of June 30, 2000
Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
--------- -------- -------- ----------- ----- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental properties......................... $130,773 $30,916 $22,078 $ --- $591 $184,358
Mortgage loans and notes receivable, net.. --- --- --- 15,650 --- 15,650
Other assets.............................. 12,977 6,263 3,887 2,155 118 25,400
-------- ------- ------- ------- ---- --------
Total assets........................... $143,750 $37,179 $25,965 $17,805 $709 $225,408
======== ======= ======= ======= ==== ========
Other assets:
Cash and cash equivalents............... $ 741 $ 279 $ 100 $ --- $ 10 $ 1,130
Restricted cash......................... 5,351 992 34 918 --- 7,295
Tenant rent and reimbursement
receivable, net....................... 376 3,895 654 52 11 4,988
Unbilled rent receivable, net........... 2,215 113 --- --- --- 2,328
Other receivables, net.................. --- --- --- 55 6 61
Investment in unconsolidated affiliates. 1,087 --- 2,684 834 --- 4,605
Deferred financing costs, net........... 1,753 657 372 233 --- 3,015
Pre-acquisition costs................... 124 49 --- 63 --- 236
Construction in progress................ 164 93 --- --- --- 257
Deferred lease costs, net............... 786 14 --- --- --- 800
Prepaid expense and other............... 380 171 43 --- 91 685
-------- ------- ------- ------- ---- --------
Total other assets................... $ 12,977 $ 6,263 $ 3,887 $ 2,155 $118 $ 25,400
======== ======= ======= ======= ==== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Neither the Company, the Operating Partnership, the Financing Entities, the
Subsidiaries, Maryland Gardens, the Roxbury Partnership, Valencia, Pacific
Gardens, Hoquiam, Lyons, Coronado, Tarzana, Heritage, Massachusetts, the
Unconsolidated Affiliates nor any of the assets within their portfolios of MOBs,
parking facilities, and retail space (the "Properties") is currently a party to
any material litigation, except as discussed below.
On August 15, 1997, a subsidiary of the Company, GL/PHP, LLC ("GL/PHP")
borrowed $16 Million from Nomura Asset Capital Corp. ("Nomura"), the proceeds of
which were used to repay a loan made by PHP Healthcare Corporation ("PHP") in
connection with the purchase by GL/PHP of six New Jersey primary care centers
(the "New Jersey Properties"). Nomura received a first lien against the real
properties. The New Jersey Properties were leased by Pinnacle Health
Enterprises, LLC ("Pinnacle"), a subsidiary of PHP, and PHP guaranteed the
lease. Concurrently with the $16 Million loan, the Operating Partnership
obtained a new $2 Million loan from PHP. The note by its terms is nonnegotiable
and provided for a right of offset against payments of interest and principal in
an amount equal to any losses sustained by reason of any defaults by Pinnacle
under its lease with GL/PHP, discussed below.
As of August 15, 1997, Pinnacle leased the New Jersey Properties from GL/PHP
under the terms of a 17-year net operating lease. PHP guaranteed the obligations
of its subsidiary under the lease. In November 1998, Pinnacle filed a Chapter
11 bankruptcy petition in the United States Bankruptcy Court of the District of
Delaware and its case was voluntarily converted to a Chapter 7 case. Also in
November 1998, PHP filed a Chapter 11 bankruptcy petition in the United States
Bankruptcy Court of the District of Delaware. CapMark Services, L.P.
("CapMark"), the loan servicer and successor to Amresco Management Inc., has
since foreclosed on its security and is in the process of taking title to the
New Jersey Properties.
Page 17
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
LaSalle National Bank ("LaSalle"), the successor to Nomura, as trustee for
the holders of certain obligations including the Nomura loan, by and through
CapMark, filed an action in March 2000 in the United States District Court,
Central District of California seeking to cause the Operating Partnership to
turn over to LaSalle the $2 Million borrowed from PHP as part of the security
LaSalle claims it is entitled to under the deed of trust and assignment of rent
with GL/PHP. The Operating Partnership believes that LaSalle is not entitled to
these funds and that LaSalle will not be successful in its claims but no
assurances can be given at this time that this result will be obtained.
In November 1999, Landmark Healthcare Facilities, LLC ("Landmark") filed a
lawsuit against Valencia, a subsidiary of the Company, claiming that Landmark is
entitled to approximately $600,000 plus interest under a development agreement
entered into between Valencia and Landmark for the development of an MOB in
Valencia, California. The Company is vigorously opposing the lawsuit and has
filed a counter suit to recover approximately $400,000 plus interest that was
already paid under the development agreement and for a judgment and declaration
that all of Landmark's rights, title and interest in Valencia have been
terminated or assigned to the Company. The litigation is in its earliest stages
and the likelihood of recovery by either party is therefore difficult to
determine at present.
The Company is the guarantor on a $500,000 letter of credit in favor of NVHF
Affiliates, LLC, a non-profit low-income apartment owner. The Company holds an
unsecured promissory note from NVHF Affiliates, LLC in the same amount.
As of June 30, 2000, 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.
As of June 30, 2000, the Company had an outstanding balance of $1.6 million on
the line of credit. The loan covenant requires that the Company maintain a ratio
of earnings before interest, taxes, depreciation and amortization ("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 June 30, 2000 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 plans to repay the remaining balance of $1.6 million on
August 31, 2000, the due date of the line of credit and is currently negotiating
a new line of credit with Tokai Bank.
9. PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE
In November 1999, Lenox Healthcare, the manager of the Company's three
skilled nursing facilities located in Hampden, Massachusetts, filed for
bankruptcy. In December 1999, the Company reserved $2.0 million related to
delinquent rent and operating expense reimbursements from these facilities. In
January 2000, the bankruptcy court approved the cancellation of the Lenox
Healthcare management contract and the Company selected a new manager whose
initial performance has been very positive. The Company intends to retain the
new manager to continue to manage these facilities. On March 15, 2000, the
Company obtained licenses from the Commonwealth of Massachusetts to operate
these three SNFs. The Company believes that after the bankruptcy of the previous
two managers of these SNFs it was in the best interest of the facilities for the
Company to obtain the licenses. However, because the Company now owns the
operating licenses for these facilities, all of the assets, liabilities,
revenues and expenses of these facilities are reflected in the condensed
consolidated financial statements of the Company. Previously, the Company rented
these three facilities to the prior license holder for monthly rent of $225,000,
which was the only amount reported in previous financial statements. At the time
of the license transfers, the prior license holder owed delinquent rent of
approximately $0.6 million to the Company. As a result, the Company reserved
$0.6 million against this unpaid rent receivable. Since the prior license holder
no longer operates these facilities, the Company believes its ability to collect
these unpaid rent obligations is doubtful and that the addition to the reserve
is appropriate.
During the first quarter of 2000, the Company also established a reserve of
$1.7 million to reflect the impairment of a delinquent note receivable. Since
February 1998, the Company has held a $3.9 million note
Page 18
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
receivable secured by a first mortgage on two SNFs located in Chico and Paso
Robles, California. In December 1998, the Company reserved $1.0 million with
respect to the note because of the borrower's financial instability. In April
1999, the borrower filed for bankruptcy. However, the Company believed that it
would recover the remaining $2.9 million through foreclosure of the SNFs and
litigation against the various parties involved in the transaction. In March
2000, the Company obtained title to the two SNFs from the bankruptcy court.
Because these two SNFs are not currently operating, the Company valued these two
facilities at $1.2 million and an additional reserve of $1.7 million was
established. Although the Company is currently pursuing the re-opening of these
facilities as well as legal action against the borrower and other parties
involved in the transaction, the Company now believes that the outcome of these
pursuits is not certain and the addition to the reserve is appropriate.
10. EXTRAORDINARY LOSS ON EARLY RETIREMENT OF LONG-TERM DEBT
In January 2000, the Company sold a 33,000 square foot MOB in Aliso Viejo,
California for $8.3 million. A portion of the proceeds were used to repay a
$5.5 million loan secured by the MOB. In repaying the loan, the Company
incurred fees of approximately $28,000 and wrote off an additional $130,000 in
loan fees relating to the loan. These amounts have been presented as an
extraordinary loss on the statement of operations.
11. ACQUISITIONS, DISPOSITIONS AND FINANCINGS
In January 2000, the Company, in a joint venture with ASL Tarzana Wedgewood,
LLC, purchased a two-story, 80-unit, 44,117 square foot ALF located in Tarzana,
California for $10.3 million. The Company contributed $2.5 million for an 85%
equity interest in the newly formed joint venture. However, the Company's
ownership interest will be reduced to 65% after the Company's initial capital
contribution plus preferred returns equal to 12% per annum of the Company's
capital contribution is repaid by the joint venture. ASL Tarzana, Inc., an
affiliate of ASL Tarzana Wedgewood, LLC, operates the facility. As part of the
acquisition, the Company assumed three loans totaling $7.5 million. The loans
bear interest at rates ranging from 7.5% to 8.5% and are due in 2006.
In January 2000, the Company sold a 33,000 square foot MOB located in Aliso
Viejo, California to Hoag Memorial Hospital for $8.3 million. The Company used
the proceeds to repay a $5.5 million loan that was secured by the MOB and
recognized a gain on sale of $1.4 million.
In January 2000, the Company repaid $3.0 million on its line of credit with
Tokai Bank of California. As of June 30, 2000, the Company has $1.6 million
outstanding on its line of credit with Tokai Bank of California. The remaining
balance is due August 31, 2000.
In March 2000, the Company refinanced its existing $6.3 million mortgage on
one of its joint venture ALFs with an $8.5 million, 35-year HUD loan at an
interest rate of 8.3%. The Company received net proceeds of $1.1 million from
the refinancing.
In March 2000, the Company sold its 50% interest in Valley Convalescent, a
joint venture that owned a 118-bed SNF located in El Centro, California, to its
joint venture partner. The transaction included a sale price of $500,000,
consisting of $200,000 in cash and a $300,000 mortgage note. The $300,000
mortgage note was consolidated with the $2.8 million mortgage that the Company
already holds on the facility. The Company now holds a $3.1 million first
mortgage on the property, which pays interest at 12% per annum and matures in
three years. In prior periods, the Company's first mortgage was presented as
part of the Company's investment in unconsolidated affiliates. Since the
Company no longer holds an equity interest in the joint venture, the first
mortgage is presented as part of the Company's mortgage loans and notes
receivable in these condensed consolidated financial statements.
Page 19
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In April 2000, a lender released to the Company from escrow $1.25 million in
loan proceeds. The lender had reserved a total of $2.5 million from a $10
million loan until the Company leased a certain percentage of the secured
property. The remaining $1.25 million in loan proceeds was released by the
lender in July 2000.
In July 2000, the Company obtained a line of credit secured by the accounts
receivable at the Company's three SNFs located in Massachusetts. The Company
received net proceeds of $1.25 million from the line of credit. The line of
credit is guaranteed by the Company.
Page 20
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Unaudited Condensed Consolidated Financial Statements and Notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1999 Annual
Report on Form 10-K as previously filed with the SEC.
Information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements. These
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other comparable terminology. Any one factor or combination of
factors could cause the Company's actual operating performance or financial
results to differ substantially from those anticipated by management. Factors
influencing the Company's operating performance and financial results include,
but are not limited to, changes in the general economy, the supply of, and
demand for, healthcare related real estate in markets in which the Company has
investments, the availability of financing, governmental regulations concerning,
but not limited to, new construction and development, the creditworthiness of
tenants and borrowers, environmental issues, healthcare services and government
participation in the financing thereof, and other risks and unforeseen
circumstances affecting the Company's investments which may be discussed
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1999 Annual
Report on Form 10-K as previously filed with the SEC.
Results of Operations
---------------------
Comparison of the Six Month Period Ended June 30, 2000 versus the Six Month
Period Ended June 30, 1999.
Total revenues increased by $6.9 million, or 41%, from $16.7 million in the
first half of 1999, to $23.6 million for the same period in 2000. Rents, tenant
reimbursements and parking revenues increased an aggregate $5.6 million, or 37%,
from a combined total of $15.1 million during the first half of 1999, to $20.7
million for the same period in 2000. On March 15, 2000, the Company obtained
licenses from the Commonwealth of Massachusetts to operate the three SNFs
comprising 383 beds owned by the Company and located in Hampden, Massachusetts.
As a result of the license transfer, all of the assets, liabilities, revenues
and expenses of these SNFs for the period from March 15, 2000 through June 30,
2000 are reflected in the condensed consolidated financial statements of the
Company. In addition, the Company holds the license to operate its 98-bed SNF
located in Phoenix, Arizona. On April 1, 2000, the Company terminated its lease
with the previous manager and entered into a management agreement with a new
manager. As a result, all of the assets, liabilities, revenues and expenses of
this SNF for the period of April 1, 2000 through June 30, 2000 are also
reflected in the condensed consolidated financial statements of the Company. The
consolidation of the operating revenues and expenses related to the three SNFs
in Massachusetts accounted for a $4.9 million increase in rental revenues while
the SNF in Arizona accounted for an additional $0.7 million.
Excluding the revenues from the SNFs from March 15 through June 30 2000
discussed above, rents, tenant reimbursements and parking revenues remained
unchanged. Increases in rental revenues resulting from recently completed
construction projects in Valencia and Aliso Viejo of $0.7 million as well as
revenues of $0.6 million relating to the January 2000 acquisition of an 80-unit,
44,117 square foot ALF located in Tarzana, California were offset by a decrease
of $1.3 million in rental revenue related to the foreclosure of the Company's
six MOBs located in New Jersey as discussed in Footnote 8 of the Notes to the
Condensed Consolidated Financial Statements.
Interest and loan fee income increased approximately $0.1 million, or 8%, from
$1.3 million in the first half of 1999, to $1.4 million for the same period in
2000. This increase was due to a $0.3 million increase in interest income
related to the financing of an apartment complex located in Tulsa, Oklahoma by
the Company in December 1999 as well as a $0.1 million increase in interest
earned on cash on hand. These increases were offset by a decrease in loan fees
of $0.3 million related to the March 31, 1999
Page 21
<PAGE>
long-term refinancing of the Company's note receivable secured by the St. Thomas
More SNF in Hyattsville, Maryland.
The Company recognized a net gain on the sale of assets in the amount of $1.3
million in the first half of 2000 compared to a net gain of $0.2 million in the
same period in 1999. The sale, in January 2000, of a 33,000 square foot MOB
located in Aliso Viejo, California to Hoag Memorial Hospital accounted for $1.4
million of the gain. This gain was offset by the loss of $142,000 on the sale
of the Company's 50% interest in Valley Convalescent, LLC, an unconsolidated
affiliate. In the second quarter of 1999, the Company sold a vacant parcel of
land located in Tustin, Calfornia for a net gain of $0.2 million.
Total expenses increased by $9.9 million, or 74%, from $13.4 million for the
six months ended June 30, 1999, to $23.4 million for the same period in 2000. A
portion of the increase in expenses was due to an increase of $2.3 million in
the Company's allowance for doubtful accounts and notes receivable. Property
operating expenses increased by $6.0 million, or 162%, from $3.7 million for the
six months ended June 30, 1999, to $9.7 million for the same period in 2000.
The consolidation of the operating revenues and expenses of the three Hampden
SNFs from March 15 through June 30, 2000 and the Arizona SNF from April 1, 2000
through June 30, 2000 as discussed above accounted for $5.8 million of this
increase in property operating expenses.
Excluding the operating expenses from these SNFs, property operating expenses
increased by $0.2 million in the first half of 2000 compared to the same period
in 1999. Development projects completed by the Company during 1999 and 2000
accounted for a $0.3 million increase in property expenses. In addition, the
acquisition of an ALF in Tarzana, California accounted for a $0.1 million
increase. These increases were offset by a $0.2 million decrease in management
and overhead expenses associated with a wholly-owned subsidiary formed by the
Company in November 1998 for the purpose of making loans to obtain healthcare
facilities. This subsidiary ceased operations in April 1999.
Depreciation and amortization increased $0.3 million, or 11%, from $2.7
million for the six months ended June 30, 1999, to $3.0 million for the same
period in 2000. This increase was attributable to property acquisitions made by
the Company during 2000 as well as new property developments opened during 1999
and 2000.
Interest expense increased $1.3 million, or 24%, from $5.5 million for the six
months ended June 30, 1999, to $6.8 million for the same period in 2000. This
increase was mainly due to interest incurred on new borrowings of $46 million
made by the Company subsequent to March 31, 1999, as well as the addition of
$7.5 million in debt associated with the acquisition of the ALF in Tarzana,
California.
Equity in loss of unconsolidated affiliates decreased $0.1 million for the six
months ended June 30, 2000 compared to the same period in 1999. This decrease
was primarily the result of start-up losses associated with the Company's 50%
investment in Penasquitos LLC and the Company's 50% investment in Eagle Run Inc.
In March 1999, The Arbors at Rancho Penasquitos, an ALF owned by the Company
through a joint venture, commenced operations. The facility has been in a lease-
up phase since opening in March 1999 and therefore has been producing a net
loss. Eagle Run commenced operations in November 1999 and also produced a net
loss for the first half of 2000. Occupancy rates at both facilities are
increasing on a monthly basis and are expected to stabilize by the end of 2000
or early 2001, at which time both facilities are expected to produce income for
the Company.
During the first quarter of 2000, the Company recorded an extraordinary loss
on the early retirement of long-term debt in the amount of $0.2 million. This
loss was a result of pre-payment fees and the write-off of deferred loan fees
relating to the repayment of a $5.5 million loan secured by a 33,000 square foot
MOB in Aliso Viejo, California. The building was sold to Hoag Memorial Hospital
Presbyterian on January 25, 2000 for a price of $8.3 million. The Company used
a portion of the proceeds to repay the $5.5 million loan.
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<PAGE>
Net income decreased $2.8 million, or 90%, from $3.1 million for the six
months ended June 30, 1999 to $0.3 million for the same period in 2000. This
decrease was primarily due to the $2.3 million increase in provisions for
doubtful accounts and notes receivable and the $1.3 million increase in interest
expense offset by the $1.0 million increase in gains on sale of assets.
Comparison of the Three Month Period Ended June 30, 2000 versus the Three
Month Period Ended June 30, 1999.
Total revenues increased by $4.9 million, or 58%, from $8.5 million in the
three months ended June 30, 1999, to $13.4 million for the same period in 2000.
Rents, tenant reimbursements and parking revenues increased an aggregate $4.8
million, or 63%, from a combined total of $7.6 million during the second quarter
of 1999, to $12.4 million for the same period in 2000. On March 15, 2000, the
Company obtained licenses from the Commonwealth of Massachusetts to operate the
three SNFs comprising 383 beds owned by the Company and located in Hampden,
Massachusetts. As a result of the license transfer, all of the assets,
liabilities, revenues and expenses of these SNFs for the period from March 15,
2000 through June 30, 2000 are reflected in the condensed consolidated financial
statements of the Company. In addition, the Company holds the license to operate
its 98-bed SNF located in Phoenix, Arizona. On April 1, 2000, the Company
terminated its lease with the previous manager and entered into a management
agreement with a new manager. As a result, all of the assets, liabilities,
revenues and expenses of this SNF for the period of April 1, 2000 through June
30, 2000 are also reflected in the condensed consolidated financial statements
of the Company. The consolidation of the operating revenues and expenses related
to the three SNFs in Massachusetts accounted for a $4.1 million increase in
rental revenues while the SNF in Arizona accounted for an additional $0.7
million.
Excluding the revenues from these SNFs, rents, tenant reimbursements and
parking revenues remained unchanged. Increases in rental revenues resulting
from recently completed construction projects in Valencia and Aliso Viejo of
$0.3 million as well as revenues of $0.3 million relating to the January 2000
acquisition of an 80-unit, 44,117 square foot ALF located in Tarzana, California
were offset by a decrease of $0.6 million in rental revenue related to the
foreclosure of the Company's six MOBs located in New Jersey as discussed in
Footnote 8 of the Notes to the Condensed Consolidated Financial Statements.
Interest and loan fee income increased approximately $0.2 million, or 29%,
from $0.7 million in the three months ended June 30, 1999 to $0.9 million for
the same period in 2000. This increase was related to a $0.3 million increase
in interest income related to the financing of an apartment complex located in
Tulsa, Oklahoma by the Company in December 1999. This increase was offset by a
decrease in loan fees of $0.2 million related to the long-term refinancing of
the Company's notes receivable secured by the St. Thomas More SNF in
Hyattsville, Maryland.
The Company did not recognized any net gains on the sale of assets in the
second quarter of 2000 compared to a net gain of $0.2 million in the same period
in 1999. In the second quarter of 1999, the Company sold a vacant parcel of
land located in Tustin, California for a net gain of $0.2 million.
Total expenses increased by $5.8 million, or 84%, from $6.9 million for the
three months ended June 30, 1999, to $12.7 million for the same period in 2000.
Property operating expenses increased by $5.2 million, or 289%, from $1.8
million for the three months ended June 30, 1999, to $7.0 million for the same
period in 2000. The consolidation of the operating revenues and expenses of the
three Hampden SNFs from March 15 through June 30, 2000 and the Arizona SNF from
April 1, 2000 through June 30, 2000 as discussed above accounted for $5.0
million of this increase in property operating expenses.
Excluding the operating expenses from these SNFs, property operating expenses
increased by $0.2 million in the second quarter of 2000 compared to the same
period in 1999. Development projects completed by the Company during 1999 and
2000, as well as the acquisition of an ALF in Tarzana, California accounted for
this increase.
Page 23
<PAGE>
Depreciation and amortization increased $0.1 million, or 7%, from $1.4 million
for the three months ended June 30, 1999, to $1.5 million for the same period in
2000. This increase was attributable to property acquisitions made by the
Company during 2000 as well as new property developments opened during 1999 and
2000.
Interest expense increased $0.5 million, or 17%, from $2.9 million for the
three months ended June 30, 1999, to $3.4 million for the same period in 2000.
This increase was mainly due to interest incurred on new borrowings of $36
million made by the Company subsequent to March 31, 1999, as well as the
addition of $7.5 million in debt associated with the acquisition of an ALF in
Tarzana, California.
Net income decreased $0.9 million, or 64%, from $1.4 million for the three
months ended June 30, 1999 to $0.5 million for the same period in 2000. This
decrease was primarily due to the $5.2 million increase in operating expenses,
and the $0.5 million increase in interest expense offset by the $4.8 million
increase in rents, tenant reimbursements and parking revenues.
Liquidity and Capital Resources
-------------------------------
As of June 30, 2000, the Company's direct investment in net real estate assets
totaled $184.6 million, $4.6 million in joint ventures and $15.7 million
invested in mortgage loans and notes receivable. Debt outstanding as of June
30, 2000 totaled $175.2 million.
The Company obtains its liquidity from multiple internal and external sources.
Internally, funds are derived from the operation of MOBs, SNFs, ALFs and senior
care lending activities. These funds primarily consist of Funds from Operations
("FFO - see discussion below of FFO). The Company's external sources of
capital consist of various secured loans and lines of credit. During the first
six months of 2000, the Company sold a 33,000 square foot MOB located in Aliso
Viejo, Caliornia for $8.3 million. The Company used the proceeds to repay a
$5.5 million loan that was secured by the MOB. The Company used the remaining
proceeds to repay $3.0 million on its line of credit with Tokai Bank of
California. As of June 30, 2000, the Company has $1.6 million outstanding on
its line of credit with Tokai Bank of California. The remaining balance is due
August 31, 2000. In January 2000, as part of its acquisition of a $10.4
million, 80-unit assisted living facility in Tarzana, California, the Company
assumed three loans totaling $7.5 million. The loans bear interest at rates
ranging from 7.5% to 8.5% and are due in 2006. In March 2000, the Company
refinanced its existing $6.3 million mortgage on one of its joint venture
assisted living facilities with an $8.5 million long-term HUD loan at an
interest rate of 8.3%. The Company received net proceeds of $1.1 million from
the refinancing. In April 2000, a lender released to the Company from escrow
$1.25 million in loan proceeds. The lender reserved a total of $2.5 million
from a $10 million loan until the Company leased a certain percentage of the
secured property. The remaining $1.25 million in loan proceeds was released by
the lender in July 2000. In July 2000, the Company also obtained a line of
credit secured by the accounts receivable at the Company's three SNFs located in
Massachusetts. The Company received net proceeds of $1.25 million from the line
of credit. The line of credit is guaranteed by the Company.
The Company declared a quarterly distribution payable to holders of the
Company's Common Stock for the first and second quarters of 2000 in the amount
of $0.125 per common share which was paid on April 15 and July 15, 2000 to
stockholders of record on March 31 and June 30, 2000, respectively. The
Company also paid monthly dividends of $0.6 million to holders of the Company's
Preferred Stock on the fifteenth day of each month during the first and second
quarters to holders of record on the first day of each month. The Company
distributed dividends of $0.7 million to holders of the Company's Common Stock
during the first six months of 2000 while the Company's FFO was a negative $2.0
million for the same period. However, excluding the $2.3 million increase in
the provision for doubtful accounts and notes receivable, the Company's FFO for
the first half of 2000 was $0.3 million.
Page 24
<PAGE>
In general, the Company expects to continue meeting its short-term liquidity
requirements through its working capital, cash flow provided by operations, its
line of credit and through the long-term financing of its unencumbered
properties. The Company considers its ability to generate cash to be good and
expects to continue meeting all operating requirements as well as providing
sufficient funds to maintain stockholder distributions in accordance with REIT
requirements. Long-term liquidity requirements such as refinancing mortgages,
financing acquisitions and financing capital improvements will be accomplished
through long-term borrowings, the issuance of debt securities and the sale of
assets.
As of June 30, 2000 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.
As of June 30, 2000, the Company had an outstanding balance of $1.6 million on
the line of credit. 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 June 30, 2000 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 plans to repay the remaining balance of
$1.6 million on August 31, 2000, the due date of the line of credit and is
currently negotiating a new line of credit with Tokai Bank.
Historical Cash Flows
---------------------
The Company's net cash from operating activities decreased $1.1 million, or
22%, from $5.1 million for the six months ended June 30, 1999 to $4.0 million
for the same period in 2000. The decrease is due primarily to a $2.8 million
decrease in net income, a $3.0 million increase in tenant rent and
reimbursements receivable, a $1.3 million increase in net gain on sale of assets
offset by a $2.3 million increase in provisions for doubtful accounts and notes
receivables, a $0.7 decrease in accrued interest receivable and a $3.1 million
decrease in accounts payable and other liabilities.
Net cash used in investing activities decreased $5.7 million, or 75%, from
$7.6 million for the six months ended June 30, 1999 to $1.9 million for the same
period in 2000. The decrease was primarily due to a $8.5 million increase in
the sale of real estate assets, the $3.5 million decrease in construction-in-
progress expenditures, a $1.1 million increase in distributions from
unconsolidated affiliates, a $1.0 million decrease in pre-acquisition costs, a
$0.9 million decrease in investments in mortgage loans and notes receivable and
a $0.7 million decrease in contributions to unconsolidated affiliates. These
were offset by a $10.4 million increase in purchases of real estate assets.
Cash flows provided by or used in financing activities decreased by
approximately $11.5 million from cash provided of $3.0 million for the six
months ended June 30, 1999, to cash used of $8.5 million for the same period in
2000. The decrease is due primarily to a decrease in notes payable proceeds
of $9.2 million, an increase in the repayment of notes payable of $5.8 million
and an increase in purchases of the Company's Common Stock of $2.2 million.
These were offset by a decrease in restricted cash of $3.0 million, a decrease
in distributions of $2.2 million and an increase in minority interest
contributions of $0.5 million.
Funds from Operations
---------------------
Industry analysts generally consider FFO to be an appropriate measure of the
performance of a REIT. The Company's financial statements use the concept of
FFO as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO is calculated to include the minority
interests' share of income from the Operating Partnership since the Operating
Partnership's net income is allocated proportionately among all owners of
Operating Partnership units. The number of Operating Partnership units held by
the Company is identical to the number of
Page 25
<PAGE>
outstanding shares of the Company's Common Stock, and owners of Operating
Partnership units may, at their discretion, convert their units into shares of
Common Stock on a one-for-one basis.
The Company believes that in order to facilitate a clear understanding of the
operating results of the Company, FFO should be examined in conjunction with the
Company's net income as presented in this Form 10-Q, the Selected Financial
Data and Consolidated Financial Statements and Notes thereto included in the
Company's 1999 Annual Report on Form 10-K and the additional data presented
below. The table on the following page presents an analysis of FFO and
additional data for the three and six-month periods ended June 30, 2000 and
1999.
Page 26
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS AND ADDITIONAL DATA
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Six Month
Periods Ended June 30, Periods Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Funds from Operations/(1)/
--------------------------
Net income.......................................... $ 512 $ 1,415 $ 262 $ 3,066
Minority interest in Operating Partnership.......... (83) (62) (616) (86)
------- ------- ------- -------
Income (loss) for Operating Partnership............. 429 1,353 (354) 2,980
Depreciation of real estate assets.................. 1,352 1,231 2,694 2,401
Amortization of deferred lease costs................ 73 63 152 117
Net gain on sale of assets.......................... --- --- (1,263) ---
Depreciation from unconsolidated affiliates......... 107 79 256 100
Extraordinary loss on early retirement of debt...... --- --- 158 ---
Adjustment for minority interest in consolidated
affiliates........................................ (14) (28) (67) (50)
Dividends on preferred stock........................ (1,790) (1,803) (3,583) (3,606)
------- ------- ------- -------
Funds from Operations/(1)/.......................... $ 157 $ 895 $(2,007) $ 1,942
======= ======= ======= =======
Weighted average shares outstanding/(2)/
----------------------------------------
Basic 2,962 4,570 3,049 4,590
======= ======= ======= =======
Fully diluted 2,962 4,582 3,050 4,604
======= ======= ======= =======
Additional Data
---------------
Cash flows:
-----------
Operating activities............................. $ 1,921 $ 1,453 $ 4,007 $ 5,064
Investing activities............................. (847) (3,581) (1,910) (7,587)
Financing activities............................. (2,632) 2,305 (8,512) 3,029
Capital expenditures
--------------------
Building improvements............................ $ 458 $ 345 $ 720 $ 675
Tenant improvements.............................. 489 480 1,102 918
Furniture, fixtures & equipment.................. 67 18 93 103
Leasing commissions.............................. 30 197 69 353
Depreciation and amortization
-----------------------------
Depreciation of real estate assets............... $ 1,352 $ 1,231 $ 2,694 $ 2,041
Depreciation of non-real estate assets........... 108 108 220 217
Amortization of deferred lease costs............. 73 63 152 117
Amortization of capitalized financing costs...... 153 69 289 123
Accrued rent in excess of billed rent............ $ 21 $ 158 $ 92 $ 151
</TABLE>
1) Funds from operations ("FFO") represents net income (computed in accordance
with generally accepted accounting principles, consistently applied
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property, less preferred stock dividends
paid to holders of preferred stock during the period and after adjustments
for consolidated and unconsolidated entities in which the Company holds a
partial interest. FFO should not be considered as an alternative to net
income or any other indicator developed in compliance with GAAP, including
measures of liquidity such as cash flows from operations, investing and
financing activities. FFO is helpful in evaluating the performance of a real
estate portfolio considering the fact that historical cost accounting assumes
that the value of real estate diminishes predictably over time. FFO is only
one of a range of indicators which should be considered in determining a
company's operating performance. The methods of calculating FFO among
different companies are subject to variation, and FFO therefore may be an
invalid measure for purposes of comparing companies. Also, the elimination of
depreciation and gains and losses on sales of property may not be a true
indication of an entity's ability to recover its investment in properties.
The Company implemented NAREIT's new method or calculating FFO effective as
of the NAREIT-suggested adoption date of January 1, 1996.
2) Assumes that all outstanding Operating Partnership units have been converted
to common stock.
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<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk as
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 filed on March 30, 2000.
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<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company or any of its consolidated or unconsolidated
affiliates nor any of the assets within their portfolios of MOBs,
skilled nursing facilities, assisted living facilities, parking
facilities, and retail space is currently a party to any material
litigation, except as discussed in Note 8 to the Consolidated
Financial Statements.
Item 2 Changes in Securities.
None.
Item 3 Defaults Upon Senior Securities.
As discussed in Note 8 to the Consolidated Financial Statements and in
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources, GL/PHP
defaulted on the $15.5 million loan, which is secured by the six MOBs
in New Jersey. The amount in default is $15.5 million.
As discussed in Note 8 to the Consolidated Financial Statements and in
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources, the Company,
as of June 30, 2000, was in default on its $4.6 million unsecured line
of credit due to a loan covenant violation.
Item 4 Submission of Matters to a Vote of Security Holders.
On June 15, 2000 the Company held its 2000 Annual Meeting of
Stockholders. The only items of business conducted were the election
of directors and the ratification of the appointment of the Company's
independent accountants.
The six directors elected at the Annual Meeting, to serve for
the term ending at the next Annual Meeting of Stockholders or until
their successors are duly elected and qualified or until they resign or
are removed, were the following:
Name Votes For Votes Withheld
Daniel M. Gottlieb 2,139,345 67,038
Steven D. Lebowitz 2,139,191 67,192
Richard L. Lesher 2,136,863 69,520
Leslie D. Michelson 2,136,404 69,979
Charles P. Reilly 2,136,763 69,620
S. Craig Tompkins 2,138,363 68,020
The voting for the ratification of the appointment by the Board
of Directors of Deloitte & Touche, LLP as independent accountants for
the Company for the year ending December 31, 1999 was as follows:
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<PAGE>
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained Broker Non-Votes
<S> <C> <C> <C>
2,194,829 3,498 8,056 0
</TABLE>
Item 5 Other Information.
None.
Page 30
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(a) 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>
Page 31
<PAGE>
<TABLE>
<CAPTION>
(c) Exhibits - (continued from previous page)
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.
10.45 (10) First Amendment to GL/PHP, LLC Limited Liability
Company Agreement by and among G&L Realty
Partnership, L.P., a Delaware limited partnership
(the "Retiring Manager"), G&L Realty Partnership,
L.P., a Delaware limited partnership
("G&L Member"), and G&L Management Delaware Corp.,
a Delaware corporation ("Manager Member"), made as
of August 15, 1997.
10.46 (10) Lease Agreement between GL/PHP, a Delaware limited
liability company (the "Landlord") and Pinnacle
Health Enterprises, LLC, a Delaware limited
liability company wholly owned by PHP Healthcare
Corporation, a Delaware corporation (the "Tenant"),
dated August 15, 1997
10.47 (10) Guaranty of Lease by PHP Healthcare Corporation, a
Delaware corporation (the "Guarantor"), dated
February 15, 1997.
10.48 (10) Non-Negotiable 8.5% Note Due July 31, 2007 in
which G&L Realty Partnership, L.P., a Delaware
limited partnership (the "Maker"), promises to pay
to PHP Healthcare Corporation (the "Payee") the
principal sum of $2,000,000.00, dated August
15, 1997.
10.49 (10) Mortgage Note in which GL/PHP, LLC a Delaware
limited liability company (the "Maker") promises to
pay to the order of Nomura Asset Capital
Corporation, a Delaware corporation, the principal
sum of $16,000,000.00, dated August 15, 1997.
10.50 (10) Mortgage, Assignment of Leases and Rents and
Security Agreement by GL/PHP, LLC a Delaware
limited liability company (the "Mortgagor") to
Nomura Asset Capital Corporation, a Delaware
corporation (the ?Mortgagee"), dated August 15,
1997.
10.51 (10) Assignment of Leases and Rents by GL/PHP, LLC a
Delaware limited liability company (the "Assignor")
to Nomura Asset Capital Corporation, a Delaware
corporation (the "Assignee"), dated August 15,
1997.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
(c) Exhibits - (continued from previous page)
Exhibit No. Note Description
------------- ------ --------------------------------------------------
<S> <C> <C>
10.52 (10) Environmental and Hazardous Substance
Indemnification Agreement by GL/PHP, LLC a Delaware
limited liability company (the "Borrower") to
Nomura Asset Capital Corporation, a Delaware
corporation (the "Lender"), dated August 15, 1997.
10.58 (11) Limited Liability Company Agreement of G&L Hampden,
LLC.
10.68 (12) Promissory Note in the Amount of $2,799,490.00
given by Valley Convalescent, LLC in favor of G&L
Realty Partnership, L.P.
10.69 (12) Deed of Trust, Security Agreement, Fixture Filing
with Assignment of Rents and Agreements, dated as
of August 29, 1997, by and between Valley
Convalescent, LLC and G&L Realty Partnership, L.P.
10.70 (12) Assignment of Leases and Rents, dated as of August
29, 1997, by and between Valley Convalescent, LLC
and G&L Realty Partnership, L.P.
10.77 (13) Agreement for Transfer of Property by and among G&L
Coronado, LLC as Transferor and G&L Realty
Partnership, L.P. as Operating Partnership dated as
of December 30, 1998.
10.78 (13) Tenant Estoppel and Real Estate Lease between G&L
Coronado, LLC as Landlord and Coronado Managers
Corp. as Tenant dated December 1, 1998.
10.79 (13) Guaranty of Lease between Steven D. Lebowitz and
Daniel M. Gottlieb (collectively "Guarantor") in
favor of G&L Coronado, LLC ("Landlord").
10.80 (14) Promissory Note in the Amount of $2,000,000 given
by G&L Realty Corporation in favor of Reese L.
Milner, as Trustee of The Milner Trust.
10.81 (15) Loan Agreement in the amount of $13.92 million
between G&L Hampden, LLC, as Borrower, and GMAC
Commercial Mortgage Corporation, as Lender.
11 Computation of Per Share Earnings
21 Subsidiaries of the registrant.
27 Financial Data Schedule
</TABLE>
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.
Page 33
<PAGE>
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.
(b) Reports on Form 8-K
There have been no reports filed on Form 8-K during the quarter ended June
30, 2000.
Page 34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
G&L REALTY CORP.
Date: August 14, 2000 By: /s/ David E. Hamer
-------------------------------
David E. Hamer
Chief Accounting Officer
Page 35
