<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996
REGISTRATION NO. 333-09411
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GLENBOROUGH REALTY TRUST INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
400 SOUTH EL CAMINO REAL, 11TH FLOOR
SAN MATEO, CALIFORNIA 94402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
---------------------
FRANK AUSTIN, ESQ.
SENIOR VICE PRESIDENT, GLENBOROUGH REALTY TRUST INCORPORATED
400 SOUTH EL CAMINO REAL, 11TH FLOOR
SAN MATEO, CALIFORNIA 94402
(415) 343-9300
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
WITH COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. CONNELL, ESQ. GREGORY K. MILLER, ESQ.
MORRISON & FOERSTER LLP LATHAM & WATKINS
755 PAGE MILL ROAD 505 MONTGOMERY STREET, SUITE 1900
PALO ALTO, CALIFORNIA 94304-1018 SAN FRANCISCO, CALIFORNIA 94111-2562
(213) 892-5200 (415) 391-0600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1996
<TABLE>
<S> <C> <C>
LOGO 3,500,000 SHARES
LOGO
COMMON STOCK
</TABLE>
------------------------------
Glenborough Realty Trust Incorporated (the "Company") is a
self-administered and self-managed real estate investment trust ("REIT") that
owns a portfolio of 36 industrial, office, hotel, retail and multifamily
properties located in 15 states throughout the country as of August 31, 1996. In
addition, as of August 31, 1996 three associated companies provide comprehensive
asset, partnership and property management services for 54 other properties that
are not owned by the Company.
The Company will sell all of the shares of Common Stock, par value $.001
per share (the "Common Stock"), offered hereby (the "Offering") for its own
account. The Company plans to use the net proceeds of the Offering primarily to
acquire properties and repay indebtedness.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "GLB." On September 5, 1996, the last reported sale price of
the Common Stock on the NYSE was $14.50 per share.
The shares of Common Stock are subject to certain restrictions on ownership
and transfer designed to assist the Company in maintaining its status as a REIT
for federal income tax purposes. See "Restrictions on Ownership and Transfer of
Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------
Per Share................................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,100,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
525,000 additional shares of Common Stock to cover over-allotments, if any.
If all of these shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------------
The shares of Common Stock are offered severally by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made against
payment therefor on or about , 1996 at the offices of Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
------------------------------
BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY
JEFFERIES & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OPEN MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless indicated otherwise, the information contained in this Prospectus assumes
that the Underwriters' over-allotment option is not exercised. As used herein,
the term "Company" means Glenborough Realty Trust Incorporated, a Maryland real
estate investment trust, and its consolidated subsidiaries for the periods from
and after December 31, 1995 (the date of the Consolidation referred to below)
and the Company's predecessor partnerships and companies for periods prior to
the Consolidation. Unless otherwise indicated, information regarding shares of
Common Stock assumes a per share market price of $14.50, the last reported sale
price on the NYSE on September 5, 1996. Unless otherwise indicated, information
regarding the Company's properties is as of June 30, 1996. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. Unless otherwise
indicated, ownership percentages of the Company's Common Stock have been
computed on a fully converted basis, using an exchange of Operating Partnership
units for Common Stock on a one-for-one basis. See "Glossary" for the definition
of certain capitalized terms used in this Prospectus.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust that owns a portfolio of 36 industrial, office, hotel, retail and
multifamily properties located in 15 states throughout the country as of August
31, 1996. The Company's principal growth strategy is to capitalize on the
opportunity to acquire portfolios or single properties from public and private
partnerships on attractive terms. This strategy has evolved from the Company's
predecessors' experience since 1978 in managing real estate partnerships and
their assets and, since 1989, in acquiring management interests from third
parties. In addition, as of August 31, 1996, three associated companies (the
"Associated Companies") provide comprehensive asset, partnership and property
management services for 54 other properties that are not owned by the Company.
Today's real estate limited partnership market encompasses some ten million
owners of units in public and private limited partnerships, representing
original equity investments in excess of $70 billion, according to 1996
estimates of industry consultant Robert A. Stanger & Co., Inc. Because there is
only a limited market for their investments, many of these investors would like
to increase the liquidity of their holdings without incurring unnecessary tax
gains. Many of these partnerships invested in diverse portfolios of properties
and therefore are not attractive to real estate investors who focus on specific
property types or geographic regions. Unlike these other real estate investors,
the Company seeks to purchase diversified portfolios, which the Company believes
are available to be purchased on favorable terms. Additionally, because the
Company has established an UPREIT structure, it has the flexibility to address
general and limited partnership investor concerns and to structure transactions
that may defer tax gains.
The Company expects to continue to enhance, expand and diversify its real
estate holdings by making property and portfolio acquisitions, improving
individual property performance and constantly reviewing the mix of its holdings
by selling appropriate properties and reinvesting the proceeds. The Company will
pursue the acquisition of individual properties and diversified portfolios that
can be purchased at attractive prices and have characteristics consistent with
the Company's growth strategy. The Company also intends to expand through the
growth of the Associated Companies, which it anticipates will occur through the
acquisition of general partnership interests, execution of asset management and
property management agreements with third parties and the leasing of hotels that
may in the future be acquired by the Company.
3
<PAGE> 5
The following table sets forth certain information with respect to the
Company's properties as of June 30, 1996.
<TABLE>
<CAPTION>
PROPERTY REVENUES FOR
12 MONTHS ENDED AVERAGE
JUNE 30, 1996 OCCUPANCY FOR
NUMBER OF ----------------------- 12 MONTHS ENDED
TYPE OF PROPERTY PROPERTIES SQ. FT./UNITS AMOUNT PERCENT JUNE 30, 1996
- ----------------------------- --------- ------------- ----------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Industrial................... 8 1,491,827 $ 3,505,091 26% 100%
Office....................... 2 106,082 1,405,441 11 99
Hotels....................... 4 499 4,251,797 32 73
Retail....................... 19 285,658 3,319,375 25 95
Multifamily.................. 1 104 768,376 6 92
--- ----------- -----
Total.............. 34 $13,250,080 100%
=== =========== ======
</TABLE>
The Company's six executive officers and its directors who are not
employees of the Company collectively own approximately 22% of the Company's
Common Stock and will own approximately 14% after the Offering. The executive
officers have been with the Company or its predecessors for an average of ten
years. The Company and the Associated Companies employ an experienced staff of
approximately 375 employees who provide a full range of real estate services
from their headquarters in San Mateo, California and from 29 property management
offices located across the country.
The Company commenced operations on December 31, 1995 through the merger of
eight public limited partnerships and a management company with and into the
Company (the "Consolidation"). A portion of the Company's operations is
conducted through a subsidiary operating partnership (the "Operating
Partnership") in which the Company holds a 1% interest as the sole general
partner, and an approximate 84% limited partner interest. The Company intends to
elect treatment as a REIT when it files its tax return for the year ending
December 31, 1996.
RECENT ACTIVITIES
Implementing its strategy of growth through acquisitions, the Company has
recently acquired, or entered into agreements to acquire, 16 properties in nine
states, representing an aggregate potential investment of approximately $69.8
million including acquisition costs of approximately $0.6 million. The Company
has also entered into new loan arrangements primarily to provide funds for its
continued growth.
TRP Properties. The Company has entered into a binding agreement and has
completed due diligence to acquire a portfolio of 12 industrial, office, retail
and multifamily properties (the "TRP Properties") located in six states. The
owners of the TRP Properties have no prior affiliation with the Company. The TRP
Properties consist of 784,368 square feet of net rentable area and 538
residential units. The total acquisition value will be approximately $43.2
million, comprising (i) institutional mortgage debt of approximately $35.4
million (of which the Company anticipates that it will assume approximately
$16.4 million and repay the balance, although it is not so committed) (ii)
approximately 182,000 shares of the Company's Common Stock having an aggregate
value of approximately $2.6 million, (iii) approximately $0.6 million in the
form of 40,345 units of partnership interest in the Operating Partnership and
(iv) the balance in cash. The proposed acquisition is not subject to any
material conditions. The Company intends to complete this transaction as soon as
practicable following completion of the Offering.
UCT Property and Bond Street Property. The Company (i) acquired the
23-story, 272,443 square foot University Club Tower ("UCT Property") in St.
Louis, Missouri on July 15, 1996, and (ii) acquired the two-story, 40,595 square
foot suburban office building (the "Bond Street Property") in Farmington Hills,
Michigan on September 24, 1996. GPA, Ltd., whose parent partnership is owned
indirectly 4% by the Company, approximately 21% by Robert and Andrew Batinovich,
Chief Executive Officer and Chief Operating Officer of the Company,
respectively, and members of their families, and approximately 75% by others,
owned 45% of the UCT Property and 99% of the Bond Street Property. The remaining
interests in the UCT Property were owned and controlled by Robert Batinovich and
members of his family. For the UCT Property, the Operating Partnership issued
23,333 units having an initial redemption value of approximately
4
<PAGE> 6
$0.3 million and repaid approximately $18.3 million of indebtedness secured by
the property, resulting in a total acquisition value of $18.6 million. For the
Bond Street Property, the Operating Partnership issued 26,067 units having an
initial redemption value of approximately $0.4 million and repaid approximately
$2.8 million of indebtedness secured by the property, resulting in a total
acquisition value of approximately $3.2 million.
Other Properties. The Company has further expanded existing property
holdings by adding a hotel to the Company's portfolio and by acquiring a
property adjacent to a Company-owned shopping center. On July 29, 1996, the
Company purchased from unaffiliated sellers a 64 room limited service hotel
property in San Antonio, Texas for an all-cash purchase price of $2.7 million
and a supermarket property in Tampa, Florida for an all-cash purchase price of
$1.5 million. The Company plans to invest an additional $1.8 million in the
supermarket property contingent upon the completion of certain improvements.
The Company has also entered into a letter of intent to acquire a portfolio
of properties, but at this date the Company has not completed a review of the
properties and has not concluded that the acquisition is probable.
New Financing. The Company has entered into two new financing arrangements
with Wells Fargo Bank, N.A. ("Wells Fargo"). The first financing arrangement
(the "Facility") is a $50 million secured revolving line of credit to replace an
existing $10 million line of credit. The Facility is secured by first mortgages
on selected properties with full recourse to the Company and availability is
limited to the borrowing base provided by these properties. The Facility has a
term of two years, subject to annual extensions. At the Company's option, the
Facility will bear interest at LIBOR plus 2.375% or at a base rate. The base
rate is based upon the higher of Wells Fargo's prime rate plus 0.5% or the
Federal Funds Rate plus 1.0%. The second financing arrangement (the "Term Loan")
is a two-year term loan in the amount of $6.1 million that bears interest at the
same rate as the Facility and will be secured by first mortgage liens on 10
"QuikTrip" facilities owned by the Company. The combined proceeds of the
fundings under the Facility and the Term Loan were $28.4 million, of which the
Company applied $18.3 million to the acquisition of the UCT Property, $9.2
million to the repayment of the outstanding amount under the existing line of
credit, and the balance to loan fees and closing costs. Initial funding under
the Facility and full disbursement of the Term Loan occurred on July 15, 1996.
On July 29, 1996, the Company borrowed an additional $3.8 million under the
Facility which was applied toward the purchase of the properties described above
under "Other Properties."
5
<PAGE> 7
THE OFFERING
All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders is selling any shares of Common
Stock in the Offering:
<TABLE>
<S> <C>
Shares of Common Stock Offered..................... 3,500,000
Shares of Common Stock Outstanding
Before this Offering(1).......................... 6,354,375
Shares of Common Stock Outstanding
After this Offering(1)(2)........................ 10,102,787
Use of Proceeds.................................... To acquire properties and repay indebtedness.
See "Use of Proceeds."
NYSE Symbol........................................ GLB
</TABLE>
- ---------------
(1. If all 565,666 units of the Operating Partnership eligible for exchange to
Common Stock were exchanged.
(2. Includes an additional 66,412 Operating Partnership units and 182,000 shares
of Common Stock issued and to be issued in connection with the acquisition
of the TRP Properties and the Bond Street Property.
DISTRIBUTION POLICY
The Company plans to pay regular quarterly distributions to holders of its
Common Stock based on financial results for the prior calendar quarter. The
Company paid its first distribution of $0.30 per share on May 13, 1996 and the
Company paid its next distribution of $0.30 per share on August 14, 1996. While
the Company believes that a small portion of its distributions for 1996 will be
classified as a return of capital for federal income tax purposes, it cannot
currently predict the portion of 1996 or any future distributions that may be so
classified. The Company expects to continue its policy of paying quarterly
distributions, but there can be no assurance that distributions will continue or
be paid at any specific level. See "Distribution Policy."
6
<PAGE> 8
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock, including:
- Risks relating to real estate from potential lack of financing,
competition for acquisition opportunities, competition for tenants,
tenants' defaults, loss of management relationships, uninsured losses from
various causes, environmental costs and liabilities, general illiquidity
and compliance with restrictive laws and regulations.
- Tax risks relating to the possibility that the Company might fail to
qualify initially as a REIT or fail to continue to qualify as a REIT,
which would cause the Company to pay federal income taxes and reduce
distributions.
- Risks associated with proposed acquisitions by the Company, including the
risk that acquisitions could adversely affect operations or stock value,
the risk that one or more of the Company's currently contemplated
acquisitions will not occur, the risk that acquisitions from related
parties may not have terms as favorable to the Company as arm's-length
transactions, risks related to the management of a rapidly growing
company, and risks associated with the assumption of general partner
liabilities.
- Restrictive share ownership provisions in the Company's charter designed
to maintain REIT status, but which could prevent stockholders from
realizing the benefits of a change in control.
- Other risks, including the lack of capital or debt needed by the Company,
the effect of market interest rates on the price of the Common Stock,
litigation involving prior partnerships formed by senior management and
involving the Company, the Chapter 11 reorganization of a prior
partnership formed by senior management, dependence of the Company on a
small group of senior executive officers, the ability of the Company's
board of directors to change investment policies that stockholders may
believe are protective of their interests, and the risk that future sales
of available shares of the Company's Common Stock could affect the market
price of the Common Stock.
7
<PAGE> 9
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth summary financial and other data on a
historical, as adjusted and pro forma basis for the Company. The GPA Properties,
TRP Properties, UCT Property and Bond Street Property are not included in the
historical combined data. The table should be read in conjunction with the
financial statements and notes thereto of the Company, GRT Predecessor Entities,
GPA Properties, TRP Properties, UCT Property and Bond Street Property included
elsewhere in this Prospectus.
The following unaudited pro forma operating and other data have been
prepared to reflect (i) the Consolidation and related transactions, (ii) the
Facility and Term Loan, (iii) the property acquisitions described under the
caption "Recent Activities" and (iv) the Offering, and the application of the
net proceeds therefrom as set forth in "Use of Proceeds," as if such
transactions had occurred on January 1, 1995. The unaudited pro forma balance
sheet data have been prepared to reflect (i) the Facility and Term Loan, (ii)
the property acquisitions described under the caption "Recent Activities" and
(iii) the Offering and the application of the net proceeds therefrom as set
forth in "Use of Proceeds" as if such transactions had occurred on June 30,
1996. This unaudited pro forma summary financial and other data should be read
in conjunction with the financial statements and notes of the Company, GRT
Predecessor Entities, GPA Properties, TRP Properties, UCT Property and Bond
Street Property included elsewhere in this Prospectus. In the opinion of
management, all adjustments necessary to reflect the effects of the transactions
have been made.
The pro forma summary financial and other data is unaudited and is not
necessarily indicative of the consolidated results which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or cash flows for future periods.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------ -------------------------------------
PRO FORMA HISTORICAL AS ADJUSTED PRO FORMA AS ADJUSTED AS ADJUSTED
1996 1996 1995(1) 1995 1995(1) 1994(1)
--------- ---------- ----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues(2)......................... $ 14,819 $ 8,832 $ 8,322 $ 28,471 $16,405 $15,885
Interest expense.................... 2,314 1,421 1,383 4,516 2,767 2,767
Depreciation and Amortization....... 2,389 1,759 1,871 4,898 3,654 3,442
Income from operations before
minority interest and
extraordinary items............... 5,267 3,068 2,602 8,331 4,077 4,516
Net income (loss)(3)................ 4,937 (4,412) 2,423 7,810 3,796 (3,093)
Per share(4):
Net income before extraordinary
items........................... $ 0.52 $ 0.49 $ 0.42 $ 0.82 $ 0.66 $ 0.72
Net income (loss)................. 0.52 (0.77) 0.42 0.82 0.66 (0.54)
Distributions(5).................. 0.60 0.60 0.60 1.20 1.20 1.20
BALANCE SHEET DATA:
Net investment in real estate....... $143,542 $ 73,791 -- -- -- --
Mortgage loans receivable, net...... 7,213 7,213 -- -- -- --
Total assets........................ 162,227 92,752 -- -- -- --
Total debt.......................... 51,857 32,730 -- -- -- --
Stockholder's equity................ 98,583 49,522 -- -- -- --
OTHER DATA:
EBIDA(6)............................ $ 9,970 $ 6,248 $ 5,856 $ 18,608 $11,361 $11,258
Cash flow provided by (used for):
Operating activities.............. 2,702 (448) 2,421 10,154 4,656 5,742
Investing activities.............. (49 ) 2,877 1,697 (48,034 ) 3,263 1,710
Financing activities.............. (7,714 ) (5,326) (4,125) 36,246 (7,933) (6,408)
FFO(7).............................. 8,237 5,087 4,911 15,136 9,638 9,536
FAD(8).............................. 7,118 4,489 4,381 12,966 8,579 8,477
Debt to total market
capitalization(9)................. 26.1 % 26.9% -- -- -- --
</TABLE>
- ---------------
(1) As adjusted amounts give effect to the Consolidation and related
transactions as if such transactions had occurred on January 1, 1994.
(2) Certain revenues which are included in the historical combined amounts are
not included on a pro forma or as adjusted basis. These revenues are
included in three unconsolidated Associated Companies (Glenborough Hotel
Group, a Nevada corporation ("GHG"), Glenborough Corporation, a California
corporation ("GC") and Glenborough Inland Realty Corporation, a California
corporation
8
<PAGE> 10
("GIRC")), on a pro forma basis and on an as adjusted basis, from which the
Company receives lease payments and dividend income.
(3) Historical 1996 and as adjusted 1994 net losses reflect $7,237 of
Consolidation and litigation costs incurred in connection with the
Consolidation. As adjusted 1994 data give effect to the Consolidation and
related transactions as if such transactions had occurred on January 1,
1994, whereas historical 1996 data reflect such transactions in the periods
they occurred. The Consolidation and litigation costs were expensed on
January 1, 1996, the Company's first day of operations.
(4) Pro Forma net income per share is based upon pro forma weighted average
shares outstanding (assuming units of the Operating Partnership are not
converted into shares of Common Stock) of 9,470,709 for 1996 and 1995. As
adjusted net income per share is based upon as adjusted weighted average
shares outstanding of 5,753,709 for 1995 and 1994.
(5) Consists of distributions declared for the period then ended.
(6) EBIDA means and is computed as earnings before interest expense,
depreciation, amortization, loss provisions and minority interests. The
Company believes that in addition to cash flows and net income, EBIDA is a
useful financial performance measurement for assessing the operating
performance of an equity REIT because, together with net income and cash
flows, EBIDA provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. To evaluate EBIDA and the trends it depicts, the
components of EBIDA, such as rental revenues, rental expenses, real estate
taxes and general and administrative expenses, should be considered. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Excluded from EBIDA are financing costs such as interest as
well as depreciation and amortization, each of which can significantly
affect a REIT's results of operations and liquidity and should be considered
in evaluating a REIT's operating performance. Further, EBIDA does not
represent net income or cash flows from operating, financing and investing
activities as defined by generally accepted accounting principles ("GAAP")
and does not necessarily indicate that cash flows will be sufficient to fund
cash needs. It should not be considered as an alternative to net income as
an indicator of the Company's operating performance or to cash flows as a
measure of liquidity.
(7) Funds from Operations ("FFO") means net income (loss) from operations before
minority interests and extraordinary items plus depreciation and
amortization (except amortization of deferred financing costs) and loss
provisions. The Company believes that FFO is a measure of cash flow that,
when considered in conjunction with other measures of operating performance,
affects the value of equity REITs such as the Company. FFO is not
necessarily indicative of cash flow available to fund cash needs and is not
the same as cash flow from operations as defined by GAAP, and should not be
considered as an alternative to net income (loss) as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating, investing and financing activities as a measure of liquidity or
ability to make distributions. Management generally considers FFO to be a
useful financial performance measurement because it provides investors with
an additional basis to evaluate the performance of a REIT. FFO as disclosed
by other REITs may not be comparable to the Company's calculation of FFO.
(8) Funds available for distribution ("FAD") represents net income (loss)
(computed in accordance with GAAP), excluding extraordinary gains or losses
or loss provisions, plus depreciation and amortization and principal
receipts from mortgage loans, less lease commissions, capital expenditures
(excluding property acquisitions) and debt principal amortization. FAD
should not be considered an alternative to net income as a measure of the
Company's financial performance or to cash flow from operating activities
(computed in accordance with GAAP) as a measure of the Company's liquidity,
nor is it necessarily indicative of sufficient cash flow to fund all of the
Company's cash needs.
(9) Debt to total market capitalization is calculated as total debt at period
end divided by total debt plus the market value of the Company's outstanding
Common Stock, on a fully converted basis, based upon the last reported sales
price of the Company's Common Stock of $14 1/2 on a pro forma basis as of
September 5, 1996, and $14 1/8 on a historical basis, as of June 30, 1996.
9
<PAGE> 11
RISK FACTORS
Prospective investors should read this entire Prospectus and should
consider carefully the following factors before purchasing the Common Stock
offered hereby.
RISKS RELATING TO REAL ESTATE
Risks Related to Ownership and Financing of Real Estate
The Company is subject to risks generally incidental to the ownership of
real estate, including changes in general economic or local conditions, changes
in supply of or demand for similar or competing properties in an area, the
impact of environmental protection laws, changes in interest rates and
availability of financing which may render the sale or financing of a property
difficult or unattractive, changes in tax, real estate and zoning laws, and the
creation of mechanics' liens or similar encumbrances placed on the property by a
lessee or other parties without the Company's knowledge and consent. Should any
of these events occur, there could be an adverse effect on the Company's results
of operations and financial condition.
Competition for Acquisition of Real Estate
The Company faces competition from other businesses, individuals, fiduciary
accounts and plans and other entities in the acquisition, operation and sale of
its properties. Some of the Company's competitors are larger and have greater
financial resources than the Company. This competition may result in a higher
cost for properties the Company wishes to purchase.
Competition for Tenants
The Company is subject to the risk that when space becomes available at its
properties the leases may not be renewed, the space may not be let or relet, or
the terms of the renewal or reletting (including the cost of required
renovations or concessions to tenants) may be less favorable to the Company.
Although the Company has established annual property budgets that include
estimates of costs for renovation and reletting expenses that it believes are
reasonable in light of each property's situation, no assurance can be given that
these estimates will sufficiently cover these expenses. If the Company is unable
to promptly lease all or substantially all of the space at its properties, if
the rental rates are significantly lower than expected, or if the Company's
reserves for these purposes prove inadequate, then there could be an adverse
effect on the Company's results of operations and financial condition.
Tenants' Defaults
The ability of the Company to manage its assets is subject to federal
bankruptcy laws and state laws affecting creditors' rights and remedies
available to real property owners. In the event of the financial failure or
bankruptcy of a tenant, there can be no assurance that the Company could
promptly recover the tenant's premises from the tenant or from a trustee or
debtor-in-possession in any bankruptcy proceeding filed by or against that
tenant, or that the Company would receive rent in the proceeding sufficient to
cover its expenses with respect to the premises. In the event of the bankruptcy
of a tenant, the Company will be subject to the provisions of the federal
bankruptcy code, which in some instances may restrict the amount and
recoverability of claims held by the Company against the tenant. If any tenant
defaults on its obligations to the Company, there could be an adverse effect on
the Company's results of operations and financial condition.
Management, Leasing and Brokerage Risks; Lack of Control of Associated
Companies
The Company is subject to the risks associated with the property
management, leasing and brokerage businesses. These risks include the risk that
management contracts or service agreements may be terminated, that contracts
will not be renewed upon expiration or will not be renewed on terms consistent
with current terms, and that leasing and brokerage activity generally may
decline. Acquisition of properties by the Company from the Associated Companies
could result in a decrease in revenues to the Associated Companies and a
corresponding decrease in dividends received by the Company from the Associated
Companies. Each of these developments could have an adverse effect on the
Company's results of operations and financial condition.
10
<PAGE> 12
To qualify for and to maintain the Company's status as a REIT while
realizing income from the Company's third-party management business, the capital
stock of Glenborough Hotel Group, a Nevada corporation ("GHG"), Glenborough
Corporation, a California corporation ("GC") and Glenborough Inland Realty
Corporation, a California corporation ("GIRC," and collectively with GHG and GC,
the "Associated Companies") (which conduct the Company's third-party management,
leasing and brokerage businesses) is divided into two classes. All of the voting
common stock of the Associated Companies, representing 5% of the total equity of
GC and GIRC, and 25% of the total equity of GHG, is held by individual
stockholders. Nonvoting preferred stock representing the remaining equity of
each Associated Company is held entirely by the Company. Although the Company
holds a majority of the equity interest in each Associated Company, the Company
is not able to elect directors of any Associated Company and, consequently, the
Company has no ability to influence the day-to-day decisions of each entity.
Uninsured Loss
The Company or in certain instances tenants of the properties carry
comprehensive liability, fire and extended coverage with respect to the
Company's properties, with policy specification and insured limits customarily
carried for similar properties. There are, however, certain types of losses
(such as from earthquakes and floods) that may be either uninsurable or not
economically insurable. Further, certain of the properties are located in areas
that are subject to earthquake activity and floods. Should a property sustain
damage as a result of an earthquake or a flood, the Company may incur losses due
to insurance deductibles, co-payments on insured losses or uninsured losses.
Should an uninsured loss occur, the Company could lose some or all of its
capital investment, cash flow and anticipated profits related to one or more
properties, which could have an adverse effect on the Company's results of
operations and financial condition.
Environmental Matters
All of the Properties presently owned by the Company have been subject to
Phase I environmental assessments by independent environmental consultants. Some
of the Phase I environmental assessments recommended further investigations in
the form of Phase II environmental assessments, including soil and groundwater
sampling, and all of these investigations have been completed by the Company or
are in the process of being completed. Certain of the Properties owned by the
Company have been found to contain ACMs. The Company believes that these
materials have been adequately contained and that an ACM operations and
maintenance program has been implemented or is in the process of being
implemented for the Properties found to contain ACMs.
All of the properties being considered for acquisition by the Company have
been subject to Phase I environmental assessments by independent environmental
consultants. Some of the Phase I environmental assessments recommended Phase II
environmental assessments, all of which will be completed prior to completion of
the respective acquisitions. Certain of the properties being considered for
acquisition by the Company have been found to contain ACMs. The Company believes
that these materials have been adequately contained and that an ACM operations
and maintenance program has been implemented or will be implemented upon
acquisition for the properties found to contain ACMs.
Some, but not all, of the properties owned by partnerships managed by the
Associated Companies have been subject to Phase I environmental assessments by
independent environmental consultants. The Associated Companies determine on a
case-by-case basis whether to obtain Phase I environmental assessments on these
properties and whether to undertake further investigation or remediation.
Certain of these properties have been found to contain ACMs. In each case the
responsible Associated Company believes that these materials have been
adequately contained and that an ACM operations and maintenance program has been
implemented or is in the process of being implemented for the properties found
to contain ACMs.
Six of the Properties owned by the Company are leased in whole or in part
to operators of auto care centers which include oil change and tune-up
facilities, and ten of the Properties are leased to an operator of convenience
stores which sell petroleum-based fuels. These Properties and other of the
Properties contain, and/or may have contained in the past, underground storage
tanks for the storage of petroleum products
11
<PAGE> 13
and/or other hazardous or toxic substances which create a potential for release
of petroleum products and/or other hazardous or toxic substances. Some of the
Properties owned by the Company are adjacent to or near properties that have
contained in the past or currently contain, underground storage tanks used to
store petroleum products or other hazardous or toxic substances. Several of the
Properties have been contaminated with petroleum products or other hazardous or
toxic substances from on-site operations or operations on adjacent or nearby
properties. In addition, certain of the Properties are on, adjacent to or near
properties upon which others have engaged or may in the future engage in
activities that may release petroleum products or other hazardous or toxic
substances.
Although tenants of the Properties owned by the Company generally are
required by their leases to operate in compliance with all applicable federal,
state and local environmental laws, ordinances and regulations and to indemnify
the Company against any environmental liability arising from the tenants'
activities on the Properties, the Company could nevertheless be subject to
environmental liability relating to its management of the Properties or strict
liability by virtue of its ownership interest in the Properties and there can be
no assurance that the tenants would satisfy their indemnification obligations
under the leases. There can be no assurance that any environmental assessments
of the Properties owned by the Company, properties being considered for
acquisition by the Company, or the properties owned by the partnerships managed
by the Associated Companies have revealed all potential environmental
liabilities, that any prior owner or prior or current operator of such
properties did not create an environmental condition not known to the Company or
that an environmental condition does not otherwise exist as to any one or more
of such properties that could have an adverse effect on the Company's results of
operations and financial condition, either directly (with respect to properties
owned by the Company), or indirectly (with respect to properties owned by
partnerships managed by an Associated Company) by adversely affecting the
financial condition of the Associated Company and thus the value of the
Company's preferred stock interest in the Associated Company. Moreover, there
can be no assurance that (i) future environmental laws, ordinances or
regulations will not have an adverse effect on the Company's results of
operations and financial condition or (ii) the current environmental condition
of such properties will not be affected by tenants and occupants of such
properties, by the condition of land or operations in the vicinity of the
properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Company. See "Business and Properties -- Environmental
Matters."
Illiquidity of Real Estate
Real estate investments are relatively illiquid and, therefore, will tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, the Internal Revenue
Code of 1986, as amended (the "Code"), and individual agreements with sellers of
properties place limits on the Company's ability to sell properties, which may
adversely affect returns to holders of Common Stock.
Potential Liability Under the Americans With Disabilities Act
As of January 26, 1992, all of the Company's properties were required to be
in compliance with the Americans With Disabilities Act (the "ADA"). The ADA
generally requires that places of public accommodation be made accessible to
people with disabilities to the extent readily achievable. Compliance with the
ADA requirements could require removal of access barriers and non-compliance
could result in imposition of fines by the federal government, an award of
damages to private litigants and/or a court order to remove access barriers.
Because of the limited history of the ADA, the impact of its application to the
Company's properties, including the extent and timing of required renovations,
is uncertain. Pursuant to certain lease agreements with tenants in certain of
the "single-tenant" Company-owned properties, the tenants are obligated to
comply with the ADA provisions. If the Company's costs are greater than
anticipated or tenants are unable to meet their obligations, there could be an
adverse effect on the Company's results of operations and financial condition.
12
<PAGE> 14
CERTAIN TAX RISKS
Consequences of Failure to Qualify as a REIT
The Company intends to elect to be treated as a REIT under the Code
commencing with its taxable year ending December 31, 1996. No assurance can be
given, however, that the Company will be able to operate in a manner which would
permit it to qualify to make this election. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which only
limited judicial or administrative interpretation exists, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control. The Company will receive nonqualifying management fee
income and will own nonqualifying preferred stock in the Associated Companies.
As a result, the Company may approach the income and asset test limits imposed
by the Code and could be at risk of not satisfying those tests. In order to
avoid exceeding the asset test limit, for example, the Company may have to
reduce its interest in the Associated Companies. The Company is relying on the
opinion of its tax counsel regarding its ability to qualify as a REIT. This
legal opinion is not binding on the IRS. See "Federal Income Tax
Consequences -- Taxation of the Company."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made. See "Federal Income Tax Considerations -- Failure to
Qualify."
Even if the Company qualifies as a REIT, it will be subject to certain
federal, state and local taxes on its income and property. See "Federal Income
Tax Considerations -- Taxation of the Company."
Consequences of Failure of the Operating Partnership to Qualify as a
Partnership
The Company expects that the Operating Partnership, which is organized as a
limited partnership, will qualify for treatment as such under the Code. If the
Operating Partnership, or any of the other partnerships owned by the Operating
Partnership, fails to qualify for treatment as a partnership under the Code, the
Company would cease to qualify as a REIT, and both the Company and the Operating
Partnership would be subject to federal income tax (including any alternative
minimum tax on the Company's income, at corporate rates). See "Federal Income
Tax Considerations -- Failure to Qualify."
Possible Changes in Tax Laws
Income tax treatment of REITs may be modified, prospectively or
retroactively, by legislative, judicial or administrative action at any time. No
assurance can be given that legislation, regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to the qualification as a REIT or the federal income tax
consequences of this qualification. In addition to any direct effects the
changes might have, the changes might also indirectly affect the market value of
all real estate investments, and consequently the ability of the Company to
realize its investment objectives.
RISKS ASSOCIATED WITH ACQUISITIONS
Acquisitions Could Adversely Affect Operations or Stock Value
Consistent with its growth strategy, the Company is continually pursuing
and evaluating potential acquisition opportunities, and is from time to time
actively considering the possible acquisition of specific properties, which may
include properties managed or controlled by one of the Associated Companies or
owned by affiliated parties. It is possible that one or more of such possible
future acquisitions, if completed, could adversely affect the Company's funds
from operations or cash available for distribution, in the short term or
13
<PAGE> 15
the long term or both, or increase the Company's debt, or be perceived
negatively among investors such that such an acquisition could be followed by a
decline in the market value of the Common Stock.
Pending Acquisitions May Not Be Completed
The Company has entered into an agreement to acquire the TRP Properties as
described under the heading "Recent Activities." This acquisition is scheduled
to be consummated during 1996. Although all material conditions for this
acquisition have been satisfied, it is possible that this acquisition may not be
completed. If the acquisition is not completed, the Company may seek to purchase
other replacement properties, but there can be no assurance that replacement
properties will be available or, if they are available, that the Company will be
able to purchase them on similar terms.
Conflict of Interest
The Company has acquired one property and is currently planning on
acquiring an additional property from partnerships that Robert Batinovich, the
Company's Chief Executive Officer, and Andrew Batinovich, the Company's Chief
Operating Officer, control, and in which they and members of their families have
substantial interests. It is also possible that the Company may enter into
transactions to acquire other properties controlled by these individuals or in
which they or members of their families have substantial interests in the
future. These transactions involve or will involve conflicts of interest. These
transactions may provide substantial economic benefits such as the payments or
unit issuances described under "Recent Activities" and may also provide other
benefits such as relief or deferral of tax liabilities, relief of primary or
secondary liability for debt, and reduction in exposure to other
property-related liabilities. Despite the presence of appraisals or fairness
opinions or review by parties who have no interest in the transactions, the
transactions will not be the product of arm's-length negotiation and there can
be no assurance that these transactions will be as favorable to the Company as
transactions that the Company negotiates with unrelated parties or will not
result in undue benefit to Robert and Andrew Batinovich and members of their
families. Neither Robert Batinovich nor Andrew Batinovich has guaranteed that
any properties acquired from entities they control or in which they or their
families have a significant interest will be as profitable as other investments
made by the Company or will not result in losses.
Expansion Risk
The Company is experiencing a period of rapid expansion, which management
expects will continue in the near future. This growth has increased the
operating complexity of the Company as well as the level of responsibility for
both existing and new management personnel. The Company's ability to manage its
expansion effectively will require it to continue to update its operational and
financial systems and to expand, train and manage its employee base. The
Company's inability to effectively manage its expansion could have an adverse
effect on the Company's results of operations and financial condition.
Assumption of General Partner Liabilities
The Company and its predecessors have acquired a number of their properties
by acquiring partnerships that own the properties or by first acquiring general
partnership interests and at a later date acquiring the properties, and the
Company may pursue acquisitions in this manner in the future. When the Company
uses this acquisition technique, a subsidiary of the Company becomes a general
partner. As a general partner the Company's subsidiary becomes generally liable
for the debts and obligations of the partnership, including debts and
obligations that may be contingent or unknown at the time of the acquisition. In
addition, the Company's subsidiary assumes obligations under the partnership
agreements, which may include obligations to make future contributions for the
benefit of other partners. The Company undertakes detailed due diligence reviews
to ascertain the nature and extent of obligations that its subsidiary will
assume when it becomes a general partner, but there can be no assurance that the
obligations assumed will not exceed the Company's estimates or that the assumed
liabilities will not have an adverse effect on the Company's results of
operations or financial condition. In addition, an Associated Company may enter
into management agreements pursuant to which it assumes certain obligations as
manager of properties. There can be no assurance that these
14
<PAGE> 16
obligations will not have an adverse effect on the Associated Companies' results
of operations or financial condition, which could adversely affect the value of
the Company's preferred stock interest in those companies.
LIMITATION ON OWNERSHIP OF COMMON STOCK MAY PRECLUDE ACQUISITION OF CONTROL
Provisions of the Company's Articles of Incorporation are designed to
ensure the Company's qualification as a REIT under the Code by preventing
concentrated ownership of the Company which might jeopardize REIT qualification.
Among other things, these provisions provide that (a) any transfer or
acquisition of Common Stock that would result in the disqualification of the
Company as a REIT under the Code will be void, and (b) if any person attempts to
acquire shares of Common Stock that after the acquisition would cause the person
to own or to be deemed to own, by operation of certain attribution rules set out
in the Code, an amount of Common Stock in excess of a predetermined limit,
which, pursuant to Board action, currently is 6.75% of the outstanding shares of
Common Stock and after this offering is expected to be increased to
approximately 8.8% of the outstanding Common Stock (the "Ownership Limitation"
and as to the Common Stock, the transfer of which would cause any person to
actually own Common Stock in excess of the Ownership Limitation, the "Excess
Shares"), the transfer shall be void and the Common Stock subject to the
transfer shall automatically be transferred to an unaffiliated trustee for the
benefit of a charitable organization designated by the Board of Directors of the
Company until sold by the trustee to a third party or purchased by the Company.
Robert Batinovich and individuals or entities whose ownership of Common Stock is
attributed to Robert Batinovich in determining the number of shares of Common
Stock owned by him for purposes of compliance with Section 856 of the Code (the
"Attributed Owners"), are exempt from these restrictions, but are prohibited
from acquiring shares of Common Stock if, after the acquisition, they would own
in excess of 27% of the outstanding shares of Common Stock. Following the
completion of the Offering and the anticipated increase in the Ownership
Limitation, the Company anticipates that the maximum ownership of the
outstanding shares of Common Stock by Robert Batinovich and the Attributed
Owners would correspondingly be approximately 14%. This limitation on the
ownership of Common Stock may have the effect of precluding the acquisition of
control of the Company by a third party without the consent of the Board of
Directors. If the Board of Directors waives the Ownership Limitation for any
person, the Ownership Limitation shall be proportionally and automatically
reduced with regard to all other persons such that no five persons may own more
than 49% of the Common Stock (the aggregate Ownership Limitations as to all of
these persons, as adjusted, the "Adjusted Ownership Limitation"). See
"Restrictions on Ownership and Transfer of Common Stock" and "Federal Income Tax
Considerations."
OTHER RISKS
Additional Capital Requirements
The Company's future growth depends in large part upon its ability to raise
additional capital on satisfactory terms. There can be no assurance that the
Company will be able to raise sufficient capital to achieve its objectives. If
the Company were to raise additional capital through the issuance of additional
equity securities, the interests of holders of Common Stock, including the
shares of Common Stock offered hereby, could be diluted. Likewise, the Company's
Board of Directors is authorized to cause the Company to issue preferred stock
in one or more series and to determine the distributions and voting and other
rights of the preferred stock. Accordingly, the Board of Directors may authorize
the issuance of preferred stock with voting, distribution and other similar
rights which could be dilutive to or otherwise adversely affect the interests of
holders of Common Stock. If the Company were to raise additional capital through
debt financing, the Company will be subject to the risks described below, among
others.
Debt Financing
The Company intends to incur additional indebtedness in the future,
including through borrowings under a credit facility, if a credit facility is
available, to finance property acquisitions. As a result, the Company expects to
be subject to risks associated with debt financing, including the risk that
interest rates may increase, the risk that the Company's cash flow will be
insufficient to meet required payments on its debt and the risk
15
<PAGE> 17
that the Company may be unable to refinance or repay the debt as it comes due.
The Facility provides that distributions may not exceed 90% of funds from
operations and that, in the event of a failure to pay principal or interest on
borrowings thereunder when due (subject to any applicable grace period), the
Company and its subsidiaries may not pay any distributions on the Common Stock.
If the Company is unable to obtain acceptable financing to repay indebtedness at
maturity, the Company may have to sell properties to repay indebtedness or
properties may be foreclosed upon, which could have an adverse effect on the
Company's results of operations and financial condition.
Effect of Market Interest Rates on Price of Common Stock
One of the factors that may influence the market price of the shares of
Common Stock in public markets will be the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in market
interest rates may lead prospective purchasers of the Common Stock to seek a
higher annual yield from their investments. Such circumstances may adversely
affect the market price of the Common Stock.
Litigation Related to Consolidation
Recent business reorganizations sponsored by others involving the
conversion of partnerships into corporations have given rise to a number of
investor lawsuits. These lawsuits have included claims against the general
partners of the participating partnerships, the partnerships themselves and
related persons involved in the structuring of or benefiting from the conversion
or reorganization, as well as claims against the surviving entity and its
directors and officers. The lawsuits have included, among others, claims that
the structure of the reorganizations, as well as the manner in which they were
submitted for investor approval, involved violations of federal and state
securities laws, common law fraud and negligent misrepresentations, breaches of
fiduciary duty, unfair and deceptive trade practices, negligence and waste,
breaches of the partnership documents of the participating partnerships, failure
to comply with applicable reporting requirements, violations of the rules of the
NASD on suitability and fair practices, and violations of the Racketeer
Influenced and Corrupt Organizations Act. Two lawsuits have been filed
contesting the fairness of the Consolidation, one in California state court and
one in federal court. A settlement of the state court action has been approved
by the court, but objectors to the settlement have given notice they will appeal
that approval. Plaintiffs in the federal court action have agreed voluntarily to
dismiss the case without prejudice but have reserved the right to refile their
claims, and the Company has agreed that it will not assert the statute of
limitations as a defense. See "Business and Properties -- Legal Proceedings." In
June 1995, a class action lawsuit not related to the Consolidation was filed on
behalf of the limited partners of one of the partnerships acquired by the
Company in the Consolidation relating to a vote by that partnership's limited
partners to approve a restructuring of mortgage loans previously made by that
partnership. For more information regarding this lawsuit, see "Business and
Properties -- Legal Proceedings."
From time to time the Company is involved in other litigation arising out
of its business activities. It is possible that this litigation and the other
litigation previously described could result in significant losses in excess of
amounts reserved, which could have an adverse effect on the Company's results of
operations and the financial condition of the Company.
Chapter 11 Reorganization of Partnership Consolidation by Senior Management
Robert and Andrew Batinovich, two of the senior officers of the Company,
were also senior members of a management team that formed a publicly registered
limited partnership in 1986 to consolidate a number of predecessor partnerships.
That public partnership was involved in litigation with its primary creditor and
in order to prevent foreclosure filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in May of 1992. The public
partnership, the primary subsidiary of which is GPA, Ltd., which owns an
approximately 14% limited partner interest in the Operating Partnership along
with other substantial real estate assets, settled the litigation and obtained
confirmation of a plan of reorganization in January of 1994. Investors in the
Common Stock should consider that the consolidation of partnerships into GPA,
Ltd.'s parent partnership did not achieve all of the objectives stated at the
time and should further consider the relevance of that fact to their investment
in the Common Stock of the Company.
16
<PAGE> 18
Dependence on Executive Officers
The Company is dependent on the efforts of Robert and Andrew Batinovich,
its President and Chief Executive Officer and its Executive Vice President,
Chief Financial Officer and Chief Operating Officer, respectively, and of its
other executive officers. The loss of the services of any of them could have an
adverse effect on the results of operations and financial condition of the
Company.
Board of Directors May Change Investment Policies
The descriptions in this Prospectus of the major policies and the various
types of investments to be made by the Company reflect only the current plans of
the Company's Board of Directors (other than the Debt Limit, which can be
changed only by a vote of the Company's stockholders). The Company's Board of
Directors may change the investment policies of the Company (other than the Debt
Limit) without a vote of the stockholders. If the Company changes its investment
policies, the risks and potential rewards of an investment in the Company may
also change. In addition, the methods of implementing the Company's investment
policies may vary as new investment techniques are developed. See "Business and
Properties -- Investment Policies."
Shares Available for Future Sale
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, including shares of
Common Stock issuable upon exchange of Operating Partnership units, will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, may adversely affect the prevailing market price for the Common Stock.
See "Description of Capital Stock."
17
<PAGE> 19
FORMATION OF THE COMPANY
The Company is a self-administered and self-managed REIT that owns a
portfolio of 36 industrial, office, hotel, retail and multifamily properties
located in 15 states throughout the country as of August 31, 1996. In addition,
the three Associated Companies provide comprehensive asset, partnership and
property management services for 54 improved properties and 12 parcels of land
that are not owned by the Company.
The Company was incorporated in the state of Maryland on August 26, 1994.
On December 31, 1995, the Company completed the Consolidation in which
Glenborough Corporation, a California corporation ("Old GC"), and eight public
limited partnerships (the "Partnerships" and, collectively with Old GC, the "GRT
Predecessor Entities") merged with and into the Company. The Company (i) issued
shares (the "Shares") of its $.001 par value Common Stock to the Partnerships in
exchange for the net assets of the Partnerships; (ii) merged with a predecessor
management company, with the Company being the surviving entity; (iii) acquired
an interest in the Associated Companies, which provide asset, partnership and
property management services, as well as other services; and (iv) through the
subsidiary Operating Partnership, acquired interests in certain warehouse
distribution facilities from GPA, Ltd., a California limited partnership. A
portion of the Company's operations are conducted through the Operating
Partnership, of which the Company is the sole general partner, and in which the
limited partner interests not held by the Company are held by GPA, Ltd.
The Company's executive offices are located at 400 South El Camino Real,
Suite 1100, San Mateo, California 94402-1708, and its telephone number is (415)
343-9300.
18
<PAGE> 20
ORGANIZATIONAL DIAGRAM
(at June 30,
1996)(1)
19
<PAGE> 21
RECENT ACTIVITIES
Implementing its strategy of growth through acquisitions, the Company has
recently acquired or has entered into agreements to acquire 16 properties in
nine states, representing an aggregate potential investment of approximately
$69.8 million including acquisition costs of approximately $0.6 million. The
Company has also entered into new loan arrangements primarily to provide funds
for its continued growth.
THE TRP PROPERTIES
The Company has entered into a binding agreement and has completed due
diligence to acquire the TRP Properties, consisting of a portfolio of 12
industrial, office, retail and multifamily properties located in six states. The
owners of the TRP Properties have no prior affiliation with the Company. The TRP
Properties consist of 784,368 square feet of net rentable area and 538
residential units. The total acquisition value will be approximately $43.2
million, comprising (i) institutional mortgage debt of approximately $35.4
million (of which the Company anticipates that it will assume approximately
$16.4 million and repay the balance, although it is not so committed), (ii)
approximately 182,000 shares of the Company's Common Stock having an aggregate
value of approximately $2.6 million, (iii) approximately $0.6 million in the
form of 40,345 units of partnership interest in the Operating Partnership and
(iv) the balance in cash. The proposed acquisition is not subject to any
material conditions. The Company intends to complete this transaction as soon as
practicable following completion of the Offering.
The Operating Partnership units to be issued in connection with this
transaction will be accompanied by an option permitting the holder of the units
to require the Operating Partnership to redeem the units. If the holder requires
a redemption, the Company, as general partner of the Operating Partnership, will
have the option to acquire the units by delivering Common Stock on a one-for-one
basis, or causing the Operating Partnership to distribute cash in an amount
equal to the fair market value of the units being redeemed. The shares of the
Company's Common Stock to be issued upon redemption of the Operating Partnership
units will have certain piggyback and demand registration rights. The piggyback
rights are available for a one-year period commencing on the date any of the
Operating Partnership units are redeemed for shares of Company Common Stock. At
the end of the piggyback period, the holders will have the right to demand
registration under the Securities Act of any unsold shares that cannot then be
sold freely without registration. The holders of shares issued upon redemption
of the Operating Partnership units will be limited to the sale of not more than
15,000 shares in any three-month period during the first three years after
issuance.
The shares of the Company's Common Stock to be issued in connection with
this transaction will be unregistered, but the holders of these shares will have
the same piggyback and demand registration rights as applicable to the Operating
Partnership Units. The holders of these shares, however, will be restricted from
selling any of such shares until the first anniversary of the closing, and
thereafter will be limited to the sale of not more than 50,000 shares in any
six-month period during the first three years after issuance.
20
<PAGE> 22
The following table sets forth for each of the TRP Properties the name,
property type, general location, year completed, approximate square footage (or,
in the case of multifamily properties, units) and, for the twelve months ended
June 30, 1996, average occupancy, average effective rent per square foot (or, in
the case of multifamily properties, average rent per unit), annual effective
base rent, property revenues and percentage of the total TRP Properties'
revenues.
<TABLE>
<CAPTION>
AVERAGE AVERAGE
OCCUPANCY EFFECTIVE PROPERTY REVENUES FOR
FOR 12 RENT/ 12 MONTHS ENDED
SQUARE MONTHS LEASED ANNUAL 6/30/96
YEAR FEET/ ENDED SQUARE EFFECTIVE ---------------------
PROPERTY CITY ST COMPLETED UNITS 6/30/96 FEET BASE RENT AMOUNT PERCENT
- -------- ---------------- --- --------- ------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Mercantile
I..... Dallas TX 1970 236,110 99% $ 2.53 $ 591,819 $ 599,861 8%
Mercantile
II.... Dallas TX 1971 42,083 100 2.11 88,644 95,812 1
Mercantile
III... Arlington TX 1974 46,060 100 2.47 113,790 115,538 1
Walnut
Creek
Business
Center.. Austin TX 1984 100,000 100 4.69 468,795 589,138 8
Hoover
Industrial.. Mesa AZ 1985 57,441 99 4.57 260,000 272,219 4
Rancho
Bernardo.. Rancho Bernardo CA 1982 52,865 83 6.47 283,907 341,027 4
OFFICE
One
Professional
Square.. Omaha NE 1980 34,162 85 10.34 300,253 311,017 4
Warner
Village
Medical
Center.. Fountain Valley CA 1977 32,272 75 17.49 423,369 425,703 6
Globe
Building.. Mercer Island WA 1979 24,779 95 15.66 368,703 375,317 5
RETAIL
Auburn
North.. Auburn WA 1978 158,596 94 4.84 721,269 992,789 13
---- ----
--
----------
Subtotal.. 784,368 95% $3,620,549 $4,118,421 54%
---- ----
--
----------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
RENT PER
OCCUPIED
UNIT PER
MULTIFAMILY MONTH
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sahara
Gardens.. Las Vegas NV 1983 312 95% $570.25 -- $2,028,252 26%
Villas
de
Mission Las Vegas NV 1979 226 96 609.34 -- 1,586,430 20
------- ---------- ---
Subtotal.. 538 95% 3,614,682 46
========
---------- ---
Total... $7,733,103 100%
========= ==========
</TABLE>
21
<PAGE> 23
The following table sets forth financial information for the TRP Properties
for the year ended December 31, 1995 and for the six months ended June 30, 1996.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE TRP PROPERTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
REVENUES........................................ $3,965 $ 7,336
CERTAIN EXPENSES:
Operating..................................... 895 1,854
Real estate taxes............................. 321 694
------ ------
1,216 2,548
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES.......... $2,749 $ 4,788
====== ======
</TABLE>
The following table sets forth lease expirations for the TRP Properties
other than multifamily for the latter half of 1996 and thereafter.
LEASE EXPIRATIONS -- TRP PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
RENTABLE SQUARE ANNUAL BASE RENT TOTAL ANNUAL BASE
NUMBER OF FOOTAGE SUBJECT UNDER EXPIRING RENT REPRESENTED
YEAR OF LEASE EXPIRATION LEASES EXPIRING TO EXPIRING LEASES LEASES(1) BY EXPIRING LEASES(2)
- ------------------------- --------------- ------------------ ---------------- ---------------------
<S> <C> <C> <C> <C>
1996..................... 36 162,414 $ 799,611 19%
1997..................... 22 209,868 1,193,039 29
1998..................... 18 92,470 639,697 16
1999..................... 15 118,643 574,854 14
2000..................... 11 52,954 465,878 11
2001..................... 2 3,800 32,308 1
2002..................... 0 0 0 0
2003..................... 3 94,954 265,532 6
2004..................... 1 7,600 24,000 1
2005..................... 1 15,327 120,000 3
Thereafter............... 0 0 0 0
--- ------- --------- ------
Total.......... 109 758,030 $4,114,919 100%
=== ======= ========= ======
</TABLE>
- ---------------
(1) Does not include expiring leases on multifamily properties.
(2) Annual base rent expiring during each period, divided by total base rent
(both adjusted for contractual increases).
TRANSACTIONS INVOLVING GPA, LTD.
The Company recently acquired the UCT Property and the Bond Street
Property. GPA, Ltd., whose parent partnership is owned indirectly 4% by the
Company, approximately 21% by Robert and Andrew Batinovich, Chief Executive
Officer and Chief Operating Officer of the Company, respectively, and members of
their families, and approximately 75% by others, owned 45% of the UCT Property
and 99% of the Bond Street Property. The remaining interests in the UCT Property
were owned and controlled by Robert Batinovich and members of his family.
22
<PAGE> 24
Because of the ownership interests of Robert and Andrew Batinovich and
their families in the Company and GPA, Ltd., these transactions involve a
conflict of interest. The terms of the transactions and property appraisals have
been reviewed by independent directors to determine if these transactions are
fair from a financial point of view to the Company and its stockholders. The
Company's Board of Directors has unanimously approved each transaction, with
Robert and Andrew Batinovich abstaining. The Company has adopted a policy that
no acquisition of properties from GPA, Ltd. or Robert or Andrew Batinovich or
their families or from other entities in which they have an interest will be
made without the Company first obtaining the approval of at least two-thirds of
the Company's Board of Directors excluding the votes of any interested parties.
See "Certain Relationships and Related Transactions."
UCT Property
On July 15, 1996, the Company acquired the 99% limited partner interest,
and GRT Corporation, a subsidiary of the Company, acquired the 1% general
partner interest, in UCT Associates, a limited partnership in which Robert
Batinovich held a 1% general partner interest and a 53% limited partner
interest, Andrew Batinovich held a 1% general partner interest and GPA, Ltd.
held a 45% limited partner interest. UCT Associates owns the 23-story, 272,443
square-foot UCT Property in St. Louis Missouri. The Operating Partnership issued
23,333 units having an initial redemption value of $0.3 million and repaid
approximately $18.3 million of indebtedness secured by the property, resulting
in a total acquisition value of $18.6 million. The Company obtained an M.A.I.
appraisal on the UCT Property indicating a value of $20.0 million, free of
indebtedness, as of June 1, 1996.
The Operating Partnership units delivered to the partners of UCT Associates
are accompanied by an option permitting a holder of the units to require the
Operating Partnership to redeem the units beginning July 15, 1997. If the holder
requires a redemption, the Company, as general partner for the Operating
Partnership, will have the option to acquire the units by either (i) paying cash
in an amount equal to the fair market value, on the date of receipt of the
notice of redemption, of the units being acquired, or (ii) delivering a number
of shares of the Company's Common Stock having a fair market value equal to the
fair market value of the units being acquired. If shares of the Company's Common
Stock are issued to acquire units of the Operating Partnership, the holder of
those shares will have the right for one year to participate in any offerings
filed by the Company or, if no registered offering is filed by the Company
within that year, to demand registration of the shares under the securities laws
if a sufficient number of holders so request. In any event, though, a holder
will be limited to the sale of not more than 35,000 shares in any three month
period.
The following table sets forth the general location, year completed,
approximate square footage and, for the twelve months ended June 30, 1996, the
average occupancy, average effective rent per square foot, annual effective base
rent and property revenues for the UCT Property.
UCT PROPERTY
<TABLE>
<CAPTION>
AVERAGE PROPERTY
AVERAGE OCCUPANCY EFFECTIVE REVENUES FOR
FOR 12 MONTHS RENT/ ANNUAL 12 MONTHS
YEAR SQUARE ENDED OCCUPIED EFFECTIVE ENDED
CITY ST COMPLETED FEET 6/30/96 SQ. FT. BASE RENT 6/30/96
- ----------------- --- --------- ------- ----------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
St. Louis........ MO 1974 272,443 88% $ 12.79 $3,057,466 $ 4,200,631
</TABLE>
23
<PAGE> 25
The following table sets forth financial information for the UCT Property
for the years ended December 31, 1993, 1994 and 1995 and for the six months
ended June 30, 1996:
STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR THE UCT PROPERTY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ----------------------------
1996 1995 1994 1993
--------------- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES......................................... $ 2,122 $4,239 $4,073 $4,024
CERTAIN EXPENSES:
Operating...................................... 678 1,579 1,474 1,435
Real estate taxes.............................. 260 463 475 453
------ ------ ------ ------
938 2,042 1,949 1,888
------ ------ ------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES........... $ 1,184 $2,197 $2,124 $2,136
====== ====== ====== ======
</TABLE>
The following table sets forth contractual lease expirations for the UCT
Property for the latter half of 1996 and thereafter.
LEASE EXPIRATIONS -- UCT PROPERTY
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER RENTABLE SQUARE ANNUAL BASE RENT
OF LEASES FOOTAGE SUBJECT TO ANNUAL BASE RENT REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASES UNDER EXPIRING LEASES EXPIRING LEASES(1)
- ----------------------------------- --------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C>
1996............................... 25 25,077 $ 393,192 12%
1997............................... 24 48,469 747,384 23
1998............................... 14 22,813 354,300 11
1999............................... 12 34,065 578,844 18
2000............................... 12 26,817 467,244 15
2001............................... 4 10,749 200,748 6
2002............................... 0 0 0 0
2003............................... 1 7,204 124,272 4
2004............................... 0 0 0 0
2005............................... 0 0 0 0
Thereafter......................... 2 66,848 349,152 11
--
------- ---------- -----
Total............................ 94 242,042 $ 3,215,136 100%
== ======= ========== =====
</TABLE>
- ---------------
(1) Annual base rent expiring during each period, divided by total base rent
(both adjusted for contractual increases).
Bond Street Property
On September 24, 1996, the Company acquired the 99% limited partnership
interest, and GRT Corporation, a subsidiary of the Company, acquired the 1%
general partner interest, in GPA Bond, L.P., a limited partnership in which GC
held a 1% general partner interest and GPA, Ltd. held a 99% limited partner
interest. GPA Bond, L.P. owned the Bond Street Property, a 40,595 square foot
suburban office building in Farmington Hills, Michigan. The Operating
Partnership issued approximately 26,067 units having an initial redemption value
of approximately $0.4 million in exchange for the interests in GPA Bond, L.P.
and repaid approximately $2.8 million of indebtedness secured by the property.
The Company obtained an M.A.I. appraisal on the Bond Street Property indicating
a value of approximately $3.3 million, free of indebtedness, as of July 1, 1996.
24
<PAGE> 26
The Operating Partnership units delivered to the partners of GPA Bond are
accompanied by an option permitting a holder of the units to require the
Operating Partnership to redeem the units beginning one year following the
closing of the acquisition of the Bond Street Property. If the holder requires a
redemption, the Company, as general partner for the Operating Partnership, will
have the option to acquire the units by either (i) paying cash in an amount
equal to the fair market value, on the date of receipt of the notice of
redemption, of the units being acquired, or (ii) delivering a number of shares
of the Company's Common Stock having a fair market value equal to the fair
market value of the units being acquired. If shares of the Company's Common
Stock are issued to acquire units of the Operating Partnership, the holder of
those shares will have the right for one year to participate in any offerings
filed by the Company or, if no registered offering is filed by the Company
within that year, to demand registration of the shares under the securities laws
if a sufficient number of holders so request. In any event, a holder is limited
to the sale of not more than 35,000 shares in any three month period.
The following table sets forth the general location, year completed,
approximate square footage, for the twelve months ended June 30, 1996, average
occupancy, average effective rent per square foot, annual effective base rent,
and property revenues for the Bond Street Property.
BOND STREET PROPERTY
<TABLE>
<CAPTION>
AVERAGE
OCCUPANCY AVERAGE PROPERTY
FOR EFFECTIVE ANNUAL REVENUES FOR
12 MONTHS RENT/ EFFECTIVE 12 MONTHS
YEAR SQUARE ENDED OCCUPIED BASE ENDED
CITY ST COMPLETED FEET 6/30/96 SQ. FT. RENT 6/30/96
- --------------------- ---- --------- ------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Farmington Hills..... MI 1986 40,595 82 % $ 15.29 $ 508,416 $571,627
</TABLE>
The following table sets forth financial information for the Bond Street
Property for the year ended December 31, 1995 and for the period ended June 30,
1996.
STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE BOND STREET PROPERTY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
REVENUES.................................................. $257 $ 631
CERTAIN EXPENSES:
Operating............................................... 76 166
Real estate taxes....................................... 33 75
---- ----
109 241
---- ----
REVENUES IN EXCESS OF CERTAIN EXPENSES.................... $148 $ 390
==== ====
</TABLE>
25
<PAGE> 27
The following table sets forth lease expirations for the Bond Street
Property for the latter half of 1996 and thereafter.
LEASE EXPIRATIONS -- BOND STREET PROPERTY
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER RENTABLE SQUARE ANNUAL BASE RENT
OF LEASES FOOTAGE SUBJECT TO ANNUAL BASE RENT REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASES UNDER EXPIRING LEASES EXPIRING LEASES(1)
- ----------------------------------- --------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C>
1996............................... 2 7,919 $ 118,668 19%
1997............................... 1 4,350 65,256 11
1998............................... 5 7,982 128,556 21
1999............................... 5 10,554 188,220 31
2000............................... 0 0 0 0
2001............................... 3 6,756 110,676 18
Thereafter......................... 0 0 0 0
--
------ -------- -----
Total.................... 16.... 37,561 $ 611,376 100%
== ====== ======== =====
</TABLE>
- ---------------
(1) Annual base rent expiring during each period, divided by total base rent
(both adjusted for contractual increases).
OTHER PROPERTIES
San Antonio Hotel
On July 29, 1996, the Company purchased a 64 room limited service Shoney's
Inn located in San Antonio, Texas (the "San Antonio Hotel") from an unaffiliated
seller for an all-cash purchase price of approximately $2.7 million. The San
Antonio Hotel is leased to GHG, which converted it into a Country Inn by
Carlson. The hotel property was constructed in 1994 and consists of a two-story,
wood frame building containing 29,330 square feet. Guest rooms average 330
square feet in size. The common areas include a lobby, sundry shop and exercise
room. There is parking for 75 vehicles and an outdoor swimming pool.
Kash n' Karry Sale Leaseback
On July 29, 1996, the Company purchased a 31,095 square foot building on a
parcel of land consisting of approximately 2.5 acres from Kash n' Karry Food
Stores, Inc. (the "Kash n' Karry Property") for an all-cash purchase price of
approximately $1.5 million. The property consists of a supermarket originally
constructed in 1984 located next to the Company's Westwood Plaza Shopping Center
property in Tampa, Florida. Kash n' Karry Food Stores, Inc. has entered into a
lease under which it will lease the property from the Operating Partnership for
a period of 25 years following an expansion of the premises and will have five
successive five-year options to extend the lease. The initial base rent will be
$166,000 annually. Upon the completion of the expansion, the base rent will
increase to $365,000. Thereafter, the rent will increase 6.50% every five years.
Under the lease agreement Kash n' Karry Food Stores, Inc. will be required to
advance funds for and to complete the approximately 16,000 square foot
expansion. When a certificate of occupancy has been issued for the expanded
premises and the premises are free of all construction liens, the Company will
provide approximately $1.8 million to cover expansion costs and tenant
improvements.
Letter of Intent
The Company is continually reviewing opportunities to acquire additional
portfolios or individual properties. On July 3, 1996 the Company entered into a
letter of intent to acquire a portfolio of properties. This acquisition is
subject to a number of contingencies, including a review of the properties
involved, negotiation of detailed terms, which among other things could alter
the scope of the acquisitions, and formal documentation. Accordingly, the
Company cannot reach a conclusion that this acquisition is probable, and there
can be no assurance that these current discussions, or other discussions
involving opportunities that have not resulted in letters of intent, will result
in any agreement or consummation of any transaction.
26
<PAGE> 28
NEW BANK LOANS
The Company has entered into two new financing arrangements with Wells
Fargo. Under the first financing arrangement, Wells Fargo acted as agent to
obtain the Facility, a two-year $50 million secured revolving line of credit
that the Company may use for property acquisitions, working capital, repayment
of indebtedness, general corporate purposes or scheduled amortization payments
on debt. Availability under the Facility is limited to a borrowing base based on
the appraised value of certain of the Company's pledged industrial, office and
multifamily properties. First mortgages on these properties will secure the
Facility, and the lenders will also have full recourse to the Company. At the
Company's option, the Facility will bear interest at LIBOR plus 2.375% or a base
rate. The base rate is based upon the higher of the bank's prime rate plus 0.5%
or the Federal Funds Rate plus 1.0%. In addition, the Company paid an
origination fee, a commitment fee, and a borrowing base fee. The Company also
will pay an annual extension fee (if an extension is requested and approved), a
term loan conversion fee (if the Company elects a conversion), an unused
facility fee and annual agent's fees. The Company may request a one-year
extension on the first and each successive anniversary of the loan. If the
extension is not approved the Company may elect to repay the Facility in full on
or before the scheduled maturity date or to convert the loan into a three-year
amortizing loan with quarterly payments.
The second financing arrangement is the Term Loan, a two-year term loan in
the amount of $6.1 million, which bears interest at the same rate as the
Facility, and is secured by first mortgage liens on 10 "QuikTrip" facilities
owned by the Company, with full recourse to the Company. Required payments under
the Term Loan are interest only for the first year, and principal and interest
payments in the second year based on monthly principal payments of $25,500 plus
interest on the outstanding balance.
Final documentation for the Facility and Term Loan was executed on July 15,
1996, and included numerous representations, warranties, covenants and other
provisions, including a minimum net worth requirement, a maximum ratio of total
liabilities to gross asset value, a limit on the Company's distributions
restricting payments to 90% of FFO, various cash flow coverage commitments,
limits on permitted investments, limits on the amount of floating rate debt and
other customary covenants. A default under the Facility will also constitute a
default under the Term Loan, and vice versa. While the loan documents restrict
the Company's activities, the Company does not expect that they will interfere
with the Company's current business plans or prevent the Company from qualifying
as a REIT.
On July 15, 1996, the first disbursements under the Facility were made, as
well as full disbursement of the proceeds of the Term Loan, in the aggregate
amount of $28.4 million, of which the Company applied $18.3 million to the
acquisition of the UCT Property, $9.2 million to the payoff of the outstanding
amount due under its then existing line of credit, and the balance of
approximately $0.9 million to loan fees and closing costs related to the
Facility and the Term Loan. On July 29, 1996, the Company borrowed an additional
$3.8 million under the Facility which was applied toward the purchase of the San
Antonio Hotel and the Kash n' Karry Property.
27
<PAGE> 29
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $46.6 million (or approximately $53.8 million if the Underwriters'
over-allotment option is exercised in full), based on an assumed offering price
of $14.50. The Company intends to contribute these proceeds to the Operating
Partnership, of which the Company is the sole general partner, to purchase
additional interests in the Operating Partnership. The Operating Partnership
will use approximately $23.6 million to acquire the TRP Properties and
approximately $24.0 million (including cash on-hand of approximately $1.0
million) to repay borrowings outstanding on the Facility referred to under the
heading "Recent Activities" used to acquire certain properties.
The Company is continuously engaged, in the ordinary course of its
business, in the evaluation of properties for acquisition. Pending application
of any remaining portion of net proceeds, the Company will invest that portion
in interest-bearing accounts and short-term, interest-bearing securities that
are consistent with the Company's intention to qualify for taxation as a REIT.
Such investments may include, for example, government and government agency
securities, certificates of deposit and interest-bearing bank deposits.
28
<PAGE> 30
DISTRIBUTION POLICY
The Company makes distributions to stockholders if, as and when declared by
its Board of Directors out of funds legally available therefor. Cash available
for distributions does not represent cash generated from operating activities
determined in accordance with GAAP, is not necessarily indicative of cash
available to fund all of the Company's cash needs and should not be considered
an alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity. The Company paid its first quarterly
distribution of $0.30 per share on May 13, 1996, and paid its next distribution
of $0.30 per share on August 14, 1996. Distributions are currently declared
quarterly by the Company based on financial results for the prior calendar
quarter. The Company expects to continue its policy of paying quarterly
distributions, but there can be no assurance that distributions will continue or
be paid at any specific level.
The Board of Directors, in setting the level of the stockholders'
distributions, takes into account, among other things, the Company's financial
performance, debt covenants and its need of funds for working capital reserves,
capital improvements and new investment opportunities. At present, the Company
intends to retain from net cash receipts from operations amounts necessary for
working capital reserves, debt payments and capital improvements and
replacements for existing properties, and to distribute the balance to
stockholders as distributions. The Company does not, however, intend to
distribute net cash receipts from sales or refinancings of assets, but instead
to retain such funds to make new investments or for other corporate purposes,
taking into account the income tax impact, if any, of reinvesting such proceeds
rather than distributing them. These policies are within the discretion of the
Board of Directors and may be changed from time to time subject only to (a) the
requirement that the Company will, in any event, distribute at least 95% of its
REIT Taxable Income, and (b) the Company's intention, subject to the maintenance
of prudent levels of working capital, to distribute 100% of REIT Taxable Income
so as to avoid any income tax liability in connection with the Company's REIT
Taxable Income.
To qualify for the beneficial tax treatment accorded to a REIT, the Company
must pay annual distributions equal to at least 95% of its REIT Taxable Income.
The Company's REIT Taxable Income is calculated without reference to its cash
flow. See "Federal Income Tax Considerations -- Taxation of the Company." The
Company believes it will have sufficient available cash to make distributions at
a level necessary to maintain REIT status. Additionally, the Company would be
required to make a special distribution with respect to accumulated earnings and
profits, if any, from any portion of a year in which it does not elect REIT
status including any earnings and profits attributable to the Company and GC.
Although the Company believes that a small portion of its distributions for
1996 will be classified as a return of capital for federal income tax purposes,
it cannot currently predict the portion of 1996 or future distributions that may
be so classified. See "Federal Income Tax Considerations -- Taxation of Taxable
Domestic Stockholders."
29
<PAGE> 31
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, as adjusted to give effect to (i) the Facility and Term Loan, (ii) the
acquisitions of the TRP Properties, the UCT Property, the Bond Street Property,
the San Antonio Hotel and the Kash n' Karry Property described in "Recent
Activities", and (iii) the Offering and the application of the net proceeds
therefrom as described in "Use of Proceeds." This capitalization table should be
read in conjunction with the Company's consolidated financial statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Mortgage loans....................................................... $ 23,520 $ 39,926
Secured bank line.................................................... 9,210 --
Facility............................................................. -- 5,811
Term Loan............................................................ -- 6,120
------- --------
Total debt........................................................ 32,730 51,857
------- --------
MINORITY INTEREST...................................................... 8,041 9,328
------- --------
STOCKHOLDERS' EQUITY:
Common stock: $0.001 par value, 50,000,000 shares authorized,
5,768,709 and 9,470,709 issued and outstanding, respectively...... 6 10
Additional paid-in capital........................................... 55,847 105,087
Deferred compensation................................................ (193) (193)
Retained deficit..................................................... (6,138) (6,321)
------- --------
Total stockholders' equity........................................ 49,522 98,583
------- --------
TOTAL CAPITALIZATION................................................. $ 90,293 $ 159,768
======= ========
</TABLE>
30
<PAGE> 32
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
On January 31, 1996 the Company's Common Stock began trading on the NYSE
under the symbol "GLB." On September 30, 1996, the last reported sale price per
share of the Company's Common Stock on the NYSE was $13.875. The table below
sets forth for the periods indicated the high and low sales prices per share of
the Company's Common Stock, as reported on the NYSE composite tape, and
distributions declared per share of Common Stock.
<TABLE>
<CAPTION>
PRICE PER
SHARE OF
COMMON STOCK
------------- DISTRIBUTIONS
1996 HIGH LOW PAID(2)
- ---------------------------------------------------------------- ---- ---- -------------
<S> <C> <C> <C>
First Quarter(1)................................................ $14 3/8 $ 12 --
Second Quarter.................................................. 15 1/4 13 3/8 $0.30
Third Quarter................................................... 14 5/8 13 3/8 $0.30
</TABLE>
- ---------------
(1) Although the Consolidation occurred on December 31, 1995 and the Company
began paying distributions on its Common Stock based on earnings in the
first quarter of 1996, the Common Stock did not begin trading on the NYSE
until January 31, 1996.
(2) The Company paid its first quarterly distribution of $0.30 per share on May
13, 1996, and paid its next distribution of $0.30 per share on August 14,
1996. Distributions are currently declared quarterly by the Company based on
financial results for the prior calendar quarter. Although the Company
believes that a small portion of its distributions for 1996 will be
classified as a return of capital for federal income tax purposes, it cannot
currently predict the portion of 1996 or any future distributions that may
be so classified. The Company expects to continue its policy of paying
quarterly distributions, but there can be no assurance that distributions
will continue or be paid at any specific level. See "Distribution Policy."
31
<PAGE> 33
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data on a
historical, as adjusted and pro forma basis for the Company, and on a historical
combined basis for the GRT Predecessor Entities. The GPA Properties, TRP
Properties, UCT Property and Bond Street Property are not included in the
historical combined data. The table should be read in conjunction with the
financial statements and notes thereto of the Company, GRT Predecessor Entities,
GPA Properties, TRP Properties, UCT Property and Bond Street Property included
elsewhere in this Prospectus.
The following unaudited pro forma operating and other data have been
prepared to reflect (i) the Consolidation and related transactions, (ii) the
Facility and Term Loan, (iii) the property acquisitions described under the
caption "Recent Activities" and (iv) the Offering and the application of the net
proceeds therefrom as set forth in "Use of Proceeds," as if such transactions
had occurred on January 1, 1995. The unaudited pro forma balance sheet data has
been prepared to reflect (i) the Facility and Term Loan, (ii) the property
acquisitions described under the caption "Recent Activities" and (iii) the
Offering and the application of the net proceeds therefrom as set forth in "Use
of Proceeds" as if such transactions had occurred on June 30, 1996. This
unaudited pro forma selected financial and other data should be read in
conjunction with the financial statements and notes of the Company, GRT
Predecessor Entities, GPA Properties, TRP Properties, UCT Property and Bond
Street Property included elsewhere in this Prospectus. In the opinion of
management, all adjustments necessary to reflect the effects of the transactions
have been made.
The pro forma selected financial and other data is unaudited and is not
necessarily indicative of the consolidated results which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or cash flows for future periods.
32
<PAGE> 34
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------- --------------------------------------------------
PRO FORMA HISTORICAL AS ADJUSTED HISTORICAL PRO FORMA AS ADJUSTED HISTORICAL AS ADJUSTED
1996 1996 1995(1) 1995 1995 1995(1) 1995 1994(1)
--------- ---------- ----------- ---------- --------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues(2).............. $ 14,819 $ 8,832 $ 8,322 $ 16,949 $ 28,471 $16,405 $ 34,171 $15,885
Interest expense......... 2,314 1,421 1,383 1,083 4,516 2,767 2,129 2,767
Depreciation and
Amortization........... 2,389 1,759 1,871 2,359 4,898 3,654 4,762 3,442
Income (loss) from
operations before
minority interest and
extraordinary items.... 5,267 3,068 2,602 2,950 8,331 4,077 524 4,516
Net income (loss)(3)..... 4,937 (4,412) 2,423 2,950 7,810 3,796 524 (3,093)
Per share (4):
Net income before
extraordinary
items................ $ 0.52 $ 0.49 $ 0.42 -- $ 0.82 $ 0.66 -- $ 0.72
Net income (loss)...... 0.52 (0.77) 0.42 -- 0.82 0.66 -- (0.54)
Distributions(5)....... 0.60 0.60 0.60 -- 1.20 1.20 -- 1.20
BALANCE SHEET DATA:
Net investment in real
estate................. $ 143,542 $ 73,791 -- -- -- -- $ 77,574 --
Mortgage loans
receivable, net........ 7,213 7,213 -- -- -- -- 7,216 --
Total assets............. 162,227 92,752 -- -- -- -- 105,740 --
Total debt............... 51,857 32,730 -- -- -- -- 36,168 --
Stockholders' equity..... 98,583 49,552 -- -- -- -- 55,628 --
OTHER DATA:
EBIDA(6)................. $ 9,970 $ 6,248 $ 5,856 $ 6,392 $ 18,608 $11,361 $ 9,291 $11,258
Cash flow provided by
(used for):
Operating activities... 2,702 (448) 2,421 (11,280) 10,154 4,656 (10,608) 5,742
Investing activities... (49) 2,877 1,697 9,126 (48,034) 3,263 8,656 1,710
Financing activities... (7,714) (5,326) (4,125) (15,748) 36,246 (7,933) (17,390) (6,408)
FFO(7)................... 8,237 5,087 4,911 5,309 15,136 9,638 7,162 9,536
FAD(8),(9)............... 7,118 4,489 4,381 7,332 12,966 8,579 4,215 8,477
Debt to total market
capitalization(10)..... 26.1% 26.9% -- -- -- -- -- --
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1994 1993 1992 1991
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues(2).............. $ 30,681 $ 32,224 $ 31,128 $ 28,726
Interest expense......... 1,140 1,301 1,466 1,564
Depreciation and
Amortization........... 4,041 4,572 4,933 5,069
Income (loss) from
operations before
minority interest and
extraordinary items.... 1,580 2,144 (2,139) 1,823
Net income (loss)(3)..... 1,580 4,418 (2,681) 1,301
Per share (4):
Net income before
extraordinary
items................ -- -- -- --
Net income (loss)...... -- -- -- --
Distributions(5)....... -- -- -- --
BALANCE SHEET DATA:
Net investment in real
estate................. $ 63,944 $ 70,245 $ 75,022 $ 77,717
Mortgage loans
receivable, net........ 19,953 18,825 18,967 24,018
Total assets............. 117,321 102,635 108,168 119,459
Total debt............... 17,906 12,172 15,350 12,269
Stockholders' equity..... 80,558 85,841 87,172 96,958
OTHER DATA:
EBIDA(6)................. $ 10,269 $ 10,326 $ 8,815 $ 9,256
Cash flow provided by
(used for):
Operating activities... 22,426 12,505 6,891 7,103
Investing activities... (1,947) (2,002) (1,437) (44)
Financing activities... (2,745) (8,927) (9,476) (2,868)
FFO(7)................... 9,129 9,025 7,349 7,692
FAD(8),(9)............... 6,888 6,114 4,731 4,595
Debt to total market
capitalization(10)..... -- -- -- --
</TABLE>
33
<PAGE> 35
- ---------------
( (1) As adjusted amounts give effect to the Consolidation and related
transactions as if such transactions had occurred on January 1, 1994.
( (2) Certain revenues which are included in the historical combined amounts are
not included on a pro forma or as adjusted basis. These revenues are
included in three unconsolidated Associated Companies (GHG, GC and GIRC),
on a pro forma basis and on an as adjusted basis, from which the Company
receives lease payments and dividend income.
( (3) Historical 1996 and as adjusted 1994 net losses reflect $7,237 of
Consolidation and litigation costs incurred in connection with the
Consolidation. As adjusted 1994 data give effect to the Consolidation and
related transactions as if such transactions had occurred on January 1,
1994, whereas historical 1996 data reflect such transactions in the
periods they occurred. The Consolidation and litigation costs were
expensed on January 1, 1996, the Company's first day of operations. Net
loss in 1992 includes a non-recurring writedown of $4,282 on GPI's
investment in the master agreement that resulted from GPI's in-substance
foreclosure on the AFP Partners' properties.
( (4) Pro Forma net income per share is based upon pro forma weighted average
shares outstanding (assuming GPA's units are not converted into shares) of
9,470,709 for 1996 and 1995. As adjusted net income per share is based
upon as adjusted weighted average shares outstanding of 5,753,709 for 1995
and 1994.
( (5) Consists of distributions declared for the period then ended.
( (6) EBIDA means and is computed as earnings before interest expense,
depreciation, amortization, loss provisions and minority interests. The
Company believes that in addition to cash flows and net income, EBIDA is a
useful financial performance measurement for assessing the operating
performance of an equity REIT because, together with net income and cash
flows, EBIDA provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. To evaluate EBIDA and the trends it depicts,
the components of EBIDA, such as rental revenues, rental expenses, real
estate taxes and general and administrative expenses, should be
considered. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Excluded from EBIDA are financing
costs such as interest as well as depreciation and amortization, each of
which can significantly affect a REIT's results of operations and
liquidity and should be considered in evaluating a REIT's operating
performance. Further, EBIDA does not represent net income or cash flows
from operating, financing and investing activities as defined by generally
accepted accounting principles and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
( (7) Funds from Operations ("FFO") means income (loss) from operations before
minority interests and extraordinary items plus depreciation and
amortization except amortization of deferred financing costs and loss
provisions. Management generally considers FFO to be a useful financial
performance measure of the operating performance of an equity REIT
because, together with net income and cash flows, FFO provides investors
with an additional basis to evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital expenditures. FFO
does not represent net income or cash flows from operations as defined by
GAAP and does not necessarily indicate that cash flows will be sufficient
to fund cash needs. It should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. FFO does not measure whether cash flow is
sufficient to fund all of the Company's cash needs including principal
amortization, capital improvements and distributions to stockholders. FFO
also does not represent cash flows generated from operating, investing or
financing activities as defined by GAAP. Further, FFO as disclosed by
other REITs may not be comparable to the Company's calculation of FFO.
( (8) Funds available for distribution ("FAD") represents net income (loss)
(computed in accordance with GAAP), excluding extraordinary gains or
losses or loss provisions, plus depreciation and amortization and
principal receipts from mortgage loans, less lease commissions, capital
expenditures (excluding property acquisitions) and debt principal
amortization. FAD should not be considered an alternative to net income as
a measure of the Company's financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as a measure of
the Company's liquidity, nor is it necessarily indicative of sufficient
cash flow to fund all of the Company's cash needs.
( (9) FAD for the year ended December 31, 1995 excludes approximately $6,782
that represents the net proceeds received from the prepayment of the
Finley mortgage loan and the repayment of the wrap note payable.
(10) Debt to total market capitalization is calculated as total debt at period
end divided by total debt plus the market value of the Company's
outstanding common stock, on a fully converted basis, based upon the last
reported sales price of the Company's Common Stock of $14 1/2 on a pro
forma basis as of September 5, 1996 and $14 1/8 on a historical basis, as
of June 30, 1996.
34
<PAGE> 36
PRO FORMA FINANCIAL INFORMATION
The following unaudited, pro forma condensed consolidated statements of
operations for the six months ended June 30, 1996 and for the year ended
December 31, 1995 have been prepared to reflect (i) the Consolidation and
related transactions, (ii) the Facility and Term Loan described under the
caption "Recent Activities", (iii) the property acquisitions described under the
caption "Recent Activities" and (iv) the Offering and the application of the net
proceeds therefrom as set forth in "Use of Proceeds," as if such transactions
had occurred on January 1, 1995. The unaudited, pro forma condensed consolidated
balance sheet as of June 30, 1996 has been prepared to reflect (i) the Facility
and Term Loan described under the caption "Recent Activities", (ii) the property
acquisitions described under the caption "Recent Activities" and (iii) the
Offering, and the application of the net proceeds therefrom as set forth in "Use
of Proceeds" as if such transactions had occurred on June 30, 1996. These
unaudited, pro forma condensed consolidated financial statements should be read
in conjunction with the financial statements and notes of the Company, GRT
Predecessor Entities, GPA Properties, UCT Property, TRP Properties and Bond
Street Property included elsewhere in this Prospectus. In the opinion of
management, all adjustments necessary to reflect the effects of the transactions
have been made.
The pro forma condensed consolidated financial information is unaudited and
is not necessarily indicative of the results which would have occurred if the
transactions had been consummated in the periods presented, or on any particular
date in the future, nor does it purport to represent the financial position,
results of operations or cash flows for future periods.
35
<PAGE> 37
GLENBOROUGH REALTY TRUST INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FACILITY AND PROPERTY REPAYMENT
HISTORICAL(1) TERM LOAN(2) ACQUISITIONS(3) OFFERING(4) OF DEBT(5) PRO FORMA
------------- ------------ --------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Rental property, net................ $73,791 $ -- $ 69,751 $ -- $ -- $ 143,542
Investments in Associated
Companies......................... 6,466 -- -- -- -- 6,466
Mortgage loans receivable, net...... 7,213 -- -- -- -- 7,213
Cash and cash equivalents........... 1,690 -- (23,570) 46,605 (23,986) 739
Other Assets........................ 3,592 675 -- -- -- 4,267
------- -------- -------- ------- -------- ------
$92,752 $ 675 $ 46,181 $46,605 $(23,986) $ 162,227
======= ======== ======== ======= ======== ======
LIABILITIES
Mortgage loans...................... $23,520 $ -- $ 16,406 -- $ -- $ 39,926
Secured bank line................... 9,210 (9,210) -- -- -- --
Facility............................ -- 3,948 25,849 -- (23,986) 5,811
Term Loan........................... -- 6,120 -- -- -- 6,120
Other liabilities................... 2,459 -- -- -- -- 2,459
------- -------- -------- ------- -------- ------
Total Liabilities.............. 35,189 858 42,255 -- (23,986) 54,316
------- -------- -------- ------- -------- ------
MINORITY INTEREST................... 8,041 -- 1,287 -- -- 9,328
------- -------- -------- ------- -------- ------
STOCKHOLDERS' EQUITY
Common stock........................ 6 -- -- 4 -- 10
Additional paid-in capital.......... 55,847 -- 2,639 46,601 -- 105,087
Deferred compensation............... (193) -- -- -- -- (193)
Retained earnings (deficit)......... (6,138) (183) -- -- -- (6,321)
------- -------- -------- ------- -------- ------
Total Stockholders' Equity
(deficit)......................... 49,522 (183) 2,639 46,605 -- 98,583
------- -------- -------- ------- -------- ------
$92,752 $ 675 $ 46,181 $46,605 $(23,986) $ 162,227
======= ======== ======== ======= ======== ======
</TABLE>
36
<PAGE> 38
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
1. Reflects the historical consolidated balance sheet of the Company as of June
30, 1996.
2. Reflects the repayment of the Company's secured bank line with borrowings on
the Facility and Term Loan provided by Wells Fargo. The Facility provides for
maximum borrowings of up to $50,000, but limited to a specified borrowing
base ($50,000 on a pro forma basis), has an initial term of two years which
can be extended an additional three years at the option of the Company, bears
interest at LIBOR plus 2.375% (assumed to be 7.852%), requires monthly
interest only payments and requires annual unused Facility fees equal to
0.25% of the unused Facility balance. The Term Loan has a term of two years
and bears interest at a rate of LIBOR plus 2.375% (assumed to be 7.852%).
Required payments under the Term Loan are interest only for the first year,
and principal and interest payments in the second year based on monthly
principal payments of $26 plus interest on the outstanding balance. In
connection with obtaining the Facility and Term Loan, the Company incurred
commitment fees and other costs totaling approximately $858. The repayment
resulted in an extraordinary loss of approximately $183 representing the
write-off of unamortized loan deferred financing fees on the secured bank
line.
3. Reflects the acquisition of the TRP Properties, UCT Property, Bond Street
Property, Kash n' Karry Property and San Antonio Hotel at an aggregate cost
of approximately $69,751 including acquisition costs of approximately $600.
The acquisitions were funded with approximately $23,570 of the net proceeds
from the Offering, assumption of approximately $16,406 of mortgage debt,
borrowings on the Facility of approximately $25,849, and the issuance of
89,745 Operating Partnership units and 182,000 shares of unregistered Common
Stock with an aggregate approximate value of $3,926. The assumed mortgages
bear interest rates of 8.00% to 9.25% and mature between August 1998 and
August 2003.
4. Reflects the Offering. In connection with the Offering the Company will incur
costs of approximately $4,145.
5. Reflects the repayment of borrowings on the Facility of approximately
$23,986. After the Offering, the Company will have approximately $44,189 of
remaining borrowing capacity on the Facility.
37
<PAGE> 39
GLENBOROUGH REALTY TRUST INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, DOLLARS THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FACILITY AND PROPERTY REPAYMENT
HISTORICAL(1) TERM LOAN(2) ACQUISITIONS(3) OF DEBT(4) OTHER(5) PRO FORMA
------------- ------------ --------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental property, net............ $ 7,039 $ -- $ 6,602 $ -- $ (260) $ 13,381
Equity in earnings of Associated
Companies..................... 969 -- -- -- (34) 935
Fees, interest and other
income........................ 824 -- -- -- (321) 503
--------- ---- ------ ----- ----- ---------
Total Revenue......... 8,832 -- 6,602 -- (615) 14,819
--------- ---- ------ ----- ----- ---------
OPERATING EXPENSES
Operating expenses.............. 1,909 -- 2,293 -- (128) 4,074
General and administrative...... 675 -- -- -- 100 775
Depreciation and amortization... 1,759 -- 680 -- (50) 2,389
Interest expense................ 1,421 117 1,718 (942) -- 2,314
--------- ---- ------ ----- ----- ---------
Total operating
expenses............ 5,764 117 4,691 (942) (78) 9,552
--------- ---- ------ ----- ----- ---------
Income from operations before
minority interests............ 3,068 (117) 1,911 942 (537) 5,267
Minority interest............... (243) -- -- -- (87) (330)
--------- ---- ------ ----- ----- ---------
Net income...................... $ 2,825 $ (117) $ 1,911 $ 942 $ (624) $ 4,937
========= ==== ====== ===== ===== =========
Net income per common share..... $ 0.49 $ 0.52
========= =========
Weighted average common
shares outstanding............ 5,757,995 9,470,709
========= =========
</TABLE>
38
<PAGE> 40
GLENBOROUGH REALTY TRUST INCORPORATED
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS FACILITY AND PROPERTY REPAYMENT
ADJUSTED(1) TERM LOAN(2) ACQUISITIONS(3) OF DEBT(4) OTHER(5) PRO FORMA
----------- ------------ --------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental property, net............. $ 13,472 $ -- $12,725 $ -- $ (595) $ 25,602
Equity in earnings of Associated
Companies...................... 1,691 -- -- -- (64) 1,627
Fees, interest and other
income......................... 1,242 -- -- -- -- 1,242
--------- ----- ------- ------- ----- ---------
Total Revenue.......... 16,405 -- 12,725 -- (659) 28,471
--------- ----- ------- ------- ----- ---------
OPERATING EXPENSES
Operating expenses............... 4,061 -- 4,892 -- (273) 8,680
General and administrative....... 983 -- -- -- 200 1,183
Depreciation and amortization.... 3,654 -- 1,360 -- (116) 4,898
Interest expense................. 2,767 196 3,436 (1,883) -- 4,516
Loss provisions.................. 863 -- -- -- -- 863
--------- ----- ------- ------- ----- ---------
Total operating
expenses............. 12,328 196 9,688 (1,883) (189) 20,140
--------- ----- ------- ------- ----- ---------
Income from operations before
minority interests............. 4,077 (196) 3,037 1,883 (470) 8,331
Minority interest................ (281) -- -- -- (240) (521)
--------- ----- ------- ------- ----- ---------
Net income....................... $ 3,796 $ (196) $ 3,037 $ 1,883 $ (710) $ 7,810
========= ===== ======= ======= ===== =========
Net income per common share...... $ 0.66 $ 0.82
========= =========
Weighted average common shares
outstanding.................... 5,753,709 9,470,709
========= =========
</TABLE>
39
<PAGE> 41
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLARS IN THOUSANDS)
1. Reflects the historical consolidated operations of the Company for the six
months ended June, 1996, excluding extraordinary items and Consolidation
costs, and the as adjusted consolidated operations of the Company for the
year ended December 31, 1995. The as adjusted operations reflect the
Consolidation and related transactions as if such transactions had occurred
on January 1, 1995. See the unaudited as adjusted statement of operations of
the Company for the year ended December 31, 1995 included elsewhere in this
prospectus.
2. Reflects the repayment of the Company's secured bank line with borrowings on
the Company's Facility and Term Loan. The repayment results in a net increase
in interest expense consisting of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
<S> <C> <C>
Interest rate differential........................... $ 9 $ 3
Amortization of new loan fees........................ 91 182
Amortization of old loan fees........................ (38) (99)
Unused Facility fees................................. 55 110
---- ----
$117 $ 196
==== ====
</TABLE>
The amortization of the new loan fees is based upon total estimated fees and
costs of $858 over the respective terms of the Facility and Term Loan. The
unused Facility fees are based upon 0.25% of the pro forma unused Facility
capacity as of June 30, 1996 of approximately $44,189.
3. Reflects the historical operations of the TRP Properties, UCT Property, Bond
Street Property, Kash n' Karry Property and San Antonio Hotel.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------------
BOND KASH N' SAN
TRP UCT STREET KARRY ANTONIO COMBINED
PROPERTIES PROPERTY PROPERTY PROPERTY HOTEL TOTAL
---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 3,965 $2,122 $ 257 $ 82 $ 176 $ 6,602
Operating expenses.......... (1,216) (938) (109) -- (30) (2,293 )
------ ------ ---- --- ---- -------
$ 2,749 $1,184 $ 148 $ 82 $ 146 $ 4,309
====== ====== ==== === ==== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------
BOND KASH N' SAN
TRP UCT STREET KARRY ANTONIO COMBINED
PROPERTIES PROPERTY PROPERTY PROPERTY HOTEL TOTAL
---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 7,336 $4,239 $ 631 $166 $ 353 $12,725
Operating expenses.......... (2,548) (2,042) (241) -- (61) (4,892 )
------ ------ ---- --- ---- -------
$ 4,788 $2,197 $ 390 $166 $ 292 $ 7,833
====== ====== ==== === ==== =======
</TABLE>
Also, reflects estimated depreciation and amortization, based upon estimated
useful lives of 40 years on a straight-line basis, estimated interest on the
pro forma Facility borrowings of approximately $25,849 used to acquire the
TRP Properties, UCT Property, Bond Street Property, Kash n' Karry Property
and San Antonio Hotel and estimated interest on the pro forma mortgage debt
assumed of approximately $16,406 in connection with the acquisition of the
TRP Properties. The estimated interest on the Facility and Term Loan
borrowings is based upon an assumed interest rate of 7.852% and estimated
interest on the mortgage loans assumed is based upon an assumed weighted
average rate of 8.570%.
40
<PAGE> 42
4. Reflects the reduction of interest expense resulting from the repayment of
borrowings on the Facility of approximately $23,986 at an assumed interest
rate of 7.852%. The Company's Facility and Term Loan are subject to changes
in LIBOR. Based upon the pro forma Facility and Term Loan balances as of June
30, 1996, a 1/8% increase or decrease in LIBOR will result in increased or
decreased annual interest expense of approximately $15.
5. Reflects a (i) net decrease in the Company's equity in earnings from its
investments in GC and GHG, (ii) the elimination of actual revenues and
expenses of the All American Self Storage properties that were sold in June
1996, (iii) the minority interests' share of the pro forma adjustments to the
net income of the Operating Partnership and (iv) increased general and
administrative expenses of approximately $200 per year related to the
property acquisitions. The net decrease in equity in earnings from its
investments in GC and GHG is comprised primarily of (i) a decrease due to a
reduction of annual management fees of approximately $152 received by GC from
the UCT Property and the Bond Street Property net of estimated taxes and (ii)
a increase due to an estimated annual increase in GHG's net income of
approximately $38 due to its leasing of the San Antonio Hotel from the
Company.
6. The pro forma taxable income for the Company for the 12 months ended June 30,
1996 was approximately $10,037 which has been calculated as pro forma net
income from operations of approximately $7,791 plus GAAP basis depreciation
and amortization, loss provision and minority interests of approximately
$5,441 less tax basis depreciation and amortization and other tax differences
of approximately $3,195.
41
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial and Other Data" and the financial statements of the Company and the
GRT Predecessor Entities.
BACKGROUND
The historical combined balance sheet as of December 31, 1994, and related
historical combined statements of operations, equity and cash flows for the
years ended December 31, 1995, 1994 and 1993 of the GRT Predecessor Entities
include the historical operations of Old GC, and the partnerships participating
in the Consolidation (the "Partnerships"). These statements have been adjusted
to reflect the consolidation of two joint ventures which were, in aggregate,
wholly owned by the Partnerships.
The as adjusted financial information for the six months ended June 30,
1995 and for the years ended December 31, 1995 and 1994 discussed below gives
effect to the Consolidation and related transactions as if they had occurred on
January 1, 1994.
The Consolidation took place on December 31, 1995. Management and related
fees earned by Old GC and its subsidiaries, as well as the operations of the
hotels owned by certain of the Partnerships, included in the historical combined
statements of operations prior to that date are now earned by the Associated
Companies in which the Company has preferred stock investments. The Company
accounts for its share of the earnings of the Associated Companies under the
equity method.
FUNDS FROM OPERATIONS
The Company believes that FFO is a measure of cash flow that, when
considered in conjunction with other measures of operating performance, affects
the value of equity REITs such as the Company. FFO, as defined by the National
Association of Real Estate Investment Trusts ("NAREIT"), means net income (loss)
(computed in accordance with GAAP) excluding gains (losses) from debt
restructuring and sales of property, plus depreciation and amortization of real
property, and after adjustments for unconsolidated partnerships and joint
ventures.
FFO is not necessarily indicative of cash flow available to fund cash needs
and is not the same as cash flow from operations as defined by GAAP, and should
not be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating, investing and financing activities as a measure of liquidity or
ability to make distributions. Management generally considers FFO to be a useful
financial performance measurement because it provides investors with an
additional basis to evaluate the performance of a REIT. FFO as disclosed by
other REITs may not be comparable to the Company's calculation of FFO.
In February 1995, NAREIT established new guidelines for calculating FFO
that clarify previous guidelines. The primary change from the old definition to
the new definition is the treatment of amortization of deferred financing fees.
Under the new definition, the amortization of deferred financing fees and costs
is no longer added back to net income in calculating FFO. The new guidelines
were effective beginning in 1996.
Beginning with the first quarter of 1996, the Company calculates its FFO
based upon the new NAREIT definition and, accordingly, does not add back
amortization of deferred financing fees and costs. The change does not affect
the Company's FAD. FAD represents FFO plus recurring principal receipts from
mortgage loans and amortization of deferred financing fees less reserves for
lease commissions, capital expenditures (excluding property acquisitions) and
debt principal amortization. FAD should not be considered an alternative to net
income as a measure of the Company's financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as a measure of the
Company's liquidity, nor is it necessarily indicative of sufficient cash flow to
fund all of the Company's needs.
42
<PAGE> 44
The following table sets forth the Company's calculation of FFO, based upon
the new NAREIT definitions, and FAD for the year ended December 31, 1995 and six
months ended June 30, 1996 (dollars in thousands, except share equivalents).
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, 1995 ENDED JUNE 30, 1996
------------------------------- ---------------------------
AS ADJUSTED(1) PRO FORMA(2) HISTORICAL PRO FORMA(2)
-------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net income before minority interest.... $ 4,077 $ 8,331 $ 3,068 $ 5,267
Depreciation and amortization.......... 3,654 4,898 1,759 2,389
Equity in earnings of Associated
Companies............................ (1,691) (1,627) (969) (935)
FFO of Associated Companies(3)......... 2,735 2,671 1,550 1,516
Gain on sale of properties............. -- -- (321) --
Loss Provision......................... 863 863 -- --
--------- ---------- --------- ----------
FFO.................................... 9,638 15,136 5,087 8,237
--------- ---------- --------- ----------
Capital Reserve........................ (955) (1,878) (478) (939)
Principal Receipts on Mortgage Loans... 100 100 19 19
Principal Amortization Reserve......... (377) (648) (211) (324)
Amortization of Deferred Financing
Fees................................. 173 256 72 125
--------- ---------- --------- ----------
FAD.................................... $ 8,579 $ 12,966 $ 4,489 $ 7,118
========= ========== ========= ==========
Fully converted share equivalents
outstanding(4)....................... 6,296,354 10,102,787 6,311,042 10,102,787
Distributions(5)....................... $ 7,556 $ 12,123 $ 3,787 $ 6,062
Distributions as % of:
FFO.................................. 78.4% 80.1% 74.4% 73.6%
FAD.................................. 88.1 93.5 84.4 85.2
</TABLE>
- ---------------
(1) As adjusted amounts reflect the Consolidation and related transactions as if
the transactions had occurred on January 1, 1995. See unaudited as adjusted
statements of operations for the year ended December 31, 1995, contained
elsewhere in this prospectus.
(2) Pro forma amounts reflect (i) the Facility and Term Loan, (ii) the property
acquisitions and (iii) the Offering. See unaudited pro forma condensed
consolidated statements of operations, contained elsewhere in this
prospectus.
(3) FFO of the Associated Companies is equal to the sum of the Company's share
of the FFO of GC, GIRC and GHG, computed as net income before minority
interest and extraordinary items, plus depreciation and amortization and
other non-recurring charges.
(4) Includes shares of Common Stock and units of the Operating Partnership on a
fully converted basis.
(5) Based upon the Company's current annual distribution rate of $1.20 per share
equivalent.
RESULTS OF OPERATIONS
Comparison of the historical six months ended June 30, 1996 to the As
Adjusted six months ended June 30, 1995
Rental revenues increased $311,000, or 5%, to $7,039,000 for the six months
ended June 30, 1996 from $6,728,000 for the period ended June 30, 1995. The
increase was primarily due to a net increase in hotel lease revenues and
revenues from commercial properties. Hotel lease payments increased due to
increases in hotel occupancy. In addition, occupancy increased at certain
commercial properties.
Interest and other income decreased $147,000, or 28%, for the six months
ended June 30, 1996, to $370,000 from $517,000 for the period ended June 30,
1995. The decrease was due to lower cash balances in short-term investments
during the period ended June 30, 1996.
General and administrative expenses increased $184,000, or 37%, for the six
months ended June 30, 1996, to $675,000 from $491,000 for the period ended June
30, 1995. The increase was primarily due to increased professional fees and
salaries expense in connection with the issuance of restricted stock to newly
appointed outside directors.
43
<PAGE> 45
Equity in earnings of the Associated Companies increased by $38,000, or 4%,
to $969,000 for the six months ended June 30, 1996 from $930,000 for the period
ended June 30, 1995. Income fluctuates at GC and GIRC from period to period
based on the fees generated from current financing activities for partnerships
under management by GC. Earnings at GHG decreased due primarily to an increase
in lease payments to the Company.
Comparison of the As Adjusted year ended December 31, 1995 to the As
Adjusted year ended December 31, 1994
Rental revenues increased $605,000, or 5%, in 1995 to $13,472,000 from
$12,867,000 in 1994. The increase was primarily due to a net increase in
occupancy at certain commercial properties and a small increase in lease
payments from the hotel properties.
Interest and other income decreased $127,000, or 11%, to $982,000 in 1995
from $1,109,000 in 1994. The decrease was primarily due to a decrease in
interest earned on cash balances.
Operating expenses increased by $388,000, or 11%, to $4,061,000 in 1995
from $3,673,000 in 1994. The increase was primarily due to variable expenses
related to increased occupancy at certain commercial properties.
Depreciation and amortization expense increased $212,000, or 6%, in 1995 to
$3,654,000 from $3,442,000 in 1994. The increase was due to the depreciation and
amortization of newly capitalized costs.
During the year ended December 31, 1995, the Company had recorded a loss
provision of $863,000 to reduce the carrying value of its mortgage loan
receivable secured by the Eatontown, New Jersey property to its estimated
realizable value, which is equal to the value used for consolidation purposes,
in anticipation of a renegotiation of the terms of the note upon its maturity on
November 1, 1996. For the year ended December 31, 1994, the Company had recorded
a loss provision of $533,000 to reduce its investment in Glenborough Partners to
estimated fair market value.
Comparison of the historical six months ended June 30, 1996 to the
historical combined six months ended June 30, 1995
Certain components of the Company's results of operations for the six
months ended June 30, 1996 are not comparable to those of the GRT Predecessor
Entities for the same period in 1995. The primary reason for the difference is
that the Company presently accounts for its interests in the Associated
Companies, GHG, GIRC and GC under the equity method, while the results of
operations of the Associated Companies were combined in the GRT Predecessor
Entities 1995 financial statements. Effective January 1, 1996, the Company owns
100% of the preferred stock in each of these Associated Companies. The
difference is also attributable in part to a change in the operational structure
of the three hotel properties (the "Hotels"). The Hotels were wholly owned by
the GRT Predecessor Entities and, consequently, the operations of the Hotels
were included in the financial statements of the GRT Predecessor Entities. Under
the current structure, the Company owns the Hotels but leases them to GHG. The
Company includes only the related lease payments received from GHG in its
statement of operations. As a result of these changes, the fee and reimbursement
income decreased by $7,040,000 from $7,173,000 for the six months ended 1995 to
$133,000 in same period in 1996 and general and administrative expenses,
including salaries, decreased by $6,555,000 from $7,230,000 for the six months
ended 1995 to $675,000 in the same period for 1996 are the primary components
affected by these changes in structure.
44
<PAGE> 46
Average occupancy at the Company's properties, by property type, for the
six months ended June 30 was:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Retail......................................................... 94% 96%
Industrial..................................................... 99% 97%
Office......................................................... 100% 99%
Residential.................................................... 91% 94%
Hotel.......................................................... 73% 76%
</TABLE>
Interest and other income decreased $1,442,000, or 80%, to $370,000 in the
six months ended June 30, 1996 from $1,812,000 in the same period in 1995. This
decrease resulted primarily from the 1995 short-term investment of funds
generated from the early repayment of a note receivable in April of 1995 and the
early repayment in January and June of 1995 of three of the four notes received
from the sale of the Laurel Cranford buildings. In 1996, cash balances have been
used to prepay the investor notes payable, and to pay declared dividends and
Consolidation costs.
Gain on sale of rental property of $321,000 during the six months ended
June 30, 1996 resulted from the sale of the two self-storage facilities that
were treated as part of the Company's industrial portfolio.
Property operating expenses decreased by $1,131,000 or 37% to $1,909,000 in
the six months ended June 30, 1996 from $3,040,000 in the same period in 1995.
The decrease is due primarily to the change in the operational structure of the
Hotels as discussed above.
Depreciation and amortization expense decreased $600,000, or 25%, to
$1,759,000 in the six months ended June 30, 1996 from $2,359,000 in the same
period in 1995. The decrease was due primarily to certain of the Company's fixed
assets and deferred leasing commissions becoming fully depreciated and amortized
in 1995, combined with the lower depreciable base resulting from the sale of two
self-storage facilities as further discussed below.
Interest expense increased $338,000 or 31% to $1,421,000 in the six months
ended June 30, 1996 from $1,083,000 in the same period in 1995. The increase is
primarily the result of an increase in average borrowings during 1996 as
compared to 1995.
Comparison of historical combined year ended December 31, 1995 to the
historical combined year ended December 31, 1994
Rental revenues increased $1,657,000 or 12%, in 1995 to $15,454,000 from
$13,797,000 in 1994. The increase was primarily due to a net increase in
occupancy at certain commercial properties, the acquisition of the Summerbreeze
apartment complex and a significant increase in hotel revenues.
Fees and reimbursements increased by $2,692,000 or 20%, in 1995 to
$16,019,000 from $13,327,000 in 1994. The increase was primarily due to an
increase in property and asset management fees and related expense
reimbursements due to the acquisition of additional management contracts. This
increase was offset by decreased transaction fees because of one-time fees
earned by Old GC attributable to the sales of properties during 1994, including
a substantial portion of Glenborough Partners' portfolio, and decreased property
and asset management fees and expense reimbursements derived from those
properties.
Interest and other income decreased $859,000, or 24%, to $2,698,000 in 1995
from $3,557,000 in 1994. This decrease primarily resulted from the early
repayment of the Finley Square note receivable in April of 1995 and the early
repayment in January and June of 1995 of three of the four notes from the sale
of the Laurel Cranford buildings.
Operating expenses increased by $1,794,000, or 26%, to $8,576,000 in 1995
from $6,782,000 in 1994. The increase is due to both higher variable expenses
related to increased occupancy rates and to the acquisition of the Summerbreeze
apartment complex in January 1995.
General and administrative expenses, including salaries, increased
$2,493,000, or 19%, in 1995 to $15,947,000 from $13,454,000 in 1994. The
increase is primarily due to the additional expenses related to the
45
<PAGE> 47
additional management contracts offset by lower field and corporate office
payroll expenses after the reduction of the Company's management portfolio due
to property sales occurring during 1994.
Depreciation and amortization expense increased $721,000 or 18%, in 1995 to
$4,762,000 from $4,041,000 in 1994. The increase was primarily due to the
acquisition of Summerbreeze and to the additional amortization of contracts
related to the acquisition of additional management contracts. These factors
were slightly offset by a decrease due to the sale of the Laurel Cranford
buildings in 1994.
Interest expense increased $989,000, or 87%, in 1995 to $2,129,000 from
$1,140,000 in 1994. The increase was the result of increased debt levels
primarily related to the financing of one of the new management contracts
acquired and from a first deed of trust on the Summerbreeze apartment complex
acquired in 1995.
During 1995, loss provisions in the amount of $863,000 and $955,000 were
recorded to provide for an anticipated renegotiation of terms on one of the
Company's mortgage loans receivable and for unrealizable investments in and
advances to certain affiliated real estate partnerships of Old GC, a predecessor
entity. In addition, $58,000 related to a portion of the $116,000 loss on the
hedge transaction recorded by Old GC during fiscal 1995, as further discussed in
notes to financial statements of the Company included elsewhere in this
Prospectus.
Comparison of historical combined year ended December 31, 1994 to
historical combined year ended December 31, 1993
Rental revenues increased $251,000, or 2%, in 1994 to $13,797,000 from
$13,546,000 in 1993. The increase was the result of a net increase in occupancy
at certain commercial properties as well as an increase in hotel revenues offset
by the sale of a hotel in 1993 and a light industrial property in 1994.
Fees and reimbursements decreased by $2,112,000, or 14% in 1994 to
$13,327,000 from $15,439,000 in 1993. This decrease primarily related to lower
property and asset management fees due to the termination of certain contracts,
along with a reduction in the related expense reimbursements. Property-related
expense reimbursements decreased during 1994 due to the loss of a third party
management contract. These factors were offset by an increase in transaction
fees earned on property dispositions and sales.
Interest and other income increased $318,000, or 10%, to $3,557,000 in 1994
from $3,239,000 in 1993. This increase was primarily attributable to the
interest income received on the notes that were obtained from the sale of
certain properties in early 1994.
Operating expenses decreased by $771,000, or 10%, to $6,782,000 in 1994
from $7,553,000 in 1993. The decrease is related to the sale of a hotel in 1993
and a light industrial building in 1994.
General and administrative expenses, including salaries, decreased
$867,000, or 6%, in 1994 to $13,454,000 from $14,321,000 in 1993. The majority
of this decrease was the result of a general staff and overhead reduction which
resulted from the sale of a light industrial property in 1994 and a hotel in
1993, and the termination of certain management contracts.
Depreciation and amortization expense decreased $531,000, or 12%, in 1994
to $4,041,000 from $4,572,000 in 1993. This decrease was primarily the result of
the sale of certain properties in late 1993 and in 1994, offset by an increase
in depreciation, largely due to late 1993 capital additions and tenant
improvements that had not been subjected to a full year of depreciation.
Interest expense decreased $161,000, or 12%, in 1994 to $1,140,000 from
$1,301,000 in 1993. This decrease primarily resulted from the modification of
principal amortization of a loan payable and was offset by an interest expense
increase, attributable to overall debt level increases.
During 1994 the Company recorded a loss provision of $3,508,000. Of this
provision, $2,360,000 was for the loss on the sale of a light industrial
property known as Laurel Cranford, $591,000 was due to a loss on the sale of an
investment, and $557,000 was for the write-down of an investment in a real
estate partnership. The Laurel Cranford Property had been for sale or lease
since early 1993. In March 1994, Outlook IV received an
46
<PAGE> 48
offer to sell the property at an amount approximating its ultimate sale price.
Subsequent to receipt of the offer, Outlook IV reconsidered its strategy of
preferring a lease of this property given the then current status of the market
in the surrounding area. The earthquake, which occurred in the immediate area in
January 1994, had made an already competitive market more difficult and it was
decided at that time that pursuit of the sale opportunity then available
represented the best course of action for Outlook IV.
In 1993, loss provisions in the amount of $828,000 and $425,000 were
recorded to provide for the write-down of an investment in a real estate limited
partnership and for performance on a guarantee of an affiliate's development
debt. In addition, a loss on the sale of a hotel property in the amount of
$1,056,000 was recognized.
In 1993, $2,274,000 in debt forgiveness was recorded as an extraordinary
item. $920,000 of this amount was attributable to notes payable by Old GC for
the purchase of the management contracts for the Outlook Partnerships, which was
in excess of the then net book value of those contracts. The seller forgave all
$1,600,000 remaining on these notes payable, which were to be due in full in
1996, in exchange for a $300,000 advance cash payment. An additional $1,354,000
in debt was forgiven in connection with the sale of the Country Suites By
Carlson-Fort Worth hotel. All amounts forgiven under both transactions were
payable to affiliates of the former general partner of the Outlook Partnerships.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1996 and for the year ended December 31,
1995, on an as adjusted basis, the Company's cash flows provided by (used for)
operating activities was ($448,000) and $4,656,000, respectively. The Company's
primary operating activities include rental of commercial property and hotels,
and property and asset management operations. Cash flow used for operations for
the six months reflects certain non-recurring payments made for Consolidation
costs. For the same periods, the Company's cash flow provided by investing
activities, consisting primarily of tenant and capital improvements, principal
receipts on mortgage loans and dividends from the Associated Companies, was
$2,877,000 and $3,263,000, respectively, and the Company's cash flow used for
financing activities, consisting primarily of debt repayments and distributions,
was $5,326,000 and $7,933,000, respectively.
The Company receives dividends from its preferred stock investments in the
Associated Companies. In April and July 1996, the boards of directors of the
Associated Companies declared dividends which were paid in April and July 1996
in the cumulative amounts of $478,000, $848,000 and $83,000 by GC, GIRC and GHG,
respectively. Of such dividends, the cumulative amounts received by the Company
were $454,000, $806,000 and $66,000 from GC, GIRC and GHG, respectively.
On April 24, 1996, the Company's Board of Directors declared a dividend for
the first quarter of $0.30 per share or an aggregate of $1,726,000, which was
paid on May 13, 1996. On July 24, 1996, the Company's Board of Directors
declared a dividend for the second quarter of $0.30 per share or an aggregate of
$1,731,000, which was paid on August 14, 1996.
On June 4, 1996, the Company sold two self-storage facilities, for a sales
price of $2,900,000, resulting in a net aggregate gain of approximately
$321,000. In connection with this sale, the Company repaid $790,000 of
outstanding indebtedness under its secured line of credit.
The Company has recently acquired or entered into agreements to acquire 16
properties in nine states, representing an aggregate potential investment of
approximately $69.8 million including acquisition costs of approximately $0.6
million. The Company expects to fund such acquisitions through the use of net
proceeds from the Offering, borrowings under the Facility and the Term Loan,
assumption of debt, issuance of partnership units in the Operating Partnership
and shares of Common Stock and cash on-hand.
The Company has entered into two new financing agreements with Wells Fargo.
The Facility, the first financing agreement, is a $50 million secured revolving
line of credit to replace an existing $10 million line of credit. The Facility
is secured by first mortgages on selected properties with full recourse to the
Company and availability is limited to the borrowing base provided by these
properties. The Facility has a term of two years, subject to annual extensions.
At the Company's option, the Facility will bear interest at LIBOR plus 2.375%
47
<PAGE> 49
or at a base rate. The base rate is based upon the higher of Wells Fargo's prime
rate plus 0.5% or the Federal Funds Rate plus 1.0%. The Term Loan, the second
financing arrangement, is a two-year term loan in the amount of $6.1 million
that bears interest at the same rate as the Facility and is secured by first
mortgage liens on 10 "QuikTrip" facilities owned by the Company. The combined
proceeds of the fundings under the Facility and the Term Loan loans were $28.4
million, of which the Company applied $18.3 million to the acquisition of the
UCT Property, $9.2 million to the repayment of the outstanding amount under the
existing line of credit, and the balance to loan fees and closing costs. Initial
funding under the Facility and full disbursement of the Term Loan occurred on
July 15, 1996. On July 29, 1996 the Company borrowed an additional $3.8 million
under the Facility which was applied toward the purchase of the properties
described above.
The Company has adopted an employee stock incentive plan (the "Incentive
Plan"), approved by the Stockholders at the Company's 1996 Annual Meeting, to
enable certain executive officers and key employees of the Company to
participate in the ownership of the Company.
The purpose of the Incentive Plan is to attract and retain high quality
executive officers and other key employees and to provide an opportunity for the
executive officers and key employees to benefit from stock price appreciation
that generally accompanies improved financial performance, which the Company
believes increases incentives to contribute to the Company's success and
prosperity. Under the Incentive Plan, incentive stock options, nonqualified
stock options, restricted stock, performance units and stock appreciation rights
may be awarded to eligible plan participants.
The Company's principal funding sources for the acquisition, development
and expansion of properties and the acquisition of management contracts are
secured lines of credit, construction and permanent secured debt financing,
public and privately placed equity financing, the issuance of units in the
Operating Partnership and cash flow from operations. The Company believes that
its liquidity and capital resources are adequate to continue to meet liquidity
requirements for the foreseeable future.
At September 30, 1996, with the exception of the pending acquisition of the
TRP Properties, the Company had no material commitments for property
acquisitions or capital improvements. Planned capital improvements consist only
of tenant improvements and other expenditures necessary to lease and maintain
the properties.
At June 30, 1996, the Company had the following debt outstanding (in
thousands):
<TABLE>
<CAPTION>
BALANCE
INTEREST RATE OUTSTANDING
------------------ -----------
<S> <C> <C>
Secured loan with an investment bank................ 7.57% $19,886
Secured line of credit with a bank.................. LIBOR plus 2.375% 9,210
Secured loan with a bank............................ 7.75% 2,635
Secured loan with a bank............................ 8.00% 999
-------
$32,730
=======
</TABLE>
The scheduled maturities of the Company's indebtedness for the remainder of
1996 and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
1996 (six months).................................................. $ 225
1997............................................................... 421
1998............................................................... 9,664
1999............................................................... 490
2000............................................................... 529
Thereafter......................................................... 21,401
-------
$32,730
=======
</TABLE>
48
<PAGE> 50
On a pro forma basis at June 30, 1996, the Company had the following debt
outstanding (in thousands):
<TABLE>
<CAPTION>
BALANCE
INTEREST RATE OUTSTANDING
----------------- -----------
<S> <C> <C>
Secured loan with an investment bank................ 7.57% $19,886
Property mortgage loans............................. 7.75% to 9.25% 20,040
Facility............................................ LIBOR plus 2.375% 5,811
Term Loan........................................... LIBOR plus 2.375% 6,120
-----------
$51,857
=========
</TABLE>
After the Offering and property acquisitions, the Company expects to have
pro forma borrowings outstanding on the Facility of approximately $5.8 million
and on a pro forma basis have approximately $44.2 million of capacity on the
Facility to fund future acquisitions, repay indebtedness or for general
corporate purposes.
49
<PAGE> 51
BUSINESS AND PROPERTIES
OVERVIEW
The Company is a self-administered and self-managed REIT that owns a
portfolio of 36 industrial, office, hotel, retail and multifamily properties
located in 15 states throughout the country as of August 31, 1996. In addition,
the three Associated Companies provide comprehensive asset, partnership and
property management services for a portfolio of 54 other properties that are not
owned by the Company.
GROWTH OPPORTUNITIES
The Company's principal growth strategy is to capitalize on the opportunity
to acquire portfolios or single properties from public and private partnerships
on attractive terms. This strategy involves the following elements:
Portfolio Acquisitions
Today's real estate limited partnership market encompasses some ten million
owners of units in public and private limited partnerships, representing
original equity investments in excess of $70 billion, according to 1996
estimates of Robert A. Stanger & Co., Inc. ("Stanger"). According to Stanger,
few of the private partnerships, and less than half of the public partnerships,
are traded in any active secondary market and a substantial percentage of the
public partnerships' portfolios are diversified, either geographically or by
property type or both. Most REITs that are actively seeking growth pursue a
strategy that focuses either on specific property types or geographic regions or
both, and thus do not provide an outlet for bulk sales by the many diversified
partnerships. And, given the costs of operating these partnerships, a gradual
sell-off of assets becomes prohibitively expensive over time.
The Company believes the majority of the limited partners in these
partnerships would be interested in solutions providing liquidity. This is
particularly true of limited partners who, as a result of past tax benefits, are
vulnerable to recapture gains that could arise under conventional liquidation
strategies. The Company's UPREIT structure allows limited partners of
partnerships acquired by the Company to have a measure of control over the
timing of both the liquidation of their investment, and their ultimate
obligation to pay the tax on recapture gains. The principal options currently
available to these limited partners are (a) selling their units on the secondary
market for untraded limited partner interests, which according to Stanger has a
pricing structure that typically discounts unit values relative to underlying
asset values, and (b) more recently, selling their units to large, well-financed
investors who acquire general partner interests for the primary purpose of
soliciting limited partners to sell their interests at prices that are higher
than prevailing secondary market prices but generally lower (often explicitly
conceded to be substantially lower) than the purchaser's underlying asset
valuation.
The Company believes that by offering prices (in the form of cash, Common
Stock of the Company or units of the Operating Partnership) in excess of those
otherwise available to limited partners as described in the preceding paragraph,
the Company will be able to acquire assets at favorable prices.
The Company seeks to acquire from partnerships portfolios and single
properties with the following characteristics: (a) a stable stream of income,
both historical and projected; (b) existing management fees and costs that, when
internalized, would augment the Company's investment return; (c) properties
generally constructed after 1970; (d) little or no exposure to hazardous
materials; (e) prudent debt levels; (f) potential for substantial overhead
savings that could be converted to distributions; (g) low-to-moderate vacancy
levels; (h) diversified tenant risk; (i) low-to-moderate deferred maintenance;
(j) substantial geographic overlap with the Company's existing portfolio, to
capitalize on the Company's existing management capabilities; and (k)
predominantly comprising industrial, office, hotels, retail, and/or multifamily
properties.
Depending on the circumstances of a specific potential acquisition, the
Company could proceed either through a direct merger proposal (ideally with the
cooperation of the existing general partner), or by first acquiring the general
partner interest, and later soliciting the limited partners for a merger.
50
<PAGE> 52
Property Acquisitions
From time to time the Company will acquire individual properties that it
believes will enhance the Company's profitability and take advantage of existing
management resources. The Company's proposed acquisitions of the San Antonio
Hotel property and the Kash n' Karry supermarket property described under
"Recent Activities" exemplify this approach.
Growth of Associated Companies
The Company owns all of the preferred stock of the three Associated
Companies, GC, GHG and GIRC, which provide comprehensive asset, partnership and
property management services for 55 other properties that are not owned by the
Company. The preferred stock represents a majority of the equity interest in
these companies and entitles the Company to receive dividends comprising a
substantial portion of their earnings. GC intends to grow through the
acquisition of general partner interests and/or execution of asset management
and property management agreements with third parties. GHG expects to grow
through (i) leasing hotels which may in the future be acquired by the Company,
(ii) acquiring additional hotel and condominium management companies, or (iii)
executing additional hotel and resort management contracts with third party
owners. GIRC expects to increase revenues through development of land owned by
the partnerships it manages, which is anticipated to result in increased
management fees to GIRC; construction of new properties would normally be
undertaken only after a single tenant has pre-leased the entire property to be
developed, or after substantial pre-leasing of multi-tenant space. The Company,
through its preferred stock interests in the Associated Companies, anticipates
growth as a result of these activities.
Internal Growth
The Company pursues internal growth and asset optimization by constantly
reviewing the mix of the portfolio and selling appropriate properties and
reinvesting the proceeds consistent with REIT restrictions and by seeking to
enhance individual property performance. The Company may sell properties that
have matured beyond a point of significant future growth potential and replace
them with properties with comparable cash flow but higher growth potential. The
Company may sell some smaller or management-intensive properties and replace
them with larger or more management-efficient properties. The Company may reduce
the number of cities in which it does business. By culling the portfolio in this
manner the Company believes it can achieve certain economies of scale with
respect to staffing and overhead levels. For example, the Company recently sold
two self-storage facilities located outside Minneapolis that were geographically
isolated, required outside management and did not otherwise fit the Company's
portfolio strategy. As leases renew, the Company seeks to maintain market rent
increases. In addition, many of the commercial leases provide for rent increases
that are either fixed or based on a consumer price index ("CPI"). Such
increases, together with anticipated future rents from space now vacant, provide
an opportunity for increased revenues. The leases for the hotel portfolio
provide the Company with either a base rent amount or a percentage of the
hotel's total gross income, whichever is higher; thus, the Company will
participate in increasing hotel revenues.
PROPERTIES
The following table lists the real estate and mortgage portfolio held by
the Company, indicating the property name, location, approximate square footage
or number of rooms or units as of June 30, 1996 (excluding the two properties
acquired after June 30, 1996).
51
<PAGE> 53
<TABLE>
<CAPTION>
PROPERTY(1) CITY STATE SQ. FEET
- ----------------------------------------------------- ---------------- ----- ----------
<S> <C> <C> <C>
INDUSTRIAL PORTFOLIO
Benicia Industrial Park.............................. Benicia CA 156,800
Navistar International Trans. Corp................... W. Chicago IL 474,426
Park 100 -- Building 42.............................. Indianapolis IN 37,200
Park 100 -- Building 46.............................. Indianapolis IN 102,400
Case Equipment Corp.................................. Kansas City KS 199,750
Navistar International Trans. Corp................... Baltimore MD 274,000
Case Equipment Corp.................................. Memphis TN 205,594
SeaTac II(2)......................................... Seattle WA 41,657
----------
Total Industrial Square Footage............ 1,491,827
==========
OFFICE PORTFOLIO
Regency Westpointe................................... Omaha NE 36,107
4500 Plaza........................................... Salt Lake City UT 69,975
----------
Total Office Square Footage................ 106,082
==========
RETAIL PORTFOLIO
Park Center(2)....................................... Santa Ana CA 73,500
Westwood Plaza....................................... Tampa FL 61,369
QuikTrip #712........................................ Atlanta GA 3,200
Shannon Crossing..................................... Atlanta GA 64,039
Atlanta Auto Center.................................. College Park GA 7,920
QuikTrip #711........................................ Fulton GA 3,200
QuikTrip #722........................................ Lithonia GA 3,200
QuikTrip #738........................................ Mableton GA 3,200
Atlanta Auto Center.................................. Marietta GA 10,670
Atlanta Auto Center.................................. Norcross GA 10,920
QuikTrip #718........................................ Norcross GA 3,200
Atlanta Auto Center.................................. Roswell GA 5,720
Atlanta Auto Center.................................. Smyrna GA 9,440
Atlanta Auto Center.................................. Snellville GA 10,080
QuikTrip #698........................................ Godfrey IL 3,200
QuikTrip #688........................................ Granite City IL 3,200
QuikTrip #691........................................ Madison IL 3,200
QuikTrip #609........................................ St. Louis MO 3,200
QuikTrip #75R........................................ Tulsa OK 3,200
----------
Total Retail Square Footage................ 285,658
==========
HOTEL PORTFOLIO # OF ROOMS
----------
Country Suites by Carlson............................ Tucson AZ 157
Country Suites by Carlson............................ Ontario CA 120
Country Suites by Carlson............................ Arlington TX 132
Country Suites by Carlson(2)......................... Irving TX 90
----------
Total Hotel Rooms.......................... 499
==========
MULTIFAMILY PORTFOLIO # OF UNITS
----------
Summerbreeze......................................... No. Hollywood CA 104
----------
Total Multifamily Units.................... 104
==========
PRINCIPAL
MORTGAGES RECEIVABLE CITY STATE BALANCE
- ----------------------------------------------------- ---------------- ----- ----------
Laurel Cranford...................................... Arleta CA $ 513,000
Hovpark.............................................. Eatontown NJ 7,563,000
----------
Total Mortgages Receivable................. $8,076,000
===========
</TABLE>
- ---------------
(1) Does not include the UCT Property, the San Antonio Hotel and the Kash n'
Karry Property acquired in July 1996, and the Bond Street Property acquired
in September 1996. See "Recent Activities."
(2) Mortgage receivable accounted for as real estate under GAAP.
52
<PAGE> 54
Industrial Properties
As of June 30, 1996, the Company owned eight industrial properties
aggregating 1,491,827 square feet. During June of 1996, the Company sold two of
these properties, which had 97,200 square feet. The industrial properties are
designed for warehouse and distribution, ranging in size from 37,200 square feet
to 474,426 square feet. Two of the industrial properties are currently leased to
multiple tenants and six are leased to single tenants. Five of the six
single-tenant industrial properties, including the two largest facilities, are
adaptable in design to multi-tenant use.
The following table lists the industrial properties of the Company as of
June 30, 1996 indicating the property name, city, state, year completed,
approximate square footage, and for the twelve months ended June 30, 1996,
average occupancy, average effective rent per square foot, annual effective base
rent, property revenues and percentage of property revenues.
GLENBOROUGH REALTY TRUST INCORPORATED
INDUSTRIAL PORTFOLIO
<TABLE>
<CAPTION>
PROPERTY REVENUES
AVERAGE AVERAGE FOR 12 MONTHS ENDED
OCCUPANCY EFFECTIVE ANNUAL 6/30/96
YEAR FOR 12 MONTHS RENT/LEASED EFFECTIVE --------------------
PROPERTY(1) CITY ST COMPLETED SQUARE FEET ENDED 6/30/96 SQUARE FEET BASE RENT AMOUNT PERCENT
- --------------- ------------ ---- --------- ----------- ------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Benicia
Industrial
Park......... Benicia CA 1980 156,800 99% $3.25 $ 503,952 $ 480,867 14%
Case Equipment
Corp. ....... Kansas City KS 1975 199,750 100 1.90 379,440 369,696 11
Case Equipment
Corp. ....... Memphis TN 1950 205,594 100 1.65 340,130 328,159 9
Navistar
International
Trans.
Corp. ....... W. Chicago IL 1977 474,426 100 2.17 1,030,838 1,016,918 29
Navistar
International
Trans.
Corp. ....... Baltimore MD 1962 274,000 100 1.57 430,340 426,190 12
Park 100 --
Building
42........... Indianapolis IN 1980 37,200 97 5.74 207,142 221,473 6
Park 100 --
Building
46........... Indianapolis IN 1981 102,400 100 2.28 233,472 387,404 11
Sea Tac
II(2)........ Seattle WA 1984 41,657 100 4.80 188,500 274,384 8
--------- ---------- ---------- ------
Total
Industrial.. 1,491,827 100% $2.22 $3,313,814 $3,505,091 100%
========= ========== ========== ======
</TABLE>
- ---------------
(1) Excludes two self-storage facilities sold in June 1996.
(2)Mortgage receivable accounted for as real estate under GAAP.
Four of the single-tenant properties have eight years remaining on leases
whose original terms were 20 years and include rent increases every three years
based on all or a percentage of the change in the CPI. Under these leases the
tenants are required to pay for all of the properties' operating costs, such as
common area
53
<PAGE> 55
maintenance, property taxes, insurance, and all repairs including structural
repairs. These four properties are leased to Navistar International
Transportation Corporation ("Navistar"), but two of the leases have been assumed
by Case Equipment Corporation ("Case"). Navistar has options under its leases to
purchase either or both of the properties on March 1, 1999, and 2002. The option
price is equal to the lesser of (i) the greater of the appraised value or a
specified option floor price; or (ii) a price derived by applying a specified
capitalization rate to a specified rental amount. The Case leases give the
tenant a purchase option exercisable on March 1, 1999, and 2002 for an amount
equal to the greater of the appraised value or a specified minimum price.
Management believes, based on discussions with both tenants, that neither tenant
has any present intention to exercise any option to purchase.
The remaining warehouse properties have leases whose terms range from one
to six years. Most of the leases are "triple net" leases whereby the tenants are
required to pay as additional rent their pro rata share of the properties'
operating costs, common area maintenance, property taxes, insurance, and
non-structural repairs. Some of the leases are "industrial gross" leases whereby
the tenant pays as additional rent its pro rata share of common area maintenance
and repair costs and its share of the increase in taxes and insurance over a
specified base year cost. Many of these leases call for fixed or CPI-based rent
increases.
The Company holds fee title to all of the industrial properties except a
41,657 square-foot warehouse facility in Seattle known as Sea Tac II. This
property is owned by AFP Partners, one of the partnerships managed by GC. The
Company holds a participating first mortgage interest in Sea Tac II. In
accordance with GAAP, the Company accounts for the property as though it held
fee title, as substantially all risks and rewards of ownership have been
transferred to the Company as a result of the terms of the mortgage. The
participating mortgage had a principal balance of $2,333,338 as of June 30, 1996
and accrued interest of $1,207,311, as compared with an appraised value of
$2,000,000 as of June 30, 1994. The loan, which was modified in early 1994 and
accrues interest at 10%, allows the borrower to defer the payment of any
interest in excess of the property's cash flow. The loan also allows the Company
to receive 75% of the property value over the total loan balance at maturity.
The loan is due March 31, 2001, but the borrower may extend the loan for five
one-year periods for payment of a fee equal to 0.25% of the then outstanding
principal balance for each extension.
The following table sets forth, for the periods specified, the total
rentable area, aggregate average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the industrial
properties presently owned by the Company.
INDUSTRIAL PROPERTIES
HISTORICAL RENT AND OCCUPANCY(1)
<TABLE>
<CAPTION>
AVERAGE EFFECTIVE TOTAL EFFECTIVE
TOTAL RENTABLE AVERAGE OCCUPANCY BASE RENT/ ANNUAL BASE
YEAR AREA (SQ. FT.) FOR THE PERIOD LEASED SQ. FT.(2) RENT($000S)
- ------------------------------- --------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
1996........................... 1,491,827 99%(3) $2.22 $ 3,314
1995........................... 1,491,827 100 2.29 3,405
1994........................... 1,491,827 100 2.29 3,401
1993........................... 1,491,827 98 2.24 3,294
1992........................... 1,491,827 96 2.14 3,075
1991........................... 1,491,827 97 2.23 3,227
</TABLE>
- ---------------
(1) Excludes two self-storage facilities sold in June 1996.
(2)Total Effective Annual Base Rent divided by average occupancy in square feet.
(3) For the six months ended June 30, 1996.
54
<PAGE> 56
The following table sets forth lease expirations for the industrial
properties for the latter half of 1996 and thereafter.
INDUSTRIAL PROPERTIES
LEASE EXPIRATIONS(1)
<TABLE>
<CAPTION>
RENTABLE SQUARE PERCENTAGE OF TOTAL
FOOTAGE ANNUAL BASE RENT ANNUAL BASE RENT
YEAR OF LEASE NUMBER OF SUBJECT TO UNDER EXPIRING REPRESENTED BY
EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES($000S)(2) EXPIRING LEASES(2)
- ---------------------------- --------------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C>
1996........................ 2 13,800 $ 54 2%
1997........................ 7 13,800 79 2
1998........................ 5 99,800 340 9
1999........................ 6 14,400 87 2
2000........................ 2 49,200 163 5
2001........................ 2 44,657 276 8
2002........................ 0 0 0 0
2003........................ 0 0 0 0
2004........................ 5 1,256,170 2,594 72
Thereafter.................. 0 0 0 0
--
--------- ------ ------
Total............. 29 1,491,827 $ 3,593(3) 100%
== ========= ====== ======
</TABLE>
- ---------------
(1) Excludes the self-storage facilities sold in June 1996.
(2) Annual base rent expiring during each period, divided by total annual base
rent (both adjusted for contractual increases).
(3) This figure incorporates contractual rent increases arising after 1996, and
thus differs from "Total Effective Annual Base Rent" in the preceding table,
which is based on 1996 rents.
The following table sets forth the capitalized tenant improvements and
leasing commissions on the Company's industrial properties for the five years
ended December 31, 1995 and the six months ended June 30, 1996.
INDUSTRIAL PROPERTIES
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
-------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Square footage renewed or
re-leased........................ 108,200 52,491 66,500 89,000 141,523 57,000
Capitalized tenant improvements and
commissions (in thousands)....... $41 $21 $64 $60 $114 $14
Average per square foot of renewed
or re-leased space............... $0.38 $0.40 $0.96 $0.67 $0.81 $0.25
</TABLE>
Office Properties
As of June 30, 1996, the Company owned two office properties with total
rentable square footage of 106,082. Both of the office properties are suburban
mid-rise buildings. The leases for spaces within the office properties have
terms ranging from one to 6 years. The office space leases generally require the
tenant to reimburse the Company for increases in building operating costs over a
base amount. Many of the leases contain fixed or CPI-based rent increases.
55
<PAGE> 57
The following table lists the office properties of the Company as of June
30, 1996, indicating the property name, city, state, year completed, approximate
square footage and, for the twelve months ended June 30, 1996, average
occupancy, average effective rent per square foot, annual effective base rent,
property revenues and percentage of property revenues.
GLENBOROUGH REALTY TRUST INCORPORATED
OFFICE PORTFOLIO
<TABLE>
<CAPTION>
PROPERTY REVENUES
FOR THE
AVERAGE AVERAGE 12 MONTHS
OCCUPANCY FOR EFFECTIVE ANNUAL ENDED 6/30/96
YEAR SQUARE 12 MONTHS RENT/LEASED EFFECTIVE --------------------
PROPERTY(1) CITY ST COMPLETED FEET ENDED 6/30/96 SQUARE FEET BASE RENT AMOUNT PERCENT
- ----------------- ----------------- ---- --------- ------- ------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4500 Plaza....... Salt Lake City UT 1983 69,975 100% $ 12.07 $ 844,516 $ 862,424 61%
Regency
Westpointe..... Omaha NE 1981 36,107 95 15.23 522,362 543,017 39
------- ---------- ---------- ------
Total
Office.. 106,082 99% $ 13.11 $1,366,878 $1,405,441 100%
======= ========== ========== ======
</TABLE>
- ---------------
(1) Does not include the UCT Property acquired in July 1996, and the Bond Street
Property acquired in September 1996. See "Recent Activities."
The following table sets forth, for the periods specified, the total
rentable area, aggregate average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the office
properties owned by the Company as of June 30, 1996.
OFFICE PROPERTIES
HISTORICAL RENT AND OCCUPANCY
<TABLE>
<CAPTION>
AVERAGE EFFECTIVE TOTAL EFFECTIVE
TOTAL RENTABLE AVERAGE OCCUPANCY BASE RENT/ ANNUAL BASE RENT
YEAR AREA (SQ. FT.) FOR THE PERIOD LEASED SQ. FT.(1) ($000S)(2)
- ------------------------------ -------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1996.......................... 106,082 100%(3) $ 13.11 $1,367
1995.......................... 106,076 97 11.91 1,228
1994.......................... 105,770 88 11.44 1,065
1993.......................... 104,666 80 12.04 1,008
1992.......................... 104,754 80 11.10 930
1991.......................... 104,754 53 9.60 533
</TABLE>
- ---------------
(1) Total Effective Annual Base Rent divided by average occupancy in square
feet.
(2) Total Effective Annual Base Rent including any free rent given for the
period.
(3) For the six months ended June 30, 1996.
56
<PAGE> 58
The following table sets forth lease expirations for the office properties
(excluding office properties acquired after June 30, 1996) for the latter half
of 1996 and thereafter.
OFFICE PROPERTIES
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
RENTABLE SQUARE PERCENTAGE OF TOTAL
FOOTAGE ANNUAL BASE RENT ANNUAL BASE RENT
YEAR OF LEASE NUMBER OF SUBJECT TO UNDER EXPIRING REPRESENTED BY
EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES ($000S) EXPIRING LEASES(1)
- ----------------------------- --------------- --------------- ---------------- -------------------
<S> <C> <C> <C> <C>
1996......................... 4 11,969 $ 114 7%
1997......................... 7 13,675 186 11
1998......................... 4 45,922 774 48
1999......................... 6 17,241 223 14
2000......................... 0 0 0 0
2001......................... 1 1,784 24 1
2002......................... 0 0 0 0
2003......................... 0 0 0 0
2004......................... 0 0 0 0
2005......................... 1 15,491 300 19
Thereafter................... 0 0 0 0
--
------- ------ ------
Total.............. 23 106,082(2) $1,621(3) 100%
== ======= ====== ======
</TABLE>
- ---------------
(1) Annual base rent expiring during each period, divided by total annual base
rent (both adjusted for contractual increases).
(2) This figure is based on square footage actually leased (which excludes
vacant space), which accounts for the difference between this figure and
"Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure incorporates contractual rent increases arising after 1996, and
thus differs from "Total Effective Annual Base Rent" in the preceding table,
which is based on 1996 rents.
The following table sets forth, the capitalized tenant improvements and
leasing commissions on the Company's office properties (excluding office
properties acquired after June 30, 1996) for the five years ended December 31,
1995 and six months ended June 30, 1996.
OFFICE PROPERTIES
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Square footage renewed or re-leased.......... 45,586 26,989 23,909 18,384 79,745 7,601
Capitalized tenant improvements and
commissions (in thousands)................. $ 515 $ 192 $ 59 $ 58 $ 468((1) $ 33
Average per square foot of renewed or
re-leased space............................ $ 11.29 $ 7.12 $ 2.47 $ 3.18 $ 5.87 $4.38
</TABLE>
- ---------------
(1) The significant increase in capitalized tenant improvements and commissions
in 1995 over the previous year is primarily the result of re-leasing 15,491
sq. ft. at Regency Westpointe. The re-lease is for a term of ten years.
There were no commissions paid in this transaction. Tenant improvements
totaled $405,000. This tenant occupies 43% of Regency Westpointe.
57
<PAGE> 59
Retail Properties
The retail portfolio consists of 19 properties with a total of 285,658
square feet. The following table lists the retail properties of the Company as
of June 30, 1996, indicating the property name, city, state, year completed,
approximate square footage, revenues and, for the twelve months ended June 30,
1996, average occupancy, average effective rent per square foot, annual
effective base rent, property revenues and percentage of total retail
properties' revenues.
GLENBOROUGH REALTY TRUST INCORPORATED
RETAIL PORTFOLIO
<TABLE>
<CAPTION>
PROPERTY REVENUES
AVERAGE AVERAGE FOR 12 MONTHS
OCCUPANCY EFFECTIVE ANNUAL ENDED 6/30/96
YEAR SQUARE FOR 12 MONTHS RENT/LEASED EFFECTIVE --------------------
PROPERTY(1) CITY ST COMPLETED FEET ENDED 6/30/96 SQUARE FEET BASE RENT AMOUNT PERCENT
- ------------ -------------- ---- --------- -------- -------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta Auto
Center.... College Park GA 1986 7,920 100% $ 11.33 $ 89,768 $ 90,753 3%
Atlanta Auto
Center.... Marietta GA 1985 10,670 97 11.57 119,746 136,500 4
Atlanta Auto
Center.... Norcross GA 1985 10,920 100 9.17 100,112 125,493 4
Atlanta Auto
Center.... Roswell GA 1985 5,720 92 9.16 48,208 65,767 2
Atlanta Auto
Center.... Smyrna GA 1985 9,440 89 9.93 83,420 94,816 3
Atlanta Auto
Center.... Snellville GA 1986 10,080 92 11.97 111,018 111,917 3
Park
Center(2).. Santa Ana CA 1979 73,500 95 6.15 430,266 557,385 17
QuikTrip
#688...... Granite City IL 1990 3,200 100 35.21 112,668 111,676 3
QuikTrip
#722...... Lithonia GA 1990 3,200 100 35.00 111,992 109,905 3
QuikTrip
#718...... Norcross GA 1990 3,200 100 33.15 106,080 106,456 3
QuikTrip
#711...... Fulton GA 1988 3,200 100 40.68 130,164 97,536 3
QuikTrip
#75R...... Tulsa OK 1988 3,200 100 20.28 64,908 88,818 3
QuikTrip
#738...... Mableton GA 1990 3,200 100 27.11 86,736 83,432 3
QuikTrip
#712...... Atlanta GA 1988 3,200 100 34.00 108,792 97,764 3
QuikTrip
#698...... Godfrey IL 1990 3,200 100 35.47 113,508 121,206 4
QuikTrip
#691...... Madison IL 1989 3,200 100 25.56 81,792 93,507 3
QuikTrip
#609...... St. Louis MO 1988 3,200 100 35.23 112,728 112,713 3
Shannon
Crossing... Atlanta GA 1981 64,039 92 6.85 403,578 430,802 13
Westwood
Plaza..... Tampa FL 1984 61,369 94 8.89 511,522 682,929 21
------- ---------- ---------- ------
Total/Average
Retail.. 285,658 95% $ 10.82 $2,927,006 $3,319,375 100%
======= ========== ========== ======
</TABLE>
- ---------------
(1) Does not include the Kash n' Karry Property acquired in August 1996. See
"Recent Activities."
(2) Mortgage receivable accounted for as real estate under GAAP.
Three of the retail properties representing 198,908 rentable square feet,
or 70% of the total rentable area, are anchored community shopping centers. The
anchor tenants of these centers are national or regional supermarkets and drug
stores.
58
<PAGE> 60
Ten of the retail properties are leased to QuikTrip Corporation on
long-term leases expiring in either 2008 or 2010. QuikTrip is a regional
convenience store operator with over 300 stores in six states. The leases
require the tenant to pay for all property costs and provide for periodic fixed
increases of base rent. Under the leases, the tenant has one five-year option to
renew at specified rental rates.
Six of the retail properties are located in the Atlanta metropolitan area
and are leased to tenants in the automotive care industry. The leases for the
retail properties (excluding the QuikTrip leases described above) generally
include fixed or CPI-based rent increases and some include provisions for the
payment of additional rent based on a percentage of the tenants' gross sales
that exceed specified amounts. Retail tenants also pay as additional rent their
pro rata share of the property operating costs including common area
maintenance, property taxes, insurance, and non-structural repairs. Some of the
leases contain options to renew at market rates or specified rates.
The Company holds fee title to all of the retail properties except the Park
Center community center. Park Center is owned by AFP Partners, one of the
partnerships managed by GC. The Company holds a participating first mortgage
interest in the center. In accordance with GAAP, the Company accounts for the
property as though it held fee title, as substantially all risks and rewards of
ownership have been transferred to the Company as a result of the terms of the
mortgage. The participating mortgage had a principal balance of $5,448,427 as of
June 30, 1996 and accrued interest of $2,732,037, as compared with an appraised
value of $3,550,000 as of June 30, 1994. The loan, which was modified in
mid-1994 and accrues interest at 10%, allows the borrower to defer the payment
of any interest in excess of the property's cash flow. The loan also allows the
Company to receive 75% of the property value over the total loan balance at
maturity. The loan is due March 31, 2001, but the borrower may extend the loan
for five one-year periods for payment of a fee equal to 0.25% of the then
outstanding principal balance, for each extension.
The following table sets forth, for the periods specified, the total
rentable area, aggregate average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the retail
properties presently owned by the Company.
RETAIL PROPERTIES
HISTORICAL RENT AND OCCUPANCY
<TABLE>
<CAPTION>
AVERAGE TOTAL EFFECTIVE
EFFECTIVE ANNUAL
TOTAL RENTABLE AVERAGE OCCUPANCY BASE RENT/LEASED BASE RENT
YEAR AREA (SQ. FT.) FOR THE PERIOD SQ. FT.(1) ($000S)(2)
- -------------------------------------- -------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
1996.................................. 285,658 94%(3) $10.86 $ 2,927
1995.................................. 285,658 95 10.76 2,915
1994.................................. 285,722 94 10.76 2,890
1993.................................. 285,722 90 11.11 2,858
1992.................................. 285,722 88 11.12 2,823
1991.................................. 285,722 91 11.18 2,906
</TABLE>
- ---------------
(1) Total Effective Annual Base Rent divided by average occupancy in square
feet.
(2) Total Effective Annual Base Rent including any free rent given for the
period.
(3) For the six months ended June 30, 1996.
59
<PAGE> 61
The following table sets forth lease expirations for the retail properties
for the latter half of 1996 and thereafter.
RETAIL PROPERTIES
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
RENTABLE SQUARE PERCENTAGE OF TOTAL
FOOTAGE ANNUAL BASE RENT ANNUAL BASE RENT
NUMBER OF SUBJECT TO UNDER EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES ($000S) EXPIRING LEASES(1)
- ------------------------------ --------------- --------------- ---------------- -------------------
<S> <C> <C> <C> <C>
1996.......................... 13 20,798 $ 247 8%
1997.......................... 13 25,392 272 9
1998.......................... 12 23,733 253 8
1999.......................... 15 24,972 297 10
2000.......................... 11 27,607 312 10
2001.......................... 5 49,080 318 11
2002.......................... 0 0 0 0
2003.......................... 0 0 0 0
2004.......................... 2 62,856 254 8
2005.......................... 0 0 0 0
Thereafter.................... 10 32,000 1,074 36
--
------- ------ ------
Total............... 81 266,438(2) $3,027(3) 100%
== ======= ====== ======
</TABLE>
- ---------------
(1) Annual base rent expiring during each period, divided by Annual Base Rent
(both adjusted for contractual increases).
(2) This figure is based on square footage actually leased (which excludes
vacant space), which accounts for the difference between this figure and
"Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure incorporates contractual rent increases arising after 1996, and
thus differs from "Total Effective Annual Base Rent" in the preceding table
which is based on 1996 rents.
The following table sets forth the capitalized tenant improvements and
leasing commissions on retail properties for the five and one-half years ending
June 30, 1996.
RETAIL PROPERTIES
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Square footage renewed or
re-leased.......................... 14,136 26,403 31,443 46,833 33,294 10,970
Capitalized tenant improvements and
commissions (in thousands)......... $ 16 $ 63 $ 59 $ 59 $ 98 $ 25
Average per square foot of renewed or
re-leased space.................... $1.13 $2.38 $1.87 $1.25 $2.94 $2.31
</TABLE>
Hotels
As of June 30, 1996, the hotel portfolio consists of four all-suite hotels
ranging from 90 to 157 rooms and comprising of 216,803 square feet of space and
499 rooms. All of the hotels currently operate under license agreements with
Country Lodging by Carlson, Inc. and are marketed as Country Suites By Carlson
("Country Suites"). The hotels consist primarily of one-bedroom suites, but each
property also includes some studio suites and two-bedroom suites.
Country Lodging is part of the Carlson Companies, based in Minneapolis. The
Carlson Companies own, operate, and franchise Radisson Hotels, TGI Friday's
Restaurants, Country Kitchen Restaurants, and the Carlson Travel Agency Network.
Currently there are a total of more than 70 Country Inns and Suites.
60
<PAGE> 62
The following table sets forth as of June 30, 1996 (excluding the San
Antonio Hotel which was acquired on July 29, 1996) for each of the Company's
hotel properties, the property name, city, state, year completed, number of
rooms, approximate square footage, average occupancy and for the twelve month
period ended June 30, 1996, revenues percentage of total hotel properties'
revenues, average daily rate ("ADR") and revenue per available room ("REVPAR")
for the hotel properties owned by the Company.
GLENBOROUGH REALTY TRUST INCORPORATED
HOTEL PORTFOLIO
<TABLE>
<CAPTION>
PROPERTY REVENUES
FOR 12 MONTHS ENDED
6/30/96
YEAR # OF SQUARE AVG. --------------------
PROPERTY(1) CITY ST COMPLETED ROOMS FEET OCC. AMOUNT PERCENT ADR REVPAR
- -------------------------- ---------- ---- --------- ----- -------- ---- ----------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Country Suites by
Carlson(2).............. Arlington TX 1986 132 56,200 69% $ 703,145 17 % $ 65.54 $45.02
Country Suites by
Carlson(3).............. Irving TX 1986 90 45,032 76 1,894,637 45 72.31 54.69
Country Suites by
Carlson(2).............. Ontario CA 1985 120 54,019 66 363,110 8 51.53 34.06
Country Suites by
Carlson(2).............. Tucson AZ 1986 157 61,552 79 1,290,905 30 61.45 48.39
--- ------- ---------- ------
Total Hotel........... 499 216,803 73% $ 4,251,797 100 % $ 62.10 $45.18
=== ======= ========== ======
</TABLE>
- ---------------
(1) Does not include the San Antonio Hotel acquired in July 1996. See "Recent
Activities."
(2) Revenue reported consists of the lease payments received from GHG, which
leases the Hotel from the Company and operates it for its own account.
(3) Mortgage receivable accounted for as real estate under GAAP.
The Company holds fee title to three of the four hotels. The fourth, the
Country Suites in Irving, Texas, is owned by AFP Partners, one of the
partnerships managed by GC. The Company holds a participating first mortgage
interest in the property. In accordance with GAAP, the Company accounts for the
property as though it held fee title, as substantially all the risks and rewards
of ownership have been transferred to the Company as a result of the terms of
the mortgage. The participating mortgage had a principal balance of $5,039,434
as of June 30, 1996, with accrued interest of $2,524,086, as compared with an
appraised value of $2,650,000 as of June 30, 1994. The loan, which was modified
in early 1994 and accrues interest at 10%, allows the borrower to defer the
payment of any interest in excess of the property's cash flow. The loan also
allows the Company to receive 75% of the property value over the total loan
balance at maturity. The loan is due March 31, 2001, but the borrower may extend
the loan for five one-year periods for payment of a fee equal to 0.25% of the
then outstanding principal balance for each extension. The hotels owned in fee
title are leased to GHG (see "The Percentage Leases" below); the Irving, Texas
hotel is managed by GHG under terms of a pre-existing contract.
61
<PAGE> 63
The following table contains average occupancy for the periods indicated,
ADR and REVPAR information for the Company's hotels as well as comparative
information for all U.S. hotels and all Country Lodging hotels.
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Irving, TX
Occupancy................. 57% 66% 76% 78% 76% 78%
ADR....................... $61.77 $53.53 $50.22 $58.52 $66.55 $76.05
REVPAR.................... $35.46 $35.37 $38.33 $45.36 $50.57 $59.34
Ontario, CA
Occupancy................. 55% 59% 60% 56% 66% 68%
ADR....................... $56.46 $52.93 $51.61 $52.02 $48.38 $54.43
REVPAR.................... $30.89 $31.42 $30.74 $29.35 $31.67 $36.81
Arlington, TX
Occupancy................. 73% 68% 61% 63% 70% 74%
ADR....................... $58.44 $57.85 $51.58 $62.73 $64.96 $65.15
REVPAR.................... $42.84 $39.14 $31.46 $39.79 $45.63 $47.36
Tucson, AZ
Occupancy................. 73% 72% 77% 77% 79% 82%
ADR....................... $51.28 $54.38 $54.46 $57.21 $58.93 $69.40
REVPAR.................... $37.66 $39.05 $42.16 $44.29 $46.53 $57.36
All U.S. Hotels(1)
Occupancy................. 60% 62% 64% 65% 66% --
ADR....................... $59.84 $59.65 $60.99 $63.63 $66.88 --
REVPAR.................... $36.98 $37.04 $38.85 $41.49 $44.14 --
Country Lodging System(2)
Occupancy................. 68% 67% 71% 75% 75% 72%
ADR....................... $48.30 $50.62 $50.00 $53.00 $56.00 $61.56
REVPAR.................... $32.90 $33.94 $35.72 $39.75 $41.00 $43.98
</TABLE>
- ---------------
(1) Source: Smith Travel Research and Country Hospitality.
(2) Source: Country Hospitality. Data for the year 1991 includes Canadian
properties. Data for all other years are limited to U.S. properties.
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate the hotels. Therefore, the Operating
Partnership has leased the three hotels owned as of June 30, 1996 to GHG for a
term of five years pursuant to percentage leases (the "Percentage Leases"),
which provide for rent equal to the greater of the Base Rent (as defined in the
Percentage Leases) or a specified percentage of revenues (the "Percentage
Rent"). GHG leases each hotel separately. The lessee's ability to make rent
payments will to a large degree depend on its ability to generate cash flow from
the operations of the hotels. Each percentage lease contains the provisions
described below.
Each Percentage Lease has a non-cancelable term of five years, subject to
earlier termination upon the occurrence of certain contingencies described in
the Percentage Lease. The lessee under the Percentage Lease has one five-year
renewal option at the then current fair market rent.
During the term of each Percentage Lease, the lessee is obligated to pay
the greater of Base Rent or Percentage Rent. Base Rent accrues and is required
to be paid monthly. Percentage Rent is calculated by multiplying fixed
percentages by room revenues for each of the three hotels. The applicable
percentage changes when revenue exceeds a specified threshold, and the threshold
may also adjust annually in accordance with changes in the applicable CPI.
Percentage Rent is due quarterly.
62
<PAGE> 64
The table below sets forth the annual Base Rent and the Percentage Rent
formulas for each of the three owned hotels owned by the Company as of June 30,
1996.
HOTEL LEASE RENT PROVISIONS
<TABLE>
<CAPTION>
INITIAL
ANNUAL
BASE
HOTEL RENT ANNUAL PERCENTAGE RENT FORMULAS
- ----------------------- -------- ------------------------------------------------------
<S> <C> <C>
Ontario, CA............ $240,000 24% of room revenue up to $1,575,000 plus 40% of room
revenue above $1,575,000 and 5% of other revenue.
Arlington, TX.......... 360,000 27% of room revenue up to $1,600,000 plus 42% of room
revenue above $1,600,000 and 5% of other revenue.
Tucson, AZ............. 600,000 40% of room revenue up to $1,350,000 plus 46% of room
revenue above $1,350,000 and 5% of other revenue.
</TABLE>
Other than real estate and personal property taxes, casualty insurance, a
fixed capital improvement allowance and maintenance of underground utilities and
structural elements, which are the responsibility of the Company, the Percentage
Leases require the lessee to pay rent, insurance, all costs, salaries, and
expenses and all utility and other charges incurred in the operation of the
Hotels.
The Percentage Leases require the owner to maintain the underground
utilities and the structural elements of the improvements, including exterior
walls (excluding plate glass) and roof. In addition, the owner must fund
periodic capital improvements to the buildings and grounds, and the periodic
repair, replacement and refurbishment of furniture, fixtures and equipment, up
to the following amounts per quarter for the first year of the Percentage Lease:
Ontario -- $22,750; Arlington -- $25,000; and Tucson -- $28,500. These amounts
increase annually in accordance with the CPI. These obligations carry forward to
the extent not expended, and any unexpended amounts remain the property of the
owner upon termination of the Percentage Leases. Except for capital improvements
and maintenance of structural elements and underground utilities, the lessee
bears the obligation, at its expense, to maintain the hotels in good order and
repair, except for ordinary wear and tear, and to make non-structural, foreseen
and unforeseen, and ordinary and extraordinary repairs which may be necessary
and appropriate to keep the hotels in good order and repair.
The lessee may not sublet all or any part of the hotels or assign its
interest under any of the Percentage Leases, other than to an affiliate of the
lessee, without the prior written consent of the owner. No assignment or
subletting will release the lessee from any of its obligations under the
Percentage Leases.
If the Company enters into an agreement to sell or otherwise transfer a
hotel, the Company has the right to terminate the Percentage Lease with respect
to that hotel upon paying the lessee the fair market value of the lessee's
leasehold interest in the remaining term of the Percentage Lease to be
terminated.
The lessee is the licensee under the franchise licenses on the hotels. The
franchise agreements are assignable to the owner, another lessee or a new owner,
with a payment of $2,500 per hotel.
Multifamily Properties
The Company owns one apartment complex known as Summerbreeze, with 104
units totaling 73,284 square feet of space, located in North Hollywood,
California. All of the units are rented to residential tenants on a
month-to-month basis. As of June 30, 1996, Summerbreeze was 96% occupied.
63
<PAGE> 65
The following table sets forth as of June 30, 1996 the name, city, state,
year of completion, number of units, approximate square footage and, for the
twelve months ended June 30, 1996, average occupancy, property revenues,
percentage of property revenues, and average rent per leased unit for the
Summerbreeze Apartments, the only multifamily property then owned by the
Company.
GLENBOROUGH REALTY TRUST INCORPORATED
MULTIFAMILY PORTFOLIO
<TABLE>
<CAPTION>
PROPERTY REVENUES FOR
AVERAGE PROPERTY 12 MONTHS ENDED
OCCUPANCY REVENUES 6/30/96
YEAR # OF FOR 12 MONTHS 12 MONTHS ---------------------
PROPERTY CITY ST COMPLETED UNITS SQ. FT. ENDED 6/30/96 ENDED 6/30/96 AMOUNT PERCENT
- ----------------- ------------- --- --------- ----- ------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
No.
Summerbreeze..... Hollywood.... CA 1981 104 73,284 92% $ 768,376 $666.09 100%
</TABLE>
The following table sets forth, for the periods specified, the total units,
average occupancy, monthly average effective base rent per unit, and total
effective annual base rent, for the Summerbreeze Apartments.
MULTIFAMILY PROPERTIES
HISTORICAL RENT AND OCCUPANCY
<TABLE>
<CAPTION>
MONTHLY
AVERAGE EFFECTIVE TOTAL EFFECTIVE
AVERAGE OCCUPANCY BASE RENT PER ANNUAL BASE
YEAR TOTAL UNITS FOR THE PERIOD LEASED UNIT(1) RENT ($000S)(2)
- --------------------------------- ----------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1996............................. 104 91%(3) $ 666 756
1995............................. 104.... 94 630 739
1994............................. 104.... 98 632 774
1993............................. 104.... 93 632 734
1992............................. 104.... 98 633 758
1991............................. 104.... 95 634 752
</TABLE>
- ---------------
(1) Total Effective Annual Base Rent divided by Average Occupied Unit.
(2) Total Effective Annual Base Rent including any free rent given for the
period.
(3) For the six months ended June 30, 1996.
Mortgage Receivables
The Company holds two notes receivable, secured by first priority real
property liens, which have a total outstanding principal balance at June 30,
1996 of $8,076,000. As of September 5, 1996, all payments are current.
SUMMARY OF MORTGAGE RECEIVABLES
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
-------------------------
NAME TYPE RATE MATURITY 6/30/96 12/31/95
- ----------------------------- ----------------- ----- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Hovpark(1)................... Industrial/Office 8.00% 11/01/96 $7,563,000 $7,563,000
Laurel Cranford.............. Industrial 9.00% 06/01/01 $ 513,000 $ 516,000
</TABLE>
- ---------------
(1) The financial statement carrying value of the Hovpark loan is $6,700,000,
the estimated fair value of the underlying collateral.
The Company does not intend to engage in the business of making real estate
loans.
The Location and Type of the Company's Properties
The 34 properties owned as of June 30, 1996 by the Company are diverse in
type (retail, industrial, office, hotel and multifamily) and are located in
numerous local markets among four geographic regions and 15 states within the
United States. The following table sets forth, as of June 30, 1996, the region
and type of
64
<PAGE> 66
the Company's properties by rentable square feet and/or units, along with
average occupancy for the twelve months ended June 30, 1996.
<TABLE>
<CAPTION>
SQ. FT. SQ. FT. SQ. FT. HOTEL UNITS NO. OF
REGION INDUSTRIAL OFFICE RETAIL ROOMS MULTIFAMILY PROPERTIES
- ---------------------------------- ---------- ------- ------- ----- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
East.............................. 274,000 0 0 0 0 1
South............................. 205,594 0 199,358 222 0 17
Midwest........................... 813,776 36,107 12,800 0 0 9
West.............................. 198,457 69,975 73,500 277 104 7
--
--------- ------- ------- --- ---
Total................... 1,491,827 106,082 285,658 499 104 34
========= ======= ======= === === ==
No. of Properties................. 8 2 19 4 1 34(1)
==
Average occupancy................. 100% 99% 95% 73% 92%
</TABLE>
- ---------------
(1) Does not include the UCT Property, the San Antonio Hotel and the Kash n'
Karry Property acquired in July 1996. See "Recent Activities."
For the years ended December 31, 1995, and 1994 and 1993, rental revenue
from the two properties leased to Navistar International Transportation Corp.
represented approximately 10% of the historical combined total rental revenue of
the GRT Predecessor Entities, and approximately 5% of the Company's total
revenues on a pro forma basis.
Lease Expirations
For the non-residential portfolio as a whole, average annual lease
expirations over the next 5 1/2 years will represent 5% of total leased square
footage and 9% of total annual base rent.
MANAGEMENT BUSINESS
The Company conducts its management operations through the Associated
Companies. The Company holds 100% of the preferred stock of each of the
Associated Companies. Although the Company holds none of the voting common stock
of the Associated Companies, the Company has the right, through its preferred
stock holdings, to receive a significant portion of the economic benefits of the
Associated Companies' operations. The voting common stock of the Associated
Companies is held by individuals. See " -- The Associated Companies."
65
<PAGE> 67
The Associated Companies control a substantial asset management and
property management portfolio by virtue of GC's general partner interests in
certain limited partnerships, and through contracts with unaffiliated owners.
The management operations of the Company, the Operating Partnership and the
Associated Companies as of June 30, 1996 are summarized in the following table.
[Graph]
- ---------------
(1) Properties owned by the Operating Partnership or the Company and either (i)
leased to GHG, in the case of hotels, or (ii) managed by the Company.
(2) Properties owned by partnerships of which GC or an affiliate is the general
partner, or by third parties, and managed by GC, GIRC or GHG.
(3) Includes the UCT Property, which the Company acquired in July 1996, and the
Bond Street Property which the Company acquired in September 1996. See
"Recent Activities."
The portfolio of properties managed by the Associated Companies includes
622 hotel rooms, approximately 4.5 million square feet of retail, industrial and
office properties, more than 1,700 multifamily residential units, and
approximately 284 acres of undeveloped land. The Associated Companies each
receive substantial fees for their management services. The Associated
Companies, in turn, pay a portion of their income to their stockholders,
including the Company, through distributions on their capital stock.
66
<PAGE> 68
THE ASSOCIATED COMPANIES
The following table lists the properties managed by the Associated
Companies, indicating property name, city, state, approximate square footage,
size or number of units, if applicable, and acreage, if applicable, as of June
30, 1996.
MANAGEMENT PORTFOLIO
<TABLE>
<CAPTION>
SQ.
ASSET CITY STATE FT.(1)
- ---------------------------------------------------- ----------------- ----- ---------
<S> <C> <C> <C>
INDUSTRIAL
San Sevaine Business Park........................... Mira Loma CA 172,057
Rancon Centre Ontario............................... Ontario CA 245,000
SkyPark Airport Parking............................. San Bruno CA 216,780
Carroll Vista Center................................ San Diego CA 107,579
Wakefield Engineering Building...................... Temecula CA 44,200
28720 Via Montezuma................................. Temecula CA 24,402
Bryant Lake Phases I & II........................... Eden Prairie MN 80,057
Bryant Lake Phase III............................... Eden Prairie MN 91,732
Black Satchel....................................... Charlotte NC 228,800
North Park Business Center.......................... Charlotte NC 319,960
The Commons at Great Valley......................... Malvern PA 200,000
Totem Valley Business Center........................ Seattle WA 121,645
---------
Total..................................... 1,852,212
=========
</TABLE>
<TABLE>
<S> <C> <C> <C>
OFFICE
Rosemead Springs Center............................. El Monte CA 129,503
Civic Center II..................................... Rancho Cucamonga CA 17,857
Gateway Professional Center......................... Sacramento CA 48,578
Park Plaza.......................................... Sacramento CA 67,688
Carnegie Business Center I.......................... San Bernardino CA 62,506
Carnegie Business Center II......................... San Bernardino CA 50,804
One Vanderbilt Way.................................. San Bernardino CA 73,809
Two Vanderbilt Way.................................. San Bernardino CA 69,094
Lakeside Tower...................................... San Bernardino CA 112,649
One Carnegie Plaza.................................. San Bernardino CA 102,625
Two Carnegie Plaza.................................. San Bernardino CA 68,925
One Parkside........................................ San Bernardino CA 70,069
Santa Fe Railway.................................... San Bernardino CA 36,288
Inland Regional Center.............................. San Bernardino CA 81,079
Bristol Medical Center.............................. Santa Ana CA 52,311
Montrose Office Building............................ Rockville MD 186,385
Bond Street(2)...................................... Farmington Hills MI 40,595
University Club Tower(3)............................ St. Louis MO 272,443
Directors Plaza..................................... Memphis TN 131,727
Executive Plaza..................................... Memphis TN 147,695
Poplar Towers I..................................... Memphis TN 100,901
Bluemound Commerce Center........................... Brookfield WI 48,113
---------
Total..................................... 1,971,644
=========
</TABLE>
67
<PAGE> 69
<TABLE>
<CAPTION>
SQ.
ASSET CITY STATE FT.(1)
- ---------------------------------------------------- ----------------- ----- ---------
<S> <C> <C> <C>
RETAIL
Mountain View Plaza................................. Mojave CA 57,456
Promotional Retail Phase II......................... San Bernardino CA 66,265
Retail Service Center............................... San Bernardino CA 20,780
Holiday Spa Health Club............................. San Bernardino CA 25,000
Aztec Shopping Center............................... San Diego CA 23,789
Silver Creek Plaza.................................. San Jose CA 71,005
RCC Auto Center..................................... Temecula CA 25,761
Town & Country Center............................... Arlington Heights IL 323,591
San Mar Plaza....................................... San Marcos TX 96,206
---------
Total..................................... 709,853
=========
</TABLE>
<TABLE>
<CAPTION>
NO. UNITS
---------
<S> <C> <C> <C>
HOTEL
Country Suites By Carlson........................... Tempe AZ 139
Country Suites By Carlson........................... Memphis TN 121
Condominium Resort Hotel............................ Galveston TX 276
Condominium Resort Hotel............................ Port Aransas TX 86
---------
Total..................................... 622
=========
MULTIFAMILY
Green Meadows....................................... Davis CA 120
Huntington Breakers................................. Huntington Beach CA 342
Villa La Jolla...................................... La Jolla CA 385
La Jolla Canyon..................................... La Jolla CA 157
Pacific Bay Club.................................... San Diego CA 159
Woodbend............................................ Vista CA 240
Promontory Point.................................... Henderson NV 180
Lake Mead Estates................................... Las Vegas NV 160
---------
Total..................................... 1,743
=========
</TABLE>
<TABLE>
<CAPTION>
ACREAGE
---------
<S> <C> <C> <C>
LAND(4)
Lake Elsinore Square (Retail)....................... Lake Elsinore CA 24.79
Mountain View Plaza (Retail)........................ Mojave CA 8.99
Perris-4th Avenue (Comm./Retail).................... Perris CA 17.67
Perris-Ethanac (Comm./Retail)....................... Perris CA 23.76
Perris-Nuevo (Comm./Retail)......................... Perris CA 60.41
Rancon Centre Ontario (Industrial).................. Ontario CA 33.76
Rancon Center (Office).............................. Rancho Cucamonga CA 1.80
Rancon Center (Retail).............................. Rancho Cucamonga CA 5.98
Rancon Commerce Center (Industrial)................. Temecula CA 15.52
Rancon Towne Village (Retail)....................... Temecula CA 11.97
Tippecanoe (Commercial)............................. San Bernardino CA 8.79
Tri-City Corporate Center (Office/Retail)........... San Bernardino CA 70.33
---------
Total..................................... 283.77
=========
</TABLE>
- ---------------
(1) Total square footage of the management portfolio is 6,199,685 square feet,
including 1,665,976 square feet of hotel and multifamily properties as of
June 30, 1996.
(2) Acquired by the Company on September 24, 1996.
(3) Acquired by the Company on July 15, 1996.
(4) The 55 properties listed as actively managed elsewhere in this Prospectus do
not include the land portfolio.
68
<PAGE> 70
Glenborough Corporation
Glenborough Corporation ("GC"), a California corporation formerly known as
Glenborough Realty Corporation, serves as general partner of several real estate
limited partnerships for whom it provides management services, asset management
and property management.
The Company owns 100% of the 19,000 shares (representing 95% of total
outstanding shares) of non-voting preferred stock of GC. Three individuals, one
of whom, Sandra L. Boyle, is an executive officer of the Company, each own
33 1/3% of the 1,000 shares (representing 5% of total outstanding shares) of
voting common stock of GC. The Company and GC intend that the Company's interest
in GC comply with REIT qualification standards.
The Company, through its ownership of preferred stock of GC, is entitled to
receive cumulative, preferred dividends of $0.80 per share, which GC must pay
before it pays any dividends with respect to the common stock of GC. Once GC
pays the required cumulative preferred dividend, it will pay any additional
dividends in equal amounts per share on both the preferred stock and the common
stock, i.e., in aggregate, 95% to the preferred stock and 5% to the common
stock. Through the preferred stock, the Company is also entitled to receive a
preferred liquidation value of $95.00 per share plus all cumulative and unpaid
dividends. The preferred stock is subject to redemption at the option of GC
after December 31, 2005, for a redemption price of $95.00 per share. As the
holder of preferred stock of GC, the Company has no voting power with respect to
the election of the directors of GC; all power to elect directors of GC is held
by the owners of the common stock of GC.
This structure is intended to provide the Company with a significant
portion of the economic benefits of the operations of GC. The Company accounts
for the financial results of GC using the equity method.
Glenborough Inland Realty Corporation
GIRC provides management services for certain partnerships sponsored by
Rancon Financial Corporation, an unaffiliated corporation which has significant
real estate assets in the Inland Empire region of Southern California (the
"Rancon Partnerships"). These services include asset management, development,
Securities and Exchange Commission reporting, accounting, investor relations,
property management services, and may in the future also include general partner
services.
The Company owns 100% of the 19,000 shares (representing 95% of total
outstanding shares) of nonvoting preferred stock of GIRC. Three individuals, one
of whom, Frank E. Austin, is an executive officer of the Company, each own
33 1/3% of the 1,000 shares (representing 5% of total outstanding shares) of
voting common stock of GIRC. The Company and GIRC intend that the Company's
interest in GIRC comply with REIT qualification standards.
The Company, through its ownership of preferred stock, is entitled to
receive cumulative, preferred dividends of $0.80 per share, which GIRC must pay
before it pays any dividends with respect to the common stock. Once GIRC pays
the required cumulative preferred dividend, it will pay any additional dividends
in equal amounts per share on both the preferred stock and the common stock,
i.e., in aggregate, 95% to the preferred stock and 5% to the common stock.
Through the preferred stock, the Company is also entitled to receive a preferred
liquidation value of $55.00 per share plus all cumulative and unpaid dividends.
The preferred stock is subject to redemption at the option of GIRC after
December 31, 2005, for a redemption price of $55.00 per share. As the holder of
preferred stock of GIRC, the Company has no voting power with respect to the
election of the directors of GIRC; all power to elect directors of GIRC is held
by the owners of the common stock of GIRC.
This structure is intended to provide the Company with a significant
portion of the economic benefits of the operations of GIRC. The Company accounts
for the financial results of GIRC using the equity method.
69
<PAGE> 71
Glenborough Hotel Group
The Operating Partnership leases its hotel properties to GHG. The Operating
Partnership holds a first mortgage on another hotel, which is managed by GHG
under a contract with its owner. GHG also manages two other hotels owned by
Outlook Income Fund 9, a partnership whose general partner is GC as well as two
resort condominium hotels.
The Company owns 100% of the 50 shares of non-voting preferred stock of
GHG. Three individuals, one of whom, Terri Garnick, is an executive officer of
the Company, each own 33 1/3% of the 1,000 shares of voting common stock of GHG.
The Company and GHG intend that the Company's interest in GHG comply with REIT
qualification standards.
The Company, through its ownership of preferred stock, is entitled to
receive cumulative, preferred annual dividends of $600 per share, which GHG must
pay before it pays any dividends with respect to the common stock. Once GHG pays
the required cumulative preferred dividend, it will pay 75% of any additional
dividends to holders of the preferred stock, and 25% to holders of the common
stock. Through the preferred stock, the Company is also entitled to receive a
preferred liquidation value of $40,000 per share plus all cumulative and unpaid
dividends. The preferred stock will be subject to redemption at the option of
GHG after December 31, 1999, for a redemption price of $40,000 per share. As the
holder of preferred stock of GHG, the Company has no voting power with respect
to the election of the directors of GHG. All power to elect directors of GHG is
held by the owners of the common stock of GHG.
This structure is intended to provide the Company with a significant
portion of the economic benefits of the operations of GHG. The Company accounts
for the financial results of GHG using the equity method.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's principal business objectives are to achieve a stable and
increasing source of cash flow available for distribution to stockholders while
also seeking to maintain a low investment risk. By achieving these objectives,
the Company seeks to raise stockholder value over time. The Company intends to
achieve these objectives through the following:
- The Company seeks to maintain its debt at 30% or less of its Borrowing
Base except for planned short-term borrowings to fund acquisitions.
- The Company seeks to fund future real estate investments either through
future equity offerings or the issuance of debt, subject to the Debt
Limit defined below.
- The Company will continue to develop its real estate industry knowledge
through continued research which will be used to lower portfolio
investment risk and enhance stockholders' returns.
- The Company intends to take advantage of economies of scale that have the
potential to increase profitability as the investment portfolio grows.
- The Company seeks to enhance its market position and existing real estate
and investment industry relationships in order to improve its access to
new investment opportunities.
The financing of additional investment activity by the Company may be
funded through public or private offerings of equity securities in the Company,
by additional borrowings by the Company (subject to the Debt Limit defined
below) through various means, including public or private offerings of
convertible or nonconvertible debt securities or loans, or by the use of cash
flow from operations or proceeds from the sale of real estate (including the
properties acquired pursuant to the Consolidation). The Company has authority to
offer shares of its capital stock or units of the Operating Partnership in
exchange for properties which conform to its investment standards and to
repurchase or otherwise acquire its capital stock or other securities. The
Company may also invest in the securities of other real estate investment
entities for the purpose of exercising control.
70
<PAGE> 72
INVESTMENT OBJECTIVES
The Company's investment objectives are: (a) to maximize the value of its
shares, (b) to provide current income for distribution to stockholders, and (c)
to increase distributions per share through the investment in and acquisition of
real estate, management contracts and general partner interests. There can be no
assurance that these objectives will be realized.
INVESTMENT POLICIES
The Company intends to invest in income property, both directly and through
joint ventures with unaffiliated third parties, including institutional
investors. Prospective real estate investment opportunities undergo an
underwriting process that evaluates the following: reasonably anticipated levels
of net cash and ultimate sales value, based on evaluation of a range of factors
including, but not limited to, rental levels under existing leases; financial
strength of tenants; levels of expense required to maintain operating services
and routine building maintenance at competitive levels; levels of capital
expenditure required to maintain the capital components of the building in good
working order and in conformance with building codes, health, safety and
environmental standards, and the like.
The Company conducts physical site inspections of each property under
consideration and also engages outside professionals to independently inspect
properties prior to acquisition. The Company either engages outside
professionals to conduct Phase I Environmental Assessments for all acquisitions,
or relies on the experience of the Company or an Associated Company in managing
the property, or the availability of a recent report prepared for a third party,
when the incremental benefit of obtaining a new report is outweighed by the
cost.
The Company emphasizes equity real estate investments, but may also invest
in mortgages, securitized mortgage portfolios or other assets consistent with
maintaining qualification as a REIT. The Company will not invest in derivative
financial instruments except for the limited purpose of prudently hedging
interest rate risk under variable interest rate debt. The Company has no plans
to invest in derivative financial instruments.
The Board of Directors of the Company will review the investment policies
of the Company at least annually to determine that the investment policies being
followed by the Company at any time are in the best interests of the Company's
stockholders. The Board of Directors may alter the Company's investment policies
if they determine in the future that such a change is in the best interests of
the Company and its stockholders. The methods of implementing the Company's
investment policies may vary as new investment and financing techniques are
developed or for other reasons.
The Company has also adopted a policy that no acquisition of properties
from GPA, Ltd. or Robert or Andrew Batinovich or their families or from other
entities in which they have an interest will be made without the Company first
obtaining the approval of at least two-thirds of the Company's Board of
Directors, excluding the votes of any interested parties.
DEBT LIMIT
The Company's Organizational Documents limit the Company's ability to incur
additional debt if the Company's total debt, including the additional debt,
would exceed 50% of the Borrowing Base (the "Debt Limit"). The Borrowing Base is
defined as the greater of Fair Market Value or Total Market Capitalization. Fair
Market Value is based upon the value of the Company's assets as determined by an
independent appraiser. Total Market Capitalization is based upon the value of
the Company's outstanding Common Stock, including shares issuable on exercise of
redemption options by holders of units of the Operating Partnership. An
exception is made for refinancings and borrowings required to make distributions
to maintain the Company's status as a REIT. As of September 30, 1996, the
Company's debt was 39.0% of the Borrowing Base.
The Company's Organizational Documents do not limit the portion of the
permitted debt that may bear interest at a fixed rate, or at a variable rate,
and do not contain restrictions concerning repayment terms.
71
<PAGE> 73
The Debt Limit is unrelated to the book value of the Company's assets. The
Company believes that the book value of its assets does not accurately reflect
its ability to borrow and to meet debt service requirements. The Borrowing Base,
however, is more variable than book value, and does not necessarily reflect the
fair market value of the underlying assets of the Company. Although the Company
considers factors other than its Borrowing Base in making decisions regarding
the incurrence of debt (such as the purchase price of properties to be acquired
with debt financing, the estimated market value of properties upon refinancing,
and the ability of particular properties and the Company as a whole to generate
cash flow to cover expected debt service), there can be no assurance that the
ratio of debt to Borrowing Base (or to any other measure of asset value) will be
consistent with the level of distributions to stockholders.
FUTURE SALES
The Company expects to sell one or more of the properties when
circumstances arise that make the sale advisable, and the Company intends to
reinvest some or all of the proceeds of these sales rather than distribute them
to stockholders, taking into account the income tax impact, if any, of
reinvesting sale proceeds rather than distributing them.
DEBT
Upon Consolidation of the Company, the Company assumed a note payable on
one property and pledged a significant portion of the remaining properties as
security for its new notes payable. The terms of these loans as of June 30, 1996
are summarized as follows, in thousands:
<TABLE>
<S> <C>
Loan from Bear, Stearns Funding Inc. secured by nine properties with a
fixed interest rate of 7.57% requiring monthly payments of principal and
interest of $149, based on a 25-year amortization with a maturity date of
January 1, 2006.......................................................... $19,886(1)
A line of credit from Imperial Bank secured by several properties with a
variable interest rate of LIBOR plus 2.375%, requiring monthly interest
only payments and having maturity dates of November 29, 1998 and December
29, 1998................................................................. 9,210(2)
Loan from Home Savings of America secured by one property with a fixed
interest rate of 7.75%, requiring monthly payments of principal and
interest of $20 with a maturity date of January 1, 2006.................. 2,635(3)
Loan from Unionmutual Stock Life Insurance Company of America secured by
one property with a fixed interest rate of 8%, requiring monthly payments
of principal and interest of $13 based on an approximately 30-year
amortization, with a maturity date of September 1, 2005.................. 999(4)
-------
$32,730
=======
</TABLE>
- ---------------
(1) The Company has no right of prepayment until December 29, 1998, and between
that date and six months prior to maturity may prepay in whole or in part,
subject to payment of a premium equal to the greater of (i) 1% of the
prepayment amount and (ii) the excess, if any, of (a) the product of (x) the
sum of the present values of all scheduled payments of principal and
interest and (y) a fraction which has as numerator the principal being
prepaid and as denominator the outstanding principal, over (b) the principal
amount being prepaid.
(2) This line of credit has been repaid by applying a portion of the proceeds of
the Facility. See "Recent Activities."
(3) The Company has no right of prepayment until January 1, 2000, after which
time the company may prepay in whole or in part, subject to payment of a
premium equal to the greater of (i) 1% of the prepayment amount and (ii) the
remainder after subtracting the outstanding principal balance from the
discounted present value of all future installments, discounted at an
interest rate based on an average yield for instruments of similar term
reported by the Federal Reserve Board for the second week before the
prepayment.
72
<PAGE> 74
(4) The Company may prepay in whole (but not in part) at any time, subject to
payment of a premium equal to the remainder after subtracting the
outstanding principal balance from the amount that, if invested, would yield
a stream of payments equal to the discounted present value of all
anticipated payments on the loan (excluding the return of principal on the
maturity date), with both the discount rate and the yield on the
hypothetical investment based on the yield of AAA-rated municipal bonds
having a maturity date closest to the maturity of the loan, as reported five
days before the prepayment, increased by an additional two percent from and
after December 1, 1988.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, an owner or operator of real estate may be required to investigate
and clean up certain hazardous or toxic substances, including petroleum product
releases, at the property, and may be held liable to a governmental entity or to
third parties for property damage and for investigation and cleanup costs
incurred by such parties in connection with the contamination. The owner or
operator of a contaminated property may also be liable to third parties for
damages and injuries resulting from environmental contamination emanating from
the property. Certain environmental laws impose liability on a previous owner of
property to the extent that hazardous or toxic substances, including petroleum
products, were present during the prior ownership period. A transfer of the
property does not relieve an owner of such liability. Thus, the Company may be
liable in respect of properties previously sold or otherwise divested by the
Company or any of its predecessor entities. Some environmental laws create a
lien on contaminated property in favor of the government for damages and costs
it incurs in connection with the contamination. These liabilities may exist
whether or not the owner or operator knew of, or was responsible for, the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the property as collateral.
Certain federal, state and local laws, ordinances and regulations govern
the removal, encapsulation or disturbance of ACMs when ACMs are in poor
condition or in the event of building remodeling, renovation or demolition.
Other laws, ordinances and regulations impose liability for the release of ACMs
and permit third parties to seek recovery from owners or operators of real
estate for personal injury associated with ACMs. The presence of ACMs or the
failure to maintain ACMs in good condition may adversely affect the owner's
ability to sell or lease real estate or to borrow using the real estate as
collateral.
All of the Properties presently owned by the Company have been subject to
Phase I environmental assessments by independent environmental consultants. Some
of the Phase I environmental assessments recommended further investigations in
the form of Phase II environmental assessments, including soil and groundwater
sampling, and all of these investigations have been completed by the Company or
are in the process of being completed. Certain of the Properties owned by the
Company have been found to contain ACMs. The Company believes that these
materials have been adequately contained and that an ACM operations and
maintenance program has been implemented or is in the process of being
implemented for the Properties found to contain ACMs.
All of the properties being considered for acquisition by the Company have
been subject to Phase I environmental assessments by independent environmental
consultants. Some of the Phase I environmental assessments recommended Phase II
environmental assessments, all of which will be completed prior to completion of
the respective acquisitions. Certain of the properties being considered for
acquisition by the Company have been found to contain ACMs. The Company believes
that these materials have been adequately contained and that an ACM operations
and maintenance program has been implemented or will be implemented upon
acquisition for the properties found to contain ACMs. The Company intends to
continue to cause Phase I environmental assessments, and Phase II environmental
assessments if indicated, to be made by independent environmental consultants in
connection with future acquisitions.
Some, but not all, of the properties owned by partnerships managed by the
Associated Companies have been subject to Phase I environmental assessments by
independent environmental consultants. The Associated Companies determine on a
case-by-case basis whether to obtain Phase I environmental assessments on these
properties and whether to undertake further investigation or remediation.
Certain of these properties have been found to contain ACMs. In each case the
responsible Associated Company believes that these materials have been
adequately contained and that an ACM operations and maintenance program has been
implemented or is in the process of being implemented for the properties found
to contain ACMs.
73
<PAGE> 75
Six of the Properties owned by the Company are leased in whole or in part
to operators of auto care centers which include oil change and tune-up
facilities, and ten of the Properties are leased to an operator of convenience
stores which sell petroleum-based fuels. These Properties and other of the
Properties contain, and/or may have contained in the past, underground storage
tanks for the storage of petroleum products and/or other hazardous or toxic
substances which create a potential for release of petroleum products and/or
other hazardous or toxic substances. Some of the Properties owned by the Company
are adjacent to or near properties that have contained in the past or currently
contain, underground storage tanks used to store petroleum products or other
hazardous or toxic substances. Several of the Properties have been contaminated
with petroleum products or other hazardous or toxic substances from on-site
operations or operations on adjacent or nearby properties. In addition, certain
of the Properties are on, adjacent to or near properties upon which others have
engaged or may in the future engage in activities that may release petroleum
products or other hazardous or toxic substances.
Although tenants of the Properties owned by the Company generally are
required by their leases to operate in compliance with all applicable federal,
state and local environmental laws, ordinances and regulations and to indemnify
the Company against any environmental liability arising from the tenants'
activities on the Properties, the Company could nevertheless be subject to
environmental liability relating to its management of the Properties or strict
liability by virtue of its ownership interest in the Properties and there can be
no assurance that the tenants would satisfy their indemnification obligations
under the leases. There can be no assurance that any environmental assessments
of the Properties owned by the Company, properties being considered for
acquisition by the Company, or the properties owned by the partnerships managed
by the Associated Companies have revealed all potential environmental
liabilities, that any prior owner or prior or current operator of such
properties did not create an environmental condition not known to the Company or
that an environmental condition does not otherwise exist as to any one or more
of such properties that could have an adverse effect on the Company's results of
operations and financial condition, either directly (with respect to properties
owned by the Company), or indirectly (with respect to properties owned by
partnerships managed by an Associated Company) by adversely affecting the
financial condition of the Associated Company and thus the value of the
Company's preferred stock interest in the Associated Company. Moreover, there
can be no assurance that (i) future environmental laws, ordinances or
regulations will not have an adverse effect on the Company's results of
operations and financial condition or (ii) the current environmental condition
of such properties will not be affected by tenants and occupants of such
properties, by the condition of land or operations in the vicinity of the
properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Company.
LEGAL PROCEEDINGS
Blumberg
On February 21, 1995, a class action complaint was filed in the Superior
Court of the State of California in and for San Mateo County in connection with
the Consolidation. The plaintiff is Anthony E. Blumberg, an investor in Equitec
B, one of the partnerships participating in the Consolidation, on behalf of
himself and all others similarly situated. The defendants are Old GC, GC, Robert
Batinovich, the Partnerships and the Company.
The complaint alleged breaches by the defendants of their fiduciary duty
and duty of good faith and fair dealing to investors in the Partnerships as well
as inadequate disclosures. The complaint sought injunctive relief and
compensatory damages. The complaint alleged that the valuation of GC was
excessive and was done without appraisal of GC's business or assets. The
complaint further alleged that the interest rate for the notes to be issued to
investors in lieu of shares of Common Stock, if they so elected, was too low for
the risk involved and that the notes would likely sell, if at all, at a
substantial discount from their face value. The Company, as it had the option to
do, paid in full the amounts due plus interest in lieu of issuing Notes.
On October 9, 1995 the parties entered into an agreement to settle the
action. The defendants, in entering into the settlement agreement, did not
acknowledge any fault, liability or wrongdoing of any kind and continue to deny
all material allegations asserted in the litigation. Pursuant to the settlement
agreement, the defendants will be released from all claims, known or unknown,
that have been, could have been, or in the future might be
74
<PAGE> 76
asserted, relating to, among other things, the Consolidation, the acquisition of
the Company's shares pursuant to the Consolidation, any misrepresentation or
omission in the Registration Statement on Form S-4 filed by the Company on
September 1, 1994 as amended (the "Company's Registration Statement on Form
S-4") or prospectus contained therein (the "Prospectus/Solicitation Statement"),
or the subject matter of the lawsuit. In return, the defendants agreed to the
following: (a) the inclusion of additional or expanded disclosure in the
Prospectus/Consent Solicitation Statement, and (b) the placement of certain
restrictions on the sale of Common Stock by certain insiders and the granting of
stock options to certain insiders following consummation of the Consolidation.
Plaintiff's counsel indicated that it would request that the court award it
$850,000 in attorneys' fees, costs and expenses. In addition, plaintiff's
counsel indicated it would request that the court award $5,000 payable to
Anthony E. Blumberg as the class representative. The defendants agreed not to
oppose such a request.
On October 11, 1995, the court certified the class for purposes of
settlement and set a hearing date of December 21, 1995 to determine whether it
should approve the settlement and class counsel's application for fees. A notice
of the proposed settlement was distributed to the members of the class on
November 15, 1995. The notice specified that, in order to be heard at the
hearing, any class member objecting to the proposed settlement must, by December
15, 1995, file a notice of intent to appear and a detailed statement of the
grounds for their objection.
A number of objections were received from class members. The objections
reiterated the claims in the original Blumberg complaint and asserted that the
settlement agreement did not adequately compensate the class for releasing those
claims. One of the objections was filed by the same law firm that had brought a
class action against the former general partners of one of the merging
partnerships (described as the "GPI Lawsuit" in the Company's Registration
Statement on Form S-4). The other was filed by the same law firm that brought
the "BEJ" action described below.
The hearing originally scheduled for December 21, 1995 was continued to
January 17, 1996. At the hearing on January 17, the court heard the arguments of
the objectors seeking to overturn the settlement, as well as the arguments of
the plaintiffs and the defendants in defense of the settlement. The court
granted all parties a period of time in which to file additional pleadings and
announced that it would render a final decision after receiving those additional
pleadings. On June 4, 1996, the court granted approval of the settlement,
finding it fundamentally fair, adequate and reasonable to the respective parties
to the settlement and also awarded attorneys' fees. However, the objectors have
given notice they intend to appeal the June 4 decision. Pursuant to the terms of
the settlement agreement, the Company paid one third of the $855,000 of
attorneys' fees and the remaining two thirds is being held in escrow pending
resolution of the appeal. Although the Company believes that the settlement will
be upheld on appeal and that the Company will not incur any material liability
in excess of the settlement amounts, there can be no assurance that the ultimate
outcome will not exceed the settlement amount.
BEJ Equity Partners
On December 1, 1995, a class action complaint relating to the Consolidation
was filed in Federal District Court for the Northern District of California. The
plaintiffs are BEJ Equity Partners, J/B Investment Partners, Jesse B. Small and
Sean O'Reilly as custodian f/b/o Jordan K. O'Reilly, who as a group held limited
partner interests in the partnerships known as: Outlook Properties Fund IV, a
California limited partnership, Glenborough All Suites Hotels, L.P., a
California limited partnership, Glenborough Pension Investors, a California
limited partnership, Equitec Income Real Estate Investors -- Equity Fund 4, a
California limited partnership, Equitec Income Real Estate Investors C, a
California limited partnership, and Equitec Mortgage Investors Fund IV, a
California limited partnership (all of which participated in the Consolidation),
on behalf of themselves and all others similarly situated. The defendants are
GC, Old GC, the Company, GPA, Ltd., Robert Batinovich, Andrew Batinovich and the
Partnerships.
This action alleges the same disclosure violations and breaches of
fiduciary duty as were alleged in the Blumberg action. The complaint sought
injunctive relief, which was denied at a hearing on December 22, 1995. At that
hearing, the court also deferred all further proceedings in this case until
after the January 17 hearing in the Blumberg action. Following several
stipulated extensions of time for the Company to respond to
75
<PAGE> 77
the complaint, the Company filed a motion to dismiss the case. Plaintiffs
subsequently agreed voluntarily to dismiss the case without prejudice but have
reserved the right to refile their claims, and the Company has agreed that it
will not assert the statute of limitations as a defense. Given this agreement,
the Company withdrew its motion to dismiss the case.
GPI Case
In June 1995, a class action lawsuit was filed on behalf of all partners of
Glenborough Pension Investors, a California limited partnership ("GPI"), in the
Superior Court of California in and for the County of San Mateo alleging, among
other things, that a debt restructuring arrangement between GPI and AFP Partners
that occurred in 1994 constituted a breach of fiduciary duty and that proxy
materials soliciting approval of the restructuring were false and misleading,
either as a result of fraud or negligent misrepresentation. GPI made a number of
loans to AFP Partners. The principals of AFP Partners were the four original
principals of August Financial Corporation (John R. Provine, Luke V. McCarthy,
Carl Sigalos and D.A. Heil, collectively the "August Defendants") and a
subsidiary of Glenfed Bank ("Glenfed"). The August Defendants and Glenfed also
controlled the general partner of GPI at the time of the vote. The proxy
materials that included the debt restructuring also included a proposal to
substitute Robert Batinovich and an affiliated management company as a new
general partner of GPI. The plaintiffs have named the August Defendants and
Glenfed as defendants on all counts and have named Robert Batinovich and a
predecessor to the Company, as defendants for allegedly aiding and abetting the
breach of fiduciary obligations and allegedly aiding and abetting or
participating in the proxy solicitation. The investment banking firm of
Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan"), which rendered a fairness
opinion, is also named as a defendant in connection with the proxy solicitation.
The plaintiffs seek unspecified damages to be proved at trial, prejudgment
interest and punitive damages against all defendants. Neither Robert Batinovich
nor the Company's predecessor were partners of GPI when loans were made or
restructured and the lawsuit makes no allegation that they received any benefit
from the transaction. They took over as the general partner of GPI after the
vote and the restructuring were completed. For these and other reasons, they
believe the claims against them are completely without merit. In any event,
Robert Batinovich has agreed to indemnify the Company against any damages and
costs of defense in connection with this litigation, and it is management's
opinion that these proceedings will not have a material adverse impact on the
Company or its financial condition. In addition, on August 12, 1996, Houlihan
filed suit in Los Angeles County Superior Court against GPI, GC and Robert
Batinovich, seeking indemnification for its fees, expenses and any other
liabilities arising out of the GPI case. Houlihan seeks unspecified damages and
declaratory relief. Defendants have not yet responded to the complaint.
Other Matters
From time to time the Company is named in litigation arising in the
ordinary course of business. It is management's belief that these actions,
either individually or in the aggregate, will not result in material expense to
the Company in excess of amounts reserved in the ordinary course of business.
SUBSIDIARIES
Qualified Subsidiaries
As described more fully under "Federal Income Tax Considerations," in order
to qualify as a REIT, an entity must meet certain income and asset tests
described in Section 856 of the Code. In particular, 75% and 95% (depending upon
which provision of the Code is being satisfied) of the entity's gross income
must derive from certain specified sources, none of which include management
fees. In addition, the entity may not own securities of any issuer, other than
securities which constitute real estate assets within the meaning of Section 856
of the Code, which either exceed 10% of the issuer's outstanding voting
securities or which have a fair market value in excess of 5% of the fair market
value of all of the REIT's assets.
The Company has three Qualified Subsidiaries, GRT Corporation, GRT
Financial, Inc. and GRT Industrial, Inc. GRT Corporation holds a 1% interest as
general partner of two Georgia limited partnerships (Glenborough Fund III and
Glenborough Fund IV) and one California limited partnership (UCT Associates), in
which the Operating Partnership has a 99% limited partner interest. GRT
Financial, Inc. holds a 1%
76
<PAGE> 78
general partner interest in Glenborough Fund I, which owns, directly or
indirectly, all of the properties subject to a mortgage in favor of Bear,
Stearns Funding, Inc. GRT Industrial, Inc. holds a 1% general partner interest
in GPA Industrial L.P. in which Glenborough Fund I is the sole limited partner,
and which owns the property known as Navistar Baltimore, which is encumbered by
the mortgage in favor of Bear, Stearns Funding, Inc. described more fully in
"Business and Properties -- Debt." The Company may organize additional Qualified
Subsidiaries to acquire or hold certain assets, or transact certain business, of
the Company. For that purpose, a "Qualified Subsidiary" is any corporation of
which the Company owns all of the issued and outstanding stock during the entire
period the corporation exists. The Qualified Subsidiaries are not considered
separate entities from the Company for federal income tax purposes. Thus, for
purposes of determining its income and assets, the Company includes all of the
assets and income of the Qualified Subsidiaries.
Other Subsidiaries
The Company may hold direct or indirect voting equity interests in other
entities as it deems necessary or desirable to facilitate its investment
activities or for any other lawful purpose in conformity with the applicable
provisions of the Code for the maintenance of REIT status. At present, the
Company holds voting equity interests in the Operating Partnership and in the
following subsidiaries: (a) Glenborough Fund III, whose sole limited partner is
the Operating Partnership and whose sole general partner is GRT Corporation, and
which holds title to the QuikTrip convenience stores; (b) Glenborough Fund IV,
an existing Georgia limited partnership, whose sole general partner is GRT
Corporation and whose sole limited partner is the Operating Partnership, and
which holds fee title to six auto care centers located in and immediately around
Atlanta, Georgia; (c) Glenborough Fund I, whose sole limited partner is the
Operating Partnership and whose sole general partner is GRT Financial
Corporation, and which owns, directly or indirectly, all of the properties
subject to the mortgage in favor of Bear, Stearns Funding, Inc.; and (d) UCT
Associates, whose sole limited partner is the Operating Partnership, and whose
sole general partner is GRT Corporation and which holds title to the UCT
Property.
COMPETITION
The Company's properties compete for tenants (or guests, in the case of
hotels) with similar properties located in their markets. Management believes
that characteristics influencing the competitiveness of a real estate project
include the geographic location of the property, the professionalism of the
property manager and the maintenance and appearance of the property, in addition
to external factors such as general economic circumstances, trends and the
existence of new competing properties in the general area in which the Company
competes for tenants (or guests, in the case of hotels).
Additional competitive factors affecting commercial properties include the
ease of access to the property, the adequacy of related facilities, such as
parking, and the ability to provide rent concessions and additional tenant
improvements commensurate with local market conditions. Making these concessions
and improvements could adversely affect the Company's cash flow. Although the
Company believes its properties are competitive with comparable properties as to
those factors within the Company's control, continued over-building and other
external factors could adversely affect the ability of the Company to attract
and retain tenants. The marketability of the properties may also be affected
(either positively or negatively) by these factors as well as by changes in
general or local economic conditions, including prevailing interest rates.
The Company also experiences competition when attempting to acquire equity
interests in desirable real estate, including competition from domestic and
foreign financial institutions, other REITs, life insurance companies, pension
funds, trust funds, partnerships and individual investors.
77
<PAGE> 79
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE FORMATION AND CONSOLIDATION
The Company began operations on December 31, 1995 concurrently with the
Consolidation, a merger and consolidation in which Old GC and the Partnerships
merged with and into the Company. To effect the Consolidation, the Company (i)
issued securities of the Company to the Partnerships in exchange for the assets
of the Partnerships, (ii) merged with Old GC, with the Company being the
surviving entity; (iii) obtained certain limited partnership interests held by
Old GC, which Old GC contributed to the Company; (iv) obtained nonvoting
preferred stock in three companies involved in the management of public and
private real estate partnerships and the operations of the Company's hotels; and
(v) through the Operating Partnership, acquired interests in certain warehouse
distribution facilities from GPA, Ltd., a California limited partnership, which
were controlled by Robert Batinovich. The Partnerships' assets included the
stock of an insurance holding company which is currently held by one of the
Associated Companies. Prior to the Consolidation, Robert Batinovich and GC (then
known as Glenborough Realty Corporation) were the general partners of the
Partnerships.
REDEMPTION AND REGISTRATION RIGHTS
Robert Batinovich, Andrew Batinovich, Sandra L. Boyle and Frank Austin hold
or control, in aggregate, limited partnership interests representing
approximately 21% of Glenborough Partners, a California limited partnership.
Glenborough Partners is a 99% limited partner of GPA, Ltd. which holds an
approximately 14% interest in the Operating Partnership, in which the Company
has a 1.0% general partnership interest and an approximate 84% limited
partnership interest. The officers named above, through their interest in
Glenborough Partners, share indirectly with the Company in the net income or
loss or any distributions of the Operating Partnership. Pursuant to the
partnership agreement of the Operating Partnership, GPA, Ltd. holds certain
redemption rights exercisable after December 31, 1996 under which GPA, Ltd.'s
interest in the Operating Partnership may be redeemed in exchange for shares of
the Company's Common Stock. The Company has granted GPA, Ltd. certain demand and
piggyback registration rights with respect to shares of Common Stock that may be
owned or acquired by GPA, Ltd. in connection with the exercise of such
redemption rights. See "Description of Capital Stock -- Shares Eligible for
Future Sale -- Registration Rights." As of September 30, 1996, the portion of
the shares of Common Stock of the Company issuable upon redemption by GPA, Ltd.
and covered by the "demand" and "piggyback" registration rights which are
attributable to each of Robert Batinovich, Andrew Batinovich, Sandra L. Boyle
and Frank Austin is 114,659 shares, 4,760 shares, 277 shares and 387 shares,
respectively. In addition, Robert Batinovich directly holds an approximately
0.3% interest in the Operating Partnership, which includes similar redemption
and registration rights to those held by GPA, Ltd. As of September 30, 1996 the
number of shares of the Common Stock issuable upon redemption by Robert
Batinovich and covered by the registration rights was 12,727.
RELATED COMPANIES
GPA, Ltd.'s Relationship with the Company
The Company owns an approximate 4% limited partner interest in Glenborough
Partners, a California limited partnership, which in turn owns a 99% limited
partner interest in GPA, Ltd. Thus, the Company effectively owns an approximate
4% interest in GPA, Ltd. The value of this interest is reflected in the
Company's audited balance sheet.
GPA, Ltd.'s Relationship with the Operating Partnership
GPA, Ltd. owns an approximate 14% limited partner interest in the Operating
Partnership. Thus, because the Company owns an approximate 4% interest in GPA,
Ltd., the Company owns an approximate 1% indirect interest in the Operating
Partnership, in addition to its approximate 85% direct interest as limited and
general partner of the Operating Partnership.
78
<PAGE> 80
GPA, Ltd.'s Relationship with GC
GC owns a 0.1% general partner interest in GPA, Ltd.
GPA, Ltd.'s Relationship with Robert Batinovich
Robert Batinovich and members of his immediate family own an approximate
21% aggregate interest (including both general partner and limited partner
interests) in Glenborough Partners, which in turn owns a 99% limited partner
interest in GPA, Ltd. In addition, Robert Batinovich owns an approximate 1%
general partner interest in GPA, Ltd. Thus, Robert Batinovich and members of his
immediate family own an approximate 22% aggregate interest in GPA, Ltd.
ACQUISITIONS FROM RELATED PARTIES
The Company has acquired the UCT Property and the Bond Street Property. The
UCT Property and the Bond Street Property were substantially or partially owned
by GPA, Ltd. and Robert Batinovich. Because of the ownership interests of Robert
and Andrew Batinovich and their families through GPA, Ltd. or directly, these
transactions involved a conflict of interest. The terms of the transactions were
reviewed by independent directors to determine if these transactions were fair
from a financial point of view to the Company and its stockholders. The
independent directors, after completing their review and considering, among
other things, appraisals on each of the properties that show values in excess of
the amounts to be paid by the Company, unanimously approved each transaction,
with Robert and Andrew Batinovich abstaining. The Company believes that these
transactions were on terms that are at least as favorable as those that could
have been obtained with arms-length bargaining with a third-party, but there can
be no assurance that this is the case. See "Recent Activities."
The Company may acquire other properties in which GPA, Ltd. or Robert and
Andrew Batinovich or their families have an interest, although there are no
agreements or proposals to acquire properties currently under consideration
other than those referred to under the heading "Recent Activities." The
Company's Board of Directors has adopted a policy that no acquisition of
properties from GPA, Ltd. or Robert or Andrew Batinovich or their families or
from other entities in which they have an interest will be made without the
Company first obtaining the approval of at least two-thirds of the Company's
Board of Directors, excluding the votes of any interested parties. In addition,
the employment agreements of Robert and Andrew Batinovich provide that in the
event either of them or their immediate family members or any entity in which
any of them has an interest has an opportunity during the term of the employment
agreements to acquire any interest in real property for investment purposes or
the right to manage any interest in real property, he or she must first offer
the opportunity to the Company or to a designated entity in which the Company
has an interest, for such reasonable period of time as may be necessary for a
disinterested majority of the Company's Board of Directors to evaluate the
opportunity for investment or acquisition by the Company.
79
<PAGE> 81
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and the executive officers.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
--------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Robert Batinovich.... 60 Chairman, President and Chief Executive Officer
Andrew Batinovich.... 37 Director, Executive Vice President, Chief Operating Officer and
Chief Financial Officer
Sandra L. Boyle...... 48 Senior Vice President
Frank E. Austin...... 48 Senior Vice President, General Counsel and Secretary
Terri Garnick........ 35 Senior Vice President and Chief Accounting Officer
Stephen Saul......... 42 Vice President
Patrick Foley........ 64 Director
Richard A. 39
Magnuson........... Director
Laura Wallace........ 43 Director
</TABLE>
The business experience of each of the current directors and executive
officers is as follows:
Robert Batinovich has served as the Company's Chairman, President and Chief
Executive Officer since it began operation on December 31, 1995. He also was the
founder of Old GC and certain of its affiliates and has been engaged since 1970
in real estate investment and management, and corporate finance. He served as
President, Chief Executive Officer and Chairman of Old GC from its formation in
1978 until its merger with the Company in the Consolidation on December 31,
1995. Mr. Batinovich served as a member of the California Public Utilities
Commission from 1975 to 1979, serving as its President the last two years. Mr.
Batinovich's business background includes the following: seven years as an
executive with Norris Industries; managing or owning manufacturing, vending and
service companies and a national bank; and providing investment consulting to
businesses and individuals. He has served on a number of governmental
commissions and participated in a variety of policy research efforts sponsored
by government bodies and universities. He is a member of the Board of Directors
of the Farr Company, a publicly held company that manufactures industrial
filters.
Andrew Batinovich has served as director, Executive Vice President, Chief
Operating Officer and Chief Financial Officer of the Company since it began
operations on December 31, 1995. He also served as a director of Old GC prior to
the Consolidation and was employed by Old GC from 1983, serving from 1987 until
the Consolidation as its Chief Operating Officer and Chief Financial Officer.
Mr. Batinovich holds a California real estate broker's license and is a Member
of the National Advisory Council of BOMA International. Prior to joining
Glenborough, Mr. Batinovich was a lending officer with the International Banking
Group and the Corporate Real Estate Division of Security Pacific National Bank.
Andrew Batinovich is the son of Robert Batinovich.
Sandra L. Boyle has served as Senior Vice President of the Company since it
began operations on December 31, 1995. Ms. Boyle has been associated with Old GC
or its affiliated entities since 1984. She was originally responsible for
residential marketing. Her responsibilities were gradually expanded to include
residential leasing and management in 1985, and commercial leasing and
management in 1987. She was elected Vice President of GC in 1989. She currently
supervises asset management, property management and management information
services for the Company. Ms. Boyle holds a California real estate broker's
license and a CPM designation, is President of BOMA San Francisco, and is a
member of the National Advisory and Finance Committee of BOMA International, and
the Board of Directors of BOMA San Francisco and BOMA California.
Frank E. Austin has been Senior Vice President, General Counsel and
Secretary of the Company since it began operations on December 31, 1995. He
served as Vice President of Old GC from 1985 until the Consolidation. He is a
member of the State Bar of California. Prior to joining Old GC, Mr. Austin
served for
80
<PAGE> 82
three years as committee counsel in the California State Senate; three years
with the law firm of Neumiller & Beardslee; and four years at State Savings and
Loan Association and American Savings and Loan Association.
Terri Garnick has been Senior Vice President and Chief Accounting Officer
of the Company since it began operations on December 31, 1995. She is
responsible for property management accounting, financial statements, audits,
SEC reports, and tax returns for the Company, the Associated Companies and the
partnerships under management of GC and its affiliates. Prior to joining GC in
1989, Ms. Garnick was a controller at August Financial Corporation, a real
estate investment and management company, from 1986 to 1989 and was a Senior
Accountant at the accounting firm of Deloitte, Haskins & Sells, from 1983 to
1986. She is a Certified Public Accountant.
Stephen R. Saul has served as Vice President of the Company since May 1996.
He has served as Manager of Real Estate Finance since joining Old GC in April
1995. Prior to joining Old GC, Mr. Saul served for four years as President of
KSA Financial Corporation, a company which was based in Sacramento, California
and which originated equity and debt financing for real estate projects in
Northern California; he also served five years with Security Pacific National
Bank and five years with the development company of Harrington and Kulakoff. Mr.
Saul's areas of responsibility include financing, sales and acquisitions, which
encompasses originating and negotiating property financing for the Company and
its affiliates as well as negotiating the Company's revolving lines of credit,
permanent loans and overall lender relations. Mr. Saul's responsibilities also
include asset dispositions as well as structuring debt and equity for new
property acquisitions.
Patrick Foley has served as director of the Company since January 11, 1996.
He is also Chairman, President and Chief Executive Officer of DHL Corporation,
Inc., and its major subsidiary, DHL Airways, positions he has held since 1988.
Prior to joining DHL, Mr. Foley was associated with the Hyatt Hotels Corporation
("Hyatt") for 26 years: in a variety of capacities, from 1962 to 1972; as
Executive Vice President for Operations, from 1972 to 1978; as President, from
1978 to 1984; as Vice Chairman and later Chief Executive Officer of Braniff
Airlines, a Hyatt subsidiary, from 1984 to 1988, when Braniff was sold; and as
Chairman of Hyatt Hotels Corporation for a brief period in 1988 before joining
DHL. Mr. Foley currently is a member of the boards of directors of Continental
Airlines, Inc., Healthcare COMPARE Corp. and Copart, Inc.
Richard A. Magnuson has served as director of the Company since January 11,
1996. He is a Director at Nomura Securities International, Inc. ("Nomura"), a
position he has held since March 1994. Prior to joining Nomura, Mr. Magnuson was
a director in Real Estate Investment Banking at Merrill Lynch for five years.
Mr. Magnuson is an active member of the Urban Land Institute, the National
Association of Real Estate Investment Trusts, the University of
California-Berkeley Center for Real Estate Studies, and the International
Council of Shopping Centers.
Laura Wallace has served as director of the Company since January 11, 1996.
She is also Chief Investment Officer of the Public Employees Retirement System
of Nevada, a position she has held since 1985 and to which she was promoted
after serving four years as Investment Analyst. Prior to joining the System, Ms.
Wallace served from 1977 to 1980 as Manager of the Beaverton, Oregon office of
Safeco Title Insurance Company, and from 1975 to 1977 as Senior Assistant
Manager of the Beaverton office of Household Finance Corporation. Ms. Wallace is
a member of the executive council of the National Association of State
Investment Officers, for which she previously served as chairman; a member of
the National Council of Teacher Retirement; a member of the Advisory Board for
the Retired Senior Volunteer Program; past member of the Editorial Board of the
Institutional Real Estate Letter; and serves as guest lecturer at the University
of Nevada. The System has no investment in the Company.
OFFICERS
Officers of the Company are elected by and serve at the discretion of the
Board of Directors. It is anticipated that the present officers will serve until
their successors are elected and qualified or until their earlier resignation or
removal. There are no arrangements or understandings between or among any of the
officers or directors and any other person pursuant to which any officer or
director was selected as such. Other
81
<PAGE> 83
than the relationship of Robert Batinovich and Andrew Batinovich, there are no
family relationships among any directors and officers of the Company.
BOARD OF DIRECTORS COMPENSATION
The Company pays an annual fee of $5,000 per meeting, up to $20,000
annually, to each director who is not an employee of the Company (an
"Independent Director"). Directors who are employees of the Company do not
receive any directors' fees. The Company reimburses all directors for travel
expenses and other out-of-pocket expenses incurred in connection with their
activities on behalf of the Company.
Each member of a duly authorized committee of the Board of Directors
receives a fee of $500 for each duly called committee meeting which the member
attends either in person or by telecommunication. Each chairman of a committee
receives an additional fee of $500 for each duly called meeting of the committee
which he or she attends in person or by telecommunication and over which he or
she presides as chairman.
Each Independent Director, upon joining the Board of Directors, receives an
initial grant of 5,000 shares of Common Stock, which vests after two years of
service. In addition, each of the Independent Directors was awarded options to
purchase 2,000 shares of Common Stock, which will vest in full on April 24, 1997
as to each Independent Director who has served continuously through that date.
COMMITTEES OF THE DIRECTORS
The Board of Directors has established the following committees:
Audit Committee. The Audit Committee consists of at least two
Independent Directors. The Audit Committee makes recommendations concerning
the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of the audit
engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee consists of two or
more Independent Directors who advise the Board of Directors on all matters
pertaining to compensation programs and policies and establish guidelines
for employee incentive and benefits programs which it will review on a
continuous basis. It makes specific recommendations relating to salaries of
officers and all incentive awards.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company. The Board of Directors
at present does not have a nominating committee; the entire Board of Directors
performs the function of such a committee.
In addition to the committees of the Board of Directors, the Acquisitions
Committee, which consists of not fewer than five nor more than seven executive
officers of the Company evaluates all prospective asset acquisitions by the
Company, and originates all asset acquisition proposals, which the committee
then submits to the Board of Directors for approval.
COMPENSATION OF EXECUTIVE OFFICERS
The Company began its operations on December 31, 1995. Accordingly, the
Company paid no compensation to its executive officers for service in prior
years. Except as otherwise described herein, there are no employment agreements
between the Company and any of its officers, and the Company does not expect to
enter into any such agreements in the future.
82
<PAGE> 84
The following table sets forth certain information with respect to the
Chief Executive Officer of the Company and other executive officers of the
Company whose base cash compensation is expected to exceed $100,000, on an
annualized basis.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
BASE ANNUAL
NAME POSITION WITH THE COMPANY COMPENSATION*
-------------------------------- ------------------------------------------ -------------
<S> <C> <C>
Robert Batinovich............... Chairman, President and Chief Executive $ 250,000
Officer
Andrew Batinovich............... Director, Executive Vice President, Chief 200,000
Operating Officer and Chief Financial
Officer
Frank E. Austin................. Senior Vice President, General Counsel and 180,000
Secretary
Sandra L. Boyle................. Senior Vice President 190,000
Terri Garnick................... Senior Vice President and Chief Accounting 120,000
Officer
Stephen Saul.................... Vice President 140,000
</TABLE>
- ---------------
* Base Compensation includes compensation anticipated to be received from
Associated Companies.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Robert Batinovich
and Andrew Batinovich. In addition to his agreement with the Company, Robert
Batinovich has entered into employment agreements with GC and with GIRC. His
base salary under these agreements is as follows: from the Company -- $30,000;
from GC -- $85,000; from GIRC -- $135,000. The value of health insurance and
other benefits to be received under these agreements is as follows: from the
Company -- $3,600; from GC -- $10,200; and from GIRC $16,200. Under these
agreements, he is also entitled to bonuses in the years 1996 and 1997, as
follows: (i) if (a) the Company's consolidated funds from operations per share
("FFO Per Share") equals $1.58 per share ("Minimum FFO per share"), and (b) GC
pays preferred distributions to the Company of at least $600,000, and (c) GIRC
pays preferred dividends to the Company of at least $1,200,000, then: the
Company shall pay a bonus of $18,000; GC shall pay a bonus of $51,000; and GIRC
shall pay a bonus of $81,000; (ii) to the extent the Company's FFO per share
exceeds Minimum FFO Per Share by 10% or less, the Company will pay a bonus of
$4,000 for each full percentage point of such excess; and (iii) to the extent
the Company's FFO per share exceeds Minimum FFO Per Share by more than 10% but
not exceeding 20%, the Company will pay a bonus of $6,000 for each full
percentage point of such excess.
In addition to his agreement with the Company, Andrew Batinovich has
entered into employment agreements with GC, with GIRC and with GHG. His base
salary under these agreements is as follows: from the Company -- $20,000; from
GC -- $56,000; from GIRC -- $94,000; from GHG -- $30,000. The value of health
insurance and other benefits to be received under these agreements is as
follows: From the Company -- $3,000; from GC -- $8,400; from GIRC -- $14,100;
and from GHG -- $4,500. Under these agreements, he is also entitled to bonuses
in the years 1996 and 1997, as follows: (i) if (a) the Company's FFO equals
Minimum FFO Per Share, and (b) GC pays preferred dividends to the Company of at
least $600,000, and (c) GIRC pays preferred dividends to the Company of at least
$1,200,000, and (d) GHG pays preferred dividends to the Company of at least
$90,000, then: the Company shall pay a bonus of $5,000; GC shall pay a bonus of
$14,000; GIRC shall pay a bonus of $23,500; and GHG shall pay a bonus of $7,500;
(ii) to the extent the Company's FFO Per Share exceeds Minimum FFO Per Share by
10% or less, the Company will pay a bonus of $6,000 for each full percentage
point of such excess; and (iii) to the extent the Company's FFO Per Share
exceeds Minimum FFO Per Share by more than 10% but not exceeding 20%, the
Company will pay a bonus of $5,000 for each full percentage point of such
excess.
83
<PAGE> 85
In addition, the employment agreements of Robert and Andrew Batinovich
provide that in the event either of them has an opportunity during the term of
his employment agreement to acquire any interest in real property for investment
purposes or the right to manage any interest in real property, he must first
offer the opportunity to the Company or to a designated entity in which the
Company has an interest, for such reasonable period of time as may be necessary
for a majority of the Company's Board of Directors to evaluate the opportunity
for investment or acquisition by the Company.
Each of the employment agreements of Robert and Andrew Batinovich has a
term of two years, after which any future increases in salaries and benefits
will be determined by the Independent Directors. Notwithstanding anything to the
contrary set forth in the employment agreements, the employment of Robert and
Andrew Batinovich is terminable at will by the Board of Directors.
The Company has also entered into employment agreements with all named
executive officers and certain other executive officers of the Company. Each of
these employment agreements has a term of one year and is terminable with or
without cause by the Company, subject to certain severance rights on the part of
the employee in the event of non-renewal or termination without cause.
1996 EMPLOYEE STOCK INCENTIVE PLAN
The Company has adopted an employee stock incentive plan (the "Incentive
Plan"), approved by the stockholders at the Company's 1996 Annual Meeting, to
enable certain executive officers and key employees of the Company to
participate in the ownership of the Company.
The purpose of the Incentive Plan is to attract and retain high quality
executive officers and other key employees and to provide increased incentives
for the executive officers and key employees to contribute to the Company's
future success and prosperity. Under the Incentive Plan, incentive stock
options, nonqualified stock options, restricted stock, performance units and
stock appreciation rights may be awarded to eligible plan participants.
An aggregate of 680,000 shares of Common Stock (comprising 10.7% of the
total number of issued and outstanding shares of the Company including shares
issuable in exchange for units of the Operating Partnership) have been reserved
for issuance under the Incentive Plan. The Incentive Plan will remain in effect
for 10 years unless terminated earlier by the Board of Directors. The Incentive
Plan is administered by the Compensation Committee, which is composed of two or
more Independent Directors who qualify as disinterested administrators under
Rule 16b-3(b) of the Exchange Act, and who will determine the eligibility for
the Incentive Plan and the amounts of any awards to be granted under it. The
Company intends that the Incentive Plan satisfy the necessary criteria to ensure
that compensation to executive officers and key employees under the plan are
deductible by the Company.
The options granted under the Incentive Plan may either be "incentive"
stock options under Section 422 of the Code or "nonqualified" stock options. The
Compensation Committee determines the term of each option granted, however the
term of an incentive option may not be greater than ten years (or five years, in
the case of a grantee possessing more than 10% of the combined voting power of
the Company or an Affiliate). The exercise price of any option granted under the
Incentive Plan may not be less than the fair market value of the Common Stock as
of the date the option is granted, and the Compensation Committee may, in its
discretion and with the grantee's consent, cancel, substitute or accelerate the
options or extend the scheduled expiration date on any of the options. In
addition, no options will be granted by the Company for an exercise price of
less than $15 per share of Common Stock prior to December 31, 1996.
The Company has granted 5,000 shares of restricted stock to each of four
executive officers. As to each such officer, these grants will vest as to 1,000
shares on July 1 of each year beginning 1997. In the meantime each of such
officers is entitled to full voting rights and participation in dividends with
respect to such shares. The Company has also granted to certain officers and
employees of the Company and the Associated Companies options to purchase a
total of 610,000 shares of the Company's Common Stock. Options to purchase
400,000 of such shares are incentive stock options and the remaining are
non-qualified options. With
84
<PAGE> 86
respect to all of the options, the minimum exercise price is $15.00 per share,
the options vest in full on July 1, 1998, and the minimum partial exercise is
5,000 shares.
The Incentive Plan may also include some or all of the following types of
incentive compensation: restricted shares subject to forfeiture, performance
awards based on specified performance targets, stock appreciation rights and any
other stock-based awards.
OTHER COMPENSATION PLANS
The Company will continue for the benefit of certain of its executive
officers a split-dollar deferred compensation plan whereby the Company's
executive officers acquire whole life and universal life policies and the
Company pays the annual premiums, which on a net basis range from $0 to $28,000.
The Company charges that portion representing the current cost of the insurance
coverage as compensation to the officer involved and the balance as a
noninterest-bearing loan to the officer that is secured by an assignment of the
cash surrender value and proceeds of the policy on his or her life. The
aggregate amount advanced to any one officer is less than $50,000. The aggregate
amount outstanding to all officers as of the latest practicable date is $197,310
and the aggregate cash surrender value of the policies as of June 30, 1996 is
approximately $358,000.
In addition, the Company may establish an annual incentive cash bonus plan
for the executive officers and key employees of the Company pursuant to which
the Company will create a bonus pool based upon the attainment of certain
pre-established target levels. The amount of these bonuses will be based on a
formula for each participating officer or key employee determined by the
Compensation Committee of the Board of Directors, but may not exceed 100% of
base salary, provided that salary and benefits paid by the Company will be
reduced on a dollar-for-dollar basis by the amount of any compensation received
from an Associated Company. The Company also may adopt a broad-based incentive
cash compensation plan in which all employees of the Company, except executive
officers and key employees, will be able to participate and which will provide
incentives for those employees to achieve certain strategic objectives. Finally,
the Company may establish a qualified employee stock purchase plan, as described
in Section 423(b) of the Code, which will permit grant participants an option to
purchase stock with a value up to 10% of their base compensation.
401(K) PLAN
The Company maintains a 401(k) plan to provide retirement income to
employees of the Company (the "401(k) Plan"). The Company intends the 401(k)
Plan to qualify under Section 401(a) of the Code and has incorporated features
permitted under Section 401(k) of the Code.
The 401(k) Plan covers all employees who have completed twelve (12) months
of service with Company or its predecessor and who are over 21 years of age. The
401(k) Plan accepts employee elective deferral contributions to a maximum amount
equal to 25% of annual compensation, subject to applicable legal limits. The
Company's present policy is to contribute 3% of base compensation for all
employees other than Robert and Andrew Batinovich.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Maryland GCL permits a Maryland Corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for (i) actual receipt
of an improper benefit or profit in money, property or services or (ii) active
and deliberate dishonesty established by a final judgment as being material to
the cause of action. The Charter contains such a provision which limits such
liability to the maximum extent permitted by the Maryland GCL.
The Charter authorizes the Company to obligate itself to indemnify its
present and former officers and directors and to pay or reimburse reasonable
expenses for those individuals in advance of the final disposition of a
proceeding to the maximum extent permitted from time to time by the laws of
Maryland. The Bylaws of the Company obligate it to indemnify and advance
expenses to present, former and proposed directors and officers to the maximum
extent permitted by Maryland law. The Maryland GCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines,
85
<PAGE> 87
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services, or (c) in the case of
any criminal proceeding, the director or officer had a reasonable cause to
believe that the act or omission was unlawful. However, a corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation. In addition, the Maryland GCL requires the Company, as conditions
to advancing expenses, to obtain (i) a written affirmation by the director or
officer that the director or officer believes in good faith he or she has met
the standard of conduct necessary for indemnification by the Company as
authorized by the applicable Bylaws and (ii) a written statement by or on behalf
of the officer or director promising to repay the amount paid or reimbursed by
the Company if it shall ultimately be determined that the standard of conduct
was not met. The Bylaws of the Company also permit the Company to provide
indemnification and to advance expenses to a present or former director or
officer who served a predecessor of the Company in that capacity, and to any
employee or agent of the Company, or a predecessor of the Company. Finally, the
Maryland GCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful on the merits, or otherwise, in the defense of any proceeding to
which the director or officer became a party by reason of service in that
capacity.
The Company has entered into indemnification agreements with each of its
directors and executive officers to provide them with indemnification to the
full extent permitted by the Charter and Bylaws of Company.
The Company has obtained an insurance policy to provide liability coverage
for directors and officers of the Company.
86
<PAGE> 88
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of September 30, 1996, based upon the number of record holders, there
are approximately 5,761 holders of the Company's common equity.
The following table sets forth information known to the Company regarding
beneficial ownership of shares of Common Stock as of September 30, 1996 by (i)
each director and executive officer of the Company who beneficially owns shares
of Common Stock, (ii) all directors and executive officers as a group, and (iii)
each person known by the Company to beneficially own more than 5% of the
Company's Common Stock. The table reflects the issuance of units of the
Operating Partnership in connection with the acquisition of the UCT Property.
<TABLE>
<CAPTION>
AFTER OFFERING(1)
BEFORE OFFERING -----------------------------
------------------------------ PERCENTAGE
PERCENTAGE OF OF SHARES
SHARES OUTSTANDING
AMOUNT AND OUTSTANDING AND
NATURE OF PERCENTAGE OF AND OPERATING PERCENTAGE OPERATING
NAME AND BUSINESS ADDRESS BENEFICIAL SHARES PARTNERSHIP OF SHARES PARTNERSHIP
OF BENEFICIAL OWNER OWNERSHIP(2)(3) OUTSTANDING(4) INTERESTS(5) OUTSTANDING(4) INTERESTS(5)
- ------------------------------ --------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Robert Batinovich(6)(7)....... 1,081,821 18.5% 17.0% 11.3% 10.7%
Andrew Batinovich(6)(8)....... 299,407 5.1 4.7 3.1 3.0
Sandra L. Boyle(6)(9)......... 5,279 * * * *
Frank E. Austin(6)(10)........ 7,587 * * * *
Terri Garnick(6).............. 5,400 * * * *
Stephen Saul(6)............... 800 * * * *
Patrick Foley(6).............. 6,000 * * * *
Richard A. Magnuson(6)........ 6,000 * * * *
Laura Wallace(6).............. 6,200 * * * *
All directors and executive
officers as a group (9
persons)(11)................ 1,418,494 24.2% 22.3% 14.8% 14.0%
</TABLE>
- ---------------
* less than 1%
(1) Assumes the completion of the acquisition of the TRP Properties, and
issuance of partnership units in connection therewith as described in
Recent Activities.
(2) All beneficial ownership is based upon sole voting power and sole
investment power except as indicated in the following footnotes.
(3) Certain of the officers hold or control, in the aggregate, limited
partnership interests representing approximately 21% of Glenborough
Partners, a California limited partnership. In turn, Glenborough Partners
is a 99% limited partner of GPA, Ltd., a California limited partnership,
which holds approximately a 14% interest in the Operating Partnership, in
which the Company has a 1% general partnership interest and approximately a
84% limited partnership interest. Such officers, through their interest in
Glenborough Partners, share indirectly, with the Company, in the net income
or loss and any distributions of the Operating Partnership. Pursuant to the
partnership agreement of the Operating Partnership, GPA, Ltd. holds certain
redemption rights under which its interest in the Operating Partnership
could at some point be redeemed in exchange for shares of Common Stock. As
indicated in the following footnotes, the figures in this column assume
that such an exchange has occurred but only as to the interests held by the
named officers in Glenborough Partners.
(4) Assumes conversion of only the limited partnership interests in the
Operating Partnership indirectly owned by the named officers (through their
interest in Glenborough Partners and Glenborough Partners' interest in GPA,
Ltd.) into shares of Common Stock. The total number of shares outstanding
used in calculating this percentage assumes that none of the other limited
partnership interests held by GPA, Ltd. are converted into shares of Common
Stock.
(5) Assumes conversion of all outstanding limited partnership interests in the
Operating Partnership into shares of Common Stock.
(6) The business address of such person is 400 South El Camino Real, Suite
1100, San Mateo, California 94402-1708.
(7) Includes 12,727 shares of the Company's Common Stock that may be issued
upon redemption of Robert Batinovich's interest in the Operating
Partnership. Includes 114,659 shares of Common Stock that may be issued
upon the redemption of GPA, Ltd.'s interest in the Operating Partnership,
which represents Robert Batinovich's portion of all shares of Common Stock
that may be issued to GPA, Ltd. upon such redemption. Excludes 51,855
shares of Common Stock held by S.S. Rainbow, a California limited
partnership ("S.S. Rainbow"), in which Andrew Batinovich is a general
partner, and Robert Batinovich's daughter, Angela Batinovich, is a limited
partner, which represents Angela Batinovich's portion of all shares of
Common Stock held by S.S. Rainbow. Also excludes 2,124 shares of Common
Stock that may be issued upon the redemption of GPA, Ltd.'s interest in the
Operating Partnership, which represents Angela Batinovich's portion of all
shares of Common Stock that may be issued to GPA, Ltd. upon such redemption
and which are held by a trust as to which Angela Batinovich is sole
beneficiary and the trustee is an independent third party.
87
<PAGE> 89
(8) Includes 4,760 shares of Common Stock that may be issued upon the
redemption of GPA, Ltd.'s interest in the Operating Partnership, which
represents Andrew Batinovich's portion of all shares of Common Stock that
may be issued to GPA, Ltd. upon such redemption. Also includes 104,757
shares of Common Stock held by S.S. Rainbow, in which Andrew Batinovich is
sole general partner and his sister, Angela Batinovich, is a limited
partner. Of the total shares held by S.S. Rainbow, Andrew Batinovich's pro
rata portion is 52,902 shares and Angela Batinovich's pro rata portion is
51,855. Angela Batinovich's 51,855 shares (beneficially owned through her
interest in S.S. Rainbow) are attributed to Andrew Batinovich (the general
partner of S.S. Rainbow) for purposes of this table.
(9) Includes 277 shares of Common Stock that may be issued upon the redemption
of GPA, Ltd.'s interest in the Operating Partnership, which represents
Sandra L. Boyle's portion of all shares of Common Stock that may be issued
to GPA, Ltd. upon such redemption.
(10) Includes 387 shares of Common Stock that may be issued upon the redemption
of GPA, Ltd.'s interest in the Operating Partnership, which represents
Frank Austin's portion of all shares of Common Stock that may be issued to
GPA, Ltd. upon such redemption.
(11) Includes 120,084 shares of Common Stock that may be issued upon the
redemption of GPA, Ltd.'s interest in the Operating Partnership, which
represents all officers' and directors' aggregate portion of all shares of
Common Stock that may be issued to GPA, Ltd. upon such redemption. Also
includes 12,727 shares of Common Stock that may be issued upon the
redemption of Robert Batinovich's interest in the Operating Partnership.
88
<PAGE> 90
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Articles of Incorporation authorize the Company to issue up
to 50,000,000 shares of Common Stock with a par value of $.001 per share. As of
June 30, 1996 there were 5,768,709 shares of Common Stock issued and
outstanding. Under Maryland law, stockholders generally are not liable for the
Company's debts or obligations.
The holders of shares of Common Stock are entitled to one vote per share on
all matters voted on by stockholders, including election of directors, and,
except as provided in the Articles of Incorporation in respect of any other
class of or series of stock, the holders of these shares exclusively possess all
voting power. The Articles of Incorporation do not provide for cumulative voting
in the election of directors. Subject to any preferential rights of any
outstanding shares or series of stock, holders of shares of Common Stock are
entitled to receive distributions, when and as declared by the Board of
Directors, out of funds legally available therefor. See "Distribution Policy."
Upon any liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata all assets of the Company legally
available for distribution to its stockholders after payment of, or adequate
provisions for, all known debts and liabilities of the Company. All shares of
Common Stock now outstanding are fully paid and nonassessable, as will be the
shares of Common Stock offered by this Prospectus when issued. The holders of
the Common Stock offered hereby will have no preemptive rights to subscribe to
additional stock or securities issued by the Company at a subsequent date.
The Articles of Incorporation authorize the Board of Directors to classify
or reclassify any unissued shares of stock, to provide for the issuance of
shares in other classes or series, including preferred stock in one or more
series, to establish the number of shares in each class or series and to fix the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications or terms or conditions of
redemption of such class or series. At present the Company does not intend to
issue shares of any class or series other than Common Stock.
LISTING, PRICE AND TRADING
The Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "GLB." The Company is subject to the round lot distribution and
market value standards established by the NYSE. Registrar and Transfer Company
acts as the transfer agent and registrar of the Common Stock.
The shares offered by this Prospectus will be freely transferable, except
for shares received by Persons who may be deemed Affiliates of the Company under
the Securities Act and except for certain limitations in the Company's Articles
of Incorporation that are intended to allow the Company to qualify as a REIT.
Persons who may be deemed Affiliates of the Company generally include
individuals or entities that control, are controlled by, or are under common
control with the Company, and may include certain principal stockholders of the
Company. Affiliates may sell their shares only pursuant to an effective
registration statement under the Securities Act or an applicable exemption from
registration under the Securities Act. The Company's Articles of Incorporation
nullify certain transfers that would otherwise create holdings in excess of the
Ownership Limitation. See "Restrictions on Ownership and Transfer of Common
Stock" below for a description of the limitations on the transfer and ownership
of the Common Stock.
REDEMPTION OPTIONS
GPA, Ltd. owns 579,006 limited partnership units in the Operating
Partnership, representing an approximate 14% interest. This interest carries
certain redemption rights, under which GPA, Ltd. may in the future become a
stockholder of the Company. After a holding period that expires on December 31,
1996 (12 months after the Consolidation), GPA, Ltd. may demand that the
Operating Partnership redeem all or part of GPA, Ltd.'s interest as a limited
partner (the "GPA Redemption Option"). If the holder requires a redemption, the
Company, as general partner for the Operating Partnership, will have the option
to acquire the units by either (i) paying cash in an amount equal to the fair
market value, on the date of receipt of the notice of redemption, of the units
being acquired, or (ii) delivering a number of shares of the Company's Common
89
<PAGE> 91
Stock having a fair market value equal to the fair market value of the units
being acquired. The market value of the shares shall be deemed to be equal to
the average of the prices reported for the Common Stock on the ten preceding
trading days for which such prices were reported (i) as the closing prices on
any national securities exchange upon which the Common Stock is listed; or (ii)
if not so listed, then the prices which represent the mean between the bid and
asked prices as reported by the NASD.
In addition, Robert Batinovich owns 12,727 limited partnership units in the
Operating Partnership, representing a 0.3% interest. This interest carries
redemption rights (the "Batinovich Redemption Option") similar to the GPA
Redemption Option.
SHARES ELIGIBLE FOR FUTURE SALE
General
As of June 30, 1996 but adjusted to reflect the acquisition of the UCT
Property, the Company has 5,768,709 shares of Common Stock outstanding and
591,733 shares of Common Stock reserved for issuance upon redemption of limited
partnership interests in the Operating Partnership. All of the shares of Common
Stock, other than shares purchased by Affiliates and shares reserved for
issuance in connection with the GPA Redemption Option, will be tradable without
restriction under the Securities Act.
As of June 30, 1996 but adjusted to reflect the acquisition of the UCT
Property, Robert Batinovich and the Attributed Owners owned shares of Common
Stock, and indirectly own Operating Partnership interests which may be converted
into shares of Common Stock, which in the aggregate represent approximately 22%
of the Common Stock including units of the Operating Partnership which may be
converted into shares of Common Stock. Robert Batinovich and the Attributed
Owners have agreed not to sell any of their shares of Common Stock ("Restricted
Shares") until December 31, 1997 (two years after the completion of the
Consolidation) without the consent of the Company. After the expiration of any
applicable lock-up period, Robert Batinovich and the Attributed Owners may sell
Shares acquired through the GPA Redemption Option or the Batinovich Redemption
Option, pursuant to a registration statement that the Company will be obligated
to prepare and file. See "Registration Rights" below. Robert Batinovich and the
Attributed Owners and other Affiliates of the Company also may sell Restricted
Shares after their respective lock-up periods without registration in accordance
with the exemptions provided by Rule 144 under the Securities Act.
The effect, if any, of future issuances of Common Stock, or of the
availability of Common Stock for future sale, on the market price prevailing
from time to time cannot be predicted. Sales of substantial amounts of Common
Stock (including shares issued upon the exercise of options), or the perception
that such sales may occur, could adversely affect prevailing market prices of
the Common Stock.
Registration Rights
The Company has granted GPA, Ltd. and Robert Batinovich certain demand and
piggyback registration rights with respect to any shares of Common Stock that
GPA, Ltd. or Robert Batinovich owns or receives on exercise of the GPA
Redemption Option or the Batinovich Redemption Option. These registration rights
include the right of GPA, Ltd. or Robert Batinovich to demand registration of
all or any portion of the unregistered shares of Common Stock, and the right of
GPA, Ltd. or Robert Batinovich to have their unregistered shares included when
the Company registers other shares of its Common Stock or substantially similar
securities. GPA, Ltd. and Robert Batinovich may exercise registration rights
only during the period after the restrictions on transfer described above have
lapsed and prior to the time when the holder is permitted to sell its shares
pursuant to Rule 144(k) under the Securities Act. The Company must bear the
expenses of satisfying the registration requirements resulting from the
registration rights, except that the expenses shall not include any underwriting
discounts or commissions, Commission or Blue Sky registration fees, or transfer
taxes relating to the shares.
90
<PAGE> 92
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK
For the Company to qualify as a REIT under the Code, not more than 50% of
the value of its outstanding shares of Common Stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. Shares of Common
Stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations -- Requirements for Qualification."
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Articles of Incorporation, subject to certain exceptions,
provide that no holder, other than Robert Batinovich and the Attributed Owners
(which generally means individuals or entities whose ownership of Common Stock
is attributable to Mr. Batinovich under the Code), may own an amount of Common
Stock in excess of the Ownership Limitation, which, pursuant to Board action,
currently is 6.75% of the outstanding shares of Common Stock and after this
offering is expected to be 8.8% of the outstanding Common Stock. A qualified
trust (as defined in the Articles of Incorporation) generally may own up to 9.9%
of the outstanding shares of Common Stock. The Ownership Limitation provides
that Robert Batinovich and the Attributed Owners may hold up to 27% of the
outstanding shares of Common Stock, including shares which Robert Batinovich and
the Attributed Owners may acquire pursuant to the GPA Redemption Option or the
Batinovich Redemption Option, assuming GPA, Ltd. then dissolves and distributes
these shares to the partners of GPA, Ltd. Following the completion of the
Offering and the anticipated increase in the Ownership Limitation, the Company
expects the maximum ownership of the outstanding shares of Common Stock by
Robert Batinovich and the Attributed Owners would correspondingly be
approximately 14%.
The Board of Directors may waive the Ownership Limitation if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that such ownership will not jeopardize the Company's status as a
REIT. As a condition to such waiver, the Board of Directors may require opinions
of counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving the REIT status of the Company. The Ownership Limitation
will not apply if the Board of Directors and the stockholders determine that it
is no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT. Any transfer of Common Stock that would (a)
create actual or constructive ownership of Common Stock in excess of the
Ownership Limitation, (b) result in the Common Stock being owned by fewer than
100 persons, or (c) result in the Company's being "closely held" under Section
856(h) of the Code, shall be null and void, and the intended transferee will
acquire no rights to the Common Stock.
The Articles of Incorporation also provide that Common Stock involved in a
transfer or change in capital structure that results in a person (other than
Robert Batinovich and the Attributed Owners) owning in excess of the Ownership
Limitation or would cause the Company to become "closely held" (within the
meaning of Section 856(h) of the Code) will automatically be transferred to a
trustee for the benefit of a charitable organization until purchased by the
Company or sold to a third party without violation of the Ownership Limitation.
While held in trust, the Excess Shares will remain outstanding for purposes of
any Stockholder vote or the determination of a quorum for such vote and the
trustee will be empowered to vote the Excess Shares. Excess Shares shall be
entitled to distributions, provided that such distributions shall be paid to a
charitable organization selected by the Board of Directors as beneficiary of the
trust. The trustee may transfer the Excess Shares to any individual whose
ownership of Common Stock would be permitted under the Ownership Limitation and
would not cause the Company to become "closely held." In addition, the Company
would have the right, for a period of 90 days, to purchase all or any portion of
the Excess Shares from the trustee at the lesser of the price paid for the
Shares by the intended transferee or the closing market price for the Common
Stock on the date the Company exercises its option to purchase.
The Ownership Limitation will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limitation would require an amendment to the Articles of Incorporation. Such
amendments require the affirmative vote of
91
<PAGE> 93
stockholders owning a majority of the outstanding Common Stock. In addition to
preserving the Company's status as a REIT, the Ownership Limitation may have the
effect of precluding an acquisition of control of the Company by a third party
without the approval of the Board of Directors.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
All stockholders of record who own 5% or more of the value of the
outstanding Common Stock (or 1% if there are fewer than 2,000 stockholders of
record but more than 200, or 1/2% if there are 200 or fewer stockholders of
record) must file written notice with the Company containing the information
specified in the Articles of Incorporation by January 30 of each year. In
addition, each Stockholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of Common Stock as the Board of Directors deems necessary
to determine the effect, if any, of such ownership on the Company's status as a
REIT and to ensure compliance with the Ownership Limitation. The Company intends
to use its best efforts to enforce the Ownership Limitation and will make
prohibited transferees aware of their obligation to pay over any distributions
received, will not give effect on its books to prohibited transfers, will
institute proceedings to enjoin any transfer violating the Ownership Limitation,
and will declare all votes of prohibited transferees invalid.
92
<PAGE> 94
CERTAIN PROVISIONS OF MARYLAND LAW
AND THE COMPANY'S ORGANIZATIONAL DOCUMENTS
The following summary of certain provisions of Maryland law and the
Company's Organizational Documents does not purport to be complete. Reference is
made to the full text of the statutes discussed below, and to the Organizational
Documents, for their entire terms, and the partial summary contained in this
Prospectus Statement is not intended to be complete.
Certain provisions of the Organizational Documents described in this
section could make more difficult a change in control of the Company by means of
a tender offer, a proxy contest or otherwise. These provisions are included for
the purpose of maintaining the Company's qualification as a REIT, but may also
have the effect of discouraging takeover attempts.
ADDITIONAL CLASSES AND SERIES OF STOCK
The Articles of Incorporation authorize the Board of Directors to classify
or reclassify any unissued shares of capital stock to provide for the issuance
of shares in other classes or series, to establish the number of shares in each
class or series and to fix the preference, conversion and other rights, voting
powers, restrictions, limitations as to distributions, qualifications or terms
or conditions of redemption of such class or series. The Company believes that
the ability of the Board of Directors to issue one or more classes or series of
stock provides the Company with increased flexibility in structuring possible
future financings and acquisitions, and in meeting other needs which might
arise. The additional classes or series, as well as the Common Stock, will be
available for issuance without further action by the Company's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. Although the Board of Directors has no intention at the
present time of doing so, it could issue a class or series that could, depending
on the terms of such class or series, impede a merger, tender offer or other
transaction that some, or a majority, of the stockholders might believe to be in
their best interests or in which the stockholders might receive a premium for
their Common Stock over the then current market price of such Common Stock.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (a) pursuant to the Company's notice of the meeting, (b) by the Board
of Directors, or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and
(ii) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders, and nominations of persons for election to the Board of
Directors may be made only (a) pursuant to the Company's notice of the meeting,
(b) by the Board of Directors, or (c) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
The advance notice provisions of the Bylaws could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of the Common Stock might receive a premium for their Common Stock
over the then prevailing market price, or which such holders might believe to be
otherwise in their best interests.
NON-APPLICABILITY OF CERTAIN STATUTORY ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation contain provisions electing not to
be governed by certain provisions of the Maryland GCL (described below) which
tend to discourage takeover efforts.
93
<PAGE> 95
BUSINESS COMBINATIONS
Under the Maryland GCL, certain "business combinations" (including a
merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland corporation and any person who beneficially owns 10% or more of the
voting power of the corporation's shares after the date on which the corporation
had 100 or more beneficial owners of its stock or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question and after the date on which the corporation had 100 or more beneficial
owners of its stock, was the beneficial owner of 10% or more of the voting power
of the then-outstanding voting stock of the corporation (an "Interested
Stockholder") or an affiliate thereof, are prohibited for five years after the
most recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the Board of Directors of such corporation and approved by the affirmative vote
of at least (i) 80% of the votes entitled to be cast by holders of outstanding
voting shares of the corporation and (ii) two-thirds of the votes entitled to be
cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the business combination is
to be effected, unless, among other things, the corporation's stockholders
receive a minimum price (as defined in the Maryland GCL) for their shares and
the consideration is received in cash or in the same form as previously paid by
the Interested Stockholder for its shares. These provisions of Maryland law do
not apply, however, to business combinations that are approved or exempted by
the Board of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder, or if the corporation's original
charter specifically elects not to be governed by these provisions. The
Company's original Articles of Incorporation specifically provide that the
Company is not to be governed by these provisions. This provision of the
Company's Articles of Incorporation can be changed only by an amendment to the
Articles of Incorporation approved by a majority of the Board of Directors and a
majority of the voting Shares of the Company.
CONTROL SHARE ACQUISITIONS
The Maryland GCL provides that Control Shares of a Maryland corporation
("Control Shares") acquired in a "Control Share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquiror or by
officers or directors who are employees of the corporation. Control Shares are
voting shares which, if aggregated with all other such shares previously
acquired by the acquiror, or in respect of which the acquiror is able to
exercise, or direct the exercise of, voting power, would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority of all voting power.
Control Shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A "Control
Share acquisition" means the acquisition of Control Shares, subject to certain
exceptions.
A person who has made or proposes to make a Control Share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the Control Shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the Control Shares, as of the date of the last Control Share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the Control Share acquisition.
94
<PAGE> 96
The Control Share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.
The Company's Articles of Incorporation contain a provision exempting from
the Control Share acquisition statute any and all acquisitions by any person of
Common Stock of the Company. This provision can be amended only by an amendment
to the Articles of Incorporation approved by a majority of the Board of
Directors and a majority of the voting stock of the Company.
Rescission of Exemptions. If the exemptions from the business combination
statute and the Control Share acquisition statute are rescinded, this could have
the effect of discouraging offers to acquire the Company and of increasing the
difficulty of consummating any such offer.
AMENDMENT OF ARTICLES OF INCORPORATION
The Company's Articles of Incorporation may be amended by the affirmative
vote of holders of Common Stock entitled to cast a majority of all of the votes
entitled to be cast on the matter. The provisions relating to the limitation of
liability and indemnification may only be amended prospectively.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Company's Organizational Documents provide that, subject to any rights
of holders of preferred stock (if any) to elect additional directors, the number
of directors of the Company will be fixed by the Board of Directors, but must
consist of not fewer than three nor more than seven directors. In addition,
subject to any rights of holders of preferred stock (if any), any vacancy (other
than a vacancy created by removal from office or by an increase in the number of
directors) may be filled, at any regular meeting or at any special meeting of
the directors called for that purpose, by the affirmative vote of a majority of
the remaining directors, though less than a quorum. A vacancy resulting from
removal from office must be filled by a vote of the stockholders. A vacancy
created by an increase in the number of directors shall be filled by a majority
of the entire Board of Directors. Accordingly, the Board of Directors could
temporarily prevent any stockholder from enlarging the Board of Directors and
filling the new directorships with such stockholder's own nominees.
The Company's Bylaws provide that, subject to the right of the holders of
any class of stock to elect additional directors under specified circumstances,
directors may be removed, without cause, upon the affirmative vote of holders of
a majority of the voting power of all the then outstanding Common Stock entitled
to vote generally in the election of directors, voting together as a single
class.
95
<PAGE> 97
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations is
based on current law and does not purport to deal with all aspects of taxation
that may be relevant to particular stockholders in light of their personal
investment or tax circumstances, or to certain types of stockholders (including
insurance companies, financial institutions and broker-dealers) subject to
special treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SHARES.
The Company believes that since January 1, 1996, it has operated in a
manner that permits it to satisfy the requirements for taxation as a REIT under
the applicable provisions of the Code. The Company intends to continue to
operate to satisfy such requirements. No assurance can be given, however, that
such requirements will be met.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income tax treatment of a REIT and
its stockholders. This summary is qualified in its entirety by the applicable
Code provisions, rules and regulations thereunder, and administrative and
judicial interpretations thereof. Morrison & Foerster has acted as tax counsel
to the Company in connection with Company's election to be taxed as a REIT.
In the opinion of Morrison & Foerster LLP, commencing with the Company's
taxable year that will end on December 31, 1996, the Company has been organized
in conformity with the requirements for qualification as a REIT, and its method
of operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Morrison &
Foerster. Accordingly, no assurance can be given that the actual results of the
Company's operations for any particular taxable year will satisfy such
requirements. See "A Failure to Qualify."
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
Taxable Income" that is currently distributed to stockholders. This treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and stockholder levels) that generally results from the use of
corporate investment vehicles.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution to
its stockholders could be reduced.
TAXATION OF THE COMPANY
General
In any year in which the Company qualifies as a REIT, in general it will
not be subject to federal income tax on that portion of its net income that it
distributes to stockholders. This treatment substantially eliminates the "double
taxation" on income at the corporate and stockholder levels that generally
results from investment in a corporation. However, the REIT will be subject to
federal income tax as follows: First, the REIT will be taxed at regular
corporate rates on any undistributed Real Estate Investment Trust Taxable
Income, including undistributed net capital gains. Second, under certain
circumstances, the REIT may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if the REIT has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary
96
<PAGE> 98
course of business or (ii) other nonqualifying income from foreclosure property,
it will be subject to tax at the highest corporate rate on such income. Fourth,
if the REIT has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the REIT should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), and has nonetheless maintained its qualification as a real estate
investment trust because certain other requirements have been met, it will be
subject to a 100% tax on an amount equal to (a) the gross income attributable to
the greater of the amount by which the REIT fails the 75% gross income test or
the 95% gross income test, multiplied by (b) fraction intended to reflect the
REIT's profitability. Sixth, if the REIT should fail to distribute during each
calendar year at least the sum of (i) 85% of its real estate investment trust
ordinary income for such year, (ii) 95% of its real estate investment trust
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, the REIT would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, if the REIT acquires any asset from a C corporation (i.e., generally a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the asset in the REIT's hands is determined by reference to the basis
of the asset (or any other property) in the hands of the C corporation, and the
REIT recognizes gain on the disposition of such asset during the 10 year period
beginning on the date on which such asset was acquired by the REIT, then, to the
extent of any built-in gain at the time of acquisition, such gain will be
subject to tax at the highest regular corporate rate, assuming the REIT will
make an election pursuant to IRS Notice 88-19.
Requirements for Qualification
The Code defines a real estate investment trust as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year; and (7) which
meets certain other tests, described below, regarding the nature of income and
assets. The Code provides that conditions (1) to (4), inclusive, must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made by the Company
to be taxed as a REIT.
In order to assist the Company in complying with the ownership tests
described above, the Company has placed certain restrictions on the transfer of
the Common Stock and the Company's preferred stock to prevent further
concentration of stock ownership. Moreover, to evidence compliance with these
requirements, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock and preferred stock. In fulfilling its
obligations to maintain records, the Company must and will demand written
statements each year from the record holders of designated percentages of its
Common Stock and preferred stock disclosing the actual owners of such Common
Stock and preferred stock. A list of those persons failing or refusing to comply
with such demand must be maintained as part of the Company's records. A
stockholder failing or refusing to comply with the Company's written demand must
submit with his or her tax returns a similar statement disclosing the actual
ownership of Common Stock and preferred stock and certain other information. In
addition, the Company's Articles of Incorporation provide restrictions regarding
the transfer of its shares that are intended to assist the Company in continuing
to satisfy the share ownership requirements. See "Restrictions on Ownership and
Transfer of Common Stock."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests, described below. Thus,
the
97
<PAGE> 99
Company's proportionate share of the assets, liabilities and items of income of
the Operating Partnership will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described below.
Asset Tests
At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items and government securities (as well as certain temporary
investments in stock or debt instruments purchased with the proceeds of new
capital raised by the Company). Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed either (i) 5% of the value of the Company's total
assets as to any one non-government issuer or (ii) 10% of the outstanding voting
securities of any one issuer. The Company's investment in real property through
its interest in the Operating Partnership constitutes qualified assets for
purposes of the 75% asset test. In addition, the Company may own 100% of
"qualified REIT subsidiaries" as defined in the Code. All assets, liabilities,
and items of income, deduction, and credit of such a qualified REIT subsidiary
will be treated as owned and realized directly by the Company.
The Company has analyzed the impact of its ownership interests in the
Associated Companies on its ability to satisfy the asset tests. Based upon its
analysis of the estimated value of the Company's total assets as well as its
estimate of the value of the respective nonvoting preferred stock interests in
the Associated Companies, the Company believes that none of the preferred stock
interests will exceed 5% of the value of the Company's total assets on the last
day of any calendar quarter in 1996. The Company intends to monitor compliance
with the 5% test on a quarterly basis and believes that it will be able to
manage its operations in a manner to comply with the tests, either by managing
the amount of its qualifying assets or reducing its interests in the Associated
Companies, although there can be no assurance that such steps will be
successful. In rendering its opinion as to the qualification of the Company as a
REIT, counsel has relied upon the Company's representation as to the value of
its assets and the value of its interests in the Associated Companies. Counsel
has discussed with the Company its valuation analysis and the future actions
available to it to comply with the 5% tests but it has not independently
verified the valuations.
Gross Income Tests
There are three separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For
purposes of these tests, where the Company invests in a partnership, the Company
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the partnership.
See "-- Tax Aspects of the Company's Investment in the Operating Partnerships
- -- General."
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i) rents
from real property (except as modified below); (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gains from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); and (vii) commitment fees received for agreeing to
make loans collateralized by mortgages on real property or to purchase or lease
real property.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "related party tenant"). In
addition,
98
<PAGE> 100
if rent attributable to personal property, leased in connection with a lease of
real property, is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as rents from real property. Moreover, an amount received or accrued generally
will not qualify as rents from real property (or as interest income) for
purposes of the 75% and 95% gross income tests if it is based in whole or in
part on the income or profits of any person. Rent or interest will not be
disqualified, however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, and are not otherwise
considered "rendered to the occupant."
The Company will provide certain services with respect to properties owned
by the Operating Partnership. The Company believes that the services provided by
the Operating Partnership are usually or customarily rendered in connection with
the rental of space of occupancy only, and therefore that the provision of such
services will not cause the rents received with respect to its properties to
fail to qualify as rents from real property for purposes of the 75% and 95%
gross income tests. The Company does not intend to rent to related party tenants
or to charge rents that would not qualify as rents from real property because
the rents are based on the income or profits of any person (other than rents
that are based on a fixed percentage or percentages of receipts or sales).
Pursuant to the percentage leases ("Percentage Leases"), GHG leases from
the Operating Partnership the land, buildings, improvements, furnishings, and
equipment comprising the Hotels for a five-year period with a five-year renewal
option. The Percentage Leases provide that the lessee will be obligated to pay
to the Operating Partnership (a) the greater of a fixed rent (the "Base Rent")
or a percentage rent (the "Percentage Rent") (collectively, the "Rents") and (b)
certain other amounts, including interest accrued on any late payments or
charges (the "Additional Charges"). The Percentage Rent is calculated by
multiplying fixed percentages by the gross revenues from the operations of the
Hotels in excess of certain levels. The Base Rent accrues and is required to be
paid monthly. Percentage Rent is due quarterly; however, the lessee will not be
in default for non-payment of Percentage Rent due in any calendar year if the
lessee pays, within 90 days of the end of the calendar year, the excess of
Percentage Rent due and unpaid over the Base Rent with respect to such year.
In order for the Base Rent, the Percentage Rent, and the Additional Charges
to constitute "rents from real property," the Percentage Leases must be
respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Percentage Leases are true leases depends on an
analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following: (a) the intent of the parties, (b) the form of the agreement, (c) the
degree of control over the property that is retained by the property owner
(e.g., whether the lessee has substantial control over the operation of the
property or whether the lessee was required simply to use its best efforts to
perform its obligations under the agreement), and (d) the extent to which the
property owner retains the risk of loss of the property (e.g., whether the
lessee bears the risk of increases in operating expenses or the risk of damage
to the property).
In addition, Section 7701(e) of the Code provides that a contract that
purports to be a service contract (or a partnership agreement) is treated
instead as a lease of property if the contract is properly treated as such,
taking into account all relevant factors, including whether or not: (a) the
service recipient is in physical possession of the property, (b) the service
recipient controls the property, (c) the service recipient has a significant
economic or possessory interest in the property (e.g., the property's use is
likely to be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the property
will decline in value, the recipient shares in any appreciation in the value of
the property, the recipient shares in savings in the property's operating costs,
or the recipient bears the risk of damage to or loss of the property), (d) the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (e) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service
99
<PAGE> 101
recipient, and (f) the total contract price does not substantially exceed the
rental value of the property for the contract period. Since the determination of
whether a service contract should be treated as a lease is inherently factual,
the presence or absence of any single factor may not be dispositive in every
case.
Counsel is of the opinion that the Percentage Leases will be treated as
true leases for federal income tax purposes. Such opinion is based, in part, on
the following facts: (a) the Operating Partnership and the lessee intend for
their relationship to be that of a lessor and lessee and such relationship will
be documented by lease agreements, (b) the lessee has the right to exclusive
possession and use and quiet enjoyment of the Hotels during the term of the
Percentage Leases, (c) the lessee bears the cost of, and be responsible for,
day-to-day maintenance and repair of the Hotels, other than the cost of
maintaining underground utilities, structural elements and exterior painting,
and will dictate how the Hotels are operated, maintained, and improved, (d) the
lessee bears all of the costs and expenses of operating the Hotels (including
inventory costs) during the term of the Percentage Leases (other than real
property taxes, personal property taxes on property owned by the Operating
Partnership, casualty insurance and the cost of replacement or refurbishment of
furniture, fixtures and equipment, to the extent such costs do not exceed the
allowance for such costs provided by the Operating Partnership under the
Percentage Leases), (e) the lessee will benefit from any savings in the costs of
operating the Hotels during the term of the Percentage Leases, (f) in the event
of damage or destruction to a Hotel which renders the Hotel unsuitable for
continued use, the lessee will be at economic risk because the Operating
Partnership can elect to terminate the Percentage Lease as to such Hotel, in
which event the lessee can elect to rebuild at its cost less any insurance
proceeds, or accept such termination, (g) the lessee will indemnify the
Partnership against all liabilities imposed on the Partnership during the term
of the Percentage Leases by reason of (i) injury to persons or damage to
property occurring at the Hotels or (ii) the lessee's use, management,
maintenance or repair of the Hotels, (h) the lessee is obligated to pay
substantial fixed rent for the period of use of the Hotels, and (i) the lessee
stands to incur substantial losses (or reap substantial gains) depending on how
successfully it operates the Hotels. The Company has represented that the lessee
has and will have its own employees, physically distinct and separate office
space, furniture and equipment, and directors. Further, the Company has
represented that neither the Company nor the Operating Partnership will furnish
or render services to either the lessee or its customers.
Investors should be aware that there are no controlling treasury
regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Percentage Leases that discuss whether such
leases constitute true leases for federal income tax purposes. Therefore, the
opinion of counsel with respect to the relationship between the Operating
Partnership and the lessee is based upon all of the facts and circumstances, and
rulings and judicial decisions involving situations that are considered to be
analogous. Opinions of counsel are not binding upon the Service or any court,
and there can be no assurance that the Service will not assert successfully a
contrary position. If the Percentage Leases are recharacterized as service
contracts or partnership agreements, rather than true leases, part or all of the
payments that the Partnership receives from the lessee may not be considered
rent or may not otherwise satisfy the various requirements for qualification as
"rents from real property." In that case, the Company likely would not be able
to satisfy either the 75% or 95% gross income tests and, as a result, could lose
its REIT status.
In order for the Rents to constitute "rents from real property," several
other requirements also must be satisfied. One requirement is that the Rents
attributable to personal property leased in connection with the lease of the
real property comprising a Hotel must not be greater than 15% of the Rents
received under the Percentage Lease. The Rents attributable to the personal
property in a Hotel is the amount that bears the same ratio to total rent for
the taxable year as the average of the adjusted bases of the personal property
in the Hotel at the beginning and at the end of the taxable year bears to the
average of the aggregate adjusted bases of both the real and personal property
comprising the Hotel at the beginning and at the end of such taxable year (the
"Adjusted Basis Ratio"). Management has obtained an appraisal of the personal
property at each Hotel indicating that the appraised value of the personal
property at each Hotel is less than 15% of the value at which such Hotel is
acquired. However, the Company has represented that the Operating Partnership
will in no event acquire additional personal property for a Hotel to the extent
that such acquisition would cause the Adjusted Basis Ratio for that Hotel to
exceed 15%. There can be no assurance, however, that the Service would not
assert that the personal property acquired from a particular partnership had a
value in excess of the
100
<PAGE> 102
appraised value, or that a court would not uphold such assertion. If such a
challenge were successfully asserted, the Company could fail the 15% Adjusted
Basis Ratio as to one or more of the Percentage Leases, which in turn
potentially could cause it to fail to satisfy the 95% or 75% gross income test
and thus could lose its REIT status.
Another requirement for qualification of the Rents as "rents from real
property" is that the Percentage Rent must not be based in whole or in part on
the income or profits of any person. The Percentage Rent, however, will qualify
as "rents from real property" if it is based on percentages of receipts or sales
and the percentages (a) are fixed at the time the Percentage Leases are entered
into, (b) are not renegotiated during the term of the Percentage Leases in a
manner that has the effect of basing Percentage Rent on income or profits, and
(c) conform with normal business practice. More generally, the Percentage Rent
will not qualify as "rents from real property" if, considering the Percentage
Leases and all the surrounding circumstances, the arrangement does not conform
with normal business practice, but is in reality used as a means of basing the
Percentage Rent on income or profits. Since the Percentage Rent is based on
fixed percentages of the gross revenues from the Hotels that are established in
the Percentage Leases, and the Company has represented that the percentages (i)
will not be renegotiated during the terms of the Percentage Leases in a manner
that has the effect of basing the Percentage Rent on income or profit and (ii)
conform with normal business practice, the Percentage Rent should not be
considered based in whole or in part on the income or profits of any person.
Furthermore, the Company has represented that, with respect to other hotel
properties that it acquires in the future, it will not charge rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage of gross revenue,
as described above).
A further requirement for qualification of Rents as "rents from real
property" limits the relationship between the Company and its tenants. In the
case of a corporate tenant, the Company must not own 10% or more of the total
combined voting power of the tenant's stock and must not own 10% or more of the
total number of shares of all classes of the tenant's stock outstanding. In the
case of a tenant that is not a corporation, the Company must not own 10% or more
in interest of the tenant's assets or net profits. The Company intends to limit
its ownership interest in GHG to nonvoting preferred stock which will constitute
less than 10% of the total number of outstanding shares of GHG stock. The common
stock of GHG, which is the only voting stock of GHG, will be owned by persons
who are not related to the Company within the definition in the applicable
statute. The common stockholders will have a significant economic interest in
GHG and will elect the board of directors of GHG. Based upon the foregoing,
counsel is of the opinion that rental payments from GHG will not constitute
rentals from a party related to the Company.
The Company will receive nonqualifying management fee income. As a result,
the Company may approach the income test limits and could be at risk of not
satisfying such tests and thus not qualifying as a REIT. Counsel's opinion is
based on the Company's representation that the actual amount of nonqualifying
income will not exceed such limits.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. For purposes of
determining whether the Company complies with the 75% and 95% income tests,
gross income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain property held by
the Company for at least four years and foreclosure property. See "-- Taxation
of the Company" and "-- Tax Aspects of the Company's Investment in the Operating
Partnership -- Sale of Properties."
The Company believes that it and the Operating Partnership has held and
managed its properties in a manner that has given rise to rental income
qualifying under the 75% and 95% gross income tests. Gains on sales of
properties will generally qualify under the 75% and 95% gross income tests.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code.
101
<PAGE> 103
These relief provisions will generally be available if: (i) the Company's
failure to comply was due to reasonable cause and not to willful neglect; (ii)
the Company reports the nature and amount of each item of its income included in
the 75% and 95% gross income tests on a schedule attached to its tax return; and
(iii) any incorrect information on this schedule is not due to fraud with intent
to evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of these relief provisions. If
these relief provisions apply, the Company will, however, still be subject to a
special tax upon the greater of the amount by which it fails either the 75% or
95% gross income test for that year.
The 30% Test. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. In this regard, certain of the Company's
assets are subject to existing purchase options. See "Business and
Properties -- Industrial Properties." Although the Company believes, based on
the historical experience of certain predecessor partnerships, that it will
satisfy this 30% test, if, contrary to expectations, large numbers of such
options are exercised, more than 30% of the Company's gross income in a taxable
year could be derived from a proscribed source. The Company will, however, use
its best efforts to ensure that it will continue to satisfy each of the
foregoing income requirements.
ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders each
year in an amount at least equal to (A) the sum of (i) 95% of the Company's REIT
Taxable Income (computed without regard to the dividends paid deduction and the
REIT's net capital gain) and (ii) 95% of the net income (after tax), if any,
from foreclosure property, minus (B) the sum of certain items of non-cash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
distribution payment after such declaration. To the extent that the Company does
not distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be subject to tax on
the undistributed amount at regular capital gains or ordinary corporate tax
rates, as the case may be. Furthermore, if the REIT should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain income for such year,
and (iii) any undistributed taxable income from prior periods, the REIT would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed.
The Company believes that it has made and will make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand. Further, as described below, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. To avoid any problem with the
95% distribution requirement, the Company will closely monitor the relationship
between its REIT taxable income and cash flow and, if necessary, will borrow
funds (or cause the Operating Partnership or other affiliates to borrow funds)
in order to satisfy the distribution requirement. The Company (through the
Operating Partnership) may be required to borrow funds at times when market
conditions are not favorable.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
102
<PAGE> 104
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event, to the extent of the Company's current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether the Company would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership.
General
The Company holds a direct ownership interest in the Operating Partnership.
In general, partnerships are "pass-through" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company includes its
proportionate share of the foregoing Operating Partnership items for purposes of
the various REIT income tests and in the computation of its REIT taxable income.
See "-- Requirements for Qualification" and "-- Gross Income Tests." Any
resultant increase in the Company's REIT taxable income increases its
distribution requirements (see "-- Requirements for Qualification" and
"-- Annual Distribution Requirements"), but is not subject to federal income tax
in the hands of the Company provided that such income is distributed by the
Company to its stockholders. Moreover, for purposes of the REIT asset tests (see
"-- Requirements for Qualification" and "-- Asset Tests"), the Company includes
its proportionate share of assets held by the Operating Partnership.
Entity Classification
The Company's interest in the Operating Partnership (and the Property
Partnerships) involves special tax considerations, including the possibility of
a challenge by the Internal Revenue Service (the "Service") of the status of the
Operating Partnership as a partnership (as opposed to an association taxable as
a corporation) for federal income tax purposes. If the Operating Partnership (or
any Property Partnership) were to be treated as an association, it would be
taxable as a corporation. In such a situation, the Operating Partnership (or
such Property Partnership) would be required to pay income tax at corporate
rates on its net income, and distributions to its partners would constitute
dividends that would not be deductible in computing net income. In addition, the
character of the Company's assets and items of gross income would change, which
would preclude the Company from satisfying the asset test and possibly the
income tests (see "-- Taxation of the Company -- Requirements for Qualification"
and "-- Taxation of the Company -- Asset Tests" and "-- Taxation of the
Company -- Gross Income Tests"), and in turn would prevent the Company from
qualifying as a REIT. See "-- Taxation of the Company -- Requirements for
Qualification" and "-- Failure to Qualify" above for a discussion of the effect
of the Company's failure to meet such tests for a taxable year.
Tax Allocations with Respect to Certain Properties
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of
103
<PAGE> 105
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property. Consequently, the
partnership agreement of the Operating Partnership requires such allocations to
be made in a manner consistent with Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets. This will tend to eliminate the Book-Tax Difference over the
life of the Operating Partnership. However, the special allocation rules under
Section 704(c) do not always entirely rectify the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed assets in the hands of the
Operating Partnership may cause the company to be allocated lower depreciation
and other deductions, and possibly greater amounts of taxable income in the
event of a sale of such contributed assets in excess of the economic or book
income allocated to it as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "-- Requirements for Qualification -- Annual Distribution Requirements." In
addition, the application of Section 704(c) to the Operating Partnership is not
entirely clear and may be affected by authority that may be promulgated in the
future.
Basis in Operating Partnership Interest
The Company's adjusted tax basis in its partnership interest in the
Operating Partnership generally (i) is equal to the amount of cash and the basis
of any other property contributed to the Operating Partnership by the Company,
(ii) is increased by (a) its allocable share of the Operating Partnership's
income and (b) increases in its allocable share of indebtedness of the Operating
Partnership and (iii) is reduced, but not below zero, by the Company's allocable
share of (a) the Operating Partnership's loss and (b) the amount of cash
distributed to the Company, and by constructive distributions resulting from a
reduction in the Company's share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition of
such loss will be deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis below zero. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the nonrecourse indebtedness of the Operating Partnership (each such decrease
being considered a constructive cash distribution to the partners), would reduce
the Company's adjusted tax basis below zero, such distributions (including such
constructive distributions) constitute taxable income to the Company. Such
distributions and constructive distributions will normally be characterized as a
capital gain, and if the Company's partnership interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gains.
Sale of Properties
Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. The Company's share of any gain
realized by the Operating Partnership on the sale of any dealer property
generally will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "Taxation of the Company" and
"-- Requirements for Qualification -- Gross Income Tests -- The 95% Test." Under
existing law, whether property is dealer property is a question of fact that
depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership intends to hold its properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating its properties, and to
104
<PAGE> 106
make such occasional sales of properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general its properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income. Stockholders that are corporations will not
be entitled to a dividends received deduction. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholder's tax basis taxable as capital gains (if the Common Stock is
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and to the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such stockholder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Revenue rulings, however, are
interpretive in nature and are subject to revocation or modification by the
Service. Based upon the ruling and the analysis therein, distributions by the
Company to a stockholder that is a tax-exempt entity should also not constitute
UBTI, provided that the tax exempt entity has not financed the acquisition of
its shares of Common Stock with "acquisition indebtedness" within the meaning of
the Code, and that the shares of Common Stock are not otherwise used in an
unrelated trade or business of the tax-exempt entity. In addition, REITs can
treat the beneficiaries of qualified pension trusts as the beneficial owners of
REIT shares owned by such pension trusts for purposes of determining if more
than 50% of the REIT's shares are owned by five or fewer individuals. However,
if a REIT relies on this new rule to meet the requirements of the five or fewer
rule, then pension trusts owning more than 10% of the REIT's shares can be
subject to UBTI on all or a
105
<PAGE> 107
portion of REIT dividends made to it. Owing to the Ownership Limit Provision,
the Company expects to satisfy the five or fewer rule even if each pension trust
stockholder is treated as one individual for purposes of this test.
Consequently, a pension trust stockholder should not, as a result of the
"pension-held REIT" rules, be subject to UBTI on dividends that it receives from
the Company.
TAXATION OF FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders are complex and no attempt is made herein to provide more than a
summary of such rules. Prospective foreign investors ("Non-U.S. Stockholders")
should consult with their own tax advisors to determine the impact of federal,
state, local and any foreign income tax laws with regard to an investment in the
Company, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company or the Operating Partnership of United States real property
interests and not designated by the Company as capital gains dividends will be
treated as dividends of ordinary income to the extent made out of current or
accumulated earnings and profits of the Company. Such distributions will
ordinarily be subject to a withholding tax equal to 30% of the gross amount of
the distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the shares is treated as effectively
connected with the Non-U.S. Stockholder's conduct of a United States trade or
business, the Non-U.S. Stockholder generally will be subject to a tax at
graduated rates, in the same manner as U.S. stockholders are taxed with respect
to such distributions (and may also be subject to the 30% branch profits tax in
the case of a stockholder that is a foreign corporation). The Company expects to
withhold United States income tax at the rate of 30% on the gross amount of any
distributions of ordinary income made to a Non-U.S. Stockholder unless (i) a
lower treaty rate applies and proper certification is provided or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that the
distribution is effectively connected income. Distributions in excess of current
and accumulated earnings and profits of the Company will not be taxable to a
stockholder to the extent that such distributions do not exceed the adjusted
basis of the stockholder's shares but rather will reduce the adjusted basis of
such shares. To the extent that distributions in excess of current accumulated
earnings and profits exceed the adjusted basis of a Non-U.S. Stockholder's
shares, such distributions will give rise to tax liability if the Non-U.S.
Stockholder would otherwise be subject to tax on any gain from the sale or
disposition of his shares in the Company, as described below. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and profit, the
distributions will be subject to withholding at the same rate as dividends.
However, amounts thus withheld are refundable if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of the Company.
For any year in which the Company qualifies as a real estate investment
trust, distributions that are attributable to gain from sales or exchanges by
the Company of United States real property interests will be taxed to a Non-U.S.
Stockholder under the Provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from
sales of United States real property interests are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a United States
business. Non-U.S. Stockholders would thus be taxed at the normal capital gain
rates applicable to U.S. stockholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate stockholder not entitled
to treaty exemption. The Company is required by applicable Treasury Regulations
to withhold 35% of any distribution that could be designated by the Company as a
capital gains dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a real estate investment trust in which at all times
during a specified testing period less than 50% in value of the stock was held
directly or indirectly by foreign persons. It is currently anticipated that the
Company will be a "domestically controlled REIT," and therefore the sale of
shares will not be subject to taxation under FIRPTA. However, gain not
106
<PAGE> 108
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment in
the shares is effectively connected with a United States trade or business of
the Non-U.S. Stockholder, in which case the Non-U.S. Stockholder will be subject
to the same treatment as U.S. stockholders with respect to such gain, or (ii)
the Non-U.S. Stockholder is a nonresident alien individual who was present in
the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax on the individual's capital gains. If the gain on the
sale of shares were to be subject to taxation under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
If the proceeds of a disposition of Shares are paid by or through a United
States office of a broker, the payment is subject to information reporting and
backup withholding unless the disposing Non-U.S. Stockholder certifies as to his
name, address and non-United States status or otherwise establishes an
exemption. Generally, United States information reporting and backup withholding
will not apply to a payment of disposition proceeds if the payment is made
outside the United States through a non-United States office of a non-United
States broker. United States information reporting requirements (but not backup
withholding) will apply, however, to a payment of disposition proceeds outside
the United States if (i) the payment is made through an office outside the
United States of a broker that is either (a) a United States person, (b) a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (c) a
"controlled foreign corporation" for United States federal income tax purposes,
and (ii) the broker fails to obtain documentary evidence that the stockholder is
a Non-U.S. Stockholder and that certain conditions are met or that the Non-U.S.
Stockholder otherwise is entitled to an exemption.
STATE TAX CONSEQUENCES AND WITHHOLDING
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Several states in which the Company may conduct business treat
REITs as ordinary corporations. The Company does not believe, however, that
stockholders will be required to file state tax returns, other than in their
respective states of residence, as a result of the ownership of Shares. However,
prospective stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.
EACH INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE OWNERSHIP AND SALE OF COMMON
STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
107
<PAGE> 109
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Bear, Stearns &
Co. Inc. ("Bear Stearns"), Robertson, Stephens & Company LLC and Jefferies &
Company, Inc. are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock set
forth opposite their respective names below. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent, and that the Underwriters are committed to purchase all of such
shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER COMMON STOCK
------------------------------------------------------------------- ----------------
<S> <C>
Bear, Stearns & Co. Inc............................................
Robertson, Stephens & Company LLC..................................
Jefferies & Company, Inc. .........................................
---------
Total.................................................... 3,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at that price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share
on sales to certain other dealers. After the initial offering to the public, the
public offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 525,000 additional
shares of Common Stock (the "Option Shares") to cover over-allotments, if any,
at the public offering price per share set forth on the cover page of this
Prospectus, less the underwriting discount. If the Underwriters exercise this
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of total Option Shares
that the number of Common Stock to be purchased by it shown in the foregoing
table bears to the Common Stock initially offered hereby.
In the Underwriting Agreement, the Company and the Operating Partnership
have agreed to indemnify the several Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended
or to contribute to payments the Underwriters may be required to make in respect
thereof.
The Company and the Operating Partnership have agreed not to, directly or
indirectly, offer, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or any rights to acquire
Common Stock for a period of 120 days after the date of this Prospectus without
the prior written consent of Bear Stearns (except for issuances by the Company
pursuant to the Company's Incentive Plan and certain other agreements, and
issuances of an aggregate of up to 2.5 million shares of Common Stock or
Operating Partnership Units in connection with bona fide acquisitions of real
property or interests therein). All directors and officers and certain
stockholders of the Company have agreed not to directly or indirectly offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the Representatives. In connection with the settlement of the
Blumberg litigation, Robert Batinovich, Andrew Batinovich and certain family
members agreed not to sell any of their shares of Common Stock until after
December 31, 1997 and the Company agreed that no options will be granted by the
Company with an exercise price less than $15 per share of Common Stock prior to
January 1, 1997.
108
<PAGE> 110
Bear Stearns provided financial advisory services to the Company in
connection with the Consolidation, for which Bear Stearns received customary
compensation. Bear, Stearns Funding, Inc. ("Bear Stearns Funding"), an affiliate
of Bear Stearns, has loaned the Company $20,000,000 at an interest rate of 7.57%
with a maturity date of January 1, 2006. See "Business and Properties -- Debt."
Bear Stearns or Bear Stearns Funding has also (i) provided financial services to
an affiliate of GC, for which Bear Stearns received customary compensation and
(ii) made certain loans to limited partnerships for which GIRC provides
management services.
Robertson, Stephens & Company LLC provided financial advisory services to
the Company in connection with the Consolidation, for which it received
customary compensation.
LEGAL MATTERS
The legality of the Common Stock offered by this Prospectus will be passed
upon for the Company by Morrison & Foerster LLP, Palo Alto, California, and
certain matters will be passed upon for the Underwriters by Latham & Watkins,
San Francisco, California. Morrison & Foerster LLP will rely upon the opinion of
Hogan & Hartson LLP, Baltimore, Maryland as to certain matters of Maryland law.
In addition, Morrison & Foerster LLP will provide an opinion as the basis of the
description of federal income tax consequences contained in this Prospectus in
the section entitled "Federal Income Tax Considerations."
EXPERTS
The respective financial statements and financial statement schedules of
the Company, GRT Predecessor Entities, GPA Properties, TRP Properties, UCT
Property and Bond Street Property included in this Prospectus, to the extent and
for the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein upon the authority
of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission ("Commission"). Reports, proxy statements and
other information filed by the Company in accordance with the Exchange Act can
be inspected and copies obtained at the Commission at Room 1204, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: 7 World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Company's Common Stock is quoted for
trading on the New York Stock Exchange and reports, proxy statements and other
information concerning the Company may also be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part) on Form S-11 under the Securities Act with
respect to the Common Stock offered by this Prospectus (the "Registration
Statement"). This Prospectus does not contain all the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the content of any contract or other document do not
purport to be complete, and in each instance reference is made to the copy of
the contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules hereto. For further information regarding the
Company and the Shares offered in this Offering, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be examined and
copies at the public reference facilities maintained by the Commission at Room
1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees prescribed by the Commission.
109
<PAGE> 111
GLOSSARY
Certain capitalized terms used in this Prospectus shall have the following
meanings unless the context otherwise requires:
"ACMs" means asbestos-containing materials.
"ADA" means Americans With Disabilities Act.
"ADR" means average daily rate.
"Additional Charges" means certain amounts other than Base Rent or
Percentage Rent, including interest accrued on any late payments or charges.
"Affiliate" means, with respect to a Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person,
or any other Person owning or controlling 10% or more of the outstanding voting
securities of such Person. GIRC, GC and GHG are not Affiliates with respect to
each other, nor is any of them an Affiliate of the Company or of the Operating
Partnership. Neither GPA nor Glenborough Partners is an affiliate of the Company
or the Operating Partnership.
"Annual Base Rent" means, with respect to any real property or group of
properties, the sum of contractually specified amounts due as rent under any
lease or leases applicable to such property or properties. It does not include
any additional rent due as a reimbursement of costs of property taxes, common
area maintenance, insurance, repairs or amounts due under percentage lease
clauses.
"Articles of Incorporation" or "Articles" means the Articles of Amendment
and Restatement of Articles of Incorporation of the Company, as they may be
amended from time to time.
"Associated Companies" means entities in which the Company holds an
interest in the form of nonvoting preferred stock and in which the voting common
stock is held by third parties. The Company has investments in three Associated
Companies, GC, GIRC and GHG.
"Attributed Owners" means individuals or entities whose ownership of shares
of Common Stock is attributed to Robert Batinovich in determining the number of
shares of Common Stock owned by him for purposes of compliance with Section 856
of the Code.
"Batinovich Redemption Option" means the option of Robert Batinovich to
demand that his interest as a limited partner of the Operating Partnership be
redeemed.
"Bond Street Property" means the two-story, 40,594 square foot suburban
office building in Farmington Hills, Michigan which the Company acquired on
September 24, 1996.
"Borrowing Base" means the greater of Fair Market Value or Total Market
Capitalization.
"Code" means the Internal Revenue Code of 1986, as amended, including
successor statutes thereto.
"Commission" means the United States Securities and Exchange Commission,
also sometimes referred to as the "SEC".
"Common Stock" means the $.001 par value common stock of the Company.
"Company" means Glenborough Realty Trust Incorporated, a Maryland
corporation, and its consolidated subsidiaries for the periods from and after
December 31, 1995.
"Consolidation" means the merger on or around December 31, 1995, of the
Partnerships (the eight public limited partnerships) and Old GC (a management
company) with and into the Company.
"Control Shares" means the Control Shares of a Maryland corporation.
"Country Suites" means Country Suites By Carlson.
"CPI" means Consumer Price Index.
110
<PAGE> 112
"Debt Limit" means the restrictions on additional borrowings contained in
the Company's Articles of Incorporation which apply when Debt reaches 50% of the
Company's Borrowing Base.
"Environmental Reports" means Phase I Reports and/or Phase II Reports.
"Excess Shares" means any shares of Common Stock in excess of the Ownership
Limitation acquired, owned, or deemed to be owned, by the operation of certain
attribution rules set out in the Code, by any Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations promulgated thereunder.
"Facility" means the new loan facility provided by Wells Fargo, referred to
under the heading "Recent Activities -- New Bank Loans."
"FAD" means Funds Available for Distribution.
"Fair Market Value" means the value placed on all the assets of the Company
and the Operating Partnership, including without limitation their interests in
the Associated Companies and any subsidiaries or other corporations or
partnerships, by an independent appraiser, including assets proposed to be
acquired with the proceeds of or in connection with the proposed incurrence of
additional Debt, provided that such valuation shall include the capitalized
value of (a) external fee income, and (b) savings realized by the Company, its
Consolidated Partnerships or Subsidiary Corporations as a consequence of
managing their own or each other's assets. The independent appraiser shall
independently determine appropriate capitalization rates and market-level
management fees.
"FFO" means Funds from Operations.
"FIRPTA" means the federal Foreign Investment in Real Property Tax Act of
1980.
"Funds from Operations" means net income computed in accordance with GAAP,
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.
"GAAP" means Generally Accepted Accounting Principles.
"GC" means Glenborough Corporation, a California corporation, which is one
of the Associated Companies. The name of GC was changed from Glenborough Realty
Corporation at the time of the Consolidation.
"GHG" means Glenborough Hotel Group, a Nevada corporation, which is one of
the Associated Companies.
"GIRC" means Glenborough Inland Realty Corporation, a California
corporation, which is one of the Associated Companies.
"GPA Properties" means Navistar and Case Properties.
"GPA Redemption Option" means the option of GPA, Ltd. to demand that its
interest as a limited partner of the Operating Partnership be redeemed.
"GRT Predecessor Entities" means Old GC and the Partnerships.
"Incentive Plan" means the Company's employee stock incentive plan approved
by stockholders at the Company's 1996 annual meeting.
"IRS" means the Internal Revenue Service, also referred to as the
"Service."
"LIBOR" means the London interbank offered rate.
"Maryland GCL" means the Maryland General Corporation Law, as it may be
amended from time to time.
"NAREIT" means National Association of Real Estate Investment Trusts.
"NASD" means the National Association of Securities Dealers, Inc.
111
<PAGE> 113
"Nonqualifying Income" means income not described in Section 856(c)(2) of
the Code, or any successor provision.
"Non-U.S. Stockholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign stockholders.
"Old GC" means Glenborough Corporation, a California corporation and one of
the GRT Predecessor entities, which merged with and into the Company in the
Consolidation.
"Operating Partnership" means Glenborough Properties, L.P., a California
limited partnership whose general partner is the Company, and whose limited
partners are the Company and GPA.
"Option Shares" means those additional shares of common stock the
Underwriters have an option to purchase, such option exercisable for 30 days
after the date of this Prospectus.
"Organizational Documents" means the Articles of Incorporation and Bylaws
of the Company.
"Ownership Limitation" means, with respect to ownership of Common Stock of
the Company, not more than 6.75% of such Common Stock, subject to adjustment in
accordance with the Articles of Incorporation.
"Partnerships" means the eight public limited partnerships that merged with
and into the Company in the Consolidation.
"Percentage Leases" means the leases of certain of the Hotels between the
Operating Partnership as lessor, and GHG as lessee.
"Percentage Rent" means the percentage rent the lessee is obligated to pay
to the Operating Partnership where the Percentage Rent exceeds the Base Rent.
"Property" means a property owned by the Company.
"Prospectus" means this Prospectus, together with the supplements and
appendices thereto, filed with the SEC as it may be further supplemented or
amended from time to time.
"Qualified Subsidiary" as defined in the Code means a corporation, all of
the issued and outstanding stock of which is owned by a REIT during the entire
period it exists.
"Rancon Partnerships" means Rancon Realty Fund I, a California limited
partnership; Rancon Realty Fund II, a California limited partnership; Rancon
Realty Fund III, a California limited partnership; Rancon Realty Fund IV, a
California limited partnership; Rancon Realty Fund V, a California limited
partnership; Rancon Pacific Realty, L.P., a Delaware limited partnership; Rancon
Income Fund I, a California limited partnership; Rancon Development VI, a
California limited partnership; and Rancon Ontario Freeway Properties Fund, a
California limited partnership.
"Registration Statement" means the Registration Statement on Form S-11, as
filed with the SEC by the Company under the Securities Act to register the
offering and sale of the Shares, as the same may be amended or supplemented from
time to time.
"REIT" means the classification for federal tax purposes as a real estate
investment trust pursuant to Part II, Subchapter M of Chapter I of Subtitle A of
the Code, as now enacted or hereafter amended, including successor statutes and
regulations promulgated thereunder.
"REIT Taxable Income" means the taxable income as computed for a
corporation which is not a REIT (a) without the deductions allowed by Sections
241 through 247, 249 and 250 of the Code (relating generally to the deduction
for dividends received); (b) excluding amounts equal to (i) the net income from
foreclosure property, and (ii) the net income derived from prohibited
transactions; (c) deducting amounts equal to (x) any net loss derived from
prohibited transactions, and (y) the tax imposed by Section 857(b)(5) of the
Code upon a failure to meet the 95% and/or the 75% gross income tests; and (d)
disregarding the dividends paid, computed without regard to the amount of the
net income from foreclosure property which is excluded from REIT Taxable Income.
112
<PAGE> 114
"Representatives" refers to Bear Stearns & Co. Inc. and to Robertson,
Stephens & Company LLC as representatives for the Underwriters.
"Restricted Shares" means those shares of Common Stock that Robert
Batinovich and the Attributed Owners have agreed not to sell until December 31,
1997.
"REVPAR" means revenue per available room.
"SEC" means the United States Securities and Exchange Commission, also
sometimes referred to as the "Commission."
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Service" means the Internal Revenue Service, also referred to as the
"IRS."
"Shares" means shares of the Common Stock proposed to be issued.
"S.S. Rainbow" means S.S. Rainbow, a California limited partnership.
"Stanger" means Robert A. Stanger & Co., Inc.
"Term Loan" means the two-year term loan provided by Wells Fargo described
in "Recent Activities -- New Bank Loans."
"Total Market Capitalization" shall mean as of any date of determination,
the sum of (a) the product obtained by multiplying the total number of shares of
the Common Stock of the Company then outstanding, plus any Shares reserved for
issuance pursuant to the GPA Redemption Option, by the average of the prices
reported therefor in the ten preceding trading days for which such prices were
reported (i) as the closing prices on any national securities exchange upon
which any shares of such stock are listed; (ii) if not so listed, then the
prices which represent the mean between the bid and asked prices as reported by
the NASD; plus (b) the Company's Debt as set forth on the latest interim or
annual financial statements filed by the Company under the Exchange Act.
"TRP Properties" refers to the 12 industrial, office, retail and
multifamily properties currently owned by TRP which the Company has entered into
a letter of intent to acquire.
"UBTI" means unrelated business taxable income under the Code.
"UCT Property" refers to the 23-story, 272,443 square foot University Club
Tower in St. Louis, Missouri that the Company has acquired.
"UPREIT" means an organizational structure in which (a) a REIT owns an
interest in a partnership (sometimes referred to as an "umbrella" partnership,
and referred to in this Prospectus as the Operating Partnership), (b) the other
interests in the partnership have been acquired by third parties in exchange for
a non-taxable contribution of assets, and (c) the holders of the other interests
in the Partnership may under certain circumstances exchange their partnership
interests for shares of stock in the REIT in a taxable transaction.
"Wells Fargo" means Wells Fargo Bank, N.A.
113
<PAGE> 115
GLENBOROUGH REALTY TRUST INCORPORATED
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF GLENBOROUGH REALTY TRUST INCORPORATED AND
COMBINED FINANCIAL STATEMENTS OF THE GRT PREDECESSOR ENTITIES AS OF AND FOR THE
THREE YEARS ENDED DECEMBER 31, 1995:
Report of Independent Public Accountants......................................... F-3
Glenborough Realty Trust Incorporated Consolidated Balance Sheet as of
December 31, 1995.............................................................. F-4
GRT Predecessor Entities Combined Balance Sheet as of December 31, 1994.......... F-4
GRT Predecessor Entities Combined Statements of Operations for the years ended
December 31, 1995, 1994 and 1993............................................... F-5
Glenborough Realty Trust Incorporated Consolidated Statement of Equity as of
December 31, 1995.............................................................. F-6
GRT Predecessor Entities Combined Statements of Equity for the years ended
December 31, 1995, 1994 and 1993............................................... F-6
GRT Predecessor Entities Combined Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993................................................ F-7
Notes to Financial Statements.................................................... F-8
Glenborough Realty Trust Incorporated Schedule III -- Real Estate and Accumulated
Depreciation as of December 31, 1995............................................ F-17
Glenborough Realty Trust Incorporated Schedule IV -- Mortgage Loans on Real
Estate as of December 31, 1995.................................................. F-21
CONSOLIDATED FINANCIAL STATEMENTS OF GLENBOROUGH REALTY TRUST INCORPORATED AS OF AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND COMBINED FINANCIAL STATEMENTS OF THE GRT
PREDECESSOR ENTITIES AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995:
Glenborough Realty Trust Incorporated Consolidated Balance Sheets as of June 30,
1996 (unaudited) and December 31, 1995.......................................... F-23
Glenborough Realty Trust Incorporated Consolidated Statement of Operations for
the three and six months ended June 30, 1996 (unaudited)........................ F-24
GRT Predecessor Entities Combined Statement of Operations for the three and six
months ended June 30, 1995 (unaudited).......................................... F-24
Glenborough Realty Trust Incorporated Consolidated Statement of Equity for the
six months ended June 30, 1996.................................................. F-25
GRT Predecessor Entities Combined Statement of Equity for the six months ended
June 30, 1995................................................................... F-25
Glenborough Realty Trust Incorporated Consolidated Statement of Cash Flows for
the six months ended June 30, 1996.............................................. F-26
GRT Predecessor Entities Combined Statement of Cash Flows for the six months
ended June 30, 1995............................................................. F-26
Notes to Financial Statements.................................................... F-27
CONSOLIDATED FINANCIAL STATEMENTS OF GLENBOROUGH HOTEL GROUP AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996:
Consolidated Balance Sheet as of June 30, 1996 (unaudited)....................... F-32
Consolidated Statement of Operations for the three and six months ended June 30,
1996 (unaudited)................................................................ F-33
Consolidated Statement of Equity for the six months ended June 30, 1996
(unaudited)..................................................................... F-34
Consolidated Statement of Cash Flows for the six months ended June 30, 1996
(unaudited)..................................................................... F-35
Notes to Consolidated Financial Statements....................................... F-36
</TABLE>
F-1
<PAGE> 116
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED AS ADJUSTED CONSOLIDATED FINANCIAL STATEMENTS OF GLENBOROUGH REALTY TRUST
INCORPORATED FOR THE YEAR ENDED DECEMBER 31, 1995:
Glenborough Realty Trust Incorporated As Adjusted Consolidating Statement of
Operations with accompanying notes and adjustments.............................. F-40
Glenborough Realty Trust Incorporated As Adjusted Historical Combining Statement
of Operations with accompanying notes and adjustments........................... F-42
Glenborough Realty Trust Incorporated As Adjusted Statement of Hotel Lessor
Operations with accompanying notes and adjustments.............................. F-44
Glenborough Hotel Group As Adjusted Statement of Operations with accompanying
notes and adjustments........................................................... F-46
Glenborough Corporation As Adjusted Statement of Operations with accompanying
notes and adjustments........................................................... F-48
Glenborough Inland Realty Corporation As Adjusted Statement of Operations with
accompanying notes and adjustments.............................................. F-50
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF THE GPA PROPERTIES FOR EACH OF
THE THREE YEARS ENDED DECEMBER 31, 1995:
Report of Independent Public Accountants......................................... F-52
Combined Statements of Revenues and Certain Expenses for the years ended December
31, 1995, 1994 and 1993......................................................... F-53
Notes to Combined Statements of Revenues and Certain Expenses.................... F-54
STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF THE UCT PROPERTY FOR THE SIX MONTHS
ENDED JUNE 30, 1996 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993:
Report of Independent Public Accountants......................................... F-56
Statements of Revenues and Certain Expenses for the six months ended June 30,
1996 (unaudited) and the years ended December 31, 1995, 1994 and 1993........... F-57
Notes to Statements of Revenues and Certain Expenses............................. F-58
STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF THE BOND STREET PROPERTY FOR THE SIX
MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 1995:
Report of Independent Public Accountants......................................... F-59
Combined Statements of Revenues and Certain Expenses for the six months ended
June 30, 1996 (unaudited) and the year ended December 31, 1995.................. F-60
Notes to Combined Statements of Revenues and Certain Expenses.................... F-61
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF TRP PROPERTIES FOR THE SIX
MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 1995:
Report of Independent Public Accountants......................................... F-62
Combined Statements of Revenues and Certain Expenses for the six months ended
June 30, 1996 (unaudited) and the year ended December 31, 1995.................. F-63
Notes to Combined Statements of Revenues and Certain Expenses.................... F-64
</TABLE>
F-2
<PAGE> 117
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Glenborough Realty Trust Incorporated:
We have audited the accompanying consolidated balance sheet of Glenborough
Realty Trust Incorporated, as of December 31, 1995, the combined balance sheet
of the GRT Predecessor Entities as of December 31, 1994 and the related combined
statements of income, equity and cash flows of the GRT Predecessor Entities for
each of the three years in the period ended December 31, 1995. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Glenborough
Realty Trust Incorporated, as of December 31, 1995, the combined financial
position of the GRT Predecessor Entities as of December 31, 1994 and the results
of operations and cash flows for each of the three years in the period ended
December 31, 1995, of the GRT Predecessor Entities in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial information are presented for the purpose of complying with the
Securities and Exchange Commission's rules and are not a required part of the
basic financial statements. These schedules have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Francisco, California
March 13, 1996
F-3
<PAGE> 118
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
GLENBOROUGH GRT
REALTY TRUST PREDECESSOR
INCORPORATED ENTITIES
CONSOLIDATED COMBINED
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Rental property, net of accumulated depreciation of $24,877 and
$19,455 in 1995 and 1994, respectively........................... $ 77,574 $ 63,994
Investments in Associated Companies and Glenborough Partners....... 5,763 527
Investments in management contracts and other, net................. 484 3,440
Mortgage loans receivable, net of provision for loss of $863 in
1995............................................................. 7,216 19,953
Cash and cash equivalents.......................................... 4,587 23,929
Prepaid consolidation costs........................................ 6,082 --
Prepaid litigation expenses........................................ 1,155 --
Other assets....................................................... 2,879 5,478
-------- --------
Total Assets............................................. $105,740 $ 117,321
======== ========
LIABILITIES
Mortgage loans..................................................... $ 23,685 $ 6,500
Secured bank line.................................................. 10,000 --
Notes payable...................................................... -- 11,406
Investor notes payable............................................. 2,483 --
Other liabilities.................................................. 5,982 18,857
-------- --------
Total liabilities........................................ 42,150 36,763
-------- --------
Minority Interest.................................................. 7,962 --
Shareholders' Equity
Common stock (5,754,021 shares issued and outstanding at December
31, 1995)........................................................ 6 5
Additional paid-in capital......................................... 55,622 6,613
Receivable from shareholder........................................ -- (8,763)
Retained earnings.................................................. -- (904)
General partner.................................................... -- (1,730)
Limited partners................................................... -- 85,337
-------- --------
Total shareholders' equity............................... 55,628 80,558
-------- --------
Total Liabilities and Shareholders' Equity.................... $105,740 $ 117,321
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 119
GRT PREDECESSOR ENTITIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPTS PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUES
Rental revenue................................................ $15,454 $13,797 $13,546
Fees and reimbursements....................................... 16,019 13,327 15,439
Interest and other income..................................... 2,698 3,557 3,239
------- ------- -------
Total revenue....................................... 34,171 30,681 32,224
------- ------- -------
OPERATING EXPENSES
Operating expenses............................................ 8,576 6,782 7,553
General and administrative.................................... 15,947 13,454 14,321
Depreciation and amortization................................. 4,762 4,041 4,572
Interest expense.............................................. 2,129 1,140 1,301
Provision for loss on investments in real estate, real estate
partnerships and mortgage loans receivable.................. 1,876 3,508 2,309
------- ------- -------
Total operating expense............................. 33,290 28,925 30,056
------- ------- -------
Income before provision for income taxes and extraordinary
items....................................................... 881 1,756 2,168
Provision for income taxes............................... (357) (176) (24)
------- ------- -------
Income before extraordinary items............................. 524 1,580 2,144
Extraordinary item -- gain on early extinguishment of debt.... -- -- 2,274
------- ------- -------
Net income.................................................... $ 524 $ 1,580 $ 4,418
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 120
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
GLENBOROUGH
REALTY
TRUST
INCORPORATED
------
GRT PREDECESSOR ENTITIES COMBINED COMMON
----------------------------------------------------------------------------- STOCK
ADDITIONAL RECEIVABLE RETAINED ------
GENERAL LIMITED COMMON PAID-IN FROM EARNINGS
PARTNER PARTNERS STOCK CAPITAL SHAREHOLDER (DEFICIT) TOTAL SHARES
------- -------- ------ ---------- ----------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992............. $(1,733) $ 89,884 $ 2 $ 5,962 $(5,042) $(1,901) $ 87,172 --
Distributions............................ (46) (3,732) -- -- -- -- (3,778) --
Sale of Stock............................ -- -- -- 314 -- -- 314 --
Redemption of units...................... -- (15) -- -- -- -- (15) --
Advances to Shareholder, net............. -- -- -- -- (2,270) -- (2,270) --
Net income (loss)........................ 18 1,760 -- -- -- 2,640 4,418 --
------- ------- --- ------- ------- ------- -------- -----
BALANCE AT DECEMBER 31, 1993............. (1,761) 87,897 2 6,276 (7,312) 739 85,841 --
------- ------- --- ------- ------- ------- -------- -----
Contributions............................ 55 -- 3 337 -- -- 395 --
Distributions............................ (37) (3,770) -- -- -- (2,000) (5,807) --
Advances to Shareholder, net............. -- -- -- -- (1,451) -- (1,451) --
Net income (loss)........................ 13 1,210 -- -- -- 357 1,580 --
------- ------- --- ------- ------- ------- -------- -----
BALANCE AT DECEMBER 31, 1994............. (1,730) 85,337 5 6,613 (8,763) (904) 80,558 --
------- ------- --- ------- ------- ------- -------- -----
Distributions............................ (117) (10,507) -- -- -- -- (10,624) --
Redemption of shares..................... -- -- (2) (6,613) -- (6,533) (13,148) --
Repayment of Shareholder advances, net... -- -- -- -- 8,763 -- 8,763 --
Net income (loss)........................ 17 1,751 -- -- -- (1,244) 524 --
Issuance of investor notes in exchange
for units of limited partnership
interest............................... -- (2,483) -- -- -- -- (2,483) --
Equity in consolidation attributable to
minority interest...................... -- (7,962) -- -- -- -- (7,962) --
Consolidation and issuance of shares..... 1,830 (66,136) (3) -- -- 8,681 (55,628) 5,754
------- ------- --- ------- ------- ------- -------- -----
BALANCE AT DECEMBER 31, 1995............. $ -- $ -- $ -- $ -- $ -- $ -- $ -- 5,754
======= ======= === ======= ======= ======= ======== =====
<CAPTION>
ADDITIONAL
PAR PAID-IN
VALUE CAPITAL TOTAL
----- ---------- -------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992............. $ -- $ -- $ --
Distributions............................ -- -- --
Sale of Stock............................ -- -- --
Redemption of units...................... -- -- --
Advances to Shareholder, net............. -- -- --
Net income (loss)........................ -- -- --
--- ------- -------
BALANCE AT DECEMBER 31, 1993............. -- -- --
--- ------- -------
Contributions............................ -- -- --
Distributions............................ -- -- --
Advances to Shareholder, net............. -- -- --
Net income (loss)........................ -- -- --
--- ------- -------
BALANCE AT DECEMBER 31, 1994............. -- -- --
--- ------- -------
Distributions............................ -- -- --
Redemption of shares..................... -- -- --
Repayment of Shareholder advances, net... -- -- --
Net income (loss)........................ -- -- --
Issuance of investor notes in exchange
for units of limited partnership
interest............................... -- -- --
Equity in consolidation attributable to
minority interest...................... -- -- --
Consolidation and issuance of shares..... 6 55,622 55,628
--- ------- -------
BALANCE AT DECEMBER 31, 1995............. $ 6 $ 55,622 $55,628
=== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 121
GRT PREDECESSOR ENTITIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 524 $ 1,580 $ 4,418
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization........................... 4,762 4,041 4,572
Provision for loss on investments in real estate, real
estate partnerships and mortgage loans receivable..... 1,876 3,508 2,309
Changes in certain assets and liabilities, net............. (17,770) 13,297 1,206
-------- ------- -------
Net cash provided by (used for) operating activities.... (10,608) 22,426 12,505
-------- ------- -------
Cash flows from investing activities:
Additions to rental property............................... (3,925) (2,210) (2,104)
Principal receipts on mortgage loans receivable............ 12,581 1,328 142
Purchase of minority interests............................. -- (1,342) --
Net proceeds from sale of property......................... -- 277 --
Distribution to minority partner........................... -- -- (40)
-------- ------- -------
Net cash provided by (used for) investing activities.... 8,656 (1,947) (2,002)
-------- ------- -------
Cash flows from financing activities:
Capital contributions...................................... -- 395 314
Distributions.............................................. (10,624) (5,807) (3,778)
Redemptions of units and shares............................ (10,389) -- (15)
Proceeds from borrowings................................... 8,910 6,165 --
Repayment of borrowings.................................... (14,050) (2,047) (3,178)
Advances to/payments from shareholder, net................. 8,763 (1,451) (2,270)
-------- ------- -------
Net cash used for financing activities.................. (17,390) (2,745) (8,927)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents......... (19,342) 17,734 1,576
Cash and cash equivalents, at beginning of year.............. 23,929 6,195 4,619
-------- ------- -------
Cash and cash equivalents, at end of year.................... $ 4,587 $23,929 $ 6,195
======== ======= =======
Supplemental cash flow information:
Cash paid for interest..................................... $ 1,951 $ 1,119 $ 1,017
======== ======= =======
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
Conversion of shares of common stock into investor notes
payable................................................. $ 2,483 $ -- $ --
======== ======= =======
Conversion of equity to minority interest.................. $ 7,962 $ -- $ --
======== ======= =======
Consolidation and issuance of shares of common stock in
exchange for limited partnership units and common stock
in GRT Predecessor Entities............................. $ 55,628 $ -- $ --
======== ======= =======
Refinancing of debt of GRT Predecessor entities by
Glenborough Realty Trust Incorporation.................. $ 28,200 $ -- $ --
======== ======= =======
Acquisition of real estate through foreclosure and
assumption of first trust deed note payable............. $ 3,908 $ -- $ --
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 122
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1. ORGANIZATION
Glenborough Realty Trust Incorporated (the "Company") was organized in the
State of Maryland on August 26, 1994. It is the intent of the Company to qualify
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"). The Company has completed a Consolidation with
certain associated public California limited partnerships and other entities
engaged in real estate activities (the "GRT Predecessor Entities"). The
Consolidation was accomplished through an exchange of assets of the GRT
Predecessor Entities for 5,754,021 shares of Common Stock of the Company. Proxy
materials were mailed to the limited partners of the GRT Predecessor Entities on
October 29, 1995. The solicitation period expired on December 28, 1995, and the
Consolidation occurred on December 31, 1995. The Company will commence
operations on January 1, 1996.
To maintain its qualification as a REIT, no more than 50% in value of the
outstanding shares of the Company may be owned, directly or indirectly, by five
or fewer individuals (defined to include certain entities), applying certain
constructive ownership rules. To help ensure that the Company will not fail this
test, the Company's charter provides for certain restrictions on the transfer of
the Common Stock to prevent further concentration of stock ownership.
The Company, through several subsidiaries, is engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of various income-producing properties. The Company's major
consolidated subsidiary, in which it holds a 1% general partner and a 85.37%
limited partner interest, is Glenborough Properties, L.P. (the "Operating
Partnership"). The Operating Partnership, directly and through various
subsidiaries in which it and the Company own 100% of the ownership interests,
controls a total of 36 real estate projects and 2 notes receivable. The
remaining 13.63% limited partnership interest in the Operating Partnership is
owned by GPA, Ltd., an affiliated partnership which exchanged certain of its
assets for an interest in the Operating Partnership.
The Company also holds 100% of the non-voting preferred stock of three
Associated Companies:
Glenborough Corporation (formerly Glenborough Realty Corporation) is
the general partner of nine partnerships and provides asset and property
management services for these nine partnerships and two partnerships for
which an affiliate serves as general partner (the "Controlled
Partnerships"). It also provides property management services for a limited
portfolio of property owned by unaffiliated third parties.
Glenborough Inland Realty Corporation provides partnership
administration, asset management, property management and development
services under a long term contract to an additional group of partnerships
which include six public and one private partnerships.
Glenborough Hotel Group leases the three Country Suites By Carlson
hotels owned by the Company and operates them for its own account. It also
operates three Country Suites By Carlson hotels owned by the Controlled
Partnerships, and operates two resort condominium hotels.
The Associated Companies are accounted for using the equity method, as
discussed further in Note 4.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the consolidated financial
position of the Company as of December 31, 1995, the combined financial position
of the GRT Predecessor Entities as of December 31, 1994, and the combined
results of operations and cash flows of the GRT Predecessor Entities for the
three
F-8
<PAGE> 123
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
years then ended, as the Consolidation transaction discussed in Note 1 above was
not effective until December 31, 1995. All intercompany transactions,
receivables and payables have been eliminated in consolidation and combination.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the results of operations during the reporting period. Actual
results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "SFAS 121", "Accounting for Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of." The Company adopted
SFAS 121 in the fourth quarter of fiscal 1995. SFAS 121 requires that an
evaluation of an individual property for possible impairment must be performed
whenever events or changes in circumstances indicate that an impairment may have
occurred. There was no impact from the initial adoption of SFAS 121.
RENTAL PROPERTY TO BE HELD AND USED
Rental properties are stated at cost unless circumstances indicate that
cost cannot be recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Estimated fair value: (i) is based upon the
Company's plans for the continued operation of each property; (ii) is computed
using estimated sales price, as determined by prevailing market values for
comparable properties and/or the use of capitalization rates multiplied by
annualized rental income based upon the age, construction and use of the
building, and (iii) does not purport, for a specific property, to represent the
current sales price that the Company could obtain from third parties for such
property. The fulfillment of the Company's plans related to each of its
properties is dependent upon, among other things, the presence of economic
conditions which will enable the Company to continue to hold and operate the
properties prior to their eventual sale. Due to uncertainties inherent in the
valuation process and in the economy, it is reasonably possible that the actual
results of operating and disposing of the Company's properties could be
materially different than current expectations.
Depreciation is provided using the straight line method over the useful
lives of the respective assets.
The useful lives are as follow:
<TABLE>
<S> <C>
Buildings and improvements.......................... 10 to 40 years
Tenant Improvements................................. Term of the related lease
Furniture and Equipment............................. 5 to 7 years
</TABLE>
INVESTMENTS IN MANAGEMENT CONTRACTS
Investments in management contracts are recorded at cost and are amortized
on a straight-line basis over seven years.
MORTGAGE LOANS RECEIVABLE
The Company monitors the recoverability of its loans and notes receivable
through ongoing contact with the borrowers to ensure timely receipt of interest
and principal payments, and where appropriate, obtains
F-9
<PAGE> 124
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
financial information concerning the operation of the properties. Interest on
mortgage loans is recognized as revenue as it accrues during the period the loan
is outstanding. Mortgage loans receivable will be evaluated for impairment if it
becomes evident that the borrower is unable to meet its debt service obligations
in a timely manner and cannot satisfy its payments using sources other than the
operations of the property securing the loan. If it is concluded that such
circumstances exist, then the loan will be considered to be impaired and its
recorded amount will be reduced to the fair value of the collateral securing it.
Interest income will also cease to accrue under such circumstances. Due to
uncertainties inherent in the valuation process, it is reasonably possible that
the amount ultimately realized from the Company's collection on these
receivables will be different than the recorded amounts.
CASH EQUIVALENTS
The Company considers short-term investments (including certificates of
deposit) with a maturity of three months or less at the time of investment to be
cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments. Based on the borrowing rates
currently available to the Company, the carrying amount of debt approximates
fair value. Cash and cash equivalents consist of demand deposits, certificates
of deposit and overnight repurchase agreements with financial institutions. The
carrying amount of cash and cash equivalents as well as the mortgage notes
receivable described above, approximates fair value.
DEFERRED FINANCING AND OTHER FEES
Fees paid in connection with the financing and leasing of the Company's
properties are amortized over the term of the related notes payable or leases
and are included in other assets.
MINORITY INTEREST
Minority interest represents the 13.63% limited partner interest in the
Operating Partnership held by GPA, Ltd.
REVENUES
All leases are classified as operating leases. Rental revenue is recognized
on a straight-line basis over the terms of the leases.
For the years ended December 31, 1995, 1994 and 1993, rental revenue from
the two properties leased to Navistar International represented approximately
10% of the Company's total rental revenue.
Fees and reimbursement revenues consist of property management fees,
overhead administration fees, and transaction fees from the acquisition,
disposition, refinance, leasing and construction supervision of real estate.
Substantially all of these revenues will be earned by the Associated Companies.
Revenues are recognized only after the Company is contractually entitled to
receive payment, after the services for which the fee is received have been
provided, and after the ability and timing of payments are reasonably assured
and predictable.
F-10
<PAGE> 125
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
INCOME TAXES
The Company intends to make an election to be taxed as a REIT under
Sections 856 through 860 of the Code. As a REIT, the Company generally will not
be subject to Federal income tax to the extent that it distributes at least 95%
of its REIT taxable income to its shareholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its income
and property and to Federal income and excise taxes on its undistributed income.
Certain of the Company's predecessors were subject to income taxes, the
provisions for which have been included in the accompanying combined results of
operations of the GRT Predecessor Entities.
NOTE 3. RENTAL PROPERTY
The cost and accumulated depreciation and amortization of real estate
investments as of December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
BUILDING AND ACCUMULATED
LAND IMPROVEMENTS TOTAL DEPRECIATION
-------- ------------ --------- ------------
<S> <C> <C> <C> <C>
1995:
Retail properties..................... $ 13,036 $ 17,149 $ 30,185 $ (5,042)
Industrial properties................. 4,481 24,507 28,988 (5,665)
Office properties..................... 1,653 9,097 10,750 (3,427)
Hotel properties...................... 4,803 23,685 28,488 (10,619)
Apartment property.................... 1,857 2,183 4,040 (124)
------- ------- -------- --------
Total....................... $ 25,830 $ 76,621 $ 102,451 $(24,877)
======= ======= ======== ========
1994:
Retail properties..................... $ 13,036 $ 17,000 $ 30,036 $ (4,166)
Industrial properties................. 2,910 10,854 13,764 (2,016)
Office properties..................... 1,653 10,163 11,816 (3,737)
Hotel properties...................... 4,803 23,030 27,833 (9,536)
Apartment property.................... -- -- -- --
------- ------- -------- --------
Total....................... $ 22,402 $ 61,047 $ 83,449 $(19,455)
======= ======= ======== ========
</TABLE>
The Company leases its commercial and industrial property under
non-cancelable operating lease agreements. Future minimum rents to be received
as of December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------------------------------------------------
<S> <C>
1996............................................................... $ 7,215
1997............................................................... 6,801
1998............................................................... 6,098
1999............................................................... 5,151
2000............................................................... 4,685
Thereafter......................................................... 23,408
Total......................................................... $ 53,358
</TABLE>
F-11
<PAGE> 126
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 4. INVESTMENTS IN ASSOCIATED COMPANIES AND GLENBOROUGH PARTNERS
As of December 31, 1995 the Company had the following investments in the
Associated Companies and Glenborough Partners (dollars in thousands):
<TABLE>
<CAPTION>
ASSOCIATED COMPANIES
-------------------------------------------------------
GLENBOROUGH
GLENBOROUGH INLAND REALTY GLENBOROUGH GLENBOROUGH
CORPORATION CORPORATION HOTEL GROUP PARTNERS
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
100% 100% 100% 3.9% Limited
Nature of investment....... Preferred stock Preferred stock Preferred stock partner interest
Basis of accounting........ Equity Equity Equity Cost
Investment................. $(109) $3,919 $1,368 $585
</TABLE>
The Company's investments in the Associated Companies are accounted for on
the equity method as the Company has significant ownership interests but does
not own any voting interests. The Company records earnings on its investments in
the Associated Companies equal to its cash flow preference, to the extent of
earnings, plus its pro rata share of remaining earnings, based upon cash flow
allocation percentages. Dividends received from the Associated Companies are
recorded as a reduction of the Company's investments.
NOTE 5. INVESTMENTS IN MANAGEMENT CONTRACTS AND OTHER, NET
Investments in management contracts in the accompanying GRT Predecessor
Entities Combined balance sheet reflect the unamortized portion of the
management contracts the GC consolidated entities held with both related and
unrelated entities and that involve asset management as well as property
management responsibilities. The respective balance included in the Company's
balance sheet as of December 31, 1995, represents the unamortized portion of the
contract associated with asset management for the Glenborough Institutional Fund
I partnership. Certain assets included in investments in management contracts
and other as of December 31, 1994 were transferred to the Associated Companies
in the Consolidation.
NOTE 6. MORTGAGE LOANS RECEIVABLE
The Company holds a first mortgage loan in the amount of $6,700,000 at
December 31, 1995, secured by an office and research complex in Eatontown, New
Jersey. The loan matures on November 1, 1996 with interest only payable monthly
at the fixed rate of eight percent (8%) per annum. The borrower is additionally
obligated to pay contingent cash flow equal to 75% of all annual net cash flow
of the property until the Company receives the equivalent of ten percent (10%)
interest for the year in issue, and thereafter fifty percent (50%) of all
additional net cash flow of the property (if any) for the year in issue. During
the year ended December 31, 1995, the GRT Predecessor Entities recorded a loss
provision of $863,000 against the then current balance of $7,563,000 in
anticipation of a renegotiation of the terms of the note upon its maturity on
November 1, 1996.
The Company holds a first mortgage loan in the amount of $516,000 at
December 31, 1995 secured by an industrial property in Los Angeles, California.
The terms of the note include interest accruing at eight percent (8%) per annum
for the first twenty-four months and at nine percent (9%) per annum for the next
sixty months until the note matures in June 2001. Monthly principal and interest
installment payments, computed based on a thirty year amortization schedule,
commenced January 1995 and continue until maturity.
F-12
<PAGE> 127
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
Contractually due principal payments of the mortgage loans receivable are
scheduled as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------
<S> <C>
1996................................................................ $7,567
1997................................................................ 4
1998................................................................ 5
1999................................................................ 5
2000................................................................ 6
Thereafter.......................................................... 492
------
Total.......................................................... 8,079
Loss Provision...................................................... (863)
------
Net............................................................ $7,216
======
</TABLE>
NOTE 7. DEBT
The Company had the following mortgage loans, bank lines, and notes payable
outstanding as of December 31, 1995 and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Secured loan with an investment bank with a fixed interest rate of 7.57%,
principal (based upon a 25 year amortization) and interest payments of
$149 and maturity date of January 1, 2006. The loan is secured by nine
properties with an aggregate net carrying value of $39,082 at December
31, 1995............................................................... $20,000 $ --
Secured line of credit with a bank with a variable interest rate of LIBOR
plus 2.375% (7.88% at December 31, 1995), monthly interest only
payments and maturity dates of November 29, 1998 and December 29, 1998.
The line is secured by nine properties and a mortgage note receivable
with an aggregate net carrying value of $25,783 at December 31, 1995... 10,000 --
Secured loan with a bank with a fixed interest rate of 7.75%, monthly
principal (based upon a 25 year amortization) and interest payments of
$20 and maturity date of January 1, 2006. The loan is secured by one
property with a net carrying value of $3,916 at December 31, 1995...... 2,650 --
Secured loan with a bank with a fixed interest rate of 8.00%, monthly
principal (based upon a 30 year amortization) and interest payments of
$13 and maturity date of September 1, 2005. The loan is secured by one
property with a net carrying value of $4,056 at December 31, 1995...... 1,035 1,103
Secured loan with a variable interest rate of 1.5% over lender's prime
rate per annum with monthly interest only payments until maturity on
January 5, 1995 (see below)............................................ -- 1,300
Secured loan with a bank with a fixed interest rate of 8.25% per annum
with monthly payments of principal and interest of $53 and matures on
May 1, 2002 (see below)................................................ -- 4,097
Various borrowings of GC with fixed interest rates from 5.37% to 8.5% and
variable rates of lenders' prime rates plus 1% to 2%. Maturity dates on
GC's borrowings ranged from November 18, 1995 to July 1, 1999 (see
below)................................................................. -- 11,406
------- -------
Total............................................................... $33,685 $17,906
======= =======
</TABLE>
F-13
<PAGE> 128
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
Of the loans outstanding at December 31, 1994, the $4,097,000 was paid off
with proceeds received for the payoff of a wrap around mortgage note receivable
held in favor of one of the GRT Predecessor Entities. In addition, the
$1,300,000 and $11,406,000 notes were paid off as part of the refinancing in
1995.
The required principal payments on the mortgage loans for the next five
years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------------------------------------------------
<S> <C>
1996............................................................... $ 390
1997............................................................... 421
1998............................................................... 10,454
1999............................................................... 489
2000............................................................... 529
Thereafter......................................................... 21,402
-------
Total......................................................... $33,685
=======
</TABLE>
NOTE 8. INVESTOR NOTES PAYABLE
Included in the proxy to approve or disapprove the Consolidation, was the
option to choose notes in lieu of shares of Common Stock. Upon successful
completion of the Consolidation, notes in the amount of $2,483,000 were issued
to the limited partners whose votes indicated such election. The notes are
unsecured obligations of the Company, bearing a variable rate of interest
payable quarterly until their maturity date, November 1, 2002. Subsequent to
December 31, 1995, the Company paid the notes in full, along with accrued
interest, thereon.
NOTE 9. PREPAID CONSOLIDATION COSTS
Prepaid Consolidation costs include the costs of mailing and printing the
Prospectus/Consent Solicitation Statement, any supplements thereto or other
documents related to the Consolidation, the costs of the Information Agent,
Investor brochure, telephone calls, broker-dealer fact sheets, printing,
postage, travel, meetings, legal and other fees related to the solicitation of
consents, as well as reimbursement of costs incurred by brokers and banks in
forwarding the Prospectus/Consent Solicitation Statement to investors. Included
in prepaid consolidation costs and other liabilities are amounts accrued but not
yet paid as of December 31, 1995. The entire balance of prepaid Consolidation
costs will be expensed January 1, 1996.
NOTE 10. RELATED PARTY TRANSACTIONS
Fee and reimbursement income earned by the GRT Predecessor Entities from
related partnerships totaled $2,995,000, $2,858,000 and $3,712,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
NOTE 11. CAPITAL CONTRIBUTION FROM SHAREHOLDERS
During the year ended December 31, 1994, the two major shareholders of GC
contributed to GC cash of approximately $16 million, along with an obligation to
return $17 million of November 1995 one year Treasury Bills that had an
approximate market value of $16 million (included in other liabilities at
December 31, 1994) at the time of the contribution. This investment was viewed
as a hedge against the Company's exposure to rising interest rates because of
its floating rate debt. This position was closed in February 1995 at a total
loss of approximately $116,000.
F-14
<PAGE> 129
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 12. PROVISION FOR LOSS ON INVESTMENTS IN REAL ESTATE, REAL ESTATE
PARTNERSHIPS AND MORTGAGE LOANS RECEIVABLE
The loss provisions recorded during the years ended December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Reduce carrying value of New Jersey note receivable to value
of collateral.............................................. $ 863 $ -- $ --
Loss on sale of real estate.................................. -- 2,360 1,056
Reduce value of GC investments in real estate partnerships to
estimated net realizable value............................. 955 557 828
Loss on sale of investments.................................. -- 591 --
Other........................................................ 58 -- 425
------ ------ ------
$1,876 $3,508 $2,309
====== ====== ======
</TABLE>
NOTE 13. STOCK COMPENSATION PLAN
Subject to stockholder approval, the Board of Directors of the Company has
adopted an incentive stock compensation plan (the "Incentive Plan") to enable
certain executive officers and key employees of the Company to participate in
the ownership of the Company. There will be no option awards under the Incentive
Plan until at least 90 days following completion of the Consolidation.
Shares of Common Stock will be reserved for issuance under the Incentive
Plan and any other stock incentive plans adopted by the Company, which will
equal ten percent (10%) of the total number of Shares outstanding, as of the
effective date of the Consolidation. The Incentive Plan will be subject to
approval by the stockholders and is scheduled to remain in effect for 10 years
unless terminated prior to such time by the Board of Directors.
In addition to the Incentive Plan, the Company intends to adopt other types
of compensation plans for its directors, executive officers and employees.
NOTE 14.COMMITMENTS AND CONTINGENCIES
Environmental Matters. The Company follows the policy of monitoring its
properties for the presence of hazardous or toxic substances. The Company is not
aware of any environmental liability with respect to the properties that would
have a material adverse effect on the Company's business, assets or results of
operations. There can be no assurance that such a material environmental
liability does not exist. The existence of any such material environmental
liability could have an adverse effect on the Company's results of operations
and cash flow.
General Uninsured Losses. The Company carries comprehensive liability,
fire, flood, extended coverage and rental loss insurance with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which may
be either uninsurable, or not economically insurable. Further, certain of the
properties are located in areas that are subject to earthquake activity. Should
a property sustain damage as a result of an earthquake, the Company may incur
losses due to insurance deductibles, co-payments on insured losses or uninsured
losses. Should an uninsured loss occur, the Company could lose its investment
in, and anticipated profits and cash flows from, a property.
Litigation. The Company and the Associated Companies are defendants in
certain legal proceedings stemming from the Consolidation and prior
restructuring transactions. The complaints allege, among other
F-15
<PAGE> 130
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
things, that the valuation of the Associated Companies was excessive and that
the interest rate assigned to the Investor Notes was too low for the risk
involved. These proceedings are in various stages of completion. It is
management's position that all claims associated with these matters are without
merit. The Company intends to pursue a vigorous defense of all these matters.
NOTE 15. EXTRAORDINARY ITEMS
In 1993, $2,274,000 in debt forgiveness was recorded as extraordinary
items. $920,000 of this amount was attributable to notes payable by GC for the
purchase of the management contracts which was in excess of the then net book
value of those contracts. The seller forgave all $1,600,000 remaining on these
notes payable, which were to be due in full in 1996, in exchange for a $300,000
advance cash payment. An additional $1,354,000 in debt was forgiven in
connection with the sale of the Country Suites By Carlson-Fort Worth hotel. All
amounts forgiven under both transactions were payable to affiliates of the
former general partner of the GRT Predecessor Entities.
F-16
<PAGE> 131
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D
COLUMN C COLUMN E
INITIAL COST TO COST CAPITALIZED GROSS AMOUNT CARRIED
COMPANY(1) (REDUCED) AT DECEMBER 31, 1995
---------------------- SUBSEQUENT TO -----------------------
BUILDINGS ACQUISITION(6) BUILDING
COLUMN A COLUMN B AND ---------------- AND (3)
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ------------------------------- ------------ ------- ------------ ---------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail Properties:
Atlanta Auto Centers:
College Park, GA........... (4) $ 266 $ 489 $ (55) $ 266 $ 434 $ 700
Marietta, GA............... (4) 404 701 (129) 404 572 976
Norcross, GA............... (4) 287 641 (71) 287 570 857
Roswell, GA................ (4) 206 332 (53) 206 279 485
Smyrna, GA................. (4) 240 479 (75) 240 404 644
Snellville, GA............. (4) 433 551 (60) 418 506 924
Park Center(2)............... (4) 1,748 3,296 (557) 1,748 2,739 4,487
QuickTrips:
#668 -- Granite City, IL... 599 475 -- 599 475 1,074
#722 -- Lithonia, GA....... 581 450 -- 581 450 1,031
#718 -- Norcross, GA....... 416 445 146 562 445 1,007
#711 -- Fulton, GA......... 618 616 6 618 622 1,240
#75R -- Tulsa, OK.......... 181 442 8 181 450 631
#738 -- Mableton, GA....... 293 470 60 353 470 823
#712 -- Atlanta, GA........ 549 495 12 549 507 1,056
#698 -- Godfrey, IL........ 523 568 -- 523 568 1,091
#691 -- Madison, IL........ 356 430 -- 356 430 786
#609 -- St. Louis, MO...... 451 617 7 451 624 1,075
Shannon Crossing............. (5) 2,488 2,075 335 2,488 2,410 4,898
Westwood Plaza............... (5) 2,206 3,892 302 2,206 4,194 6,400
------- ------- -------- ------- ------- --------
12,845 17,464 (124) 13,036 17,149 30,185
------- ------- -------- ------- ------- --------
<CAPTION>
COLUMN G COLUMN H
COLUMN F (1) LIFE
COLUMN A ACCUMULATED DATE DEPRECIATED
DESCRIPTION DEPRECIATION ACQUIRED OVER
- ------------------------------- -------- -------- ---------
<S> <<C> <C> <C>
Retail Properties:
Atlanta Auto Centers:
College Park, GA........... $ 59 12/86 5-25 yrs.
Marietta, GA............... 78 12/86 5-25 yrs.
Norcross, GA............... 77 12/86 5-25 yrs.
Roswell, GA................ 39 12/86 5-25 yrs.
Smyrna, GA................. 55 12/86 5-25 yrs.
Snellville, GA............. 71 12/86 5-25 yrs.
Park Center(2)............... 379 9/86 5-25 yrs.
QuickTrips:
#668 -- Granite City, IL... 125 9/90 5-20 yrs.
#722 -- Lithonia, GA....... 118 9/90 20 yrs.
#718 -- Norcross, GA....... 117 9/90 20 yrs.
#711 -- Fulton, GA......... 227 10/88 5-20 yrs.
#75R -- Tulsa, OK.......... 167 10/88 20 yrs.
#738 -- Mableton, GA....... 123 9/90 5-20 yrs.
#712 -- Atlanta, GA........ 189 10/88 20 yrs.
#698 -- Godfrey, IL........ 149 9/90 20 yrs.
#691 -- Madison, IL........ 113 9/90 20 yrs.
#609 -- St. Louis, MO...... 227 10/88 5-20 yrs.
Shannon Crossing............. 1,211 10/88 3-14 yrs.
Westwood Plaza............... 1,518 1/88 3-23 yrs.
-------
5,042
-------
</TABLE>
F-17
<PAGE> 132
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
INITIAL COST TO COST CAPITALIZED GROSS AMOUNT CARRIED
COMPANY(1) (REDUCED) AT DECEMBER 31, 1995
--------------------- SUBSEQUENT TO --------------------
BUILDINGS ACQUISITION(6) BUILDING
AND ---------------- AND (3)
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ----------- ------------ ---- ------------ ---------------- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial Properties:
All American Self Storage:
Eagan, MN.............. (4) $ 301 $ 960 $ (196) $ 301 $ 764 $ 1,065
New Hope,MN............ (4) 207 1,940 (265) 207 1,675 1,882
Benicia Industrial Park.... (5) 1,037 4,787 (280) 978 4,566 5,544
Case Equipment Corp.:
Kansas City, KS.......... 383 3,264 (1,396) 236 2,015 2,251
Memphis, TN.............. 305 2,583 (1,106) 187 1,595 1,782
Navistar Intntl Trans.:
W. Chicago, IL........... (5) 1,289 10,941 (4,682) 793 6,755 7,548
Baltimore, MD............ (5) 577 4,911 (2,101) 355 3,032 3,387
Park 100 -- Building
42 & 46.................. (4) 712 3,286 (417) 712 2,869 3,581
Sea Tac II(2).............. (4) 712 1,474 (238) 712 1,236 1,948
------- ------- ------- ----- ------- --------
5,523 34,146 (10,681) 4,481 24,507 28,988
------- ------- ------- ----- ------- --------
Office Properties:
4500 Plaza................. $ 1,035 1,192 4,606 543 1,123 5,218 6,341
Regency Westpointe........ (5) 530 3,147 732 530 3,879 4,409
------- ------- ------- ------- ------- --------
1,722 7,753 1,275 1,653 9,097 10,750
------- ------- ------- ------- ------- --------
Hotel Properties:
Country Suites by Carlson:
Arlington, TX............ (5) 1,527 5,346 1,157 1,611 6,419 8,030
Irving, TX(2)............ (4) 972 3,850 (1,199) 954 2,669 3,623
Ontario, CA.............. (5) 1,224 5,576 272 1,145 5,927 7,072
Tucson, AZ............... (5) 1,048 7,600 1,115 1,093 8,670 9,763
------- ------- -------- ------- ------- --------
4,771 22,372 1,345 4,803 23,685 28,488
------- ------- -------- ------- ------- --------
COLUMN F COLUMN G COLUMN H
(1) LIFE
ACCUMULATED DATE DEPRECIATED
DEPRECIATION ACQUIRED OVER
- ------------ -------- -----------
<C> <C> <C>
$ 104 7/86 5-25 yrs.
244 7/86 5-25 yrs.
1,569 7/86 5-30 yrs.
477 3/84 50 yrs.
378 3/84 50 yrs.
1,596 3/84 50 yrs.
717 3/84 50 yrs.
403 10/86 5-25 yrs.
177 2/86 5-25 yrs.
-------
5,665
-------
2,285 3/86 5-30 yrs.
1,142 6/87 5-30 yrs.
-------
3,427
-------
3,161 12/86 7-25 yrs.
403 10/86 5-25 yrs.
2,842 11/86 5-30 yrs.
4,213 12/86 7-25 yrs.
-------
10,619
-------
</TABLE>
F-18
<PAGE> 133
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
INITIAL COST TO COST CAPITALIZED GROSS AMOUNT CARRIED
COMPANY(1) (REDUCED) AT DECEMBER 31, 1995
---------------------- SUBSEQUENT TO -----------------------
BUILDINGS ACQUISITION(6) BUILDING
AND ---------------- AND (3)
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ----------- ------------ ---- ------------ ---------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Residential Property:
Summer Breeze........ $ 2,650 $ 1,857 $ 2,138 $ 45 $ 1,857 $ 2,183 $ 4,040
------- ------- ------- ------- ------- --------
1,857 2,138 45 1,857 2,183 4,040
------- ------- ------- ------- ------- --------
$33,685 $26,718 $83,873 $(8,140) $25,830 $ 76,621 $102,451
======= ======= ======= ======= ======= ======== ========
COLUMN F COLUMN G COLUMN H
(1) LIFE
ACCUMULATED DATE DEPRECIATED
DEPRECIATION ACQUIRED OVER
------------ -------- ---------
<C> <C> <C>
$ 124 1/95 3-18 yrs.
-------
124
-------
$24,877
=======
</TABLE>
- ---------------
(1) Initial Cost and Date Acquired by Participating Partnership
(2) The Company holds a participating first mortgage interest in the property.
In accordance with GAAP, the Company is accounting for the property as
though it holds fee title.
(3) The aggregate cost for Federal income tax purposes is $84,400.
(4) Pledged as security for Imperial Bank Loan -- $10,000.
(5) Pledged as security for Bear Stearns Loan -- $20,000.
(6) Bracketed amounts represent reductions to carrying value in prior years.
F-19
<PAGE> 134
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
Reconciliation of gross amount at which real estate was carried:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Investments in real estate:
Balance at beginning of period............................. $ 83,449 $86,400 $89,293
Additions during period:
Property acquisition.................................. 17,151 206 --
Improvements, etc. ................................... 1,851 2,464 1,201
Retirements........................................... -- (5,621) (4,094)
-------- ------- -------
Balance at end of period..................................... $102,451 $83,449 $86,400
======== ======= =======
Accumulated Depreciation:
Balance at beginning of period............................. $ 19,455 $16,945 $15,308
Additions charged to costs and expenses................. 2,254 3,489 3,165
Acquisitions............................................ 3,168 -- --
Retirements............................................. -- (979) (1,528)
-------- ------- -------
Balance at end of period..................................... $ 24,877 $19,455 $16,945
======== ======= =======
</TABLE>
F-20
<PAGE> 135
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN H
COLUMN D PRINCIPAL AMOUNT
COLUMN A COLUMN B COLUMN C PERIODIC COLUMN E COLUMN F COLUMN G OF LOANS SUBJECT
DESCRIPTION OF LOAN INTEREST FINAL MATURITY PAYMENT PRIOR FACE CARRYING TO DELINQUENT
AND SECURING PROPERTY RATE DATE TERMS LIENS AMOUNT AMOUNT(1) PRINCIPAL OR INTEREST
- --------------------- -------- -------------- ------------ -------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Loan 8% 11/1/96 Monthly
Office and research interest
complex, Eatontown, payments,
NJ principal
due upon
maturity
Decreasing None $7,600 $6,700 None
prepayment
penalty of
between
$76 and
$380
commencing
February
1, 1991
First Mortgage Loan 8%-9% 6/1/01 Monthly None 553 516 None
Industrial interest -------- --------
property, and
Los Angeles, CA principal
payments,
commencing
January 1,
1996
based on a
thirty
year
amortization
$8,153 $7,216
========== ==========
</TABLE>
F-21
<PAGE> 136
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
The following is a summary of changes in the carrying amount of mortgage
loans for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year................. $ 19,953 $18,825 $18,967
Additions during year:
New mortgage loans......................... 7 2,122 108
Deductions during year:
Loss provision............................. (863) -- --
Collections of principal................... (11,881) (994) (250)
-------- ------- -------
Balance at end of year....................... $ 7,216 $19,953 $18,825
======== ======= =======
</TABLE>
F-22
<PAGE> 137
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 (UNAUDITED)
AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Rental property, net of accumulated depreciation of $26,082 and
$24,877 in 1996 and 1995, respectively.............................. $ 73,791 $ 77,574
Investments in Associated Companies and Glenborough Partners.......... 6,466 5,763
Investments in management contracts and other, net.................... 388 484
Mortgage loans receivable, net of provision for loss of $863 in 1996
and 1995............................................................ 7,213 7,465
Cash and cash equivalents............................................. 1,690 4,587
Prepaid consolidation costs........................................... -- 6,082
Prepaid litigation costs.............................................. -- 1,155
Other assets.......................................................... 3,204 2,630
------- --------
Total Assets................................................ $ 92,752 $105,740
======= ========
LIABILITIES
Mortgage loans........................................................ $ 23,520 $ 23,685
Secured bank line..................................................... 9,210 10,000
Investor notes payable................................................ -- 2,483
Other liabilities..................................................... 2,459 5,982
------- --------
Total liabilities........................................... 35,189 42,150
------- --------
MINORITY INTEREST..................................................... 8,041 7,962
STOCKHOLDERS' EQUITY
Common stock (5,768,709 and 5,753,709 shares issued and outstanding in
1996 and 1995, respectively)........................................ 6 6
Additional paid-in capital............................................ 55,847 55,622
Deferred compensation................................................. (193) --
Retained earnings (deficit)........................................... (6,138) --
------- --------
Total stockholders' equity.................................. 49,522 55,628
------- --------
Total Liabilities and Stockholders' Equity.................. $ 92,752 $105,740
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 138
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
GLENBOROUGH GRT GLENBOROUGH GRT
REALTY TRUST PREDECESSOR REALTY TRUST PREDECESSOR
INCORPORATED ENTITIES INCORPORATED ENTITIES
CONSOLIDATED COMBINED CONSOLIDATED COMBINED
1996 1995 1996 1995
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Rental revenue.............................. $ 3,450 $ 4,036 $ 7,039 $ 7,964
Fees and reimbursements (including $67,
$1,003, $133 and $2,267 from affiliates in
1996 and 1995, respectively).............. 67 3,466 133 7,173
Interest and other income................... 179 894 370 1,812
Equity in earnings of Associated
Companies................................. 544 -- 969 --
Gain on sale of rental property............. 321 -- 321 --
-------
---------
---------- ------ ----------
Total revenue.......................... 4,561 8,396 8,832 16,949
-------
---------
---------- ------ ----------
OPERATING EXPENSES
Property operating expenses................. 892 1,583 1,909 3,040
General and administrative.................. 394 3,552 675 7,230
Depreciation and amortization............... 862 1,298 1,759 2,359
Interest expense............................ 699 580 1,421 1,083
-------
---------
---------- ------ ----------
Total operating expense................ 2,847 7,013 5,764 13,712
-------
---------
---------- ------ ----------
Income from operations before provision for
income taxes and minority interest........ 1,714 1,383 3,068 3,237
Provision for income taxes.................. -- (127) -- (287)
Minority interest........................... (142) -- (243) --
-------
---------
---------- ------ ----------
Net income before Consolidation and
Litigation costs.......................... 1,572 1,256 2,825 2,950
Consolidation costs......................... (6,082) --
Litigation costs............................ -- -- (1,155) --
-------
---------
---------- ------ ----------
Net income (loss)........................... $ 1,572 $ 1,256 $ (4,412) $ 2,950
========== ====== ========== ================
Net income per share before Consolidation
and Litigation costs...................... $ 0.27 $ 0.49
========== ==========
Net loss per share.......................... $ (0.77)
==========
Weighted average shares outstanding......... 5,761,209 5,757,995
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 139
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
GRT PREDECESSOR ENTITIES COMBINED
-------------------------------------------------------
ADDITIONAL RECEIVABLE RETAINED
GENERAL LIMITED COMMON PAID-IN FROM EARNINGS
PARTNER PARTNERS STOCK CAPITAL STOCKHOLDER (DEFICIT) TOTAL
------- ------- ------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994....................... $(1,730) $85,337 $ 5 $ 6,613 $ (8,763) $ (904) $ 80,558
Distributions................ (85) (8,560) -- -- -- -- (8,645)
Redemption of shares......... -- -- (2) (6,613) -- (4,002) (10,617)
Repayment of Stockholder
advances, net.............. -- -- -- -- 8,763 -- 8,763
Net income................... 20 1,998 -- -- -- 932 2,950
-------- ------- ---- -------- -------- -------- --------
Balance at June 30, 1995..... $(1,795) $78,775 $ 3 $ -- $ -- $ (3,974) $ 73,009
======== ======= ==== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
-------------------------------------------------------------
COMMON STOCK
--------------- ADDITIONAL RETAINED
PAR PAID-IN DEFERRED EARNINGS
SHARES VALUE CAPITAL COMPENSATION (DEFICIT) TOTAL
----- ----- ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 5,754 $ 6 $ 55,622 $ -- $ -- $ 55,628
Issuance of stock to
directors................... 15 -- 225 (193) -- 32
Dividends..................... -- -- -- -- (1,726) (1,726)
Net loss...................... -- -- -- -- (4,412) (4,412)
----- ----- ---------- ------------ --------- --------
Balance at June 30, 1996...... 5,769 $ 6 $ 55,847 $ (193) $(6,138) $ 49,522
===== ==== ======= ========== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 140
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
GLENBOROUGH
REALTY GRT
TRUST PREDECESSOR
INCORPORATED ENTITIES
CONSOLIDATED COMBINED
JUNE 30, JUNE 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $(4,412) $ 2,950
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization.................................. 1,759 2,359
Amortization of loan fees...................................... 72 46
Gain on sale of rental property................................ (321) --
Minority interest in income from operations.................... 243 --
Equity in earnings of Associated Companies..................... (969) --
Consolidation costs............................................ 6,082 --
Litigation costs............................................... 1,155 --
Changes in certain assets and liabilities, net................. (4,057) (16,635)
------- --------
Net cash used for operating activities......................... (448) (11,280)
------- --------
Cash flows from investing activities:
Proceeds form sale of property.................................... 2,882 --
Additions to rental property...................................... (293) (2,765)
Principal receipts on mortgage loans receivable................... 252 11,891
Investment in Associated Companies................................ (389) --
Dividends from Associated Companies............................... 655 --
Deposits on pending acquisitions, included in other assets........ (230) --
------- --------
Net cash used for investing activities......................... 2,877 9,126
------- --------
Cash flows from financing activities:
Repayment of borrowings........................................... (955) (5,249)
Payment of investor notes......................................... (2,483) --
Distribution to minority partner.................................. (162) --
Payments from Stockholder, net.................................... -- 8,763
Dividends and Distributions....................................... (1,726) (8,645)
Redemption of shares.............................................. -- (10,617)
------- --------
Net cash used for financing activities......................... (5,326) (15,748)
------- --------
Net decrease in cash and cash equivalents........................... (2,897) (17,902)
Cash and cash equivalents, at beginning of period................... 4,587 23,929
------- --------
Cash and cash equivalents, at end of period......................... $ 1,690 $ 6,027
======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................ $ 1,349 $ 1,037
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 141
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Glenborough Realty Trust Incorporated (the "Company") was organized in the
State of Maryland on August 26, 1994. It is the intent of the Company to qualify
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"). The Company completed a Consolidation with
certain public California limited partnerships and other entities engaged in
real estate activities (the "GRT Predecessor Entities") through an exchange of
assets of the GRT Predecessor Entities for 5,753,709 shares of Common Stock of
the Company. Proxy materials were mailed to the limited partners of the GRT
Predecessor Entities on October 29, 1995. The Solicitation period expired on
December 28, 1995, and the Consolidation occurred on December 31, 1995. The
Company commenced operations on January 1, 1996.
To maintain the Company's qualification as a REIT, no more than 50% in
value of the outstanding shares of the Company may be owned, directly or
indirectly, by five or fewer individuals (defined to include certain entities),
applying certain constructive ownership rules. To help ensure that the Company
will not fail this test, the Company's Charter provides for certain restrictions
on the transfer of the Common Stock to prevent further concentration of stock
ownership.
The Company, through several subsidiaries, is engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of various income-producing properties. The Company's major
consolidated subsidiary, in which it holds a 1% general partner interest and an
85.37% limited partner interest, is Glenborough Properties, L.P. (the "Operating
Partnership"). The Operating Partnership, directly and through various
subsidiaries in which it and the Company own 100% of the ownership interests,
controls a total of 34 real estate projects and two notes receivable. The
remaining 13.63% limited partnership interest in the Operating Partnership is
owned by GPA, Ltd., an affiliated partnership which exchanged certain of its
assets for an interest in the Operating Partnership.
The Company also holds 100% of the non-voting preferred stock of three
Associated Companies:
Glenborough Corporation (formerly known as Glenborough Realty
Corporation) ("GC") is the general partner of nine partnerships and
provides asset and property management services for these nine partnerships
and two partnerships for which an affiliate serves as general partner (the
"Controlled Partnerships"). It also provides property management services
for a limited portfolio of property owned by unaffiliated third parties.
Glenborough Inland Realty Corporation ("GIRC") provides partnership
administration, asset management, property management and development
services under a long term contract to an additional group of partnerships
which include six public partnerships.
Glenborough Hotel Group ("GHG") leases the three Country Suites By
Carlson hotels owned by the Company and operates them for its own account.
It also operates three Country Suites By Carlson hotels owned by the
Controlled Partnerships, and operates two resort condominium hotels.
Basis of Presentation -- The accompanying financial statements present the
consolidated financial position of the Company as of June 30, 1996 and December
31, 1995, the consolidated statements of income and cash flows of the Company
for the six months ended June 30, 1996 and the combined statements of income and
cash flows of the GRT Predecessor Entities for the six months ended June 30,
1996 and the combined statements of income and cash flows of the GRT Predecessor
Entities for the six months ended June 30, 1995, as the Consolidation
transaction discussed in Note 1 above was not effective until
F-27
<PAGE> 142
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
December 31, 1995. All intercompany transactions, receivables and payables have
been eliminated in consolidation and combination.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position and results of operations of
the Company as of June 30, 1996 and for the period then ended.
Reclassification -- Certain 1995 amounts have been reclassified to conform
with the current period presentation.
NOTE 2. REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1995 audited financial statements.
NOTE 3. INVESTMENTS IN ASSOCIATED COMPANIES AND GLENBOROUGH PARTNERS
The Company's investments in the Associated Companies are accounted for on
the equity method as the Company has significant ownership interests through its
100% preferred stock ownership but does not own any voting interests. The
Company records earnings on its investments in the Associated Companies equal to
its cash flow preference, to the extent of earnings, plus its pro rata share of
remaining earnings, based upon cash flow allocation percentages. Dividends
received from the Associated Companies are recorded as a reduction of the
Company's investments. The Company's investments in the Associated Companies are
accounted for using the equity method and its investment in Glenborough Partners
("GP") is accounted for on the cost method as the Company holds only a 3.9%
limited partnership interest.
As of June 30, 1996 and December 31, 1995 the Company had the following
investments in the Associated Companies and GP (in thousands):
<TABLE>
<CAPTION>
GC GIRC GHG GP TOTAL
----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Investment at December 31, $(109) $3,919 $1,368 $ 585 $5,763
1995.........................
Cash contribution.............. 94 95 200 -- 389
Dividends...................... (131) (485) (39) -- (655)
Equity in earnings............. 258 620 91 -- 969
----- ------ ------ ----- ------
Investment at June 30, 1996.... $ 112 $4,149 $1,620 $ 585 $6,466
===== ====== ====== ===== ======
</TABLE>
On July 16, 1996 and July 23, 1996, the boards of directors of the
Associated Companies declared the following respective dividends to be made in
July 1996 (in thousands):
<TABLE>
<CAPTION>
GC GIRC GHG TOTAL
---- ---- --- -----
<S> <C> <C> <C> <C>
Preferred dividends to the Company.............. $ 4 $ 4 $7 $ 15
Additional dividends to the Company............. 319 317 20 656
---- ---- --- ----
Total dividends to the Company.................. 323 321 27 671
Dividends to others............................. 17 17 6 40
---- ---- --- ----
Total dividends....................... $340 $338 $33 $ 711
==== ==== === ====
</TABLE>
Financial statements and notes thereto of Glenborough Hotel Group follow
Note 7 of the Company's Notes to Financial Statements.
F-28
<PAGE> 143
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 4. STOCK COMPENSATION PLAN
The Company has adopted an employee stock incentive plan (the "Incentive
Plan"), approved by the Stockholders at the Company's 1996 Annual Meeting, to
enable certain executive officers and key employees of the Company to
participate in the ownership of the Company.
The purpose of the Incentive Plan is to attract and retain high quality
executive officers and other key employees and to provide an opportunity for the
executive officers and key employees to benefit from stock price appreciation
that generally accompanies improved financial performance, which the Company
believes increases incentives to contribute to the Company's success and
prosperity. Under the Incentive Plan, incentive stock options, nonqualified
stock options, restricted stock, performance units and stock appreciation rights
may be awarded to eligible plan participants.
680,000 shares of Common Stock (comprising 10.7% of the total number of
issued and outstanding shares of the Company including shares issuable to
exchange for units of the Operating Partnership) have been reserved for issuance
under the Incentive Plan. The Incentive Plan will remain in effect for 10 years
unless terminated earlier by the Board of Directors. The Incentive Plan is
administered by the Compensation Committee, which is composed of two or more
Independent Directors who qualify as disinterested administrators under Rule
16b-3(b) of the Exchange Act, and who will determine the eligibility for the
Incentive Plan and the amounts of any awards to be granted under it. The Company
intends that the Incentive Plan satisfy the necessary criteria to ensure that
compensation to executive officers and key employees under the plan are
deductible by the Company.
The options granted under the Incentive Plan may either be "incentive"
stock options under Section 422 of the Code or "nonqualified" stock options. The
Compensation Committee determines the term of each option granted, however the
term of an incentive option may not be greater than ten years (or five years, in
the case of a grantee possessing more than 10% of the combined voting power of
the Company or an Affiliate). The exercise price of any option granted under the
Incentive Plan may not be less than the fair market value of the Common Stock as
of the date the option is granted, and the Compensation Committee may, in its
discretion and with the grantee's consent, cancel, substitute or accelerate the
options or extend the schedule expiration date on any of the options. In
addition, no options will be granted by the Company for an exercise price of
less than $15 per share of Common Stock prior to December 31, 1996.
In accordance with the approved Incentive Plan, on May 30, 1996, the
Stockholders approved the granting of 5,000 shares of Common Stock to each of
the three non-employee directors. These shares vest, as to any director only if
such director serves continuously for a period of two years, and are not freely
tradeable. The market value of the shares at the date of grant has been recorded
as deferred compensation in the accompanying financial statements and will be
charged to earnings ratably over the vesting period.
The Incentive Plan may also include some or all of the following types of
incentive compensation: restricted shares subject to forfeiture, performance
awards based on specified performance targets, stock appreciation rights and any
other stock-based awards.
NOTE 5. LITIGATION SETTLEMENT
Prior to the completion of the Consolidation, two lawsuits were filed in
1995 contesting the fairness of the Consolidation, one in California state court
and one in federal court. The complaints in both actions alleged, among other
things, breaches by the defendants of fiduciary duties and inadequate
disclosures. The state court action was settled, and the settlement was approved
by the state court despite objections by certain members of the class, who
subsequently filed notice that they would appeal the approval of the settlement.
The appeal
F-29
<PAGE> 144
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
has not yet been filed. Pursuant to the terms of the settlement in the state
court action, pending the appeal, the Company has paid one-third of the $855,000
settlement amount and the remaining two-thirds is being held in escrow. In the
federal action, the court in December of 1995 deferred all further proceeds
pending a ruling in the state court action. Following the state court decision
approving the settlement, the defendants filed a motion to dismiss the federal
court action. Given the inherent uncertainties of litigation, there can be no
assurance that the ultimate outcomes of these actions will be favorable to the
Company.
NOTE 6. PROPERTY SALES AND ACQUISITIONS
On June 4, 1996, the Company sold the two self-storage facilities held in
its industrial portfolio. The sales price for these two facilities was
$2,900,000. The sales generated a gain of $321,000 and cash proceeds of
$2,882,000. In connection with this sale $790,000 was paid down on the Company's
secured bank line.
On July 15, 1996, the Company's Operating Partnership acquired a 23-story,
272,443 square foot office building known as University Club Tower (the "UCT
Property"), for total consideration of $18,574,000, which comprised (i)
assumption of debt in the amount of $18,250,000, which was paid-off with
proceeds of the Company's new line of credit from Wells Fargo Bank, N.A.
(discussed below), and (ii) 23,333 new limited partnership units ("Units")
issued by the Operating Partnership having an initial redemption value of
$324,000. The transaction was structured as a contribution of partnership
interests in University Club Tower Associates to the Operating Partnership, by
Robert Batinovich (Chairman, President and Chief Executive Officer of the
Company) and by GPA, Ltd., a partnership in which certain executive officers of
the Company hold a substantial indirect interest, in exchange for the Units.
In August, 1996, the Company (i) acquired a 64 room limited service hotel
in San Antonio, Texas for an acquisition price of $2,700,000, and (ii) expanded
an existing shopping center in Tampa, Florida through a sale/leaseback with the
center's anchor tenant for an acquisition price of $1,540,000. The Company is
committed to investing an additional $1,760,000 in the supermarket property upon
completion of certain expansion related improvements anticipated in mid-1997.
In September, 1996, the Company acquired a two-story, 40,545 square foot
suburban office building, referred to as the Bond Street Property, from GPA Ltd.
For the Bond Street Property, the Operating Partnership issued 26,067 units
having an initial redemption value of $378,000 and repaid approximately
$2,759,000 of indebtedness secured by the property for a total acquisition value
of $3,137,000.
The Company has entered into a letter of intent to acquire a portfolio of
12 industrial, office, retail and multifamily properties located in six states.
If completed, such transaction would add approximately 784,368 square feet of
net rentable area and 538 residential units to the Company's current property
portfolio. The total purchase price would be approximately $43,200,000,
comprising cash, Operating Partnership units, unregistered Common Stock and
assumption of debt. Acquisition of these properties is subject to a number of
contingencies including, among other things, completion of due diligence and
customary closing conditions. There can be no assurance that these properties
will ultimately be acquired by the Company.
NOTE 7. NEW FINANCING
The Company has entered into two new financing agreements with Wells Fargo
Bank, N.A. ("Wells Fargo"). The first financing agreement (the "Facility") is a
$50,000,000 secured revolving line of credit to replace an existing $10,000,000
line of credit. The Facility is secured by first mortgages on selected
properties with full recourse to the Company and availability is limited to the
borrowing base provided by these properties. The Facility has a term of two
years, subject to annual extensions. At the Company's option, the
F-30
<PAGE> 145
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
Facility will bear interest at LIBOR plus 2.375% or at a base rate. The base
rate is based upon the higher of Wells Fargo's prime rate plus 0.5% or the
Federal Funds Rate plus 1.0%. The second financing arrangement (the "Term Loan")
is a two-year term loan in the amount of $6,120,000 that bears interest at the
same rate as the Facility and will be secured by first mortgage liens on 10
"QuikTrip" facilities owned by the Company. The combined proceeds of the
fundings under the Facility and the Term Loan loans were approximately
$28,400,000, of which the Company applied $18,250,000 to the acquisition of the
UCT Property, $9,210,000 to the repayment of the outstanding amount under the
existing line of credit, and the balance to loan fees and closing costs. Initial
funding under the Facility and full disbursement of the Term Loan occurred on
July 15, 1996. On July 29, 1996, the Company borrowed an additional $3,800,000
under the Facility which was applied toward the purchase of the hotel and
sale/leaseback transaction.
NOTE 8. DECLARATION OF DIVIDENDS
On April 24, 1996, the Company's Board of Directors declared a dividend for
the first quarter of $0.30 per share or $1,726,000 which was paid on May 13,
1996 to Stockholders of record at the close of business on May 6, 1996. Such
dividend was made from the Company's cash reserves at March 31, 1996 combined
with the first quarter dividends received from the Associated Companies.
On July 24, 1996, the Company's Board of Directors declared a dividend for
the second quarter of $0.30 per share or $1,731,000 payable on August 14, 1996
to Stockholders of record at the close of business on August 5, 1996. Such
dividends will be made from the Company's cash reserves at June 30, 1996
combined with the dividends received from the Associated Companies as was
discussed in Note 3.
F-31
<PAGE> 146
GLENBOROUGH HOTEL GROUP
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
ASSETS
Rental property and equipment, net of accumulated depreciation of $101............ $ 184
Investments in management contracts, net.......................................... 468
Cash and cash equivalents......................................................... 422
Investment in Atlantic Pacific Assurance Company, Limited......................... 755
Other assets...................................................................... 494
------
Total Assets.............................................................. $2,323
======
LIABILITIES
Mortgage loan..................................................................... $ 73
Accrued lease expense............................................................. 286
Other liabilities................................................................. 309
------
Total liabilities.............................................................. 668
------
STOCKHOLDERS' EQUITY
Common stock (1,000 shares)....................................................... 20
Non-Voting preferred stock (50 shares)............................................ --
Additional paid-in capital........................................................ 1,568
Retained earnings................................................................. 67
------
Total stockholders' equity..................................................... 1,655
------
Total Liabilities and Stockholders' Equity................................ $2,323
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 147
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1996
------------ ----------
<S> <C> <C>
REVENUES
Room revenue...................................................... $1,669 $3,584
Fees and reimbursements........................................... 633 1,183
Other revenue..................................................... 160 239
------ ------
Total revenue................................................ 2,462 5,006
------ ------
EXPENSES
Leased Hotel Properties
Room expenses.................................................. 416 992
Lease payments to an affiliate................................. 585 1,268
Sales and marketing to an affiliate............................ 196 381
Property general and administrative............................ 206 369
Other operating expenses....................................... 258 448
Managed Hotel Properties
Salaries and benefits.......................................... 436 837
Other Expenses
General and administrative..................................... 235 466
Depreciation and amortization.................................. 24 49
Interest expense............................................... 2 3
------ ------
Total expense................................................ 2,358 4,813
------ ------
Income from operations before provision for income taxes............ 104 193
Provision for income taxes.......................................... (36) (76)
------ ------
Net income.......................................................... $ 68 $ 117
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 148
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- --------------- ADDITIONAL RETAINED
PAR PAR PAID-IN EARNINGS
SHARES VALUE SHARES VALUE CAPITAL (DEFICIT) TOTAL
------ ----- ------ ----- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 50 $-- 1,000 $20 $1,368 $ -- $1,388
Additional paid-in capital......... -- -- -- -- 200 -- 200
Dividends.......................... -- -- -- -- -- (50) (50)
Net income......................... -- -- -- -- -- 117 117
-- --
----- --- ------ --- ------
Balance at June 30, 1996........... 50 $-- 1,000 $20 $1,568 $ 67 $1,655
== == ===== === ====== === ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 149
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1996
------------
<S> <C>
Cash flows from operating activities:
Net income.................................................................. $117
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................ 49
Changes in certain assets and liabilities................................ 96
----
Net cash provided by operating activities................................ 262
----
Cash flows from investing activities:
Additions to rental property and equipment.................................. (10)
----
Net cash used for investing activities...................................... (10)
----
Cash flows from financing activities:
Capital contributions....................................................... 200
Dividends................................................................... (50)
Repayment of borrowings..................................................... (13)
----
Net cash provided by financing activities................................... 137
----
Net increase in cash........................................................ 389
Cash and cash equivalents at beginning of period............................ 33
----
Cash and cash equivalents at end of period.................................. $422
====
Supplemental disclosure of cash flow information:
Cash paid for interest................................................... $ 3
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 150
GLENBOROUGH HOTEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1. ORGANIZATION
Glenborough Hotel Group ("GHG") was organized in the state of Nevada on
September 23, 1991. GHG currently operates hotel properties owned by Glenborough
Realty Trust Incorporated ("GRT") under three separate percentage leases and
manages three hotel properties owned by two partnerships whose managing general
partner is Glenborough Corporation. GRT owns 100% of the 50 shares of non-voting
preferred stock of GHG and three individuals, including one executive officer of
GRT, each own 33 1/3% of the 1,000 shares of voting common stock of GHG.
GHG also owns approximately 80% of the common stock of Resort Group, Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six units at one of the properties.
GHG receives 100% of the earnings of RGI and consolidates its operations with
its own.
GHG also owns 94% of the outstanding common stock of Atlantic Pacific
Holdings, Ltd., the sole owner of 100% of the common stock of Atlantic Pacific
Assurance Company, Limited ("APAC"), a Bermuda corporation formed to underwrite
certain insurable risks of certain of GRT's predecessor partnerships and related
entities. APAC no longer underwrites any business and is expected to be
liquidated in 1997. GHG accounts for its investment in APAC using the cost
method due to its anticipated liquidation.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal accruals)
necessary to present fairly, the financial position and consolidated results of
operations of GHG as of June 30, 1996 and for the period then ended.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The accompanying financial statements present the
consolidated financial position of GHG and RGI as of June 30, 1996 and the
consolidated results of operations and cash flows of GHG and RGI for the six
months ended June 30, 1996. All intercompany transactions, receivables and
payables have been eliminated in the consolidation.
Pervasiveness of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the results of operations during the reporting
period. Actual results could differ from those estimates.
Rental Property to be Held and Used -- Rental properties are stated at cost
unless circumstances indicate that cost cannot be recovered, in which case, the
carrying value of the property is reduced to estimated fair value.
Depreciation is provided using the straight line method over the useful
lives of the respective assets.
Investments in Management Contracts -- Investments in management contracts
are recorded at cost and are amortized on a straight-line basis over seven
years.
Cash Equivalents -- The Company considers short-term investments (including
certificates of deposit) with a maturity of three months or less at the time of
investment to be cash equivalents.
NOTE 3. RENTAL PROPERTY, NET
Rental property and equipment of $285,000, net of accumulated depreciation
of $101,000 at June 30, 1996 represents the six condominium hotel units owned by
RGI as well as furniture and fixtures in GHG's
F-36
<PAGE> 151
GLENBOROUGH HOTEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
corporate offices. The six units owned by RGI participate in a resort rental
program on an "at will" basis, whereby there is no fixed term of participation.
Such participation generated approximately $18,000 of net rental pool profit and
approximate cash flow of $9,000 after deductions for capital reserves for the
six months ended June 30, 1996.
NOTE 4. INVESTMENTS IN MANAGEMENT CONTRACTS, NET
Investments in management contracts reflect the unamortized portion of the
management contracts RGI holds with the two beachfront resort condominium hotel
properties for both management of the homeowners associations and the rental
pool programs.
NOTE 5. MORTGAGE LOAN
Mortgage loan of $73,000 represents the debt secured by the six condominium
hotel units owned by RGI. Such debt bears interest at 7% payable in monthly
installments of principal and interest totaling $2,304 and matures June 30,
1999.
NOTE 6. THE PERCENTAGE LEASES
GHG is leasing the three hotels owned by GRT for a term of five years
pursuant to percentage leases ("Percentage Leases") which provide for rent equal
to the greater of the Base Rent (as defined in the lease) or a specified
percentage of rent (the "Percentage Rent"). Each hotel is separately leased to
GHG (the "lessee"). The lessee's ability to make rent payments will, to a large
degree, depend on its ability to generate cash flow from the operations of the
hotels. Each Percentage Lease contains the provisions described below.
Each Percentage Lease has a non-cancelable term of five years, subject to
earlier termination upon the occurrence of certain contingencies described in
the Percentage Lease. The lessee under the Percentage Lease has one five-year
renewal option at the then current fair market rent.
During the term of each Percentage Lease, the lessee is obligated to pay
the greater of Base Rent or Percentage Rent. Base Rent accrues and is required
to be paid monthly in advance. Percentage Rent is calculated by multiplying
fixed percentages by room revenues for each of the three hotels; the applicable
percentage changes when revenue exceeds a specified threshold, and the threshold
may be adjusted annually in accordance with changes in the applicable CPI.
Percentage Rent is due quarterly.
The table below sets forth the annual Base Rent and the Percentage Rent
formulas for each of the three hotels.
HOTEL LEASE RENT PROVISIONS
<TABLE>
<CAPTION>
RENT
INCURRED
INITIAL FOR THE
ANNUAL SIX MONTHS
BASE ENDED
HOTEL RENT JUNE 30, 1996 ANNUAL PERCENTAGE RENT FORMULAS
- -------------- -------- ------------- ---------------------------------------------------
<S> <C> <C> <C>
Ontario, CA $240,000 $ 195,000 24% of the first $1,575,000 of room revenue plus
40% of room revenue above $1,575,000 and 5% of
other revenue
Arlington, TX 360,000 358,000 27% of the first $1,600,000 of room revenue plus
42% of room revenue above $1,600,000 and 5% of
other revenue
Tucson, AZ 600,000 715,000 40% of the first $1,350,000 of room revenue plus
46% of room revenue above $1,350,000 and 5% of
other revenue
</TABLE>
F-37
<PAGE> 152
GLENBOROUGH HOTEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
Other than real estate and personal property taxes, casualty insurance, a
fixed capital improvement allowance and maintenance of underground utilities and
structural elements, which are the responsibility of GRT, the Percentage Leases
require the Lessee to pay rent, insurance, all costs, salaries, and expenses and
all utility and other charges incurred in the operation of the hotels.
NOTE 7. DECLARATION OF DIVIDENDS
On April 23, 1996, the board of directors of GHG declared dividends for the
first quarter of $50,000 of which $39,400 was made to GRT as the preferred
stockholder and the balance to the holders of GHG's common stock.
Only July 23, 1996, the board of directors of GHG declared dividends for
the second quarter of $33,000 of which $27,000 will be made to GRT as the
preferred stockholder and the balance to the holders of GHG's common stock.
F-38
<PAGE> 153
GLENBOROUGH REALTY TRUST INCORPORATED
AS ADJUSTED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited as adjusted statements of operations have been
prepared to reflect the Consolidation and related transactions as if the
transactions had occurred on January 1, 1995. These unaudited statements should
be read in conjunction with the financial statements and notes thereto of the
Company, the GRT Predecessor Entities and the GPA Properties included elsewhere
in this prospectus. In the opinion of management, all adjustments necessary to
reflect the effects of the transactions have been made.
The as adjusted information is unaudited and is not necessarily indicative
of the consolidated results which would have occurred if the transactions had
been consummated in the year presented, or on any particular date in the future,
nor does it purport to represent the financial position, results of operations
or changes in cash flows for future periods.
F-39
<PAGE> 154
GLENBOROUGH REALTY TRUST INCORPORATED
AS ADJUSTED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 WITH AS ADJUSTED CONSOLIDATED TOTALS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------------------
GLENBOROUGH AS ADJUSTED DEBT PAY
REALTY TRUST HISTORICAL HOTEL MANAGEMENT GPA DOWN AND
INCORPORATED(A) COMBINED(B) OPERATIONS(C) OPERATIONS(D) PROPERTIES(E) REFINANCINGS(F)
--------------- ----------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental revenues............... $ -- $ 9,189 $ 2,182 $ -- $ 2,101 $ --
Management fee income......... -- 260 -- -- -- --
Interest and other income..... -- 982 -- -- -- --
Equity in earnings of
Associated Companies........ -- -- 32 1,659 -- --
------ ----------- ------ ------ ------ ------
Total revenue........... -- 10,431 2,214 1,659 2,101 --
------ ----------- ------ ------ ------ ------
OPERATING EXPENSES:
Operating expenses............ -- 3,698 363 -- -- --
General and administrative.... -- 953 -- -- -- --
Depreciation and
amortization................ -- 2,488 944 -- -- --
Interest expense.............. -- 1,993 -- -- -- 774
Loss provision................ -- 863 -- -- -- --
------ ----------- ------ ------ ------ ------
Total operating expenses...... -- 9,995 1,307 -- -- 774
------ ----------- ------ ------ ------ ------
Income from operations before
minority interest........... -- 436 907 1,659 2,101 (774)
------ ----------- ------ ------ ------ ------
Minority interest............. -- -- -- -- -- --
------ ----------- ------ ------ ------ ------
Net income excluding
consolidation costs......... -- 436 907 1,659 2,101 (774)
Consolidation and litigation
costs....................... -- -- -- -- -- --
------ ----------- ------ ------ ------ ------
Net income (loss) including
Consolidation costs......... $ -- $ 436 $ 907 $ 1,659 $ 2,101 $(774)
============== ============ ============ ============ ============ ==============
Net income per share excluding
Consolidation costs.........
Net loss per share............
Weighted average shares
outstanding(k)..............
<CAPTION>
GLENBOROUGH SIX MONTHS
OTHER REALTY TRUST ENDED YEAR ENDED
PRO-FORMA INCORPORATED JUNE 30, DECEMBER 31,
ADJUSTMENTS CONSOLIDATED 1995 1994
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues............... $ -- $ 13,472 $ 6,728 $ 12,867
Management fee income......... -- 260 147 260
Interest and other income..... -- 982 517 1,109
Equity in earnings of
Associated Companies........ -- 1,691 930 1,649
----------- ------------ ------------ ------------
Total revenue........... -- 16,405 8,322 15,885
----------- ------------ ------------ ------------
OPERATING EXPENSES:
Operating expenses............ -- 4,061 1,975 3,673
General and administrative.... 30(g) 983 491 954
Depreciation and
amortization................ 222(h) 3,654 1,871 3,442
Interest expense.............. -- 2,767 1,383 2,767
Loss provision................ -- 863 -- 533
----------- ------------ ------------ ------------
Total operating expenses...... 252 12,328 5,720 11,369
----------- ------------ ------------ ------------
Income from operations before
minority interest........... (252) 4,077 2,602 4,516
----------- ------------ ------------ ------------
Minority interest............. (281)(i) (281) (179) (372)
----------- ------------ ------------ ------------
Net income excluding
consolidation costs......... (533) 3,796 2,423 4,144
Consolidation and litigation
costs....................... -- -- -- (7,237)
----------- ------------ ------------ ------------
Net income (loss) including
Consolidation costs......... $(533) $ 3,796 $ 2,423 $ (3,093)(j)
=========== =========== ============ ============
Net income per share excluding
Consolidation costs......... $ 0.66 $ 0.42 $ 0.72
=========== ============ ============
Net loss per share............ $ 0.66 $ 0.42 $ (0.54)
=========== ============ ============
Weighted average shares
outstanding(k).............. 5,753,709 5,753,709 5,753,709
=========== ============ ============
</TABLE>
F-40
<PAGE> 155
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO
AS ADJUSTED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
a) Not applicable as the Company had no operations prior to the Consolidation.
b) Reflects the as adjusted historical combined statements of operations of the
Partnerships and GC. See as adjusted historical combining statement of
operations.
c) Reflects (i) estimated revenues and expenses related to the Company's hotels
leased to and operated by GHG and (ii) the Company's equity in GHG's
earnings. See as adjusted statement of hotel lessor operations and statement
of operations for GHG.
d) Reflects the Company's equity in the earnings of GRC of approximately $449
and GIRC of approximately $1,210.
e) Reflects the historical revenues and expenses of the GPA properties
acquired.
f) Reflects a net increase in interest expense resulting from the refinancing
of mortgage loans and other notes payable with borrowings of (i) $20,000 on
a secured bank line with an investment bank, (ii) $10,000 on secured lines
of credit with a bank and (iii) $2,650 of secured loan with a bank. The
$20,000 secured bank line has a term of ten years and bears a fixed interest
rate of 7.57%. The $10,000 secured bank line of credit has a term of three
years and bears a variable interest rate at LIBOR plus 2.365% (7.88% at
December 31, 1995). The secured loan with a bank has a term of 10 years and
bears a fixed interest rate of 7.75%. The net increase in interest expense
is comprised of the following:
<TABLE>
<S> <C>
Increase due to new borrowings on secured bank lines, lines of credit and
loans.................................................................. $ 2,507
Increase due to amortization of new loan origination fees................ 177
Reduction due to repayment of mortgage loans and other notes payable..... (1,910)
-------
Net increase........................................................... $ 774
=======
</TABLE>
g) Reflects estimated state income and franchise taxes.
h) Reflects estimated depreciation and amortization of the GPA Properties
acquired, based upon asset lives of 40 years.
i) Reflects GPA's approximate 13.63% ownership interest in the operations of
the Operating Partnership. GPA's minority interest is calculated as
follows;
<TABLE>
<S> <C>
Pro forma income before minority interest of the Company................. $ 4,077
Add Company expenses before Consolidation................................ 983
Equity in earnings of Associated Companies and management fees earned by
the Company............................................................ (1,951)
Less fees paid by the Operating Partnership to the Company............... (1,047)
-------
Pro forma income from operations of the Operating Partnership............ $ 2,062
=======
GPA's minority interest................................................ $ 281
=======
</TABLE>
j) Reflects the estimated Consolidation and litigation costs incurred by the
Company and expensed in its first year of operations.
k) Represents the weighted average shares outstanding assuming that GPA's Units
in the Operating Partnership are not converted into Common Stock of the
Company.
F-41
<PAGE> 156
GLENBOROUGH REALTY TRUST INCORPORATED
AS ADJUSTED HISTORICAL COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
1995 AS ADJUSTED
HISTORICAL HOTEL MANAGEMENT INTERNALIZE OTHER HISTORICAL
COMBINED(A) OPERATIONS(B) OPERATIONS(C) MANAGEMENT(D) ADJUSTMENTS COMBINED
----------- ------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental revenues.............. $15,454 $(6,265) $ -- $ -- $ -- $ 9,189
Fee and reimbursements....... 16,019 -- (16,019) -- 260(f) 260
Interest and other........... 2,698 (302) (560) -- (854)(e) 982
------- ------- -------- ----- ------- ------
Total revenues......... 34,171 (6,567) (16,579) -- (594) 10,431
------- ------- -------- ----- ------- ------
EXPENSES:
Operating.................... 8,576 (4,998) -- 120 -- 3,698
General and administrative... 15,947 -- (14,361) (633) -- 953
Depreciation and
amortization............... 4,762 (944) (1,487) -- 157(f) 2,488
Interest expense............. 2,129 -- (1,439) -- 1,303 (e)(g 1,993
Loss provision............... 1,876 -- (1,013) -- -- 863
------- ------- -------- ----- ------- ------
Total expenses......... 33,290 (5,942) (18,300) (513) 1,460 9,995
------- ------- -------- ----- ------- ------
Operating income (loss)...... 881 (625) 1,721 513 (2,054) 436
------- ------- -------- ----- ------- ------
Income taxes................. (357) -- 357 -- -- --
------- ------- -------- ----- ------- ------
Net income (loss)............ $ 524 $ (625) $ 2,078 $ 513 $(2,054) $ 436
======= ======= ======== ===== ======= ======
</TABLE>
F-42
<PAGE> 157
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO
AS ADJUSTED HISTORICAL COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
a) Reflects the historical combined operations of the GRT Predecessor Entities.
See combined financial statements of the GRT Predecessor Entities.
b) Reflects the elimination of historical revenues and expenses of the three
hotels (Arlington, Tucson and Ontario) owned by the Company, that are leased
to and operated by GHG.
c) Represents the elimination of certain revenues and expenses that are
included in GC's historical statements of operations due to the
internalization of management.
d) Further reflects the internalization of management including (i) property
administration costs that were reimbursed to GC by the Participating
Partnerships, but excluded by elimination of intercompany transactions in
the historical combined financial statements of the GRT Predecessor Entities
and (ii) a reduction of general and administrative expenses (including
legal, accounting and investor relations) resulting from the Consolidation
and internalization of management.
e) Represents the elimination of interest income and expense related to the
Finley note receivable and related mortgage debt that were repaid in April
1995.
f) Reflects management fees related to Glenborough Institutional Fund I that
are earned by the Company that were previously earned by GC and amortization
of the related management contract.
g) Reflects the historical interest expense related to notes payable
contributed by GC.
F-43
<PAGE> 158
GLENBOROUGH REALTY TRUST INCORPORATED
AS ADJUSTED STATEMENT OF HOTEL LESSOR OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
LEASE OTHER
ADJUSTMENTS(A) ADJUSTMENTS AS ADJUSTED
-------------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental revenues..................................... $2,182 $ -- $ 2,182
Equity in earnings of GHG........................... -- 32(b) 32
------ ---- ------
Total revenues.............................. 2,182 32 2,214
------ ---- ------
EXPENSES:
Operating........................................... 275 88(c) 363
Depreciation and amortization....................... 944 -- 944
------ ---- ------
Total expenses.............................. 1,219 88 1,307
------ ---- ------
Net income (loss)................................... $ 963 $ (56) $ 907
====== ==== ======
</TABLE>
F-44
<PAGE> 159
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO
AS ADJUSTED STATEMENT OF HOTEL LESSOR OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
a) Reflects the estimated lease payments, property taxes and depreciation and
amortization associated with the hotels owned by the Company and leased to
and operated by GHG. See as adjusted statement of operations for GHG.
b) Reflects the Company's equity in earnings of GHG. See as adjusted statement
of operations for GHG.
c) Reflects management fees to be paid by the Company to GHG. GHG will provide
fee management services related to the Irving hotel.
F-45
<PAGE> 160
GLENBOROUGH HOTEL GROUP
AS ADJUSTED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
AS ADJUSTED
HISTORICAL(A) --------------------------------------------
---------------------------------------- LEASE OTHER AS ADJUSTED
ARLINGTON TUCSON ONTARIO SUB-TOTAL ADJUSTMENTS(B) ADJUSTMENTS GHG
--------- ------ ------- --------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenues......... $ 2,210 $2,667 $ 1,388 $ 6,265 $ -- $ -- $ 6,265
Management fees....... -- -- -- -- -- 2,225(c) 2,225
Interest and other.... 97 121 84 302 -- -- 302
------ ------ ------ ------ ------ ------ ------
Total revenues........ 2,307 2,788 1,472 6,567 -- 2,225 8,792
------ ------ ------ ------ ------ ------ ------
EXPENSES:
Operating............. 1,113 1,225 869 3,207 (275) (644)(d) 2,288
Salaries &
administration..... 615 635 541 1,791 -- 2,320(e) 4,111
Depreciation and
amortization....... 325 386 233 944 (944) 87(f) 87
Interest.............. -- -- -- -- -- 9 9
Lease expense......... -- -- -- -- 2,182 -- 2,182
------ ------ ------ ------ ------ ------ ------
Total operating
expenses........... 2,053 2,246 1,643 5,942 963 1,772 8,677
------ ------ ------ ------ ------ ------ ------
Operating income
(loss)............. 254 542 (171) 625 (963) 453 115
Income taxes.......... -- -- -- -- -- (46)(g) (46)
------ ------ ------ ------ ------ ------ ------
Income before minority
interest........... 254 542 (171) 625 (963) 407 69
Minority interest..... -- -- -- -- -- (36)(h) (36)
------ ------ ------ ------ ------ ------ ------
Net income (loss)..... $ 254 $ 542 $ (171) $ 625 $ (963) $ 371 $ 33
====== ====== ====== ====== ====== ====== ======
Preferred stock
dividends.......... $ 98(i)
======
Common stock
dividends.......... $ 23
======
</TABLE>
F-46
<PAGE> 161
GLENBOROUGH HOTEL GROUP
NOTES AND ADJUSTMENTS TO AS ADJUSTED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
a) Reflects the historical operations of the three hotels (Arlington, Tucson
and Ontario) owned by the Company that are leased to and operated by GHG.
b) Reflects the estimated lease payments, property taxes and depreciation and
amortization associated with the hotels owned by the Company that will be
included in the operations of the Company. See as adjusted statement of
hotel lessor operations for the Company.
c) Reflects management fees of $718 and reimbursement of salaries of $1,507
associated with fee management services provided to third parties and the
Company related to the contracts owned by Resort Group, the Irving hotel and
the OIF 9 Hotels. The estimated fees and reimbursements are comprised of the
following:
<TABLE>
<S> <C>
Resort Group, Inc.:
Casa Del Mar............................................................ $ 347
Coral Cay............................................................... 73
Irving Hotel............................................................ 514
OIF 9 Hotels............................................................ 1,291
------
Total........................................................... $2,225
======
</TABLE>
d) Reflects the elimination of historical management fees paid by the three
hotels (Arlington. Tucson and Ontario) owned by the Company resulting from
the internalization of hotel management.
e) Reflects an increase in general and administrative expenses, including
salaries, associated with operating as a separate entity and fee management
services provided the third parties by GHG. Under the prior ownership
structure general and administrative expenses were recorded at the
partnership level and not at the property operating level. The increase
consists of the following:
<TABLE>
<S> <C>
Reimbursable salaries and benefits....................................... $ 1,507
Corporate and administrative salaries and benefits....................... 546
Rent and other overhead, including utilities............................. 95
Resort Group expenses.................................................... 20
General and administrative expenses, including accounting, legal and
directors fees......................................................... 152
------
Total.......................................................... $ 2,320
======
</TABLE>
f) Reflects estimated depreciation for the year ended December 31, 1995 of
furniture, equipment and buildings of $3 that will be owned by GHG, and
amortization of the contracts owned by Resort Group, Inc. of $84.
g) Reflects estimated income tax expense of GHG.
h) Reflects the approximately 20% minority ownership interest in the Resort
Group held by an unaffiliated third party.
i) Reflects estimated dividends paid by GHG equal to $600 a share plus 75% of
any remaining cash flow. The primary source of dividends paid by GHG will
be cash flow from operations which is in excess of GHG's earnings.
F-47
<PAGE> 162
GLENBOROUGH CORPORATION
AS ADJUSTED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
AS ADJUSTED AS
MANAGEMENT EXPIRED PARTICIPATING HOTEL RANCON OTHER ADJUSTED
OPERATIONS(A) CONTRACTS(B) PARTNERSHIPS(C) GROUP(D) CONTRACTS(E) ADJUSTMENTS GC
------------- ------------ --------------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Fees and reimbursements... $16,019 $ (1,036) $ (186) $(4,331 ) $ (5,863) $ -- $4,603
Interest and other........ 560 (336) (98) (29 ) -- -- 97
------- ------- ------ ------- ------- ----- ------
Total revenues............ 16,579 (1,372) (284) (4,360 ) (5,863) -- 4,700
------- ------- ------ ------- ------- ----- ------
EXPENSES:
Salaries &
administration.......... 14,361 (3,192) (697) (3,862 ) (3,118) 12(f) 3,504
Depreciation &
amortization............ 1,487 (562) (121) (87 ) (717) 284(g) 284
Interest expense.......... 1,439 -- (1,438) -- -- 79(h) 80
Loss provision............ 1,013 (1,013) -- -- -- -- --
------- ------- ------ ------- ------- ----- ------
Total expenses............ 18,300 (4,767) (2,256) (3,949 ) (3,835) 375 3,868
------- ------- ------ ------- ------- ----- ------
Income (loss) before taxes
and extraordinary
items................... (1,721) 3,395 1,972 (411 ) (2,028) (375) 832
Income taxes.............. (357) -- -- -- -- 24(i) (333)
------- ------- ------ ------- ------- ----- ------
Income (loss) before
extraordinary items..... (2,078) 3,395 1,972 (411 ) (2,028) (351) 499
Extraordinary items....... -- -- -- -- -- -- --
------- ------- ------ ------- ------- ----- ------
Net income (loss)......... $(2,078) $ 3,395 $ 1,972 $ (411 ) $ (2,028) $(351) $ 499
======= ======= ====== ======= ======= ===== ======
Preferred stock
dividends............... $ 745(j)
======
Common stock dividends.... $ 38
======
</TABLE>
F-48
<PAGE> 163
GLENBOROUGH CORPORATION
NOTES AND ADJUSTMENTS TO AS ADJUSTED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
a) Reflects the as adjusted consolidated historical management operations of
GC, GHG and GIRC.
b) Reflects the historical revenues and expenses associated with certain
management contracts which expired prior to the date of Consolidation.
c) Reflects the historical revenues and expenses associated with management
services provided to the Partnerships by GC which were eliminated as a
result of the internalization of management.
d) Reflects the historical revenues and expenses associated with hotel
management services provided to the Partnerships by GC and it's subsidiaries
which were eliminated as a result of the internalization of management or
are now incurred by GHG, an unconsolidated subsidiary of the Company.
e) Reflects actual revenues and expenses, including salaries, benefits and
other administrative costs related to the Rancon Contracts that were
purchased by GC on January 1, 1995 and that were contributed to GIRC by the
Company. On a historical basis such revenues and expenses were included in
the operations of GC.
f) Reflects an estimated net increase of salaries and general and
administrative expenses (including legal, accounting and office expenses)
resulting from the Consolidation. The net increase consists of the
following:
<TABLE>
<S> <C>
Net increase in general and administrative expenses,
including accounting, legal and directors fees.............................. $100
Reduction of officers' salaries............................................... (88)
----
Total....................................................................... $ 12
====
</TABLE>
g) Reflects the estimated depreciation and amortization related to furniture
and equipment and the estimated amortization of contracts.
h) Reflects the estimated interest associated with the note payable of $1,000
contributed to GC by the Company. The note payable bears interest at 9%,
with interest only payments, and matures in March of 1998.
i) Reflects estimated decrease in income tax expense of GC.
j) Reflects dividends paid by GC equal of $0.80 per share plus 95% of any
remaining cash flow. The primary source of dividends paid by GC is cash
flow from operations which is in excess of GC's earnings.
F-49
<PAGE> 164
GLENBOROUGH INLAND REALTY INCORPORATED
AS ADJUSTED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
RANCON OTHER AS ADJUSTED
ADJUSTMENTS(A) ADJUSTMENTS GIRC
-------------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Fees and reimbursements............................. $5,863 $ -- $ 5,863
Interest and other.................................. -- -- --
------ ----- ------
Total revenues................................... 5,863 -- 5,863
------ ----- ------
EXPENSES:
Salaries & administration........................... 3,118 (224)(b) 2,894
Depreciation and amortization....................... 717 30(c) 747
Interest expense.................................... -- 101(d) 101
Provision for loss on investment.................... -- -- --
------ ----- ------
Total expenses...................................... 3,835 (93) 3,742
------ ----- ------
Income (loss) before taxes.......................... 2,028 93 2,121
Income taxes........................................ -- (848)(e) (848)
------ ----- ------
Net income (loss)................................... $2,028 $(755) $ 1,273
====== ===== ======
Preferred stock dividends........................... $ 1,919(f)
======
$ 100
Common stock dividends.............................. ======
</TABLE>
F-50
<PAGE> 165
GLENBOROUGH INLAND REALTY CORPORATION
NOTES AND ADJUSTMENTS TO AS ADJUSTED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
a) Reflects the historical management fees and expenses related to the Rancon
Contracts with a carrying value of $6,813 contributed to GIRC by the
Company.
b) Reflects an estimated reduction of salaries, benefits and other expenses
resulting primarily from reductions in officers' salaries resulting from the
Consolidation.
c) Reflects estimated depreciation of furniture and equipment contributed to
GIRC by the Company.
d) Reflects the estimated interest expense associated with a note payable
consisting of $2,566 contributed to GIRC by the Company and $2,100 related
to the acquisition of certain land parcels. The notes payable bears interest
at 9%, with interest only payments, and matures in March of 1998.
e) Reflects estimated income tax expense of GIRC.
f) Reflects estimated dividends paid by GIRC equal to $0.80 per share plus 95%
of any remaining cash flow. The primary source of dividends paid by GIRC is
cash flow from operations which is in excess of GIRC's earnings.
F-51
<PAGE> 166
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Glenborough Realty Trust Incorporated:
We have audited the accompanying combined statements of revenues and
certain expenses of the GPA Properties, as defined in Note 1, for the years
ended December 31, 1995, 1994, and 1993. These combined financial statements are
the responsibility of the management of the Company. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined statements of revenues and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and are not intended
to be a complete presentation of the revenues and expenses of the GPA
Properties.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the revenues and certain expenses of the GPA
Properties for the years ended December 31, 1995, 1994 and 1993, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
July 9, 1996
F-52
<PAGE> 167
GPA PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
REVENUES......................................................... $2,101 $2,043 $2,075
CERTAIN EXPENSES................................................. -- -- --
------ ------ ------
REVENUE IN EXCESS OF CERTAIN EXPENSES............................ $2,101 $2,043 $2,075
====== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-53
<PAGE> 168
GPA PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
The accompanying combined financial statements include the operations (see
"Basis of Presentation" below) of four industrial properties (the "GPA
Properties"), owned through December 31, 1995, by parties related to Glenborough
Realty Trust Incorporated (the "Company") and Glenborough Properties, L.P. (the
"Operating Partnership").
The Company, through the Operating Partnership, and subject to outstanding
liabilities, acquired the following properties on December 31, 1995:
<TABLE>
<CAPTION>
PROPERTY NAME LOCATION DESCRIPTION
- ----------------------- ----------------------- -----------------------------------
<S> <C> <C>
J.I. Case.............. Memphis, Tennessee A 206,000 square foot light
industrial warehouse
J.I. Case.............. Kansas City, Kansas A 200,000 square foot light
industrial warehouse
Navistar............... West Chicago, Illinois A 474,000 square foot light
industrial warehouse
Navistar............... Baltimore, Maryland A 274,000 square foot light
industrial warehouse
</TABLE>
BASIS OF PRESENTATION
The accompanying combined financial statements are not representative of
the actual operations of the GPA Properties for the periods presented. Certain
expenses may not be comparable to the expenses expected to be incurred by the
Company in the proposed future operations of the GPA Properties. The Company is
not aware of any material factors relating to the GPA Properties that would
cause the reported financial information not to be indicative of future
operating results. Excluded expenses consist of property management fees,
interest, depreciation and amortization and other costs not directly related to
the future operations of the GPA Properties.
These combined financial statements have been prepared for the purpose of
complying with certain rules and regulations of the Securities and Exchange
Commission in connection with a proposed offering of common stock by the
Company.
REVENUE RECOGNITION
All leases of the GPA Properties are classified as operating leases, with
rental revenue recognized on a straight-line basis over the terms of the leases.
F-54
<PAGE> 169
GPA PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES AND
CERTAIN EXPENSES -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. LEASING ACTIVITY:
Combined future minimum rentals due under non-cancelable operating leases
with tenants for the GPA Properties are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
--------------------------------------------------------------- --------------
<S> <C>
1996........................................................... $ 2,101
1997........................................................... 2,101
1998........................................................... 2,101
1999........................................................... 2,101
2000........................................................... 2,101
Thereafter..................................................... 6,654
-------
$ 17,159
=======
</TABLE>
For the three years ended December 31, 1995, 1994, 1993, 100% of rental
income on the GPA Properties was received from two tenants.
F-55
<PAGE> 170
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Glenborough Realty Trust Incorporated:
We have audited the accompanying statements of revenues and certain
expenses of the UCT Property, as defined in Note 1, for the years ended December
31, 1995, 1994 and 1993. These financial statements are the responsibility of
the management of the company. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of revenues and certain expenses were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission, as described in Note 1, and are not intended to be a
complete presentation of the revenues and expenses of the UCT Property.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and certain expenses of the UCT Property
for the years ended December 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
July 9, 1996
F-56
<PAGE> 171
GLENBOROUGH REALTY TRUST INCORPORATED
STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE UCT PROPERTY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------
1995 1994 1993
SIX MONTHS ENDED ------ ------ ------
JUNE 30, 1996
------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES...................................... $2,122 $4,239 $4,073 $4,024
CERTAIN EXPENSES:
Operating................................... 678 1,579 1,474 1,435
Real estate taxes........................... 260 463 475 453
------ ------ ------ ------
938 2,042 1,949 1,888
------ ------ ------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES........ $1,184 $2,197 $2,124 $2,136
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE> 172
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE UCT PROPERTY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations (see "Basis of Presentation" below) of the UCT Property (the
"Property") a property acquired by Glenborough Realty Trust Incorporated (the
"Company"), from University Club Tower Associates, an affiliate of the Company.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
acquired property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of property
management fees, interest expense, depreciation and amortization and other costs
not directly related to the future operations of the Property.
These financial statements have been prepared for the purpose of complying
with certain rules and regulations of the Securities and Exchange Commission in
connection with a proposed offering of common stock by the Company.
The financial information presented for the six months ended June 30, 1996
is not audited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the statements of revenues and certain
expenses for the Property.
REVENUE RECOGNITION
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
2. LEASING ACTIVITY:
The minimum future rental revenues from leases in effect as of April 1,
1996, for the remainder of 1996 and annually thereafter are as follows (in
thousands)
<TABLE>
<CAPTION>
YEAR AMOUNT
--------------------------------------------------------------------------- -------
<S> <C>
1996 (six months).......................................................... $ 1,135
1997....................................................................... 2,350
1998....................................................................... 1,856
1999....................................................................... 1,589
2000....................................................................... 1,075
2001....................................................................... 956
Thereafter................................................................. 6,450
-------
Total............................................................ $15,411
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $54
(unaudited), $169, $50 and $64 for the six months ended June 30, 1996, and the
years ended December 31, 1995, 1994 and 1993 respectively. Certain leases
contain options to renew.
F-58
<PAGE> 173
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Glenborough Realty Trust Incorporated:
We have audited the accompanying statement of revenues and certain expenses
of the Bond Street Property, as defined in Note 1, for the year ended December
31, 1995. This financial statement is the responsibility of the management of
the Company. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission, as described in Note 1, and is not intended to be a
complete presentation of the revenues and expenses of the Bond Street Property.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Bond Street
Property for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
July 9, 1996
F-59
<PAGE> 174
GLENBOROUGH REALTY TRUST INCORPORATED
STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE BOND STREET PROPERTY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
SIX MONTHS ------------
ENDED
JUNE 30,
1996
---------------
(UNAUDITED)
<S> <C> <C>
REVENUES......................................................... $ 257 $631
CERTAIN EXPENSES:
Operating...................................................... 76 166
Real estate taxes.............................................. 33 75
------ ------
109 241
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES........................... $ 148 $390
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE> 175
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE BOND STREET PROPERTY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1995
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations (see "Basis of Presentation" below) of the Bond Street Property (the
"Property") a property acquired by Glenborough Realty Trust Incorporated (the
"Company") from Glenborough Partners, an affiliate of the Company. The Bond
Street Property was acquired by Glenborough Partners on December 29, 1994.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
acquired property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of property
management fees, interest expense, depreciation and amortization and other costs
not directly related to the future operations of the Property.
These financial statements have been prepared for the purpose of complying
with certain rules and regulations of the Securities and Exchange Commission in
connection with a proposed offering of common stock by the Company.
The financial information presented for the six months ended June 30, 1996
is not audited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the combined statements of revenues and
certain expenses for the Property.
REVENUE RECOGNITION
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
2. LEASING ACTIVITY:
The minimum future rental revenues from leases in effect as of July 1,
1996, for the remainder of 1996 and annually thereafter are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------------------------- -------
<S> <C>
1996 (six months)................................................... $181
1997................................................................ 397
1998................................................................ 349
1999................................................................ 197
2000................................................................ 113
2001................................................................ 48
Thereafter.......................................................... 0
------
$1,285
======
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to $2
(unaudited) for the three months ended June 30, 1996 and $0 for the year ended
December 31, 1995. Certain leases contain options to renew.
F-61
<PAGE> 176
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Glenborough Realty Trust Incorporated:
We have audited the accompanying statement of revenues and certain expenses
of the TRP Properties, as defined in Note 1, for the year ended December 31,
1995. This financial statement is the responsibility of the management of the
Company. Our responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission, as described in Note 1, and is not intended to be a
complete presentation of the revenues and expenses of the TRP Properties.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the TRP
Properties for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
July 9, 1996
F-62
<PAGE> 177
GLENBOROUGH REALTY TRUST INCORPORATED
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE TRP PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
SIX MONTHS ENDED -----------------
JUNE 30, 1996
------------------
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................. $3,965 $ 7,336
CERTAIN EXPENSES:
Operating............................................... 895 1,854
Real estate taxes....................................... 321 694
------ ------
1,216 2,548
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES.................... $2,749 $ 4,788
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-63
<PAGE> 178
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE TRP PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1995
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTIES ACQUIRED
The accompanying combined statements of revenues and certain expenses
include the operations (see "Basis of Presentation" below) for eleven properties
(the "Properties") to be acquired by Glenborough Realty Trust Incorporated (the
"Company"), from Trust Realty Partners, an unaffiliated third party.
<TABLE>
<CAPTION>
NAME TYPE
------------------------------------------------------------------- ----------------
<S> <C>
Auburn North....................................................... Shopping Center
One Professional Square............................................ Office
Warner Village Medical Center...................................... Office
The Globe Office Building.......................................... Office
Rancho Bernardo R & D Center....................................... Industrial
Hoover Industrial Center........................................... Industrial
Walnut Creek Business Center....................................... Industrial
Mercantile I, II, III.............................................. Industrial
Villa de Mission Apartments........................................ Multifamily
Sahara Gardens Apartments.......................................... Multifamily
</TABLE>
BASIS OF PRESENTATION
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Properties for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Properties;
however, the Company is not aware of any material factors relating to these
acquired properties that would cause the reported financial information not to
be indicative of future operating results. Excluded expenses consist of property
management fees, interest expense, depreciation and amortization and other costs
not directly related to the future operations of the Properties.
These financial statements have been prepared for the purpose of complying
with certain rules and regulations of the Securities and Exchange Commission in
connection with a proposed offering of common stock by the Company.
The financial information presented for the six months ended June 30, 1996
is not audited. In the opinion of management of the seller, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the combined statements of
revenues and certain expenses for the Properties.
REVENUE RECOGNITION
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
F-64
<PAGE> 179
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR
THE TRP PROPERTIES -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1995
2. LEASING ACTIVITY:
The minimum future rental revenues from leases in effect as of July 1,
1996, for the remainder of 1996 and annually thereafter are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------------------------------- -------
<S> <C>
1996 (six months)........................................................ $ 1,805
1997..................................................................... 2,993
1998..................................................................... 1,845
1999..................................................................... 1,270
2000..................................................................... 734
2001..................................................................... 475
Thereafter............................................................... 1,020
-------
$10,142
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $416
(unaudited) for the six months ended June 30, 1996 and $418 for the year ended
December 31, 1995. Certain leases contain options to renew.
F-65
<PAGE> 180
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Summary Financial and Other Data..... 8
Risk Factors......................... 10
Formation of the Company............. 18
Recent Activities.................... 20
Use of Proceeds...................... 28
Distribution Policy.................. 29
Capitalization....................... 30
Price Range of Common Stock and
Distribution History............... 31
Selected Financial and Other Data.... 32
Pro Forma Financial Information...... 35
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 42
Business and Properties.............. 50
Certain Relationships and Related
Transactions....................... 78
Management........................... 80
Securities Ownership of Certain
Beneficial Owners and Management... 87
Description of Capital Stock......... 89
Restrictions on Ownership and Trans-
fer of Common Stock................ 91
Certain Provisions of Maryland Law
and the Company's Organizational
Documents.......................... 93
Federal Income Tax Considerations.... 96
Underwriting......................... 108
Legal Matters........................ 109
Experts.............................. 109
Additional Information............... 109
Glossary............................. 110
Financial Statements of the Company
and the GRT Predecessor Entities... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,500,000 SHARES
LOGO
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY
JEFFERIES & COMPANY, INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 181
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms not defined herein shall have the same meanings as in the
Prospectus.
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid in connection with the issuance and distribution of
the securities to be registered, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee............................ $ 22,206
NASD Filing Fee.......................................................... 7,400
New York Stock Exchange Listing Fee...................................... 12,250
Accounting Fees and Expenses............................................. 320,000
Blue Sky Fees and Expenses............................................... 15,000
Legal Fees and Expenses.................................................. 435,000
Transfer Agent and Registrar Fees and Expenses........................... 15,000
Printing Expenses........................................................ 224,000
Miscellaneous Expenses................................................... 49,144
----------
Total Expenses................................................. $1,100,000
==========
</TABLE>
- ---------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the NYSE Listing Fee.
ITEM 31. SALES TO SPECIAL PARTIES.
Not Applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
On or about April 24, 1996, the Company issued 15,000 shares of Common
Stock as grants to Patrick Foley, Richard A. Magnuson, and Laura Wallace
(issuing 5,000 shares to each of them). The issuance of the above securities was
exempt from registration under the Securities Act in reliance to Section 4(2) of
the Securities Act. Each of Patrick Foley, Richard A. Magnuson, and Laura
Wallace represented his/her intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were attached to the share certificates issued
in such transactions. All recipients had adequate access to information about
the Company.
On or about April 24, 1996, the Company issued 6,000 options to purchase
Common Stock ("Options") as grants to Patrick Foley, Richard A. Magnuson, and
Laura Wallace, (issuing 2,000 Options to each of them). The issuance of the
above securities was exempt from registration under the Securities Act in
reliance to Section 4(2) of the Securities Act. Each of Patrick Foley, Richard
A. Magnuson, and Laura Wallace represented his/her intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were attached to the share
certificates issued in such transactions. All recipients had adequate access to
information about the Company.
On or about December 31, 1995 the Operating Partnership issued 542,333
units of the Operating Partnership, including redemption rights which could be
exchanged for Common Stock, to GPA, Ltd. in exchange for property contributed to
the Company and having an equity value based on independent appraisals of
$8,135,000. GPA, Ltd. is a partnership with significant other assets which was
formed in 1986. The issuance of the above securities was exempt from
registration under the Securities Act in reliance to Section 4(2) of the
Securities Act. GPA, Ltd. represented its intention to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were attached to the share
certificates issued in such transactions. All recipients had adequate access to
information about the Company.
II-1
<PAGE> 182
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland GCL permits a Maryland Corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for (i) actual receipt
of an improper benefit or profit in money, property or services or (ii) active
and deliberate dishonesty established by a final judgment as being material to
the cause of action. The Charter contains such a provision which limits such
liability to the maximum extent permitted by the Maryland GCL.
The Charter authorizes the Company to obligate itself to indemnify its
present and former officers and directors and to pay or reimburse reasonable
expenses for those individuals in advance of the final disposition of a
proceeding to the maximum extent permitted from time to time by the laws of
Maryland. The Bylaws of the Company obligate it to indemnify, and advance
expenses to present, former and proposed directors and officers to the maximum
extent permitted by Maryland law. The Maryland GCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services, or (c) in the case of any criminal proceeding, the director or officer
had a reasonable cause to believe that the act or omission was unlawful.
However, a corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In addition, the Maryland GCL requires the
Company, as conditions to advancing expenses, to obtain (i) a written
affirmation by the director or officer of his good-faith belief that he has met
the standard of conduct necessary for indemnification by the Company as
authorized by the applicable Bylaws and (ii) a written statement by him or on
his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The Bylaws of
the Company also permit the Company to provide indemnification and to advance
expenses to a present or former director or officer who served a predecessor of
the Company in that capacity, and to any employee or agent of the Company, or a
predecessor of the Company. Finally, the Maryland GCL requires a corporation
(unless its charter provides otherwise, which the Company's Charter does not) to
indemnify a director or officer who has been successful on the merits, or
otherwise, in the defense of any proceeding to which he is made a party by
reason of service in that capacity.
The Company has entered into indemnification agreements with each of its
directors and executive officers to provide them with indemnification to the
full extent permitted by the Charter and Bylaws of Company.
The Company has obtained an insurance policy to provide liability coverage
for directors and officers of Company.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
II-2
<PAGE> 183
ITEM 35. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements
See the information set forth on pages F-1 through F-65 in Part I of this
Registration Statement. All such information and financial statements are
included in the Prospectus.
(b) The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
1.01 Underwriting Agreement among the Company, the Operating Partnership, Bear,
Stearns & Co. Inc., Robertson, Stephens & Company LLC and Evesen Securities,
Inc., as representatives of the several underwriters.
*3.01 By-laws of the Company.
*3.02 Articles of Amendment and Restatement of Articles of Incorporation of the
Company.
*4.01 The Articles of Amendment and Restatement of Articles of Incorporation and
Bylaws of the Company are filed as Exhibits 3.02 and 3.01, respectively.
4.02 Form of Common Stock Certificate.(1)
*5.01 Opinion of Morrison & Foerster LLP regarding validity of the issuance of the
Securities.
*8.01 Opinion of Morrison & Foerster LLP.
*10.01 First Amended and Restated Agreement of Limited Partnership for the Operating
Partnership.
*10.02 Amendment to First Amended and Restated Agreement of Limited Partnership for the
Operating Partnership.
10.03 Form of Indemnification Agreement for Existing Officers and Directors of
Glenborough Realty Trust Incorporated.(2)
*10.04 Form of 1996 Employee Stock Incentive Plan.
10.05 Lease Agreement between the Operating Partnership and Glenborough Hotel
Group.(3)
10.06 Form of Employment Agreement entered into by and between Robert Batinovich and
Glenborough Realty Trust Incorporated.(4)
10.07 Form of Employment Agreement entered into by and between Andrew Batinovich and
Glenborough Realty Trust Incorporated.(5)
10.08 Management and Consulting Agreement dated June 27, 1989 between Glenborough
Management Corporation and the General Partners of nine Outlook partnerships.(6)
10.09 Agreement dated June 26, 1989 between Glenborough Management Corporation and the
General Partners of nine Outlook partnerships.(7)
10.10 Management and Consulting Agreement dated May 31, 1991 between Glenborough
Management Corporation, Equitec Financial Group, Inc. and Equitec Properties
Company.(8)
10.11 Management Administration and Consulting Agreement dated May 31, 1991 between
Glenborough Management Corporation, Equitec Financial Group, Inc. and Equitec
Institutional Realty Advisers, Inc.(9)
10.12 Asset Purchase Agreement dated May 17, 1991 between the Hallwood Group
Incorporated, Glenborough Corporation and Glenborough Management
Corporation.(10)
10.13 Management, Administration and Consulting Agreement dated as of December 20,1994
between Glenborough Inland Realty Corporation and the general Partners of nine
Rancon Partnerships.(11)
</TABLE>
II-3
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
10.14 Amendment to Management, Administration and Consulting Agreement dated March 30,
1995 between Glenborough Inland Realty Corporation and the General Partners of
nine Rancon Partnerships.(12)
10.15 Agreement dated December 20, 1994 between Glenborough Inland Realty Corporation
and Rancon Financial Corporation, Daniel Lee Stephenson individually and as
Trustee of the Daniel Lee Stephenson Trust dated December 10, 1987, and the
General Partners of nine Rancon Partnerships.(13)
10.16 Amendment to Agreement dated January 3, 1995 between Glenborough Inland Realty
Corporation and Rancon Financial Corporation, Daniel Lee Stephenson individually
and as Trustee of the Daniel Lee Stephenson Trust dated December 10, 1987, and
the General Partners of nine Rancon Partnerships.(14)
10.17 Form of Employment Agreement entered into by and between Robert Batinovich and
Glenborough Realty Corporation.(15)
10.18 Form of Employment Agreement entered into by and between Andrew Batinovich and
Glenborough Realty Corporation.(16)
10.19 Form of Employment Agreement entered into by and between Robert Batinovich and
Glenborough Inland Realty Corporation.(17)
10.20 Form of Employment Agreement entered into by and between Andrew Batinovich and
Glenborough Inland Realty Corporation.(18)
10.21 Form of Employment Agreement entered into by and between Andrew Batinovich and
Glenborough Hotel Group.(19)
10.22 Form of Indemnification Agreement for Officers and Directors of Glenborough
Hotel Group.(20)
10.23 Form of Indemnification Agreement for Officers and Directors of Glenborough
Realty Corporation.(21)
10.24 Form of Indemnification Agreement for Officers and Directors of Glenborough
Inland Realty Corporation.(22)
10.25 Form of Registration Agreement entered into by and between Glenborough Realty
Trust Incorporated and GPA, Ltd.(23)
10.26 Form of Lock Up Agreement.(24)
10.27 Form of Indemnification Agreement for Glenborough Realty Corporation and
Glenborough Realty Trust Incorporated with Robert Batinovich as indemnitor.(25)
*10.28 Letter of Intent by and between the Company and Trust Realty Partners.
*10.29 First Amendment to Agreement of Limited Partnership of UCT Associates, a
California Limited Partnership dated December 31, 1994.
*10.30 Credit Agreement (Term Loan) between the Company and Wells Fargo Bank, N.A.
*10.31 Credit Agreement (Facility) by and between the Company and Wells Fargo Bank,
N.A.
*10.32 Loan Note in the amount of $40,000,000, made by the Company in connection with
the Credit Agreement (Facility).
*10.33 Loan Note in the amount of $10,000,000 made by the Company in connection with
the Credit Agreement (Facility).
*10.34 Guarantee in connection with the Credit Agreement (Facility).
*10.35 Guarantee in connection with the Credit Agreement (Term Loan).
*10.36 Environmental Indemnity Agreements executed pursuant to the Credit Agreement
(Term Loan) and Credit Agreement (Facility).
*10.37 Purchase Agreement between the Company and Kash n' Karry Food Stores, Inc..
</TABLE>
II-4
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
*10.38 Agreement of Purchase and Sale (property currently commonly known as Shoney's
Inn San Antonio Airport).
*10.39 Agreement for contribution of Partnership Interests -- UCT Property.
*10.40 Letter of Intent dated July 1, 1996 between GPA Ltd., Robert Batinovich,
Glenborough Corporation/Glenborough Properties, L.P. Bond Street.
*10.41 Second Amendment to Agreement of Limited Partnership of UCT Associates, a
California Limited Partnership dated July 11, 1996.
10.42 Contribution Agreement -- TRP Properties.
10.43 Agreement for Contribution of Partnership Interests -- Bond Street Property.
*21. List of Subsidiaries of the Company.
*23.01 Consent of Morrison & Foerster LLP (included in their opinion filed as Exhibit
5.01).
*23.02 Consent of Arthur Andersen LLP, independent public accountants.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
( (1) Incorporated herein by reference to Exhibit No. 4.02 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
( (2) Incorporated herein by reference to Exhibit No. 10.02 to the Registration
Statement on Form S-4 of the Registrant, Registration Statement No.
33-83506, previously filed with the Securities and Exchange Commission on
September 1, 1994. Executed agreements between Glenborough Realty Trust
Incorporated and Robert Batinovich, Andrew Batinovich, Sandra L. Boyle,
Laura Wallace, Richard A. Magnuson, J. Patrick Foley, Terri Garnick, Janet
F. Nelson, and Frank E. Austin, each dated as of January 2, 1996.
( (3) Incorporated herein by reference to Exhibit No. 10.06 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
( (4) Incorporated herein by reference to Exhibit No. 10.07 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995. The agreement was
executed and is dated December 29, 1995.
( (5) Incorporated herein by reference to Exhibit No. 10.08 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995. The agreement was
executed and is dated December 29, 1995.
( (6) Incorporated herein by reference to Exhibit No. 10.09 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
( (7) Incorporated herein by reference to Exhibit No. 10.10 Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
( (8) Incorporated herein by reference to Exhibit No. 10.11 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
( (9) Incorporated herein by reference to Exhibit No. 10.12 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
II-5
<PAGE> 186
(10) Incorporated herein by reference to Exhibit No. 10.13 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
(11) Incorporated herein by reference to Exhibit No. 10.14 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(12) Incorporated herein by reference to Exhibit No. 10.15 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(13) Incorporated herein by reference to Exhibit No. 10.16 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(14) Incorporated herein by reference to Exhibit No. 10.17 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(15) Incorporated herein by reference to Exhibit No. 10.19 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995. The agreement dated
was executed and is December 29, 1995.
(16) Incorporated herein by reference to Exhibit No. 10.20 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995. The agreement was
executed and is dated December 29, 1995.
(17) Incorporated herein by reference to Exhibit No. 10.21 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995. The agreement was
executed and is dated December 29, 1995.
(18) Incorporated herein by reference to Exhibit No. 10.22 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995. The agreement was
executed and is dated December 29, 1995.
(19) Incorporated herein by reference to Exhibit No. 10.23 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995. The agreement was
executed and is dated December 29, 1995.
(20) Incorporated herein by reference to Exhibit No. 10.24 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995. Agreement is
between Glenborough Hotel Group and Andrew Batinovich, June Gardner, Terri
Garnick, David M. Hart, Norman A. Howard, and J. Sydney Whalen were
executed , and each is dated as of January 2, 1996.
(21) Incorporated herein by reference to Exhibit No. 10.25 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995. Agreements between
Glenborough Realty Corporation and Robert E. Bailey, Andrew Batinovich,
Sandra L. Boyle, June Gardner, Terri Garnick, Judy Henrich, and Wallace A.
Krone, Jr. were executed, and each is dated as of January 2, 1996.
(22) Incorporated herein by reference to Exhibit No. 10.26 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995. Agreements between
Glenborough Inland Realty Corporation and Robert E. Bailey, Andrew
Batinovich, Sandra L. Boyle, June
II-6
<PAGE> 187
Gardner, Terri Garnick, Judy Henrich, and Laurence N. Walker were executed,
and each is dated as of January 2, 1996.
(23) Incorporated herein by reference to Exhibit No. 10.27 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995. Agreement was
executed by Robert Batinovich, on behalf of Glenborough Realty Corporation
on behalf of Glenborough Realty Trust Incorporated and GPA, Ltd., a
California limited partnership and are dated December 28, 1995.
(24) Incorporated herein by reference to Exhibit No. 10.28 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995. Document executed
on December 8, 1995 by Robert Batinovich. Document executed on December 8,
1995 by Andrew Batinovich on behalf of SS Rainbow, a California limited
partnership. Document executed on December 8, 1995 by Andrew Batinovich.
(25) Incorporated herein by reference to Exhibit No. 10.31 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995.
ITEM 36. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion to its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Mateo, State of California on
October 1, 1996.
GLENBOROUGH REALTY TRUST INCORPORATED
By: /s/ ROBERT BATINOVICH
---------------------------------------
Robert Batinovich
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-11 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- ------------------
<C> <S> <C>
ROBERT BATINOVICH* Chairman, President and Chief October 1, 1996
- ------------------------------------------ Executive Officer
Robert Batinovich
ANDREW BATINOVICH* Director, Executive Vice October 1, 1996
- ------------------------------------------ President, Chief Operating
Andrew Batinovich Officer and Chief Financial
Officer
SANDRA L. BOYLE* Senior Vice President October 1, 1996
- ------------------------------------------
Sandra L. Boyle
FRANK E. AUSTIN* Senior Vice President, General October 1, 1996
- ------------------------------------------ Counsel and Secretary
Frank E. Austin
TERRI GARNICK* Senior Vice President and Chief October 1, 1996
- ------------------------------------------ Accounting Officer
Terri Garnick
PATRICK FOLEY* Director October 1, 1996
- ------------------------------------------
Patrick Foley
RICHARD A. MAGNUSON* Director October 1, 1996
- ------------------------------------------
Richard A. Magnuson
LAURA WALLACE* Director October 1, 1996
- ------------------------------------------
Laura Wallace
* By: /s/ ROBERT BATINOVICH October 1, 1996
- ------------------------------------------
Robert Batinovich
Attorney in Fact
</TABLE>
II-8
<PAGE> 189
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------
<C> <S> <C>
1.01 Underwriting Agreement among the Company, the Operating Partnership,
Bear, Stearns & Co. Inc. and Robertson, Stephens & Company LLC, as
representatives of the several underwriters.
*3.01 By-laws of the Company.
*3.02 Articles of Amendment and Restatement of Articles of Incorporation of
the Company.
*4.01 The Articles of Amendment and Restatement of Articles of Incorporation
and Bylaws of the Company are filed as Exhibits 3.02 and 3.01,
respectively.
*4.02 Form of Common Stock Certificate.(1)
*5.01 Opinion of Morrison & Foerster LLP regarding validity of the issuance
of the Securities.
*8.01 Opinion of Morrison & Foerster LLP.
*10.01 First Amended and Restated Agreement of Limited Partnership for the
Operating Partnership.
*10.02 Amendment to First Amended and Restated Agreement of Limited
Partnership for the Operating Partnership.
10.03 Form of Indemnification Agreement for Existing Officers and Directors
of Glenborough Realty Trust Incorporated.(2)
*10.04 Form of 1996 Employee Stock Incentive Plan.
10.05 Lease Agreement between the Operating Partnership and Glenborough Hotel
Group.(3)
10.06 Form of Employment Agreement entered into by and between Robert
Batinovich and Glenborough Realty Trust Incorporated.(4)
10.07 Form of Employment Agreement entered into by and between Andrew
Batinovich and Glenborough Realty Trust Incorporated.(5)
10.08 Management and Consulting Agreement dated June 27, 1989 between
Glenborough Management Corporation and the General Partners of nine
Outlook partnerships.(6)
10.09 Agreement dated June 26, 1989 between Glenborough Management
Corporation and the General Partners of nine Outlook partnerships.(7)
10.10 Management and Consulting Agreement dated May 31, 1991 between
Glenborough Management Corporation, Equitec Financial Group, Inc. and
Equitec Properties Company.(8)
10.11 Management Administration and Consulting Agreement dated May 31, 1991
between Glenborough Management Corporation, Equitec Financial Group,
Inc. and Equitec Institutional Realty Advisers, Inc.(9)
10.12 Asset Purchase Agreement dated May 17, 1991 between the Hallwood Group
Incorporated, Glenborough Corporation and Glenborough Management
Corporation.(10)
10.13 Management, Administration and Consulting Agreement dated as of
December 20,1994 between Glenborough Inland Realty Corporation and the
general Partners of nine Rancon Partnerships.(11)
</TABLE>
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------
<C> <S> <C>
10.14 Amendment to Management, Administration and Consulting Agreement dated
March 30, 1995 between Glenborough Inland Realty Corporation and the
General Partners of nine Rancon Partnerships.(12)
10.15 Agreement dated December 20, 1994 between Glenborough Inland Realty
Corporation and Rancon Financial Corporation, Daniel Lee Stephenson
individually and as Trustee of the Daniel Lee Stephenson Trust dated
December 10, 1987, and the General Partners of nine Rancon
Partnerships.(13)
10.16 Amendment to Agreement dated January 3, 1995 between Glenborough Inland
Realty Corporation and Rancon Financial Corporation, Daniel Lee
Stephenson individually and as Trustee of the Daniel Lee Stephenson
Trust dated December 10, 1987, and the General Partners of nine Rancon
Partnerships.(14)
10.17 Form of Employment Agreement entered into by and between Robert
Batinovich and Glenborough Realty Corporation.(15)
10.18 Form of Employment Agreement entered into by and between Andrew
Batinovich and Glenborough Realty Corporation.(16)
10.19 Form of Employment Agreement entered into by and between Robert
Batinovich and Glenborough Inland Realty Corporation.(17)
10.20 Form of Employment Agreement entered into by and between Andrew
Batinovich and Glenborough Inland Realty Corporation.(18)
10.21 Form of Employment Agreement entered into by and between Andrew
Batinovich and Glenborough Hotel Group.(19)
10.22 Form of Indemnification Agreement for Officers and Directors of
Glenborough Hotel Group.(20)
10.23 Form of Indemnification Agreement for Officers and Directors of
Glenborough Realty Corporation.(21)
10.24 Form of Indemnification Agreement for Officers and Directors of
Glenborough Inland Realty Corporation.(22)
10.25 Form of Registration Agreement entered into by and between Glenborough
Realty Trust Incorporated and GPA, Ltd.(23)
10.26 Form of Lock Up Agreement.(24)
10.27 Form of Indemnification Agreement for Glenborough Realty Corporation
and Glenborough Realty Trust Incorporated with Robert Batinovich as
indemnitor.(25)
*10.28 Letter of Intent by and between the Company and Trust Realty Partners.
*10.29 First Amendment to Agreement of Limited Partnership of UCT Associates,
a California Limited Partnership dated December 31, 1994.
*10.30 Credit Agreement (Term Loan) between the Company and Wells Fargo Bank,
N.A.
*10.31 Credit Agreement (Facility) by and between the Company and Wells Fargo
Bank, N.A.
*10.32 Loan Note in the amount of $40,000,000, made by the Company in
connection with the Credit Agreement (Facility).
*10.33 Loan Note in the amount of $10,000,000 made by the Company in
connection with the Credit Agreement (Facility).
*10.34 Guarantee in connection with the Credit Agreement (Facility).
</TABLE>
<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------
<C> <S> <C>
*10.35 Guarantee in connection with the Credit Agreement (Term Loan).
*10.36 Environmental Indemnity Agreements executed pursuant to the Credit
Agreement (Term Loan) and Credit Agreement (Facility).
*10.37 Purchase Agreement between the Company and Kash n' Karry Food Stores,
Inc.
*10.38 Agreement of Purchase and Sale (currently commonly known as Shoney's
Inn San Antonio Airport).
*10.39 Agreement for contribution of Partnership Interests -- UCT Property.
*10.40 Letter of Intent dated July 1, 1996 between GPA Ltd., Robert
Batinovich, Glenborough Corporation/Glenborough Properties,
L.P. -- Bond Street.
*10.41 Second Amendment to Agreement of Limited Partnership of UCT Associates,
a California Limited Partnership dated July 11, 1996.
10.42 Contribution Agreement -- TRP Properties.
10.43 Agreement for Contribution of Partnership Interests -- Bond Street
Property.
*21. List of Subsidiaries of the Company.
*23.01 Consent of Morrison & Foerster LLP (included in their opinion filed as
Exhibit 5.01).
*23.02 Consent of Arthur Andersen LLP, independent public accountants.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
(1) Incorporated herein by reference to Exhibit No. 4.02 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
(2) Incorporated herein by reference to Exhibit No. 10.02 to the Registration
Statement on Form S-4 of the Registrant, Registration Statement No.
33-83506, previously filed with the Securities and Exchange Commission on
September 1, 1994.
(3) Incorporated herein by reference to Exhibit No. 10.06 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(4) Incorporated herein by reference to Exhibit No. 10.07 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995.
(5) Incorporated herein by reference to Exhibit No. 10.08 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995.
(6) Incorporated herein by reference to Exhibit No. 10.09 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
(7) Incorporated herein by reference to Exhibit No. 10.10 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
(8) Incorporated herein by reference to Exhibit No. 10.11 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
(9) Incorporated herein by reference to Exhibit No. 10.12 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
<PAGE> 192
(10) Incorporated herein by reference to Exhibit No. 10.13 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on January 3, 1995.
(11) Incorporated herein by reference to Exhibit No. 10.14 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(12) Incorporated herein by reference to Exhibit No. 10.15 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(13) Incorporated herein by reference to an exhibit to Exhibit No. 10.16 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form S-4 of
the Registrant, Registration Statement No. 33-83506, previously filed with
the Securities and Exchange Commission on June 26, 1995.
(14) Incorporated herein by reference to Exhibit No. 10.17 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(15) Incorporated herein by reference to Exhibit No. 10.19 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(16) Incorporated herein by reference to Exhibit No. 10.20 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995.
(17) Incorporated herein by reference to Exhibit No. 10.21 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995.
(18) Incorporated herein by reference to Exhibit No. 10.22 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995.
(19) Incorporated herein by reference to Exhibit No. 10.23 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on June 26, 1995.
(20) Incorporated herein by reference to Exhibit No. 10.24 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995.
(21) Incorporated herein by reference to Exhibit No. 10.25 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995.
(22) Incorporated herein by reference to Exhibit No. 10.26 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995.
(23) Incorporated herein by reference to Exhibit No. 10.27 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995.
(24) Incorporated herein by reference to Exhibit No. 10.28 to Pre-Effective
Amendment No. 4 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on September 1, 1995.
(25) Incorporated herein by reference to Exhibit No. 10.31 to Pre-Effective
Amendment No. 5 to the Registration Statement on Form S-4 of the
Registrant, Registration Statement No. 33-83506, previously filed with the
Securities and Exchange Commission on October 10, 1995.
<PAGE> 1
Exhibit 1.01
3,500,000 Shares of Common Stock
GLENBOROUGH REALTY TRUST INCORPORATED
UNDERWRITING AGREEMENT
October __, 1996
BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY LLC
JEFFERIES & COMPANY, INC.,
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Ladies and Gentlemen:
Glenborough Realty Trust Incorporated, a corporation organized and
existing under the laws of Maryland (the "Company") and the sole general partner
of Glenborough Properties, L.P. (the "Operating Partnership"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the several
underwriters named in Schedule I attached hereto (the "Underwriters") an
aggregate of 3,500,000 shares (the "Firm Shares") of its common stock, par value
$0.001 per share (the "Common Stock") and, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Shares, at the option of
the Underwriters, up to an additional 525,000 shares (the "Additional Shares")
of Common Stock. The Firm Shares and any Additional Shares purchased by the
Underwriters are referred to herein as the "Shares". Bear, Stearns & Co. Inc.,
Robertson, Stephens & Company LLC and Jefferies & Company, Inc. have agreed to
act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the purchase of the Shares. The Shares are
more fully described in the Registration Statement referred to below.
<PAGE> 2
1. Representations and Warranties of the Company and the Operating
Partnership. The Company and the Operating Partnership, jointly and severally,
represent and warrant to, and agree with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-11 (No. 333-09411), for the
registration of the Shares under the Securities Act of 1933, as amended (the
"Act"). Such registration statement, including the prospectus, financial
statements and schedules, exhibits and all other documents filed as a part
thereof, as amended at the time of effectiveness of the registration statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules
and Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement." Any registration statement filed by the
Company pursuant to Rule 462(b) under the Regulations is herein called the "Rule
462(b) Registration Statement," and from and after the date and time of such
filing of a Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The prospectus, in the
form first used by the Underwriters to confirm sales of the Shares, is herein
called the "Prospectus"; provided, however, if the Company has elected to rely
upon Rule 434 under the Regulations (and has obtained the Representatives'
consent thereto on behalf of the several Underwriters), the term "Prospectus"
shall mean the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated September 9, 1996 (such preliminary prospectus herein called
the "Rule 434 preliminary prospectus") together with the applicable term sheet
(the "Term Sheet") prepared and filed by the Company with the Commission under
Rules 434 and 424(b) under the Regulations and provided, further, that all
references in this Agreement to the date of the Prospectus shall mean the date
of such applicable Term Sheet. Additionally, all references in this Agreement to
the Registration Statement, the Rule 462(b) Registration Statement, a
preliminary prospectus, the Prospectus and the Term Sheet, or any amendments or
supplements to any of the foregoing, shall be deemed to include any copy thereof
filed
2
<PAGE> 3
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR").
(b) Each preliminary prospectus and Prospectus filed as part of the
Registration Statement, as part of any amendment thereto or pursuant to Rule 424
under the Regulations, complied when so filed in all material respects with the
Act and, if so filed by electronic transmission pursuant to EDGAR (except as may
be permitted by Regulation S-T under the Act) was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sales of
the Shares. At the respective times that the Registration Statement, the Rule
462(b) Registration Statement, if any, and any post-effective amendments thereto
became effective, and at all times subsequent thereto up to and including the
Closing Date and the Additional Closing Date, if any (as hereinafter
respectively defined), the Registration Statement, such Rule 462(b) Registration
Statement and each such posteffective amendment thereto complied and will comply
in all material respects with the Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The Prospectus, as amended or supplemented, as of its date and at all times
subsequent thereto up to and including the Closing Date and the Additional
Closing Date, if any, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If the Company has elected to rely upon Rule 434 under the
Regulations, and has obtained the Representatives' consent thereto, the Company
confirms that the Rule 434 preliminary prospectus is not materially different
from the Company's prospectus contained in the Registration Statement at the
time it was declared effective, and the Company agrees that it shall comply with
the requirements of Rule 434. Notwithstanding the foregoing, the representations
and warranties set forth in the second and third sentences of this Section 1(b)
do not apply to statements in or omissions from the Registration Statement, the
Rule 462(b) Registration Statement, if any, and any posteffective amendments
thereto, or the Prospectus, or any amendments or supplements thereto, made in
reliance upon and in conformity with information relating to any Underwriter
3
<PAGE> 4
furnished to the Company in writing by any Representative expressly for use
therein. There are no contracts or other documents required to be described in
the Prospectus or to be filed as exhibits to the Registration Statement under
the Act that have not been described, filed or incorporated by reference therein
as required.
(c) Arthur Andersen LLP, who have certified the financial
statements, related notes and supporting schedules included in the Registration
Statement, are independent public accountants as required by the Act and the
Regulations.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change in the business, business prospects, properties, operations,
condition (financial or other) or results of operations of the Company or the
Operating Partnership and their respective subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business (any
such change with respect to any entity being referred to herein as a "Material
Adverse Change"), and since the date of the latest balance sheet presented in
the Registration Statement and the Prospectus, neither the Company, the
Operating Partnership nor any of their respective subsidiaries has incurred or
undertaken any liabilities or obligations, direct or contingent, which are
material to the Company, the Operating Partnership and their respective
subsidiaries taken as a whole, except for liabilities or obligations which are
reflected or disclosed in the Registration Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein have
been duly and validly authorized by the Company and the Operating Partnership
and this Agreement has been duly and validly executed and delivered by the
Company and the Operating Partnership.
(f) The execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not (i)
conflict with or result in a breach of any of the terms and provisions of, or
4
<PAGE> 5
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company, the
Operating Partnership or any of their respective subsidiaries pursuant to, any
agreement, instrument, franchise, license or permit to which the Company, the
Operating Partnership or any of their respective subsidiaries is a party or by
which any of such entities or their respective properties or assets may be bound
or (ii) violate or conflict with any provision of the partnership agreement of
the Operating Partnership, the certificate of incorporation or by-laws of the
Company or any of the subsidiaries of the Company or Operating Partnership or
any judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over the
Company, the Operating Partnership or any of their subsidiaries or any of their
respective properties or assets, except for those violations or conflicts that
would not have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole. No consent,
approval, authorization, order, registration, filing, qualification, license or
permit of or with any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company, the Operating Partnership or any of
their respective subsidiaries or any of their respective properties or assets is
required for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the issuance,
sale and delivery of the Shares to be issued, sold and delivered by the Company
hereunder, except the registration under the Act of the Shares and such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the Shares
by the Underwriters.
(g) All of the outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and nonassessable and were not issued
and are not now in violation of or subject to any preemptive rights. The Shares,
when issued, delivered and sold in accordance with this Agreement, will be duly
and validly issued and outstanding, fully paid and nonassessable, and will not
have been issued in
5
<PAGE> 6
violation of or be subject to any preemptive rights. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization." The Common Stock, including the Shares, conform to
the description thereof contained in the Registration Statement and the
Prospectus. The Company is the sole general partner of the Operating
Partnership; the partnership agreement of the Operating Partnership has been
duly authorized, executed and delivered by each partner thereto and is valid,
legally binding and enforceable in accordance with its terms; all of the
partnership interests in the Operating Partnership have been duly and validly
authorized and issued and (except as described in the Prospectus) are owned
directly or indirectly by the Company free and clear of all liens, encumbrances,
equities or claims. All issued and outstanding securities of the Operating
Partnership have been duly and validly authorized and issued in compliance with
the federal and state securities laws. The units of the Operating Partnership to
be issued in connection with the acquisitions described in the Prospectus under
the caption "Recent Activities" will be duly and validly issued in compliance
with the federal and state securities laws when issued in the manner described
in the Prospectus.
(h) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland. The
Operating Partnership has been duly organized and is validly existing as a
limited partnership in good standing under the laws of the State of California.
The Company is duly qualified and in good standing as a foreign corporation, and
the Operating Partnership has been duly qualified and in good standing as a
foreign limited partnership, in each jurisdiction in which the character or
location of its respective properties (owned, leased or licensed) or the nature
or conduct of its respective business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole. Each of the
Company and the Operating Partnership has all requisite power and authority, and
all necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties and
conduct
6
<PAGE> 7
its business as now being conducted and as described in the Registration
Statement and the Prospectus, except for the absence of which individually or in
the aggregate would not have a material adverse effect on the Company, the
Operating Partnership and their respective subsidiaries taken as a whole, and no
such consent, approval, authorization, order, registration, qualification,
license or permit contains a materially burdensome restriction not adequately
disclosed in the Registration Statement and the Prospectus.
(i) Each subsidiary of the Company or the Operating Partnership has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation. Each subsidiary of the
Company or the Operating Partnership is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or location of
its properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures to be so
qualified or in good standing which will not in the aggregate have a material
adverse effect on the Company, the Operating Partnership and their respective
subsidiaries, taken as a whole. Each subsidiary of the Company and the Operating
Partnership has all requisite power and authority, and all necessary consents,
approvals, authorizations, orders, registrations, qualifications, licenses and
permits of and from all public, regulatory or governmental agencies and bodies,
to own, lease and operate its properties and conduct its business as now being
conducted and as described in the Registration Statement and the Prospectus,
except for the absence of which individually or in the aggregate would not have
a material adverse effect on the Company, the Operating Partnership and their
respective subsidiaries taken as a whole, and no such consent, approval,
authorization, order, registration, qualification, license or permit contains a
materially burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus. All of the capital stock in each subsidiary of the
Company or the Operating Partnership has been duly and validly authorized and
issued and (except as described in the Prospectus) is owned directly or
indirectly by the Company or the Operating Partnership, as the case may be, free
and clear of all liens, encumbrances, equities or claims.
7
<PAGE> 8
(j) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company, the Operating Partnership or any
of their respective subsidiaries is a party or to which any property of the
Company, the Operating Partnership or any of their respective subsidiaries is
subject or which is pending or, to the knowledge of the Company and the
Operating Partnership, contemplated against the Company, the Operating
Partnership or any of their respective subsidiaries which might result in any
material adverse change in the business, business prospects, properties,
operations, condition (financial or other) or, results of operations of the
Company, the Operating Partnership and their respective subsidiaries taken as a
whole, which might materially and adversely affect the transactions contemplated
by this Agreement or which is required to be disclosed in the Registration
Statement and the Prospectus. The descriptions of litigation matters in the
Prospectus under the captions "Risk Factors -- Other Risks -- Litigation Related
to Consolidation", "Risk Factors --Other Risks -- Chapter 11 Reorganization of
Partnership Consolidation by Senior Management" and "Business and Properties --
Legal Proceedings" are complete and accurate in all material respects.
(k) Neither the Company nor the Operating Partnership has taken or
will take, directly or indirectly, any action designed to cause or result in, or
which constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(l) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company, its
subsidiaries and their predecessors in interests of the dates indicated and the
results of their operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein; and no
other
8
<PAGE> 9
financial statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus under the
captions "Prospectus Summary--Summary Financial and Other Data," "Selected
Financial and Other Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement; and the pro forma condensed
consolidated financial statements of the Company and the related notes thereto
included under the caption "Pro Forma Financial Information" and elsewhere in
the Prospectus and in the Registration Statement present fairly the information
contained therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have been
properly presented on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein.
(m) Except as described in the Prospectus, no holder of securities
of the Company or the Operating Partnership has any rights to the registration
of securities of the Company or securities of the Operating Partnership that are
convertible, exchangeable or exercisable for securities of the Company because
of the filing of the Registration Statement or otherwise in connection with the
sale of the Shares contemplated hereby.
(n) Except as described in the Prospectus, the Company, the
Operating Partnership and their respective subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(l) above or elsewhere in the Prospectus, in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as are described
in the Prospectus and such as do not materially and adversely affect the value
of such property and do not materially interfere with the use made or proposed
to be made of such property by the Company, the Operating Partnership or any of
their respective subsidiaries. The real property, improvements, equipment and
personal property held under lease by the Company, the Operating Partnership or
their respective subsidiaries are held under
9
<PAGE> 10
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by the
Company, the Operating Partnership or any of their respective subsidiaries.
(o) The Company, the Operating Partnership and their respective
subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns and have paid all taxes required to be paid by any of them
and, if due and payable, any related or similar assessment, fine or penalty
levied against any of them, except insofar as the failure to file such returns
would not have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole. The Company,
the Operating Partnership and their respective subsidiaries have made adequate
charges, accruals and reserves in their respective financial statements in
respect of all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company, the Operating Partnership
or any of their respective subsidiaries has not been finally determined, except
to the extent of any inadequacy that would not have a material adverse effect on
the Company, the Operating Partnership and their respective subsidiaries, taken
as a whole.
(p) Except as described in the Prospectus, the Company, the
Operating Partnership and each of their respective subsidiaries are insured by
recognized financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks that the Company
believes are adequate to insure against potential losses, with such policies
including, but not limited to, policies covering real and personal property
owned or leased by the Company, the Operating Partnership or any of their
respective subsidiaries against theft, damage, destruction, acts of vandalism
and such other risks. Neither the Company nor the Operating Partnership has any
reason to believe that they or any of their respective subsidiaries will not be
able (i) to renew their existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct their business as now conducted and at a
cost that
10
<PAGE> 11
would not result in a Material Adverse Change in the Company, the Operating
Partnership or any of their respective subsidiaries. Neither the Company, the
Operating Partnership nor any of their respective subsidiaries has been denied
any insurance coverage for which it has sought or applied
(q) Except as otherwise disclosed in the Prospectus or as would not,
individually or in the aggregate, result in a Material Adverse Change in the
Company, the Operating Partnership and their respective subsidiaries, taken as a
whole, (i) neither the Company, the Operating Partnership nor any of their
respective subsidiaries is in violation of any federal, state, local or foreign
laws and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
(collectively, "Materials of Environmental Concern"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required for
the operation of the business of the Company, the Operating Partnership or any
of their respective subsidiaries under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company, the
Operating Partnership or any of their respective subsidiaries received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company, the Operating Partnership
or any of their respective subsidiaries is in any such violation; (ii) there is
no claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company, the Operating
Partnership or any of their respective subsidiaries has received written notice,
and no written notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses costs, natural
resources damages, property damages, personal injuries, attorneys' fees or
penalties arising out
11
<PAGE> 12
of, based on or resulting from the presence, or release into the environment, or
any Material of Environmental Concern at any location owned, leased or operated
by the Company, the Operating Partnership or any of their respective
subsidiaries, now or in the past (collectively, "Environmental Claims"), pending
or, to the best knowledge of the Company and the Operating Partnership,
threatened against the Company, the Operating Partnership or any of their
respective subsidiaries or, to the best knowledge of the Company or the
Operating Partnership, against any person or entity whose liability for any
Environmental Claim the Company, the Operating Partnership or any of their
respective subsidiaries has retained or assumed either contractually or by
operation of law; and (iii) to the best of knowledge of the Company and the
Operating Partnership, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim against
the Company, the Operating Partnership or any of their respective subsidiaries
or against any person or entity whose liability for any Environmental Claim the
Company, the Operating Partnership or any of their respective subsidiaries has
retained or assumed either contractually or by operation of law.
(r) In the ordinary course of their business, the Company and the
Operating Partnership conduct periodic reviews of the effect of Environmental
Laws on the business, operations and properties of the Company, the Operating
Partnership and their respective subsidiaries, in the course of which they
identify and evaluate associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review and the amount of
their established reserves, the Company and the Operating Partnership have
reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, result in a Material Adverse Change in the
Company, the Operating
12
<PAGE> 13
Partnership and their respective subsidiaries, taken as a whole.
(s) Except as otherwise described in the Prospectus, there are no
business relationships or related-party transactions of the type described in
Item 404 of Regulation S-K of the Commission involving the Company, the
Operating Partnership or any of their respective subsidiaries, except for such
transactions that would be considered immaterial under such Item 404. The
descriptions under the caption "Certain Relationships and Related Transactions"
are complete and accurate in all material respects.
(t) The Company will elect to be taxed as a "real estate investment
trust" ("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"), effective beginning in its taxable year 1996. The Company has at all
times beginning on January 1, 1996 qualified for taxation as a REIT under the
Code and intends to continue to operate in such manner.
(u) The Company is not presently doing business with the government
of Cuba or with any person or affiliate located in Cuba.
(v) The Common Stock (including the Shares) is registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and
is listed on the New York Stock Exchange (the "NYSE"), and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the NYSE, nor has the Company received any notification that the
Commission or the NYSE is contemplating terminating such registration or
listing.
(w) Neither the Company, the Operating Partnership nor any of their
respective subsidiaries is, or, after giving effect to the issue and sale of the
Shares by the Company will be, an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940.
13
<PAGE> 14
Any certificate signed by an officer of the Company or the Operating
Partnership and delivered to the Representatives or their counsel shall be
deemed to be a representation and warranty by the Company or the Operating
Partnership, as the case may be, as to the matters covered thereby.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $ , the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York, or at such other place as shall be agreed upon
by you and the Company, at 10:00 A.M. on the third or fourth business day (as
permitted under Rule 15c6-1 under the Exchange Act) (unless postponed in
accordance with the provisions of Section 9 hereof) following the date of the
effectiveness of the Registration Statement (or, if the Company has elected to
rely upon Rule 430A of the Regulations, the third or fourth business day (as
permitted under Rule 15c6-1 under the Exchange Act) after the determination of
the public offering price of the Shares), or such other time not later than ten
business days after such date as shall be agreed upon by you and the Company
(such time and date of payment and delivery being herein called the "Closing
Date"). Payment shall be made to the Company by wire transfer in same day funds,
against delivery to you for the respective accounts of the Underwriters of
certificates for the Shares to be purchased by them. Certificates for the Shares
shall be registered in such name or names and in such authorized denominations
as you may request in writing at least 48 hours prior to the Closing Date. The
Company will permit you to examine and package such certificates for delivery at
least 24 hours prior to the Closing Date.
14
<PAGE> 15
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase up to 525,000 Additional Shares at the same purchase price
per share to be paid by the Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering over-allotments in
the sale of Firm Shares by the Underwriters. This option may be exercised at any
time, in whole or in part, on or before the thirtieth day following the date of
the Prospectus, by written notice by you to the Company. Such notice shall set
forth the aggregate number of Additional Shares as to which the option is being
exercised and the date and time, as reasonably determined by you, when the
Additional Shares are to be delivered (such date and time being herein sometimes
referred to as the "Additional Closing Date"); provided, however, that the
Additional Closing Date shall not be earlier than the Closing Date or earlier
than the second full business day after the date on which the option shall have
been exercised nor later than the eighth full business day after the date on
which the option shall have been exercised (unless such time and date are
postponed in accordance with the provisions of Section 9 hereof). Certificates
for the Additional Shares shall be registered in such name or names and in such
authorized denominations as you may request in writing at least 48 hours prior
to the Additional Closing Date. The Company will permit you to examine and
package such certificates for delivery at least 24 hours prior to the Additional
Closing Date.
The number of Additional Shares to be sold to each Underwriter shall
be the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 9 hereof) bears to the total number of Firm Shares being purchased
from the Company, subject, however, to such adjustments to eliminate any
fractional shares as you in your sole discretion shall make.
Payment for the Additional Shares shall be made by wire transfer in
same day funds at the office Bear, Stearns & Co. Inc., 245 Park Avenue, New
York, New York, or such other location as may be mutually acceptable, upon
15
<PAGE> 16
delivery of the certificates for the Additional Shares to you for the respective
accounts of the Underwriters.
3. Offering. Upon your authorization of the release of the Firm Shares,
the Underwriters propose to offer the Shares for sale to the public upon the
terms set forth in the Prospectus.
4. Covenants of the Company and the Operating Partnership. The Company
and the Operating Partnership jointly and severally covenant and agree with the
Underwriters that:
(a) If the Registration Statement has not yet been declared
effective, the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule
434 within the prescribed time period and will provide evidence satisfactory to
you of such timely filing. If the Company elects to rely upon Rule 434, and
obtains the Representatives' consent thereto, the Company agrees that it will
comply with the requirements of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor, (v) of the receipt of any comments from the
Commission, and (vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time, the
Company will make every reasonable effort to prevent the issuance of any such
stop
16
<PAGE> 17
order and, if issued, to obtain the lifting of such order as soon as possible.
The Company will not file any amendment to the Registration Statement or any
amendment of or supplement to the Prospectus (including the prospectus required
to be filed pursuant to Rule 424(b)or Rule 434) that differs from the prospectus
on file at the time of the effectiveness of the Registration Statement before or
after the effective date of the Registration to which you shall reasonably
object in writing after being timely furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would, in the judgment
of the Underwriters or the Company include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary at any
time to amend or supplement the Prospectus or Registration Statement to comply
with the Act or the Regulations, the Company will notify you promptly and
prepare and file with the Commission an appropriate amendment or supplement (in
form and substance satisfactory to you) which will correct such statement or
omission and will use its best efforts to have any amendment to the Registration
Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you three signed copies of
the Registration Statement, including exhibits and all amendments thereto, and
the Company will promptly deliver to each of the Underwriters such number of
copies of any preliminary prospectus, the Prospectus, the Registration
Statement, and all amendments of and supplements to such documents, if any, as
you may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time of effectiveness of the Registration Statement, to
qualify the Shares for offering and sale under the securities laws relating to
the offering or sale of the Shares of such jurisdictions as you may designate
and to maintain such qualification in effect for so long as required for the
17
<PAGE> 18
distribution thereof; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process.
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs (or if such fiscal quarter is the Company's fourth fiscal
quarter, not later than 90 days after the end of such quarter), an earning
statement (in form complying with the provisions of Rule 158 of the Regulations)
covering a period of at least twelve consecutive months beginning after the
effective date of the Registration Statement.
(f) During the period of 120 days from the date of the Prospectus,
the Company and the Operating Partnership will not, directly or indirectly
without your prior written consent, issue, sell, offer or agree to sell, grant
any option to purchase, or otherwise dispose (or announce any offer, sale, grant
of an option to purchase or other disposition) of, any shares of Common Stock
(or any securities convertible into, exchangeable or exercisable for shares of
Common Stock), other than (i) the Company's sale of Shares hereunder and the
Company's issuance of Common Stock upon the exercise of presently outstanding
stock options, (ii) the exchange of outstanding units in the Operating
Partnership for Common Stock, (iii) the issuance, in connection with bona fide
acquisitions of real property or interests therein, of shares of Common Stock or
units in the Operating Partnership such that the aggregate number of shares of
Common Stock issued, or which may be issued upon conversion or exchange of such
units, will not exceed 2,500,000 (the "Permitted Securities"), provided,
however, that as a precondition to any such issuance, the Company or the
Operating Partnership, as the case may be, shall (i) obtain the undertaking of
the holder or holders of the first 1,700,000 shares or units of Permitted
Securities issued that they will not engage in any of the aforementioined
transactions during the period of 120 days from the date of the Prospectus and
place on the face of any such Permitted Security a legend to that effect and
(ii)
18
<PAGE> 19
obtain the undertaking of the holder or holders of the remaining 800,000 shares
or units of Permitted Securities issued that they will not engage in any of the
aforementioined transactions during the period of 90 days from the date of the
Prospectus and place on the face of any such Permitted Security a legend to that
effect.
(g) The Company will obtain the undertaking of each of its officers
and directors and such of its stockholders as have been heretofore designated by
you and listed on Schedule II attached hereto that, during the period of 180
days from the date of the Prospectus, each of them will not, directly or
indirectly, without your prior written consent, issue, sell, offer or agree to
sell, grant any option to purchase, or otherwise dispose (or announce any offer,
sale, grant of an option to purchase or other disposition) of, any shares of
Common Stock (or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock).
(h) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange.
(i) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus.
(j) If the Company elects to rely upon Rule 462(b), the Company
shall file the 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing, either pay to the
Commission the filing fee for the Rule 422(b) Registration Statement give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
5. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
19
<PAGE> 20
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreement) and all
other documents related to the public offering of the Shares (including those
supplied to the Underwriters in quantities as hereinabove stated), (ii) the
issuance, transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the qualification of the Shares
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing a preliminary and final "Blue Sky Memorandum" and the fees
of counsel for the Underwriters and such counsel's disbursements in relation
thereto, (iv) listing the Shares on the NYSE, (v) filing fees of the Commission
and the National Association of Securities Dealers, Inc.(the "NASD"), (vi) the
cost of printing certificates representing the Shares and (vii) the cost and
charges of any transfer agent or registrar; provided, however, except as
provided for in Section 11, that the Company shall have no obligation to
reimburse the Underwriters or the Representatives for (a) fees, disbursements
and out-of-pocket expenses of counsel for the Underwriters or the
Representatives other than pursuant to clause (iii) above or (b) expenses in
connection with the offering that are customarily borne by the representatives
in public offerings of securities of real estate investment trusts.
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company and the Operating Partnership herein contained, as of
the date hereof and as of the Closing Date (for purposes of this Section 6
"Closing Date" shall refer to the Closing Date for the Firm Shares and any
Additional Closing Date, if different, for the Additional Shares), to the
absence from any certificates, opinions, written statements or letters furnished
to you or to Latham & Watkins ("Underwriters' Counsel") pursuant to this Section
6 of any misstatement or omission, to the performance by the Company and the
Operating Partnership of their respective
20
<PAGE> 21
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective and all
necessary stock exchange approval has been received not later than 5:30 P.M.,
New York time, on the date of this Agreement, or at such later time and date as
shall have been consented to in writing by you; if the Company shall have
elected to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus
shall have been filed with the Commission in a timely fashion in accordance with
Section 4(a) hereof; and, at or prior to the Closing Date no stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereof shall have been issued and no proceedings therefor shall have
been initiated or threatened by the Commission.
(b) At the Closing Date you shall have received the opinion of
Morrison & Foerster LLP, counsel for the Company and the Operating Partnership,
dated the Closing Date addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Maryland.
(ii) The Company is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or location
of its properties (owned, leased or licensed) or the nature or conduct of
its business makes such qualification necessary, except for those failures
to be so qualified or in good standing which will not in the aggregate have
a material adverse effect on the Company, the Operating Partnership and
their respective subsidiaries, taken as a whole.
(iii) The Company has all requisite corporate power and
authority to own, lease and operate its properties and conduct its business
as now being conducted and as described in the Registration Statement and
the Prospectus.
21
<PAGE> 22
(iv) The Operating Partnership has been duly formed under the
laws of the State of California, with a stated term beyond the term of the
documents being executed in connection with the transactions contemplated
hereby; the partnership agreement of the Operating Partnership has been duly
authorized, executed and delivered by each partner thereto and is valid,
legally binding and enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and by the effect
of general principles of equity; and all of the partnership interests in the
Operating Partnership have been duly and validly authorized and issued and
(except as described in the Prospectus) are owned directly or indirectly by
the Company free and clear of all liens, encumbrances, equities or claims.
All issued and outstanding securities of the Operating Partnership have been
duly and validly authorized and issued in compliance with the federal and
state securities laws. The units of the Operating Partnership to be issued
in connection with the acquisitions described in the Prospectus under the
caption "Recent Activities" will be duly and validly issued in compliance
with the federal and state securities laws when issued in the manner
described in the Prospectus.
(v) The Operating Partnership has been duly qualified as a
foreign limited partnership and is in good standing in each jurisdiction in
which the character or location of its properties (owned, leased or
licensed) or the nature or conduct of its business makes such qualification
necessary, except for those failures to be so qualified or in good standing
which will not in the aggregate have a material adverse effect on the
Company, the Operating Partnership their respective subsidiaries, taken as a
whole.
(vi) The Operating Partnership has all requisite power and
authority to own, lease and operate its properties and conduct its business
as now being conducted and as described in the Registration Statement and
the Prospectus.
22
<PAGE> 23
(vii) Each subsidiary of the Company or the Operating
Partnership that is a "significant subsidiary" (as such term is defined in
Rule 1-02 of Regulation S-X of the Commission) (collectively, the "Material
Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation.
(viii) Each Material Subsidiary is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased or licensed) or the
nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not in
the aggregate have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries taken as a whole.
(ix) Each Material Subsidiary has all requisite power and
authority to own, lease and operate its properties and conduct its business
as now being conducted and as described in the Registration Statement and
the Prospectus.
(x) All of the capital stock or partnership units in each
Material Subsidiary has been duly and validly authorized and issued and
(except as described in the Prospectus) is owned directly or indirectly by
the Company or the Operating Partnership, as the case may be, free and clear
of all liens, encumbrances, equities or claims.
(xi) The Company has an authorized capital stock as set forth in
the Registration Statement and the Prospectus. All of the outstanding shares
of Common Stock are duly and validly authorized and issued, are fully paid
and nonassessable. The Shares to be delivered on the Closing Date have been
duly and validly authorized and, when delivered by the Company in accordance
with this Agreement, will be duly and validly issued, fully paid and
nonassessable and will not have been issued in violation of or subject to
any preemptive rights. The Common Stock, the Firm Shares and the Additional
Shares
23
<PAGE> 24
conform to the descriptions thereof contained in the Registration Statement
and the Prospectus.
(xii) The Common Stock currently outstanding is listed, and the
Shares to be sold under this Agreement to the Underwriters are duly
authorized for listing, on the NYSE.
(xiii) This Agreement and the transactions contemplated herein
have been duly and validly authorized by the Company and the Operating
Partnership and this Agreement has been duly and validly executed and
delivered by the Company and the Operating Partnership.
(xiv) To the best knowledge of such counsel and except as
described in the Prospectus, there is no litigation or governmental
proceeding to which the Company, the Operating Partnership or any of the
Material Subsidiaries is a party or to which any property of the Company,
the Operating Partnership or any of the Material Subsidiaries is subject or
which is pending or contemplated against the Company, the Operating
Partnership or any of the Material Subsidiaries which might result in any
material adverse change or any development involving a material adverse
change in the business, business prospects, properties, operations,
condition (financial or other) or results of operations of the Company, the
Operating Partnership and their respective subsidiaries taken as a whole,
which might materially and adversely affect the transactions contemplated by
this Agreement or which is required to be disclosed in the Registration
Statement and the Prospectus. The descriptions of litigation matters in the
Prospectus under the captions "Risk Factors -- Other Risks -- Litigation
Related to Consolidation", "Risk Factors -- Other Risks -- Chapter 11
Reorganization of Partnership Consolidation by Senior Management" and
"Business and Properties -- Legal Proceedings" are complete and accurate, in
all material respects.
(xv) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will
not (A) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event
24
<PAGE> 25
which with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the Operating
Partnership or any of the Material Subsidiaries pursuant to, any agreement,
instrument, franchise, license or permit known to such counsel to which the
Company, the Operating Partnership or any of the Material Subsidiaries is a
party or by which any of such entities or their respective properties or
assets may be bound that is material to the Company, the Operating
Partnership and their subsidiaries, taken as a whole (collectively, the
"Material Contracts") or (B) violate or conflict with any provision of the
partnership agreement of the Operating Partnership, the certificate of
incorporation or by-laws of the Company or any of the Material Subsidiaries,
or, to the best knowledge of such counsel, any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company, the
Operating Partnership or any of the Material Subsidiaries or any of their
respective properties or assets, except for those violations or conflicts
that would not have a material adverse effect on the Company, the Operating
Partnership and their subsidiaries, taken as a whole. To such counsel's
knowledge, no consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company, the Operating Partnership or any of the Material Subsidiaries or
any of their respective properties or assets is required for the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, except for (A) such as may be required
under state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters (as to which such counsel
need express no opinion) and (B) such as have been made or obtained under
the Act or the rules of the NYSE.
(xvi) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial data included therein, as to
which no opinion need be rendered) comply as to form
25
<PAGE> 26
in all material respects with the requirements of the Act and the
Regulations.
(xvii) The Registration Statement, including any Rule 462(b)
Registration Statement, is effective under the Act, and, to the best
knowledge of such counsel, no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereof or the Rule
462(b) Registration Statement has been issued and no proceedings therefor
have been initiated or threatened by the Commission. Any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Regulations has been made in the manner and within the time period required
by such Rule 424(b).
(xviii) To the best knowledge of such counsel and except as
described in the Prospectus, no holder of securities of the Company or the
Operating Partnership has any rights to the registration of securities of
the Company or securities of the Operating Partnership that are convertible,
exchangeable or exercisable for securities of the Company because of the
filing of the Registration Statement or otherwise in connection with the
sale of the Shares contemplated hereby
(xix) To the best knowledge of such counsel, there are no
business relationships or related party transactions of the nature described
in Item 404 of Regulation S-K of the Commission involving the Company or the
Operating Partnership, except as disclosed in the Prospectus or except for
such transactions that would be considered immaterial under such Item. To
the best knowledge of such counsel, the descriptions under the caption
"Certain Relationships and Related Transactions" (except for the financial
or numerical data included therein, as to which counsel need not render an
opinion) are accurate in all material respects.
(xx) The Company is organized in conformity with the
requirements for qualification as a REIT and its method of operation will
enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code.
26
<PAGE> 27
(xxi) The Operating Partnership is properly treated (A) as a
partnership for federal income tax purposes and (B) not as an association or
publicly traded partnership taxable as a corporation.
(xxii) Neither the Company, the Operating Partnership nor any
Material Subsidiary is, or, after giving effect to the issue and sale of the
Shares by the Company will be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940.
(xxiii) The statements (i) in the Prospectus under the captions
"Risk Factors -- Certain Tax Risks", "Certain Provisions of Maryland Law and
the Company's Organizational Documents", "Federal Income Tax Considerations"
and (ii) in Item 33 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, legal documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel and
fairly present and summarize, in all material respects, the matters referred
to therein.
(xxiv) In addition, such opinion shall also contain a statement
that such counsel has participated in conferences with officers and
representatives of the Company and the Operating Partnership,
representatives of the independent public accountants for the Company and
the Operating Partnership and the Underwriters at which the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although they are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or Prospectus, and they have not
made any independent check or verification thereof, on the basis of the
foregoing, no facts have come to the attention of such counsel which would
lead such counsel to believe that either the Registration Statement at the
time it became effective (including the information deemed to be part of the
Registration Statement, as amended (except for financial statements and
schedules and other financial statistical data included therein, as to which
27
<PAGE> 28
such counsel need make no statement) at the time of effectiveness pursuant
to Rule 430A(b) or Rule 434, if applicable), or any subsequent amendment
thereof made prior to the Closing Date as of the date of such amendment,
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (except for
financial statements and schedules and other financial or statistical data
included therein, as to which counsel need make no statement) as of its date
(or any subsequent amendment thereof or subsequent supplement thereto made
prior to the Closing Date as of the date of such amendment or supplement)
and as of the Closing Date contained or contains an untrue statement of a
material fact or omitted or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with respect
to the financial statements and schedules and other financial data included
therein).
In rendering such opinion, such counsel may rely as to matters involving the
application of laws other than the laws of the United States, California and
any other jurisdictions in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinion, if at all,
upon an opinion or opinions (in form and substance reasonably satisfactory
to Underwriters' Counsel) of other counsel reasonably acceptable to
Underwriters' Counsel, familiar with the applicable laws; provided, that
such opinion shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them. In rendering such opinion, such
counsel may rely as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and the Operating
Partnership and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting
the existence or good standing of the Company, the Operating Partnership and
their respective subsidiaries, provided that copies of any such statements
or certificates shall be delivered to Underwriters' Counsel and such opinion
shall state
28
<PAGE> 29
that such counsel and the Underwriters are justified in so relying upon any
such certificate. The opinion of such counsel for the Company shall state
that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying
thereon.
All proceedings taken in connection with the sale of the Firm Shares and the
Additional Shares as herein contemplated shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and the Underwriters shall
have received from said Underwriters' Counsel a favorable opinion, dated as
of the Closing Date with respect to the issuance and sale of the Shares, the
Registration Statement and the Prospectus and such other related matters as
you may reasonably require, and the Company shall have furnished to
Underwriters' Counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(c) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company on behalf of
the Company and as the sole general partner of the Operating Partnership, dated
the Closing Date to the effect that (i) the condition set forth in subsection
(a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of
the Closing Date the representations and warranties of the Company and the
Operating Partnership set forth in Section 1 hereof are accurate, (iii) as of
the Closing Date the obligations of the Company and the Operating Partnership to
be performed hereunder on or prior thereto have been duly performed and (iv)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company, the Operating
Partnership and their respective subsidiaries have not sustained any material
loss or interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development involving
a material adverse change, in the business prospects, properties, operations,
condition (financial or otherwise), or results of operations of the Company, the
Operating Partnership and their respective subsidiaries taken as a
29
<PAGE> 30
whole, except in each case as described in or contemplated by the Prospectus.
(d) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter, from Arthur Andersen LLP, independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to financial statements and certain information of the Company and its
subsidiaries contained in the Registration Statement and the Prospectus.
(e) Prior to the Closing Date the Company and the Operating
Partnership shall have furnished to you such further information, certificates
and documents as you may reasonably request.
(f) You shall have received from each person who is a director or
officer of the Company or such stockholder as have been heretofore designated by
you and listed on Schedule II hereto an agreement to the effect that such person
will not, directly or indirectly, without your prior written consent, issue,
sell, offer or agree to sell, grant any option to purchase, or otherwise dispose
(or announce any offer, sale, grant of an option to purchase or other
disposition) of, any shares of Common Stock (or any securities convertible into,
exchangeable or exercisable for shares of Common Stock) for a period of 180 days
after the date of the Prospectus
(g) At the Closing Date, the Shares shall have been approved for
listing on the NYSE.
(h) At the Closing Date, you shall have received the opinion of
Frank E. Austin, General Counsel of the Company, dated the Closing Date
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) "Risk Factors -- Risks Associated with Acquisitions --
Pending Acquisitions May Not Be Completed", "Risk Factors -- Risks
Associated with
30
<PAGE> 31
Acquisitions -- Assumption of General Partner Liabilities", "Risk Factors --
Risks Relating to Real Estate -- Management, Leasing and Brokerage Risks;
Lack of Control of Associated Companies", "Risk Factors -- Risks Relating to
Real Estate -- Environmental Matters", "Risk Factors -- Risks Relating to
Real Estate -- Potential Liability Under the Americans with Disabilities
Act", "Risk Factors -- Limitation on Ownership of Common Stock May Preclude
Acquisition of Control", "Formation of the Company", "Recent Activities",
"Distribution Policy", "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources",
"Business and Properties -- Growth Opportunities", "Business and Properties
-- Properties", "Business and Properties -- Management Business", "Business
and Properties -- The Associated Companies", "Business and Properties --
Debt Limit", "Business and Properties -- Debt", "Business and Properties --
Environmental Matters", "Business and Properties -- Subsidiaries", "Certain
Relationships and Related Transactions", "Management - Employment
Agreements", "Management -- 1996 Employee Stock Incentive Plan", "Management
-- 0ther Compensation Plans", "Management - 401(k) Plan", "Management -
Indemnification and Limitation of Liability", "Securities Ownership of
Certain Beneficial Owners and Management", "Description of Capital Stock",
"Restriction on Ownership and Transfer of Common Stock", and "Underwriting"
and (ii) in Item 32 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, legal documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel and
fairly present and summarize, in all material respects, the matters referred
to therein.
(ii) In addition, such opinion shall also contain a statement
that such counsel has participated in conferences with officers and
representatives of the Company and the Operating Partnership,
representatives of the independent public accountants for the Company and
the Operating Partnership and the Underwriters at which the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, no facts have come to the attention of such counsel which would lead
such counsel to believe that either the
31
<PAGE> 32
Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement, as amended
(except for financial statements and schedules and other financial
statistical data included therein, as to which such counsel need make no
statement) at the time of effectiveness pursuant to Rule 430A(b) or Rule
434, if applicable), or any subsequent amendment thereof made prior to the
Closing Date as of the date of such amendment, contained an untrue statement
of a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus (except for financial statements and schedules and other
financial or statistical data included therein, as to which counsel need
make no statement) as of its date (or any subsequent amendment thereof or
subsequent supplement thereto made prior to the Closing Date as of the date
of such amendment or supplement) and as of the Closing Date contained or
contains an untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
belief or opinion with respect to the financial statements and schedules and
other financial data included therein).
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
canceled by you at, or at any time prior to, the Additional Closing Date. Notice
of such cancellation shall be given to the Company in writing, or by telephone,
telex or telegraph, confirmed in writing.
7. Indemnification.
32
<PAGE> 33
(a) The Company and the Operating Partnership, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act against any and all losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the registration statement relating to the
Shares, as originally filed or any amendment thereof, or any related preliminary
prospectus or the Prospectus, or in any supplement thereto or amendment thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that neither the Company
nor the Operating Partnership will be liable in any such case (i) to the extent
but only to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company or the Operating
Partnership by or on behalf of any Underwriter through you expressly for use
therein and (ii) with respect to any preliminary prospectus to the extent that
any such loss, claim, damage or liability results from the fact that an
Underwriter sold Shares to a person as to whom there was not sent or given, at
or prior to written confirmation of such sale, a copy of the Prospectus as then
amended or supplemented in any case where such delivery is required by the Act
if the Company has previously furnished copies thereof to such Underwriter and
the loss, claim, damage or liability of the Underwriters results from an untrue
statement or omission of a material fact contained in the preliminary prospectus
which was corrected in the Prospectus as then amended. This indemnity agreement
will be in addition
33
<PAGE> 34
to any liability which the Company and the Operating Partnership may otherwise
have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, the
Operating Partnership and each other person, if any, who controls the Company or
the Operating Partnership within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any losses, liabilities, claims, damages and
expenses whatsoever as incurred (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement relating to the Shares, as
originally filed or any amendment thereof, or any related preliminary prospectus
or the Prospectus, or in any amendment thereof or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company or the Operating Partnership by or on
behalf of any Underwriter through you expressly for use therein; provided,
however, that in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter hereunder. This indemnity will be in addition to any
liability which any Underwriter may otherwise have including under this
Agreement. The Company and the Operating Partnership acknowledge that the
statements set forth in the last paragraph of the cover page, the stabilization
language on page 2 and the statements set forth in the [second and third]
paragraphs under the caption
34
<PAGE> 35
"Underwriting" in the Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the registration
statement relating to the Shares, as originally filed or in any amendment
thereof, any related preliminary prospectus or the Prospectus or in any
amendment thereof or supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7, except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability that it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying
35
<PAGE> 36
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld.
8. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company, the Operating Partnership
and the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company or the
Operating Partnership any contribution received by the Company or the Operating
Partnership from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company or the Operating
Partnership within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, officers of the Company who signed the Registration Statement and
directors of the Company) as incurred to which the Company, the Operating
Partnership and one or more of the Underwriters may be subject, in such
proportions as is appropriate to reflect the relative benefits received by the
Company, the Operating Partnership and the Underwriters from the offering of the
Shares or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 7 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company, the Operating Partnership and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Operating Partnership on the one hand and the Underwriters on the other
hand shall be deemed to be in the same proportion as (x) the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and (y) the underwriting discounts and
commissions received by the Underwriters, respectively, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault of
36
<PAGE> 37
the Company, the Operating Partnership, and the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the Operating
Partnership, or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Operating Partnership and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter be liable
or responsible for any amount in excess of the underwriting discount applicable
to the Shares purchased by such Underwriter hereunder, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company or the Operating
Partnership within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company or the Operating Partnership, as the case may be,
subject in each case to clauses (i) and (ii) of this Section 8. Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties, notify each party
or parties from whom contribution may be sought, but the omission to so notify
such party or parties shall not relieve the party or parties from whom
37
<PAGE> 38
contribution may be sought from any obligation it or they may have under this
Section 8 or otherwise. No party shall be liable for contribution with respect
to any action or claim settled without its consent; provided, however, that such
consent was not unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, the Firm Shares or Additional Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase shall be
purchased by the non-defaulting Underwriters in proportion to the respective
proportions which the numbers of Firm Shares set forth opposite their respective
names in Schedule I hereto bear to the aggregate number of Firm Shares set forth
opposite the names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, you may in your discretion
arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within 5 calendar days after
such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 9, this Agreement, or in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares, shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.
38
<PAGE> 39
(c) In the event that the Firm Shares or Additional Shares to which
the default relates are to be purchased by the non-defaulting Underwriters, or
are to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date, as
the case may be for a period, not exceeding five business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares or Additional Shares.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters, the Company and the
Operating Partnership contained in this Agreement, including the agreements
contained in Section 5, the indemnity agreements contained in Section 7 and the
contribution agreements contained in Section 8, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person thereof or by or on behalf of the
Company, any of its officers and directors, the Operating Partnership or any
controlling person of the Company or the Operating Partnership, and shall
survive delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of when
(i) you and the Company shall have received notification of the effectiveness of
the Registration Statement or (ii) the execution of this Agreement. If either
the initial public offering price or the purchase price per Share has not been
agreed upon prior to 5:00 P.M., New York time, on the fifth full business day
after the Registration
39
<PAGE> 40
Statement shall have become effective, this Agreement shall thereupon terminate
without liability to the Company, the Operating Partnership or the Underwriters
except as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you
notifying the Company without any liability of any party to any party hereunder.
Notwithstanding the foregoing, the provisions of this Section 11 and of Sections
1, 5, 7 and 8 hereof shall at all times be in full force and effect.
(b) You shall have the right to terminate this Agreement at any
time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be, if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general; or (B) if trading on the NYSE or the American Stock Exchange shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required, on
the NYSE or the American Stock Exchange by such exchanges or by order of the
Commission or any other governmental authority having jurisdiction; or (C) if a
banking moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the Firm
Shares or the Additional Shares, as the case may be, shall have become
effective; or (D) there shall have occurred any Material Adverse Change with
respect to the Company, the Operating Partnership and their respective
subsidiaries taken as a whole; or (E) (i) if the United States becomes engaged
in hostilities or there is an escalation of hostilities involving the United
States or there is a declaration of a national emergency or war by the United
States or (ii) if there shall have been such change in political, financial or
economic conditions if the effect of any such event in (i) or (ii) as in your
judgment makes it impracticable or inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Additional Shares, as the case may
be, on the terms contemplated by the Prospectus.
40
<PAGE> 41
(c) Any notice of termination pursuant to this Section 11 shall be
by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and , if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, N.Y. 10167, Attention: Keith Locker; if sent to the Company, shall be
mailed, delivered, or telegraphed and confirmed in writing to the Company, 400
South El Camino Real, Suite 100, San Mateo, CA 94402-1708, Attention: Frank
Austin.
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Company, the Operating Partnership
and the controlling persons, directors, officers, employees and agents referred
to in Section 7 and 8, and their respective successors and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. The term "successors and assigns" shall not include a
purchaser, in its capacity as such, of Shares from any of the Underwriters.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
41
<PAGE> 42
If the foregoing correctly sets forth the understanding among you, the
Company and the Operating Partnership, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
GLENBOROUGH REALTY TRUST INCORPORATED
By________________________________
Name_____________________________
Title____________________________
GLENBOROUGH PROPERTIES, L.P.
By Glenborough Realty Trust Incorporated
Its General Partner
By________________________________
Name_____________________________
Title____________________________
Accepted as of the date first above
written
BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY LLC
JEFFERIES & COMPANY, INC.
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
BEAR, STEARNS & CO. INC.
By ________________________________
Name_____________________________
Title____________________________
<PAGE> 43
SCHEDULE I
Number of Firm
Name of Underwriter Shares to be Purchased
- ---------------------------------------------------------------------------
Bear, Stearns & Co. Inc.
Robertson, Stephens & Company LLC
Jefferies & Company, Inc.
Total. . . . .__________
<PAGE> 44
SCHEDULE II
GPA, Ltd.
<PAGE> 1
EXHIBIT 10.42
CONTRIBUTION AGREEMENT
THIS AGREEMENT is dated as of August 23, 1996, by and among
TRUST REALTY PARTNERS, a California general partnership ("TRP"), TRUST REALTY
ADVISORS, a California corporation ("TRA"), and GLENBOROUGH PROPERTIES, L.P., a
California limited partnership ("Transferee").
RECITALS
A. Transferee is a California limited partnership whose
general partner is GLENBOROUGH REALTY TRUST INCORPORATED, a Maryland corporation
("GRTI"), whose stock is publicly traded on the New York Stock Exchange.
B. TRP desires to contribute the Property (as defined in
Subparagraph 1(a) below) to Transferee and Transferee desires to accept the
Property from TRP, upon the terms and subject to the conditions set forth in
this Agreement.
C. TRA is the property manager of the Property pursuant to a
Property and Asset Management and Administrative Services Agreement dated as of
July 26, 1993 between TRA, as manager, and TRP, as owner (the "Management
Agreement") and a Brokerage Agreement dated as of ________, 1993, between TRA,
as broker, and TRP, as partnership (the "Leasing Agreement").
D. TRA desires to contribute to Transferee all of TRA's right,
title and interest under the Management Agreement and the Leasing Agreement,
including, without limitation, TRA's rights to the "Sales Commission" (as
defined in the Leasing Agreement) and the "incentive management fee" (as defined
in the Management Agreement), to the extent applicable to the Property (as
herein defined) (collectively, the "Assigned Agreements") and Transferee desires
to accept all of TRA's right, title and interest under the Assigned Agreements
to the extent applicable to the Property, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants and agreements hereinafter contained, and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties hereto
hereby agree as follows:
1. Contribution of Property and Assigned Agreements. Subject
to and upon the terms and conditions hereinafter set forth and the
representations and warranties contained herein,
(a) TRP agrees to contribute to Transferee, and
Transferee agrees to accept from TRP, subject to the terms, covenants and
conditions set forth herein, (a) the real property described in Schedule 1(a)
attached hereto, together with any and all buildings and other improvements
thereon and, to the extent owned by TRP, or held directly or indirectly for the
benefit of TRP, any interest therein, and any and all rights, privileges and
easements appurtenant
1
<PAGE> 2
thereto (individually, an "Individual Real Property," and collectively, the
"Real Property"), (b) all of TRP's right, title and interest in and to the
Leases listed in Exhibit J attached hereto (the "Leases"), and any and all
guarantees of the Leases, (individually, an "Individual Lease Right" and
collectively, the "Lease Rights") and (c) all of TRP's right, title and interest
in and to the personal property and any interest therein owned by TRP or held
directly or indirectly for the benefit of TRP, if any, located on the Real
Property and used in the operation or maintenance of the Real Property, together
with all of TRP's right, title and interest, if any, in and to the following to
the extent assignable: all service contracts, construction contracts for work in
progress, any warranties thereunder, management contracts (including, without
limitation, the Assigned Agreements), reciprocal easement agreements, operating
agreements, maintenance agreements, franchise agreements and other similar
agreements (the "Contracts"), the PMI insurance policy for the Individual
Property known as Mission East (the "PMI Policy"), Transferee's prorated share
(as determined pursuant to Subparagraph 5(f) below) of those certain reserves
which are held by Huntoon, Paige Associates Limited in connection with the Loan
secured by the Individual Property known as Mission East (the "Mission East
Reserves"), all general intangibles relating to design, development, operation,
management and use of the Real Property, all certificates of occupancy, zoning
variances, building, use or other permits, approvals, authorizations, licenses
and consents obtained from any governmental authority in connection with the
development, use, operation or management of the Real Property, all soil tests,
engineering reports, appraisals, architectural drawings, plans and
specifications relating to all or any portion of the Real Property, and all
payment and performance bonds or warranties or guarantees relating to the Real
Property; and all of TRP's right, title and interest in and to any and all of
the following to the extent assignable: trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos, other source and business identifiers, trademark
registration and applications for registration used at or relating to the Real
Property and any written agreement granting to TRP any right to use any
trademark or trademark registration at or in connection with the Real Property
(individually, an "Individual Personal Property," and collectively, the
"Personal Property"). The term "Individual Property" means an Individual Real
Property, together with the Individual Lease Rights and Individual Personal
Property related thereto. The term "Property" means all of the Real Property,
the Lease Rights and the Personal Property.
(b) TRA agrees to contribute to Transferee, free and
clear of any and all liens, encumbrances, liabilities, claims, charges, and
restrictions of any kind or nature whatsoever, all of TRA's right, title and
interest in and to the Assigned Agreements and Transferee agrees to accept from
TRA all of TRA's right, title and interest in and to the Assigned Agreements.
2. Contribution Consideration.
(a) The Transferee and TRP agree that the total
consideration to be given by the Transferee in return for the Property is Forty
Million Sixty-One Thousand Dollars ($40,061,000) ("Property Consideration"),
adjusted as provided in Subparagraph 5(g), which shall comprise the following
components:
2
<PAGE> 3
(i) The amount that would be required in
order to retire all mortgage debt as described on Schedule 2(a)(i) attached
hereto (excluding prepayment penalties) as of the Closing (as defined in
Subparagraph 5(b) below) (the "Loans"), which is presently estimated to be
$35,401,921;
(ii) Cash to be paid to TRP, in an amount to
be specified by TRA at or prior to the Closing ("Cash"); and
(iii) Class B limited partner units
("Units") of Transferee issued to TRP, which shall be in an amount equal to the
Property Consideration less the total of the Loans and the Cash. By way of
example only, based on the present estimated amount of the Loans as set forth
above, and assuming that TRA specified $3,900,000 of Cash to be paid pursuant to
subparagraph (ii), above, the total Property Consideration would comprise the
following:
<TABLE>
<S> <C>
Property Consideration $40,061,000
LESS:
Loans (subparagraph 2(a)(i)) 35,401,921
Cash (subparagraph. 2(a)(ii)) 3,900,000
-----------
Total $39,301,921
EQUALS:
TRP Units (Subparagraph 2(a)(iii)) $ 759,079
</TABLE>
(b) The Transferee and TRA agree that the total
consideration to be given by the Transferee in return for the Assigned
Agreements is One Million Four Hundred Thousand Dollars ($1,400,000) (the
"Management Consideration;" which, together with the Property Consideration, is
collectively referred to as the "Contribution Consideration"). At the Closing,
in consideration of TRA's contribution of the Assigned Agreements to Transferee,
Transferee shall issue to TRA $1,400,000 worth of GRTI's common stock ("Stock").
(c) For purposes of determining the number of Units
and Stock to be issued pursuant to Subparagraph 2(a)(iii) and 2(b) above, each
Unit or share of Stock, as applicable, shall be deemed to be worth $14.50.
(d) With respect to any Stock to be issued to TRA or
to TRP (in the case of a redemption of Units as more fully described in
Subparagraph 2(e) below):
(i) All certificates for the Stock shall
bear a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY
3
<PAGE> 4
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT IN COMPLIANCE WITH SUCH ACT AND LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
NOT TRANSFERABLE, EXCEPT IN ACCORDANCE WITH THE
PROCEDURES AND RESTRICTIONS SET FORTH IN THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF __________,
1996, AMONG GRTI, TRA AND TRP (THE "REGISTRATION
RIGHTS AGREEMENT"), COPIES OF WHICH ARE FILED AT THE
PRINCIPAL OFFICE OF GRTI AND ARE AVAILABLE TO ANY
HOLDER WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR.
ANY PURPORTED TRANSFER IN VIOLATION OF SUCH
RESTRICTIONS SHALL BE VOID AND OF NO EFFECT. AS USED
HEREIN, 'TRANSFER' SHALL MEAN SALE, EXCHANGE,
ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF ANY INTEREST IN A SHARE EXCEPT BY
OPERATION OF LAW IN CONNECTION WITH A MERGER OR
CONSOLIDATION OF THE CORPORATION.
(ii) The certificates for shares of the
Stock shall also bear any other legend required by any applicable state
securities law.
(iii) In addition, GRTI shall make a
notation regarding the restrictions on transfer of the Stock in its stock
records, and such Stock shall be transferred on the records of GRTI only if
transferred or sold in compliance with the provisions of the Registration Rights
Agreement (as herein defined).
(iv) The holder of the Stock issued to TRA
at the Closing shall have "piggyback" registration rights for a period of one
year as well as certain other rights, all as more particularly described in the
Registration Rights Agreement.
(e) The Units shall include a redemption option, the
specific terms and provisions of which are or will be set forth in an amendment
to Transferee's partnership agreement, by which, at any time, any person holding
the Units ("Holder") may demand that Transferee redeem the Units. Transferee
shall comply with such demand by redeeming the Units for either (at the election
of GRTI, in its capacity as Transferee's managing general partner, as more
specifically set forth in Transferee's partnership agreement; provided, however,
that notwithstanding the foregoing, such election may be made by such Holder if
such Holder
4
<PAGE> 5
determines that such election may have an adverse income tax effect on such
Holder): (i) cash in an amount equal to the number of Units being redeemed
multiplied by the then fair market value per Unit, or (ii) Stock based on a
ratio of 1 Unit for 1 share of Stock. If the Units are redeemed for Stock, the
Holder shall have "piggyback" registration rights for a period of one year as
well as certain other rights, all as more particularly described in the
Registration Rights Agreement attached hereto as Exhibit A (the "Registration
Rights Agreement").
(f) On the Closing Date, TRP and TRA shall execute
and deliver, and Transferee shall cause GRTI, so to execute and deliver, the
Registration Rights Agreement.
3. Transferee's Objections to Title Matters. Transferee shall
have the right to disapprove any title exceptions disclosed to Transferee by the
Title Company (as defined in subparagraph 4(d) below) or otherwise disclosed to
Transferee from and after the Effective Date and not described on Schedule 3
attached hereto and made a part hereof (the exceptions described on Schedule 3
being herein referred to as the "Permitted Exceptions") (the "Disapproved
Encumbrances"), and Transferee shall notify TRP in writing of any Disapproved
Encumbrances for each Individual Property within seven (7) business days after
the later of (i) the Effective Date or (ii) the date Transferee receives notice
of any such Disapproved Encumbrance (provided that Transferee's failure to so
notify TRP within such 7-business day period shall be deemed Transferee's
approval of such exception). Notwithstanding the foregoing, Transferee shall be
deemed to have disapproved any delinquent tax, attachment, judgment lien or
mechanic's or supplier's lien, or any other monetary lien other than the Loans
("Monetary Liens"), each of which shall be automatically deemed a Disapproved
Encumbrance. All other title exceptions disclosed to Transferee within the
period described above and not disapproved by Transferee shall constitute
"Permitted Exceptions." Within seven (7) days after the later of (i) the
Effective Date or (ii) the date Transferee notifies TRP of the Disapproved
Encumbrances, TRP shall notify Transferee in writing of any such Disapproved
Encumbrances which TRP is willing and able to cure as of or prior to the
Closing, if any (the "Title Cure Notice"); provided that TRP shall be required
to cure Monetary Liens. Except as so identified in the Title Cure Notice and as
provided in the preceding sentence, TRP shall be deemed to have elected not to
cure such Disapproved Encumbrances. Transferee may, by giving written notice to
TRP on or before the tenth (10th) day after (x) receipt of the Title Cure Notice
or (y) the expiration of the seven (7)-day period described above without reply
from TRP, terminate this Agreement, in which case neither party shall have any
further liability to the other. If Transferee does not so elect within such ten
(10) day period to terminate this Agreement, then Transferee shall be deemed to
have waived its disapproval of the Disapproved Encumbrances pertaining to such
Individual Property and such title exceptions shall then be deemed to be
"Permitted Exceptions."
4. Conditions to Closing. The following conditions are
precedent to Transferee's obligation to accept the Property and the Assigned
Agreements (the "Conditions Precedent"):
(a) The representations and warranties of TRP and TRA
contained herein shall be true and correct as of the Closing Date as though made
at and as of the Closing Date, and TRP's and TRA's covenants under this
Agreement shall be satisfied as of the Closing
5
<PAGE> 6
Date (to the extent such covenants are to be satisfied as of the Closing Date),
and Transferee shall have received at the Closing a certificate dated as of the
Closing Date in the form of Exhibit B attached hereto and executed (i) on behalf
of TRP by executive officers of the respective general partners of TRP and (ii)
on behalf of TRA, by an executive officer of TRA, certifying as to the
fulfillment of the conditions set forth in this Subparagraph 4(a).
(b) At the Closing, TRP shall convey to Transferee
(i) good and marketable fee title to each Individual Property identified in
Schedule 1(a) by deed in the form of Exhibit C-1 through Exhibit C-6 attached
hereto, (ii) title to the Lease Rights pursuant to an assignment and assumption
of tenant leases in the form of Exhibit D attached hereto (the "Assignment of
Leases"), (iii) title to the Personal Property pursuant to a bill of sale in the
form of Exhibit E attached hereto and an assignment and assumption of service
contracts, guaranties and warranties and other intangible property in the form
of Exhibit F attached hereto (the "Assignment of Service Contracts").
(c) At the Closing, TRA shall convey to Transferee
all of its right, title and interest in the Assigned Agreements free and clear
of any defects, liens, encumbrances or claims of any kind by a duly executed
assignment in the form attached as Exhibit G (the "Assignment of Management and
Leasing Agreement").
(d) Chicago Title Insurance Company ("Title Company")
shall be committed to issue at Closing for each Individual Real Property its
extended coverage American Land Title Association Policy of Owner's Title
Insurance (Form B, rev. 10/17/70) in the amount of the Property Consideration
attributable to such Individual Real Property (as determined by Transferee),
showing title to such Individual Real Property vested in Transferee, subject
only to the Permitted Exceptions. The foregoing title policies, together, in
each case, with endorsements, to the extent available in the states where each
Individual Property is located, covering zoning, subdivision map act, survey,
access, contiguity, no violations of covenants, conditions or restrictions and
such other endorsements as Transferee shall reasonably request, are referred to
herein collectively as the "Title Policies." On or before the Closing, TRP shall
cause the Title Company to deliver to Transferee a certification that, in
issuing the Title Policies, the Title Company has not relied on any
representations or indemnities of TRP or any of its affiliates (except as
disclosed in such certification). In addition, as a condition to Transferee's
obligation to close, Transferee shall be satisfied that, as of the Closing,
there is no outstanding financing statement filed in accordance with the Uniform
Commercial Code of any applicable jurisdiction with respect to the Individual
Property or TRP except for any financing statements approved by Transferee prior
to the Effective Date or relating to any of the Loans.
(e) TRP obtaining and delivering to Transferee the
tenant estoppel certificates required under Paragraph 7 below.
(f) TRP obtaining and delivering to Transferee the
Payoff Letters (as defined in Subparagraph 6(a) below) required under
Subparagraph 6(a) below.
6
<PAGE> 7
(g) The physical condition of the Real Property shall
be substantially the same on the day of Closing as on the Effective Date,
reasonable wear and tear and loss by casualty excepted (subject to the
provisions of Paragraph 11 below).
(h) At the Closing, the Conditions Precedent (as
defined and set forth in that certain Agreement dated as of even date herewith
between Transferee and John Provine ("Provine"), who owns a controlling interest
in TRA, (the "Provine Agreement")) shall have each been satisfied or waived in
writing by Transferee.
(i) All of the property management and leasing
agreements affecting the Property (whether between TRP, TRA or any other party
and such property managers and leasing agents) shall be terminated as of the
Closing Date at no cost or expense to Transferee.
The Conditions Precedent contained in Subparagraphs 4(a)
through (i) are intended solely for the benefit of Transferee. If any of the
Conditions Precedent is not satisfied, Transferee shall have the right in its
sole discretion either to waive in writing the Condition Precedent and proceed
with the purchase or terminate this Agreement. In addition, the provisions of
Subparagraphs 4(b), 4(c), 4(h) and 4(i) are also covenants of TRP, TRA and
Provine, as applicable.
5. Closing and Escrow.
(a) Upon mutual execution of this Agreement, the
parties hereto shall deposit an executed counterpart of this Agreement with
Title Company and this Agreement shall serve as instructions to Title Company as
the escrow holder for consummation of the purchase and sale contemplated hereby.
TRP and Transferee agree to execute such additional escrow instructions as may
be appropriate to enable the escrow holder to comply with the terms of this
Agreement; provided, however, that in the event of any conflict between the
provisions of this Agreement and any supplementary escrow instructions, the
terms of this Agreement shall control unless a contrary intent is expressly
indicated in such supplementary instructions.
(b) The parties shall endeavor to conduct an escrow
closing pursuant to Subparagraph 5(a) above. If, however, an escrow closing is
not practical, the closing of the transactions contemplated herein (the
"Closing") shall be held and delivery of all items to be made at the Closing
shall be made at the offices of Morrison & Foerster LLP, 755 Page Mill Road,
Palo Alto, CA 94304 on or before December 1, 1996 (the "Closing Date"). In the
event the Closing does not occur on or before the Closing Date, the escrow
holder shall, unless it is notified by both parties to the contrary within five
(5) days after the Closing Date, return to the depositor thereof items which
were deposited hereunder. Any such return shall not, however, relieve either
party of any liability it may have for its wrongful failure to close.
(c) At or before the Closing, TRP shall deliver or
cause to be delivered to Transferee the following:
(i) a duly executed Registration Rights
Agreement;
7
<PAGE> 8
(ii) the duly executed and acknowledged
Deeds;
(iii) a duly executed Assignment of Leases;
(iv) a duly executed Bill of Sale;
(v) a duly executed Assignment of Service
Contracts;
(vi) a duly executed Assignment of
Management and Leasing Agreement;
(vii) originals (or copies to the extent TRP
does not possess originals) of the Leases;
(viii) duly executed tenant estoppel
certificates as required pursuant to Subparagraph 4(e) above;
(ix) originals (or copies to the extent TRP
does not possess originals) of the Contracts not previously delivered to
Transferee;
(x) originals of the building permits and
certificates of occupancy for the Improvements and all tenant-occupied space
included within the Improvements not previously delivered to Transferee;
(xi) a FIRPTA affidavit (in the form
attached as Exhibit H) pursuant to Section 1445(b)(2) of the Internal Revenue
Code of 1986 (the "Code"), and on which Transferee is entitled to rely, that
neither TRP is a "foreign person" within the meaning of Section 1445(f)(3) of
the Code;
(xii) a California Form 590 from TRP (in the
form attached as Exhibit I) certifying that TRP has a permanent place of
business in California or is qualified to do business in California; (xiii) such
resolutions, authorizations, bylaws or other corporate and/or partnership
documents or agreements relating to TRP and TRA as shall be reasonably required
by Title Company; (xiv) the certificate certifying as to TRP's and TRA's
representations and warranties as required by Subparagraph 4(a) above;
(xv) the Payoff Letters as required by
Subparagraph 4(f) above; and
(xvi) any other instruments, records or
correspondence called for hereunder which have not previously been delivered.
8
<PAGE> 9
Transferee may waive compliance on TRP's part under any of the foregoing items
by an instrument in writing.
(d) At or before the Closing, Transferee shall
deliver or cause to be delivered to TRP or TRA, as the case may be, the
following:
(i) a duly executed Registration Rights
Agreement;
(ii) a duly executed Assignment of Leases;
and
(iii) a duly executed Assignment of Service
Contracts.
(e) TRP and Transferee shall each deposit such other
instruments as are reasonably required by the escrow holder or otherwise
required to close the escrow and consummate the transactions described herein in
accordance with the terms hereof. TRP and Transferee hereby designate Title
Company as the "Reporting Person" for the transaction pursuant to Section
6045(e) of the Code and the regulations promulgated thereunder. Title Company
shall prepare for the mutual review and approval of the parties, a closing
statement to be executed and delivered by each party hereto at the Closing.
(f) With respect to each Individual Property the
following adjustments shall be made, and the following procedures shall be
followed:
(i) Items Not to be Prorated. There shall be
no prorations or adjustments of any kind with respect to (a) delinquent rents
collected by Transferee after the Closing; (b) refunds or shortfalls arising
after the Closing with respect to Overage Rents (as defined below) collected by
TRP from tenants prior to the Closing; (c) insurance premiums (except with
respect to the PMI Policy, which is discussed below).
(ii) Basis of Prorations. All prorations
shall be calculated as of 12:01 a.m. on the Closing Date, on the basis of a
365-day year.
(iii) At Closing. As nearly as practicable
prior to the Closing, Transferee and TRP shall prepare a statement for each
Individual Property ("Proration Statement") showing prorations and adjustments,
and each party shall be so credited or charged at the Closing, in accordance
with the following:
a. Rents. With respect to fixed
rents ("Fixed Rents") and additional rents, including, without limitation,
percentage rents, escalation charges for real estate taxes, parking charges,
marketing fund charges, operating expenses, maintenance escalation rents or
charges, common area expenses, cost-of-living increases or other charges of a
similar nature, if any, and any additional charges and expenses payable under
tenant leases (collectively, "Overage Rents"), TRP shall account to Transferee
for any Fixed Rents or Overage Rents actually collected, and Transferee shall be
credited for its share. For example, if the Closing Date is October 16,
Transferee will be credited for 50% of all October rents collected by TRP prior
to the Closing Date.
9
<PAGE> 10
b. Expenses. With respect to
expenses (including, without limitation, real property taxes and assessments;
current installments (only) of any improvement bonds or assessments which are a
lien on an Individual Property or which are pending and may become a lien on any
Individual Property; water, sewer and utility charges; amounts payable under any
Contract that will be continued after the Closing; permits, licenses and/or
inspection fees; the PMI Policy; interest on any Loan; and any other expenses
normal to the operation and maintenance of the Property) ("Expenses"):
(1) to the extent Expenses
have been paid prior to the Closing Date, TRP shall account to Transferee for
such prepaid Expenses, and TRP shall be credited for its pro rata share for the
period after the Closing Date;
(2) to the extent of
Expenses not yet paid by TRP and to be paid in arrears but which are
ascertainable (e.g., interest on the Loans), Transferee shall be credited for
TRP's pro rata share of such expenses.
c. Security Deposits. TRP shall
deliver to Transferee all security deposits, letters of credit and other
collateral given to TRP or any of its affiliates or predecessors-in-interest
pursuant to any of the Leases, less any portions thereof applied in accordance
with the respective Lease (together with a statement regarding such
applications).
(iv) After Closing. After the Closing Date,
Transferee and TRP shall meet from time to time to discuss adjustments in
accordance with the following:
a. Rents. If Transferee collects any
non-delinquent Fixed Rents or Overage Rents applicable to the month in which the
Closing occurs, TRP's pro rata share of such rents shall be credited to TRP.
b. Expenses. With respect to any
invoice received by Transferee after the Closing Date for Expenses that relates
to the month in which the Closing occurs, Transferee will either, at
Transferee's option, (i) pay the entire amount of the invoice and either bill
TRP for TRP's share or offset TRP's share against any prorated rents due to TRP
under subparagraph a, above, or (ii) compute Transferee's pro rata share, write
a check for that amount in favor of the vendor, and then send the invoice and
its check to TRP, in which case TRP agrees that it will pay for its share and
forward the invoice and the two payments to the vendor.
(g) All costs associated with the transaction, up
to but not exceeding $500,000, shall be charged against TRP only if the Closing
occurs, and in such case will be deducted from the Property Consideration.
These costs are set forth in a budget which was prepared by Transferee and
previously delivered to TRP, and includes, without limitation, all legal and
accounting costs of Transferee and GRTI (including three years' audited
operating statements for the Property to be completed prior to the Closing as
required under federal securities laws), all title insurance premiums, all
escrow charges, any transfer taxes, all costs of Transferee's and GRTI's
engineering and environmental analyses, and all survey costs. To the extent
any of the foregoing costs are not determined at Closing, Transferee shall
deliver to TRP a
10
<PAGE> 11
statement setting forth such costs within thirty (30) days after the Closing
Date and such costs shall be paid by TRP to Transferee within five (5) days
after receipt by TRP of such Statement.
(h) Notwithstanding anything to the contrary set
forth in this Agreement, including, without limit, this Paragraph 5, the Mission
East Reserves shall be prorated between Transferee and TRP in the same manner in
which rents are prorated under this Paragraph 5.
(i) Except as otherwise set forth in this Paragraph
5, the obligations of TRP and Transferee under this Paragraph 5 shall survive
the Closing.
6. Loans. Transferee and TRP (but at no material cost or
liability to TRP) shall use all reasonable efforts to obtain the consent of the
lender of each Loan to the transfer of the Property to Transferee as well as a
payoff letter confirming the outstanding principal amount of such Loan as of the
Closing Date (collectively, the "Payoff Letters"). In addition, TRP hereby
grants Transferee the right to renegotiate the Loans and to negotiate new loans
or loans to replace the existing Loans; provided that (i) TRP incurs no cost or
liability in connection therewith, and (ii) such new loans and modifications to
any Loans are not effective until the Closing. In no event shall TRP be
responsible for the payment of any prepayment fees or yield maintenance fees
payable in connection with the Loans. The parties shall execute all documents
necessary or desirable to evidence or effectuate the modification of Loans as
provided in this Paragraph 6.
7. Estoppel Certificates. TRP shall use all reasonable efforts
to obtain an estoppel certificate from each tenant of the Property (each, a
"Tenant") (other than Tenant's under apartment leases at the Properties listed
on Schedule 7 attached hereto), dated no earlier than forty-five (45) days prior
to the Closing Date, substantially in the form of Exhibit J attached hereto,
conforming to the most recent rent roll approved by Transferee and alleging no
defaults, offsets, or claims against the lessor (the "Estoppel Certificate"). It
shall be a condition to Transferee's obligation to close the transactions
contemplated in this Agreement that on or before the Closing:
(a) TRP delivers to Transferee an Estoppel
Certificate from Tenants occupying seventy-five percent (75%) of the rentable
area of each Individual Property, including all tenants occupying more than ten
percent (10%) of the rentable area of each such Individual Property
(collectively, the "Required Tenants"), and, with respect to all other tenants
(collectively, the "Non-Required Tenants"), there shall exist no dispute with
TRP, which dispute is material to the use, value or economics of such Individual
Property, as determined on an individual basis by Transferee in good faith in
Transferee's sole discretion (a "Material Non-Required Tenant Dispute") (and
Transferee shall be afforded the opportunity to inquire of any Non-Required
Tenant which does not provide an Estoppel Certificate as to whether any such
dispute exists); or
(b) To the extent that TRP is unable to obtain
Estoppel Certificates, or any items required to be therein, from the Required
Tenants, or to the extent that there is any Material Non-Required Tenant
Dispute, TRP shall deliver to Transferee and Transferee may, but shall not be
obligated to, accept, on the Closing Date a certification in which TRP warrants
and
11
<PAGE> 12
represents to Transferee, with respect to such missing Estoppel Certificates, or
any missing items required to be included therein, each item set forth in the
Estoppel Certificate attached as Exhibit J for the missing Estoppel
Certificates.
(c) If the conditions contained in Subparagraphs 7(a)
and (b) above are not satisfied, then Transferee may, by written notice given to
TRP before the Closing, elect to either waive such conditions or terminate this
Agreement.
8. TRP's and TRA's Representations and Warranties. TRP and TRA
each hereby represents and warrants to Transferee as follows:
(a) TRA is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. TRP is
a general partnership duly organized, validly existing and in good standing
under the laws of the State of California.
(b) TRP and TRA each have full power and authority to
execute and deliver this Agreement and to perform all of the terms and
conditions hereof to be performed by TRP and TRA, respectively, and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of TRP and TRA and is the legal, valid and
binding obligation of each of TRP and TRA and is enforceable against each of TRP
and TRA in accordance with its terms, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and by general
equitable principles (whether or not such enforceability is considered in a
proceeding at law or in equity). Neither TRP nor TRA is presently subject to any
bankruptcy, insolvency, reorganization, moratorium, or similar proceeding.
(c) Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated by this Agreement,
nor the compliance with the terms and conditions hereof will (i) violate or
conflict, in any material respect, with any provision of TRP's partnership
agreement or TRA's articles of incorporation or bylaws or any statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restrictions of any government, governmental agency or court to which either TRP
or TRA is subject, or (ii) result in any material breach or the termination of
any lease, agreement or other instrument or obligation to which either TRP or
TRA is a party or by which any of the Property may be subject, or cause a lien
or other encumbrance to attach to any of the Property or the Assigned
Agreements. Neither TRP nor TRA is a party to any contract or subject to any
other legal restriction that would prevent or restrict complete fulfillment by
TRP or TRA of all of the terms and conditions of this Agreement or compliance
with any of the obligations under it.
(d) All material consents required from any
governmental authority or third party in connection with the execution and
delivery of this Agreement by TRP and TRA or the consummation by TRP or TRA of
the transactions contemplated hereby, if any, have been made or obtained or
shall have been made or obtained by the Closing Date. Complete and correct
copies of all such consents, if any, shall be delivered to Transferee.
12
<PAGE> 13
(e) There are no adverse or other parties in
possession of the Property, or any part thereof, except TRP and tenants under
the Leases. No party has been granted any license, lease, or other right
relating to the use or possession of the Property or any part thereof, except
tenants under the Leases.
(f) To the best of TRA's and TRP's actual knowledge,
except as set forth on Schedule 8(f), there is no litigation pending or
threatened, against either TRP or TRA or any basis therefor that arises out of
the ownership of the Property or that might detrimentally affect the value or
the use or operation of any of the Property for its intended purpose or the
ability of TRP or TRA to perform its obligations under this Agreement. TRP and
TRA shall notify Transferee promptly of any such litigation of which either TRP
or TRA becomes aware.
(g) Except as set forth on Schedule 8(g), at the time
of Closing there will be no outstanding written or oral contracts made by TRP
for any improvements to the Property which have not been fully paid for and TRP
shall cause to be discharged all mechanics' and materialmen's liens arising from
any labor or materials furnished to the Property prior to the time of Closing.
(h) Schedule 8(h) lists all of the tangible Personal
Property.
(i) Attached hereto as Exhibit K is a rent roll (the
"Rent Roll") for each Property showing all of the Leases for each such Property
as of the date of this Agreement. Said Rent Roll is complete in all material
respects and all information therein is accurate as of its date, and as of the
Effective Date there are no Leases or tenancies with respect to the Property or
any part thereof except as therein set forth. Except as disclosed on the Rent
Roll, no rental under any Lease has been collected in advance of the current
month. The Rent Roll shall be updated at the Closing to reflect any changes
which occur after the Effective Date. TRP is the owner of the entire lessor's
interest in and to each of the Leases and none of the Leases or the rentals or
other sums payable thereunder has been assigned or otherwise encumbered, except
in connection with the Loans.
(j) Schedule 8(j) attached hereto sets forth a list
of all notes or other evidence of indebtedness, loan agreements, mortgages,
guaranty agreements, and any and all other documents entered into by TRP and all
amendments, modifications and supplements thereto (collectively the "Loan
Documents") in connection with the Loans and all matters in connection with the
Loans.
(k) To the best of TRP's actual knowledge, (i) the
Exhibits and Schedules attached hereto, as provided by or on behalf of TRP,
completely and correctly present in all material respects the information
required by this Agreement to be set forth therein, and (ii) TRP has delivered
to Transferee true and correct copies of all of the due diligence materials
pertaining to the Property which are in the possession or control of TRP or TRA.
No representation or warranty by TRP herein and, to the best of TRP's actual
knowledge, no information disclosed in the Exhibits and Schedules hereto
supplied by or on behalf of TRP contains any untrue statement of a material fact
or omits to state a fact necessary to make the statements contained herein or
therein not materially misleading. TRP has no actual knowledge
13
<PAGE> 14
of any events, transactions or other facts which, either individually or in the
aggregate might reasonably give rise to circumstances or conditions which might
have a material adverse affect on the Property.
(1) TRP is not a "foreign person" within the meaning
of Section 1445(f)(3) of the Code.
(m) (i) (A) TRP and TRA are acquiring the Units and the
Stock (the Units and the Stock being hereinafter sometimes referred to as the
"Securities"), respectively, for investment for its own account, not as a
nominee or agent, and not with a view to the sale in connection with a public
distribution of any part thereof; and (B) TRP and TRA each have no present
intention of selling, granting a participation in or otherwise distributing, and
do not have any contract, undertaking, agreement or arrangement with any natural
person, corporation, partnership, association or other entity ("Person") to
sell, transfer or grant a participation to such person, or to any third person,
with respect to any of the Securities.
(ii) TRP and TRA each understand that the Securities
are not registered under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act") on the ground that
the sale and the issuance of the Securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and
regulations issued thereunder, and that the Transferee's reliance on such
exemption is predicated on TRP's and TRA's representations set forth herein.
(iii) TRP and TRA each represent that it and each of
its equity owners, (A) is both an "accredited investor" as that term is defined
in Regulation D promulgated under the Securities Act and a purchaser excluded
from the count of investors under Section 25102(f) of the California
Corporations Code; and (B) alone or together with its professional advisor, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of investment in the Transferee and has the
capacity to protect its own interest in connection with the transactions
contemplated hereby. TRP and TRA each further represent that, during the course
of the transaction and prior to its purchase of shares of the Securities, it had
access to, the opportunity to ask questions of, and receive answers from,
representatives of the Transferee concerning the terms and conditions of the
offering and to obtain additional information (to the extent the Transferee
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to it or
to which it had access.
(iv) TRP and TRA have relied solely on its own
investigations in making a decision to purchase the Securities, and has received
no representation or warranty from Transferee, or any of its affiliates,
employees or agents, other than those set forth in this Agreement.
(v) TRP and TRA understand that the Securities may
not be sold, transferred or otherwise disposed of without registration under the
Securities Act or pursuant to an exemption therefrom, and that in the absence of
an effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the
14
<PAGE> 15
Securities must be held indefinitely. In particular, TRP and TRA are aware that
the Securities may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of that Rule are met. Among the
current conditions for use of Rule 144 by certain holders is the availability to
the public of current information about Transferee. Such information is not now
available, and the Transferee has no present plans to make such information
available. TRP and TRA represent that, in the absence of an effective
registration statement covering the Securities, it will sell, transfer or
otherwise dispose of the Securities only in a manner consistent with its
representations set forth herein and then only in accordance with the provisions
of this Agreement and applicable laws and regulations.
(vi) TRP and TRA each agree that, except as
specifically contemplated hereunder, in no event will it transfer or dispose of
any of the Securities other than pursuant to an effective registration statement
under the Securities Act, unless and until (A) there is compliance with all
requirements contained in other sections of this Agreement and the Transferee's
partnership agreement; (B) TRP and/or TRA, as the case may be, shall have
notified Transferee of the proposed disposition and shall have furnished
Transferee with a statement of the circumstances surrounding the disposition;
(C) if requested by Transferee, at the expense of TRP and/or TRA, as the case
may be, or its transferee, it shall have furnished to Transferee an opinion of
counsel, reasonably satisfactory to Transferee, to the effect that such transfer
may be consummated without registration under the Securities Act; and (D) the
transferee executes and delivers an assumption of the terms and conditions of
this Agreement and, in the case of the Units, the Transferee's partnership
agreement satisfactory to the Transferee.
Transferee expressly understands and agrees that the phrase "to the best of
TRP's or TRA's actual knowledge" or words of similar import as used in Paragraph
8 means the actual knowledge of John Provine, without any independent
investigation having been made.
9. Representations and Warranties of Transferee. Transferee
hereby represents and warrants to TRP and TRA as follows:
(a) Transferee is a duly organized and validly
existing limited partnership under the laws of the State of California.
(b) Transferee has full power and authority to
execute and deliver this Agreement and to perform all of the terms and
conditions hereof to be performed by Transferee, and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Transferee and is the legal, valid and binding obligation of
Transferee and is enforceable against Transferee in accordance with its terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and by general equitable principles (whether or not such
enforceability is considered in a proceeding at law or in equity). Transferee is
not presently subject to any bankruptcy, insolvency, reorganization, moratorium,
or similar proceeding.
(c) Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated by this Agreement,
nor the compliance with the
15
<PAGE> 16
terms and conditions hereof will (i) violate or conflict, in any material
respect, with any provision of Transferee's partnership agreement or any
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge
or other restrictions of any government, governmental agency or court to which
Transferee is subject, or (ii) result in any material breach or the termination
of any lease, agreement or other instrument or obligation to which Transferee is
a party. Transferee is not a party to any contract or subject to any other legal
restriction that would prevent or restrict complete fulfillment by Transferee of
all of the terms and conditions of this Agreement or compliance with any of the
obligations under it.
(d) All material consents required from any
governmental authority or third party in connection with the execution and
delivery of this Agreement by Transferee or the consummation by Transferee of
the transactions contemplated hereby have been made or obtained or shall have
been made or obtained by the Closing Date. Complete and correct copies of all
such consents shall be delivered to TRP and TRA.
10. Indemnification.
(a) Each party hereby agrees to indemnify the other
party and defend and hold it harmless from and against any and all claims,
demands, liabilities, costs, expenses, penalties, damages and losses, including,
without limitation, attorneys' fees, resulting from any misrepresentation or
breach of warranty or breach of covenant made by such party in this Agreement or
in any document, certificate, or Exhibit given or delivered to the other
pursuant to or in connection with this Agreement. The indemnity contained in
this Subparagraph 10(a) shall not be interpreted to expand in any way the
indemnities provided in Subparagraphs 10(b) and 10(c).
(b) Except as otherwise expressly set forth in this
Agreement, TRP and TRA each agree to indemnify Transferee and GRTI and defend
and hold Transferee and GRTI harmless from and against any and all claims,
demands, liabilities, costs, expenses, penalties, damages and losses, including,
without limitation, attorneys' fees, asserted against, incurred or suffered by
Transferee and/or GRTI resulting from or arising out of any transaction entered
into (including, without limit, any of the Loans), any state of facts existing,
or any personal injury or property damage occurring in, on or about the Property
or relating thereto, before the Closing Date, from any cause whatsoever other
than as a consequence of the acts or omissions of Transferee, its agents,
employees or contractors.
(c) Except as otherwise expressly set forth in this
Agreement, Transferee agrees to indemnify TRP and TRA and defend and hold TRP
and TRA harmless from any claims, losses, demands, liabilities, costs, expenses,
penalties, damages and losses, including, without limitation, attorneys' fees,
asserted against, incurred or suffered by TRP or TRA resulting from or arising
out of any transaction entered into (including, without limit, the any of the
Loans), any state of facts existing, or any personal injury or property damage
occurring in, on or about the Property or relating thereto, after the Closing
Date, from any cause whatsoever other than as a consequence of the acts or
omissions of TRP, TRA, or their respective agents, employees or contractors.
16
<PAGE> 17
(d) The indemnification provisions of this Paragraph
10 shall survive beyond the Closing, or, if the Closing does not occur pursuant
to this Agreement, beyond any termination of this Agreement.
11. Risk of Loss.
(a) Minor Loss. Transferee shall be bound to accept
the Property for the full Property Consideration as required by the terms
hereof, without regard to the occurrence or effect of any damage to an
Individual Property or destruction of any improvements thereon or condemnation
of any portion of an Individual Property, provided that: (a) the cost to repair
any such damage or destruction does not exceed twenty percent (20%) of the
portion of the Property Consideration allocated to such Individual Property or,
in the case of a partial condemnation, the value of the portion of the
Individual Property taken does not exceed twenty percent (20%) of the portion of
the Property Consideration allocated to such Individual Property; (b) upon the
Closing, there shall be a credit against the Property Consideration due
hereunder equal to the amount of any insurance proceeds or condemnation awards
collected by TRP as a result of any such damage or destruction or condemnation,
plus the amount of any insurance deductible; (c) insurance or condemnation
proceeds available to TRP are sufficient to cover the cost of restoration; (d)
the insurance carrier has admitted liability for the payment of such costs; and
(e) the Loan, if any, on the Individual Property in question is not accelerated
or defaulted by reason of such casualty or condemnation. If the proceeds or
awards have not been collected as of the Closing, then TRP's right, title and
interest to such proceeds or awards shall be assigned to Transferee.
(b) Major Loss. If the cost to repair such damage or
destruction to an Individual Property exceeds twenty percent (20%) of the
portion of the Property Consideration allocated to such Individual Property or,
in the case of condemnation, if the value of the portion of the Individual
Property taken exceeds twenty percent (20%) of the portion of the Property
Consideration allocated to such Individual Property, then Transferee may, at its
option to be exercised by written notice to TRP within five (5) business days of
TRP'S notice to Transferee of the occurrence of the damage or destruction or the
commencement of condemnation proceedings, either (a) elect to terminate this
Agreement, or (b) consummate the purchase of all of the Property for the full
Property Consideration as required by the terms hereof, subject to the credits
against the Property Consideration provided below. If Transferee elects to
proceed with the purchase of all of the Property, then, upon the Closing,
Transferee shall be given a credit against the Property Consideration due
hereunder equal to the amount of any insurance proceeds or condemnation awards
collected by TRP as a result of any such damage or destruction or condemnation,
plus the amount of any insurance deductible. If the proceeds or awards have not
been collected as of the Closing, then TRP's right, title and interest to such
proceeds or awards shall be assigned to Transferee. If Transferee fails to give
TRP notice within such five (5) business day period, then Transferee will be
deemed to have elected to terminate this Agreement.
12. Inspections. Prior to the Closing Date, TRP shall
afford authorized representatives of Transferee reasonable access to the
Property for purposes of satisfying
17
<PAGE> 18
Transferee with respect to the representations, warranties and covenants of TRP
contained herein and with respect to satisfaction of any Conditions Precedent to
the Closing contained herein. Transferee hereby agrees to indemnify and hold TRP
harmless from any damage or injury to persons or property caused by Transferee
or its authorized representatives during their entry and investigations prior to
the Closing. In the event this Agreement is terminated, Transferee shall restore
the Property to substantially the condition in which it was found. This
indemnity shall survive the termination of this Agreement or the Closing, as
applicable.
13. Leases And Other Agreements; Capital Improvements
(a) Except as otherwise contemplated or permitted by
this Agreement or approved by Transferee in writing, from the Effective Date to
the Closing Date, TRP will cause TRP to operate, maintain, repair and lease the
Property in a prudent manner, in the ordinary course, on an arm's-length basis
and consistent with their past practices (and without limiting the foregoing,
TRP shall, in the ordinary course, negotiate with prospective tenants and enter
into leases of the Property, enforce leases in all material respects, pay all
costs and expenses of the Property, including, without limitation, debt service,
real estate taxes and assessments, maintain insurance and pay and perform
obligations under the Loan Documents) and will not dispose of or encumber any of
the Property, except for dispositions of personal property in the ordinary
course of business.
(b) Notwithstanding the above terms of this Paragraph
13, TRP shall not without the prior written approval of Transferee, take any of
the following actions:
(ii) execute or terminate any new lease,
lease amendment or lease renewal covering in excess of 5,000 square feet in the
case of any lease of industrial space, 2,000 square feet in the case of any
lease of office space, or 2,000 square feet in the case of any lease of retail
space, or modify or waive any material term thereof.
(iii) Except as set forth in Subparagraph
4(i), enter into, execute or terminate any operating agreement, reciprocal
easement agreement, management agreement or any lease, contract, agreement or
other commitment of any sort (including any contract for capital items or
expenditures), with respect to any one or more of the Individual Properties
requiring payments to or by TRP in excess of $10,000 per annum, or the
performance of services by TRP the value of which is in excess of $10,000 per
annum; or
(iv) waive or modify any material term under
any Loan Document.
(c) In connection with any new leases or Lease
modifications affecting the Property entered into between the Effective Date and
the Closing in accordance with Subparagraph 13(b) above, the cost of tenant
improvement work and leasing commissions shall be prorated between Transferee
and TRP as of the Closing based on the portion of the lease term, if any,
occurring before the Closing Date and the portion of the lease term occurring on
and after such date. Notwithstanding the foregoing, TRP shall be responsible for
the cost of tenant improvement work and leasing commissions for all Leases (and
amendments thereto) entered
18
<PAGE> 19
into prior to the Effective Date (regardless of when the same are payable), and
TRP's obligations with respect thereto shall survive the Closing.
(d) Between the Effective Date and the Closing, TRP
shall continue to undertake capital improvements with respect to the Individual
Properties in the ordinary course. TRP acknowledges that it has performed
certain repair work to the decks at the Mission East Property and, that
notwithstanding anything to the contrary contained in this Agreement, TRP shall
be responsible for payment of all such work performed by or on behalf of TRP
prior to Closing.
14. Cooperation. TRP and Transferee shall cooperate and do all
acts as may be reasonably required or requested by the other with regard to the
fulfillment of any Condition Precedent or the consummation of the transactions
contemplated hereby including execution of any documents, applications or
permits. TRP hereby irrevocably authorize Transferee and its agents to make all
inquiries of any third party, including any governmental authority, as
Transferee may reasonably require to complete its due diligence.
15. Miscellaneous.
(a) Notices. Any notice, consent or approval required
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given upon (i) hand delivery, (ii) one (1) day after being
deposited with Federal Express or another reliable overnight courier service or
transmitted by facsimile telecopy, or (iii) two (2) days after being deposited
in the United States mail, registered or certified mail, postage prepaid, return
receipt required, and addressed as follows:
If to TRP: c/o Trust Realty Advisors
2361 Campus Drive, Suite 204
Irvine, California 92715
Att'n: John Provine
Telephone: (714) 852-7900
Fax No.: (714) 852-0730
With a copy to: McDermott, Will & Emery
1301 Dove Street, Suite 500
Newport Beach, California 92660-2444
Att'n: Thomas Brown
Telephone: (714) 851-0633
Fax : (714) 851-9348
If to Transferee: Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, California 94402-1708
Att'n: Frank E. Austin
Telephone: (415) 343-9300
Fax: (415) 343-9690
19
<PAGE> 20
With a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304-1018
Att'n: Philip J. Levine
Telephone: (415) 813-5613
Fax : (415) 494-0792
or such other address as either party may from time to time specify in writing
to the other.
(b) Brokers and Finders. Except for John Provine who
shall be paid a finder's fee by Transferee pursuant to the terms of the Provine
Agreement, neither party has had any contact or dealings regarding the Property,
or any communication in connection with the subject matter of this transaction,
through any real estate broker or other person who can claim a right to a
commission or finder's fee in connection with the sale contemplated herein. In
the event that any other broker or finder perfects a claim for a commission or
finder's fee based upon any such contact, dealings or communication, the party
through whom the other broker or finder makes its claim shall be responsible for
said commission or fee and shall indemnify and hold harmless the other party
from and against all liabilities, losses, costs and expenses (including
reasonable attorneys' fees) arising in connection with such claim for a
commission or finder's fee. The provisions of this Subparagraph shall survive
the Closing.
(c) Successors and Assigns. This Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors, heirs, administrators and assigns. Transferee shall have
the right, with notice to TRP and TRA (and only with TRP'S and TRA's consent,
which consent may be withheld in their respective sole discretion), to assign
its right, title and interest in and to this Agreement to one or more assignees
at any time before the Closing Date. In the event of an approved assignment by
Transferee, Transferee shall not be relieved of any and all obligations under
this Agreement and any other instruments executed pursuant hereto, but such
assignee(s) shall be substituted in its place and will assume all obligations of
Transferee hereunder. Neither TRP nor TRA shall have the right to assign any of
their respective interest in this Agreement.
(d) Amendments. Except as otherwise provided herein,
this Agreement may be amended or modified only by a written instrument executed
by TRP, TRA and Transferee.
(e) Continuation and Survival of Representations and
Warranties, Etc. All representations and warranties by the respective parties
contained herein or made in writing pursuant to this Agreement are intended to
and shall remain true and correct as of the time of Closing, shall be deemed to
be material, and, together with all conditions, covenants and indemnities made
by the respective parties contained herein or made in writing pursuant to this
Agreement (except as otherwise expressly limited or expanded by the terms of
this Agreement), shall survive the execution and delivery of this Agreement and
the Closing, or, to the extent the context requires, beyond any termination of
this Agreement.
20
<PAGE> 21
(f) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of California. The
parties recognize that, with respect to some of the Individual Properties
located outside of the State of California, it may be necessary for the parties
to comply with certain aspects of the law of such states in order to consummate
the purchase and sale of Individual Properties pursuant hereto. The parties
agree to comply with such other laws to the extent necessary to consummate the
purchase and sale of such Individual Properties, provided that it is the
parties' intent that the provisions of this Agreement be applied to each
Individual Property in a manner which results in the greatest consistency
possible. For this reason, and because of the large number of Individual
Properties located in the State of California, the parties have agreed that
California law shall govern with respect to the purchase and sale of each
Individual Property pursuant hereto to the greatest extent possible.
(g) Merger of Prior Agreements. This Agreement and
the Exhibits hereto constitute the entire agreement between the parties and
supersede all prior agreements and understandings between the parties relating
to the subject matter hereof.
(h) Enforcement. If either party hereto fails to
perform any of its obligations under this Agreement or if a dispute arises
between the parties hereto concerning the meaning or interpretation of any
provision of this Agreement, then the defaulting party or the party not
prevailing in such dispute shall pay any and all costs and expenses incurred by
the other party on account of such default and/or in enforcing or establishing
its rights hereunder, including, without limitation, court costs and attorneys'
fees and disbursements. Any such attorneys' fees and other expenses incurred by
either party in enforcing a judgment in its favor under this Agreement shall be
recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable from
the other provisions of this Agreement and to survive and not be merged into any
such judgment.
(i) Time of the Essence. Time is of the essence of
this Agreement.
(j) Severability. If any provision of this Agreement,
or the application thereof to any person, place, or circumstance, shall be held
by a court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
(k) Marketing. TRP agrees not to market or show the
Property to any other prospective purchasers during the term of this Agreement.
(l) Effective Date. As used herein, the term
"Effective Date" shall mean the first date on which both TRP, TRA and Transferee
shall have executed this Agreement.
(m) Confidentiality. Transferee, TRP and TRA shall
each maintain as confidential any and all material or information about the
other or, in the case of Transferee and its agents, employees, consultants and
contractors, about the Property, and shall not disclose such information to any
third party, except, in the case of information about the Property and TRP, to
21
<PAGE> 22
Transferee's lender or prospective lenders, insurance and reinsurance firms,
attorneys, environmental assessment and remediation service firms and
consultants, as may be reasonably required for the consummation of the
transaction contemplated hereunder and/or as required by law.
(n) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
16. Special Provisions Regarding Texas Property. With
respect to any Individual Property located in the state of Texas, Transferee
hereby represents and warrants that (i) Transferee is not in a significantly
disparate bargaining position with TRP, (ii) Transferee is represented by legal
counsel in connection with the transactions contemplated by this Agreement, and
(iii) such Individual Property is not a family residence occupied or to be
occupied as Transferee's residence. Transferee hereby waives any claim it may
now have or which arises in the future against TRP, its heirs, personal
representatives, agents, employees, directors, officers, agents,
representatives, successors and assigns arising by virtue of the provisions of
the Texas Business and Commerce Code Section 17.41, et seq., other than Section
17.555, which relates, in whole or in part, to this Agreement, any such
Individual Property, or any transaction between the parties hereto relating to
or arising out of this Agreement.
17. Non-Recourse Allocation. Transferee and GRTI agree
that up to $11 million of non-recourse mortgage debt shall be allocated to TRP
or an entity designated by TRP for not less than twenty-five (25) years, so as
to provide continuing debt basis for income tax purposes.
18. Determination of Material Inaccuracy. Notwithstanding
any provision of this Agreement to the contrary, Transferee shall not be
entitled to any right or remedy under this Agreement with respect to the first
$10,000 in damages suffered by Transferee as a result of any inaccuracies in any
representations or warranties (on a cumulative basis and not per each such
inaccuracy) made by TRP and/or TRA pursuant to Paragraph 8 hereof.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Transferee: GLENBOROUGH PROPERTIES, L.P.
a California limited partnership
Dated: By Glenborough Realty Trust Incorporated,
------------- a Maryland corporation, its general partner
By:
-----------------------------------------
Its:
----------------------------------------
TRP: TRUST REALTY PARTNERS
a California general partnership
By Trust Realty Advisors, a California
corporation
By:
-----------------------------------------
Its:
----------------------------------------
By TRP-LLC, a
---------------------
By:
-----------------------------------------
Dated: Its:
------------- ----------------------------------------
TRA: TRUST REALTY ADVISORS
a California corporation
Dated: By:
------------- -----------------------------------------
Its:
----------------------------------------
23
<PAGE> 1
EXHIBIT 10.43
AGREEMENT FOR CONTRIBUTION OF PARTNERSHIP INTERESTS
THIS AGREEMENT FOR CONTRIBUTION OF PARTNERSHIP INTERESTS
("Agreement") is dated as of __________________, 1996, by and between
GLENBOROUGH CORPORATION, a California corporation ("Glenborough"), GPA, LTD., a
California limited partnership ("GPA"; GPA and Glenborough are collectively
referred to as the "Transferors" and individually as each or any "Transferor"),
GLENBOROUGH PROPERTIES, L.P., a California limited partnership ("GPLP"), and GRT
Corp., a Georgia corporation ("GRT").
RECITALS
A. GPLP is a California limited partnership whose general partner is
GLENBOROUGH REALTY TRUST INCORPORATED, a Maryland corporation ("GRTI"), whose
stock is publicly traded on the New York Stock Exchange.
B. GPA owns a 99% limited partnership interest (the "LP Interest")
in GPA BOND, LP, a California limited partnership ("BOND"). Glenborough owns a
1% general partnership interest (the "GP Interest") in BOND. The GP Interest and
the LP Interest shall hereinafter be collectively referred to as the
"Partnership Interests".
C. Glenborough desires to transfer to GRT, and GRT desires to
acquire from Glenborough, the GP Interest, upon the terms and subject to the
conditions set forth in this Agreement. GPA desires to transfer to GPLP, and GPA
desires to acquire from GPA, the LP Interest, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants and agreements hereinafter contained, and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties hereto
hereby agree as follows:
1. Contribution of Partnership Interests . Subject to and upon the
terms and conditions hereinafter set forth and the representations and
warranties contained herein:
(a) Glenborough hereby agrees to contribute to GRT, without
consideration, the GP Interest, free and clear of any and all liens,
encumbrances, liabilities, claims, charges, and restrictions of any
kind or nature whatsoever; and
(b) GPA hereby agrees to transfer to GPLP the LP Interest, in
exchange for the Units, as hereinafter defined, free and clear of
any and all liens, encumbrances, liabilities, claims, charges, and
restrictions of any kind or nature whatsoever.
2. Issuance of Units. At the Closing (as defined in Paragraph 3
below), GPLP shall issue to GPA Twenty Nine Thousand Three Hundred Thirty Three
(29,333) Limited
1
<PAGE> 2
Partnership Units, as that term is defined in that certain First Amended and
Restated Agreement of Limited Partnership of GPLP, dated as of December 31,
1995, as amended by that Amendment to First Amended and Restated Partnership
Agreement of Glenborough Properties, L.P., dated as of July 12, 1996 ("GPLP's
Partnership Agreement"). The Units shall include a redemption option as set
forth in GPLP's Partnership Agreement. If the Units are redeemed for GRTI Stock,
the Holder shall have certain registration rights for a period of one year as
well as certain other rights, all as more particularly described in the
Registration Rights Agreement attached hereto as Exhibit A (the "Registration
Rights Agreement"). On the Closing Date, GPA shall execute and deliver, and GPLP
shall cause GRTI, so to execute and deliver, the Registration Rights Agreement.
3. Title to the Partnership Interests. At the closing of the
transfer contemplated hereafter (the "Closing"), GPA shall convey the LP
Interest to GPLP by a duly executed assignment of partnership interests in the
form attached hereto as Exhibit B, and Glenborough shall convey to GRT Corp. the
GP Interest by a duly executed assignment of partnership interests in the form
attached hereto as Exhibit C (collectively, the "Assignments").
4. Conditions to Closing. The following conditions are precedent to
GPLP's obligation to issue the Units (the "Conditions Precedent"):
(a) The representations and warranties of Transferors
contained herein shall be true and correct as of the Closing Date as though made
at and as of the Closing Date, and Transferors' covenants under this Agreement
shall be satisfied as of the Closing Date (to the extent such covenants are to
be satisfied as of the Closing Date), and GPLP shall have received at the
Closing a certificate dated as of the Closing Date and executed on behalf of
Transferors by executive officers of Transferors or of the respective general
partners of Transferors, as applicable, certifying as to the fulfillment of the
conditions set forth in this Subparagraph 4(a).
(b) At the Closing, Transferors shall transfer to GPLP the
Partnership Interests free and clear of any defects, liens, encumbrances or
claims of any kind.
(c) Security Union Title Insurance Company ("Title Company")
shall be committed to issue at Closing for the Real Property (as defined in
Subparagraph 6(h)(i) below) endorsements (i) dating down the Title Policy, as
hereinafter defined, to the Closing, (ii) permitting the continuance of the
policy coverage issued to the original partnership (a "Fairways Endorsement")
and (iii) such other endorsements reasonably requested by GPLP (the
"Endorsements") to BOND's extended coverage American Land Title Association
Policy of Owner's Title Insurance , attached hereto in the form of Exhibit D
(the "Title Policy"), showing title to the Real Property vested in BOND, subject
only to (i) the lien of a first mortgage to be given by BOND to Wells Fargo Bank
contemporaneously with the Closing securing GPLP's obligations under certain
promissory notes (the "Wells Fargo Loan"), and (ii) exception Nos. 9-13 and 16
("Permitted Exceptions") on the Title Policy.
(d) The physical condition of the Real Property and
Improvements (as such terms are defined in Subparagraph 6(h)(i) below) shall be
substantially the same on the
2
<PAGE> 3
day of Closing as on the Effective Date, reasonable wear and tear and loss by
casualty excepted (subject to the provisions of Paragraph 9 below).
The Conditions Precedent contained in Subparagraphs 4(a) through (e)
are intended solely for the benefit of GPLP. If any of the Conditions Precedent
is not satisfied, GPLP shall have the right in its sole discretion either to
waive in writing the Condition Precedent and proceed with the purchase or
terminate this Agreement.
5. Closing.
(a) The Closing hereunder shall be held and delivery of all
items to be made at the Closing shall be made at the offices of GPLP on or
before _________________, 1996 (the "Closing Date"). In the event the Closing
does not occur on or before the Closing Date, each party shall return to the
other party all items which were provided hereunder. Any such return shall not,
however, relieve either party of any liability it may have for its wrongful
failure to close.
(b) At or before the Closing, Transferors shall deliver to
GPLP the following:
(i) a duly executed Registration Rights Agreement;
(ii) the duly executed Assignments;
(iii) originals of the Leases (as defined in
Subparagraph 6(k)(i) below);
(iv) originals of the building permits and certificates
of occupancy for the Improvements and all tenant-occupied space included
within the Improvements not previously delivered to GPLP;
(v) an original, duly executed Assignment and Consent
Regarding Transfer of Partnership Interests in the form of Exhibit E
hereto;
(vi) an original, duly executed Second Amendment to
Limited Partnership Agreement of GPA BOND, LP, a California limited
partnership in the form of Exhibit F herein;
(vii) closing statement in form and content satisfactory
to GPLP and Transferors;
(viii) any other instruments, records or correspondence
called for hereunder which have not previously been delivered.
GPLP may waive compliance on Transferor's part under any of the foregoing items
by an instrument in writing.
3
<PAGE> 4
(c) At or before the Closing, GPLP shall deliver to
Transferors the following:
(i) a closing statement in form and content satisfactory
to GPLP and Transferors; and
(ii) a duly executed Registration Rights Agreement.
(d) Transferors and GPLP shall each provide such other
instruments as are reasonably required to close and consummate the transactions
described herein in accordance with the terms hereof.
(e) With respect to the Property the following adjustments
shall be made, and the following procedures shall be followed:
(i) the amount by which the outstanding principal
balance plus accrued but unpaid interest on any loans encumbering
the Property is greater or less than $2,710,000 at Closing shall be
reflected by a decrease or increase, as the case may be, in the
number of Units issued to GPA, at an agreed upon value of Fifteen
Dollars ($15) per unit.
(ii) GPLP shall have the right to collect and keep all
rents or other amounts payable under the Leases that were delinquent
as of the Closing Date and that relate to a period prior to the
Closing without payment thereof to Transferor.
(iii) All costs associated with the transaction shall be
charged against the GPLP (except for Transferors' legal, accounting
or other professional fees), including all title insurance premiums,
all escrow charges, any transfer taxes, all costs of GPLP's
engineering and environmental analyses, and all survey costs.
(iv) The obligations of Transferors and GPLP under this
Paragraph 5 shall survive the Closing.
6. Transferor's Representations and Warranties. Each of the
Transferors, jointly and severally, represents and warrants to GPLP as follows:
(a) Organization and Standing. GPA is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of California. BOND is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California with
full power and authority to own, lease and operate its properties and assets and
to carry on its business and activities as currently conducted (the "Business").
4
<PAGE> 5
(b) Capacity and Authority. Each Transferor has full power and
authority to execute and deliver this Agreement and to perform all of the terms
and conditions hereof to be performed by the Transferor, and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Transferors and is the legal, valid and binding
obligation of each of the Transferors and is enforceable against each of the
Transferors in accordance with its terms, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and by general
equitable principles (whether or not such enforceability is considered in a
proceeding at law or in equity). None of the Transferors or BOND is presently
subject to any bankruptcy, insolvency, reorganization, moratorium, or similar
proceeding.
(c) No Violation. Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated by this Agreement,
nor the compliance with the terms and conditions hereof will (i) violate or
conflict, in any material respect, with any provision of BOND's Partnership
Agreement or any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restrictions of any government, governmental agency or
court to which either of the Transferors and/or BOND is subject, or (ii) result
in any material breach or the termination of any lease, agreement or other
instrument or obligation to which either of the Transferors or BOND is a party
or by which any of the properties or assets of the Transferors or BOND may be
subject, or cause a lien or other encumbrance to attach to any of BOND's
properties. Neither the Transferors nor BOND is a party to any contract or
subject to any other legal restriction that would prevent or restrict complete
fulfillment by the Transferors of all of the terms and conditions of this
Agreement or compliance with any of the obligations under it.
(d) Title to Partnership Interests. All of the Partnership
Interests are currently owned and as of the Closing will be owned beneficially
by the Transferors as set forth in Recital B hereto. The Transferors own the
Partnership Interests free and clear of all liens, charges, encumbrances,
claims, rights of others, mortgages, pledges or security interests, and the
Partnership Interests are not subject to any agreements or understandings among
any persons with respect to the voting or transfer thereof. The Transferors each
have full legal right to sell, assign, and transfer the Partnership Interests
and, upon delivery of the Assignment pursuant to the terms hereof, good and
marketable title to the Partnership Interests free and clear of any liens,
charges, encumbrances, pledges, security interests, taxes, claims or rights of
others of any nature whatsoever shall vest in GPLP.
(e) Subsidiaries and Affiliates. BOND does not own, control or
hold with the power to vote, directly or indirectly, any shares or capital stock
or beneficial interest in any corporation, partnership, limited liability
company, association, joint venture or other entity.
(f) Required Consents. All material consents required from any
governmental authority or third party in connection with the execution and
delivery of this Agreement by the applicable Transferor or the consummation by
the applicable Transferor of the transactions contemplated hereby have been made
or obtained or shall have been made or obtained by the Closing Date. Complete
and correct copies of all such consents shall be delivered to GPLP.
5
<PAGE> 6
(g) Absence of Undisclosed Liabilities. Except for the
liabilities (i) the "Lease and Contract Liabilities" (as hereinafter defined),
and (ii) the liabilities incurred since the date of BOND's latest financial
statements in the ordinary course of business (the items described in (i) and
(ii) are collectively referred to as the "Closing Date Liabilities"), as of the
date hereof BOND has, and as of the Closing Date BOND will have, no known
liabilities, obligations, debts, contracts or other commitments of any kind or
nature whatsoever, whether accrued, fixed, absolute, conditional, determined or
determinable, and whether or not required under generally accepted accounting
principles to be accrued or disclosed in a balance sheet of BOND, existing as of
the date hereof or on the Closing Date or arising out of, or resulting from any
transaction entered into prior to or at the Closing Date. As of the date hereof
there is, and as of the Closing Date there will be, no existing fact, condition,
situation or circumstance known to Transferors that would result in any material
liability or obligation of BOND other than the Closing Date Liabilities. For
purposes of this Agreement, the term "Lease and Contract Liabilities" shall mean
the liabilities and obligations of BOND under the Leases and Contracts (as such
terms are hereinafter defined), but only to the extent such liabilities and
obligations are required to be performed and satisfied after the Closing Date
and excluding (y) liabilities and obligations arising as a result of any breach
of, or default or failure to perform under, any Lease or Contract by BOND prior
to the Closing Date, and (z) liabilities and obligations arising as a result of
any breach of, or default or failure to perform under any Lease or Contract by
BOND on or after the Closing Date, which breach, default or failure is the
result of Transferors' failure to perform any of its obligations under this
Agreement.
(h) Real Property.
(i) BOND has, and at the Closing Date will have, good
and indefeasible fee simple title to the real property described on
Schedule (6)(h)(i) attached hereto (the "Real Property"), subject only to
the Permitted Exceptions. The Real Property, together with all buildings,
improvements and fixtures owned by BOND and located or to be located
thereon (the "Improvements") are referred to collectively as the
"Property."
(ii) There are no adverse or other parties in possession
of the Property, or any part thereof, except BOND and tenants under the
Leases. No party has been granted any license, lease, or other right
relating to the use or possession of the Property or any part thereof,
except tenants under the Leases.
(iii) Except as disclosed to GPLP, there are no material
defects with respect to the Real Property, including, without limitation,
no material defects in the structural and load-bearing components of the
Property, the roof(s), the parking lot(s), the plumbing, heating, air
conditioning and electrical and life safety systems, and all such items
are in good operating condition and repair. For the purpose of this
Subparagraph 6(h)(iii), the term "material defects" shall mean defects
which in the aggregate for the Property would cost more than $50,000 to
repair.
(iv) Except as disclosed to GPLP, to the best of
Transferors' knowledge, the use and operation of the Property is in
compliance with all applicable
6
<PAGE> 7
restrictive covenants, building codes, environmental, zoning and land use
laws, and other applicable local, state and federal laws and regulations
(collectively, "Laws").
(v) Except as disclosed to GPLP, there are no
condemnation, environmental, zoning or other land-use regulation
proceedings, either instituted or, to the best of Transferors' knowledge,
planned to be instituted, which would detrimentally affect the use,
operation or value of any of the Property, nor has either Transferor or
Company received notice of any special assessment proceedings affecting
any of the Property. Transferors shall notify GPLP promptly of any such
proceedings of which either Transferor becomes aware.
(vi) All water, sewer, gas, electric, telephone, and
drainage facilities and all other utilities required by law or by the
normal use and operation of the Property are installed to the property
lines of the Property, and are connected pursuant to valid permits, and
are adequate to service the Property and to permit compliance with all
Laws.
(vii) Company has obtained all licenses, permits,
variances, approvals, authorizations, easements and rights of way,
including proof of dedication, required from all governmental authorities
having jurisdiction over the Property or from private parties for the
intended use, operation and occupancy of the Property and to insure
vehicular and pedestrian ingress to and egress from the Property.
(viii) Except as disclosed to GPLP, there is no
litigation pending or, to the best of Transferors' knowledge, threatened,
against either Transferor or any basis therefor that arises out of the
ownership of the Property or that might detrimentally affect the value or
the use or operation of any of the Property for its intended purpose or
the ability of Transferors to perform their obligations under this
Agreement. Transferors shall notify GPLP promptly of any such litigation
of which either Transferor becomes aware.
(ix) Except as disclosed to GPLP, at the time of Closing
there will be no outstanding written or oral contracts made by Company for
any improvements to the Property which have not been fully paid for and
Transferors shall cause to be discharged all mechanics' and materialmen's
liens arising from any labor or materials furnished to the Property prior
to the time of Closing.
(x) As of the Closing Date, Company has completed (i)
all original building construction on the Real Property, (ii) all
punch-list items with respect to any tenant improvements constructed by
Company as landlord under the Leases, and (iii) all on- and off-site
development obligations of BOND in connection with any of the Real
Property.
(xi) Transferors know of no facts nor have Transferors
failed to disclose any fact which would prevent BOND from using and
operating the Property after Closing in the manner in which the Property
is intended to be operated.
7
<PAGE> 8
(xii) Other than the rights of Tenants, as tenants only,
under the Leases, there are no purchase contracts, options or other
agreements of any kind, written or oral, recorded or unrecorded, whereby
any person or entity other than BOND will have acquired or will have any
basis to assert any right, title or interest, or right to possession, use,
enjoyment or proceeds of all or any portion of the Property. None of the
Leases contain any rights of first offer, first refusal or purchase
options.
(i) Leased Personal Property. Transferors will make, or cause
to be made available to GPLP true, correct and complete copies of all leases and
subleases for each item of personal property leased or subleased to BOND (the
"Leased Personal Property"). All such Leased Personal Property is in BOND's
actual possession and is in such condition that, upon return of such property in
its present condition to its owner, BOND will not be liable in any amount to
such owner on account of the condition of such Leased Personal Property.
(j) Title to and Condition of Assets. BOND has good and
indefeasible title to the Property, including, without limitation, the Real
Property and the Improvements, any personal property owned by Company ("Personal
Property") and all other assets and properties, whether real or personal,
tangible or intangible, which it owns (collectively referred to as the
"Assets"). All Assets are owned free and clear of all mortgages, liens, pledges,
claims, charges, restrictions, easements, encumbrances or security interests of
any kind or nature whatsoever (collectively, the "Liens"), other than the Loans.
Except in connection with the Loans, no financing statement under the Uniform
Commercial Code or similar law naming BOND as debtor has been filed in any
jurisdiction and is still in effect, and BOND is not a party to or bound by any
agreement or arrangement authorizing any party to file any such financing
statement. Upon the Closing, BOND will have good, valid, complete and marketable
title to the Assets free and clear of all Liens except for the Loans.
(k) Leases.
(i) Attached hereto as Exhibit G is a list (the "Rent
Roll") of each lease or agreement for the use or occupancy of the Property
(collectively, the "Leases") as of the date of this Agreement. Said Rent
Roll is complete in all material respects and all information therein is
accurate as of its date, and there are no Leases or tenancies with respect
to the Property or any part thereof except as therein set forth. Except as
disclosed on the Rent Roll, no rental under any Lease has been collected
in advance of the current month. BOND is the owner of the entire lessor's
interest in and to each of the Leases and none of the Leases or the
rentals or other sums payable thereunder has been assigned or otherwise
encumbered, except in connection with the Loans.
(ii) Each of the Leases, including, without limitation,
any guaranties thereof, is an enforceable Lease and is in full force and
effect according to the terms set forth therein, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of
creditors generally, and by general equitable principles. Except as
disclosed to GPLP, (i) no Tenant under any of the Leases is greater than
forty-five (45) days delinquent in the
8
<PAGE> 9
payment of its rental and other sums due, (ii) no Tenant has abandoned or
otherwise vacated the Property in violation of any Lease, (iii) no Tenant
or guarantor has filed a voluntary petition in bankruptcy, insolvency or
similar proceedings, has been the subject of an involuntary bankruptcy
petition, or otherwise been adjudged bankrupt or insolvent in any
proceedings filed against such tenant or guarantor; (iv) no trustee or
receiver has been appointed for any Tenant; (v) no written notice has been
provided to any tenant notifying the Tenant that it is in default under
the Lease which default has not been remedied by such Tenant; and (vi) no
Tenant, to Transferors' knowledge, is otherwise in default under any of
the Leases. Except as otherwise provided in the Lease, each Tenant is
legally required to pay all sums and perform all obligations set forth in
its respective Lease, without concessions, abatements, offsets or other
basis for relief or adjustment, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
rights of creditors generally, and by general equitable principles.
(iii) To the best of Transferors' knowledge, no material
event of default on behalf of BOND, as lessor, exists under any Lease and
no event or condition exists that, upon the giving of notice or lapse of
time, or both, would constitute a default by BOND under any Lease. No
Tenant has given notice to BOND of any offsets, defenses or claims
available against rent or other charges payable by such Tenant or other
performance or obligations otherwise due from it under any Lease, except
as specifically set forth in the Rent Roll.
(iv) No guarantor of any Lease has been released or
discharged, voluntarily or involuntarily, from any obligation under or in
connection with any Lease or any transaction related thereto.
(v) No Tenant or any other party has given notice of any
claim (other than for customary refund at the expiration of a Lease) to
all or any part of any security deposit. The Rent Roll sets forth all
security deposits held by BOND.
(vi) Except as shown on the Rent Roll, Company has
paid in full any of landlord's leasing costs or obligations, including,
without limitation, any costs incurred by Company in connection with any
tenant improvements.
(vii) No Tenant has indicated to Company either orally
or in writing its intent to terminate its Leases prior to expiration of
the term of such Lease.
(viii) Except as disclosed to GPLP, (A) no brokerage or
similar fee is due or unpaid by Company with respect to the Leases, and
(B) no brokerage or similar fee shall be due or payable after the Closing
in connection with the Leases pursuant to any agreement entered into by
Company or either Transferor or of which either Transferor or Company has
knowledge.
(l) Permits and Licenses. BOND owns or has rights under all
material government and non-government licenses and permits required for the
lawful conduct of the Business and BOND's use and ownership of the Property
(collectively, the "Licenses").
9
<PAGE> 10
BOND owns or has rights under all Licenses. At the Closing Date, BOND will have
all such Licenses and the Licenses shall, in all material respects, be in full
force and effect. The consummation of the transactions contemplated hereby will
not result in any revocation, cancellation or suspension of any of the Licenses.
No actions or proceedings to revoke any Licenses are pending or, to the
knowledge of the Transferors, threatened. BOND has not taken any action or
knowingly failed to take any action which would materially impair, limit or in
any way affect any of BOND's right to conduct its Business and operate the
Property. To the best of Transferors' knowledge, there is no basis for any
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand which would have the result of challenging the legality, validity or
enforceability of any of the Licenses. BOND is, in all material respects, in
compliance with all of the Licenses. No registration, filing, application,
notice, transfer, consent, approval, order, qualification, waiver or other
action of any kind will be required as a result of the transactions contemplated
herein to avoid (i) the loss of any License, (ii) a violation, breach or default
under or the termination of any License, or (iii) the creation of any Lien on
any Asset pursuant to the terms of any License and/or any law, regulation, order
or other requirement or any contract or agreement binding upon BOND or to which
any Asset may be subject.
(m) Taxes. BOND has timely filed or caused to be timely filed
all federal, state and local tax returns and informational filings for taxes,
and all such tax returns and informational filings are, in all material
respects, proper, complete and accurate. Copies of all available tax returns and
informational filings of BOND existing as of the Effective Date have been
provided to GPLP and any subsequent tax returns and informational filings shall
be delivered to GPLP as they become available. BOND has withheld and/or paid all
taxes which have become due pursuant to BOND's tax returns and all other taxes,
assessments and other governmental charges which have become due and are imposed
by law upon BOND or any of its Assets which are due on or after the Closing
Date, which relate to periods prior to the Closing Date. Neither of the
Transferors nor BOND have received and neither of the Transferors have any
knowledge of any notice of deficiency or assessment with respect to BOND and its
Assets or any basis for any of the foregoing, from any taxing authorities. There
is no litigation, governmental or other proceeding (formal or informal) or
investigation pending or, to the best of Transferors' knowledge, threatened with
respect to any such federal, state or local income or other taxes, tax returns
or informational filings of BOND. There are not in effect any waivers or
extensions of statutes of limitations with respect to taxes payable by BOND.
(n) BOND Loans. Except for such loans and advances that will
be paid in full on or before the Closing Date and the Wells Fargo Loan, BOND has
no outstanding loans or other advances to any other party. Neither BOND nor
either Transferor has defaulted on any loan or other obligation entered into in
connection with the Property or the Business.
(o) Compliance with Laws. BOND is, and all of the Assets are,
in all material respects, in compliance with all applicable laws, orders, rules,
Licenses, codes, rulings, decrees, regulations, ordinances and other
requirements of all federal, state and local governmental, administrative and
judicial authorities and agencies. No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced.
10
<PAGE> 11
(p) Contracts. With respect to all service contracts,
construction contracts for work in progress, any warranties thereunder,
management contracts, reciprocal easement agreements, operating agreements,
maintenance agreements, franchise agreements and other similar agreements (the
"Contracts"). With respect to each of the Contracts, (i) the Contract is legal,
valid, binding, enforceable in accordance with its terms and in full force and
effect, except as may be limited by bankruptcy, reorganization, fraudulent
conveyance, insolvency or similar laws of general application relating to or
affecting the enforcement of creditor's rights and subject to general principles
of equity, (ii) the Contract will not be adversely affected by the occurrence of
the Closing and will be legal, valid, binding, enforceable in accordance with
its terms and in full force and effect on identical terms following the
consummation of the sale of the Partnership Interests, (iii) no party to the
Contract is in breach or default under any obligation thereunder or any
provisions thereof which would have material adverse affect upon BOND, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default, or permit any termination under the Contract which would have
a material adverse affect upon BOND, (iv) no event has occurred under the
Contract which would permit the creation of any Lien upon, or the restriction of
the right to the use of, any Asset and (v) no party to any Contract has
repudiated any material provision of the Contract.
(q) Loan Documents. With respect to all notes or other
evidence of indebtedness, loan agreements, mortgages, guaranty agreements, and
any and all other documents entered into by BOND and all amendments,
modifications and supplements thereto (collectively the "Loan Documents") in
connection with any Loans to BOND and all matters in connection with the Loans,
(i) each Loan Document is legal, valid, binding, enforceable in accordance with
its terms and in full force and effect, except as may be limited by bankruptcy,
reorganization, fraudulent conveyance, insolvency or similar laws of general
application relating to or affecting the enforcement of creditor's rights and
subject to general principles of equity, (ii) each Loan Document will not be
adversely affected by the occurrence of the Closing and will be legal, valid,
binding, enforceable in accordance with its terms and in full force and effect
on identical terms following the consummation of the sale of the Partnership
Interests, (iii) no party to the Loan Document is in breach or default under any
obligation thereunder or any provisions thereof which would have material
adverse affect upon BOND, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default, or permit any termination,
modification or acceleration under the Loan Documents which would have a
material adverse affect upon BOND, (iv) no event has occurred under the Loan
Document which would permit the creation of any Lien upon, or the restriction of
the right to the use of, any Asset and (v) no party to the Loan Document has
repudiated any material provision of the Loan Document.
(r) Insurance. Copies of all insurance policies of BOND by
which BOND and any of its Assets are now covered or have been covered during the
last three (3) years will be provided to the GPLP. Transferors agree to cause
BOND to maintain the existing policies (which are presently in force) or
comparable coverage in full force and effect at all times from the date of this
Agreement through and including the Closing Date. None of the Transferors or
BOND have received any notice from any insurance carrier of its intent to
discontinue any such insurance coverage or have any reason to believe that such
carrier intends to discontinue any such insurance coverage. Except as set forth
in Schedule 6(r), during the last
11
<PAGE> 12
three years, there has been no material casualty affecting BOND or loss, damage
or destruction to any of its properties, whether or not covered by or
compensated under any insurance policy of BOND.
(s) Orders and Litigation. No court or governmental or
regulatory authority of competent jurisdiction has enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in effect
and prohibits consummation by Transferors or BOND of the transactions
contemplated by this Agreement. Except as disclosed to GPLP, BOND is neither
subject to any outstanding injunction, judgment, order, decree, ruling or charge
nor a party, or, to the best of Transferors' knowledge, threatened to be made a
party, to any action, suit, proceeding, hearing or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state or local jurisdiction or before any arbitrator, and there is no basis
known to the Transferors for any such action.
(t) Employees. BOND does not now and has never had any
employees.
(u) Environmental Matters. Transferors have delivered to GPLP
all environmental reports and investigations relating to the Property and/or the
Prior Properties (as herein defined) which are available to Company or
Transferors or in Company's or Transferors' possession (the "Environmental
Reports"). Except as set forth in the Environmental Reports:
(i) BOND's prior uses of the Property have at all times
during BOND's lease, ownership or use thereof complied in all material
respects with, and neither has BOND nor, to the best of Transferors'
knowledge, any other person in connection with the ownership, lease,
occupancy, use, maintenance, or operation of the Property and the conduct
of the Business violated, in any material respect, any then applicable
federal, state, county or local statutes, laws, regulations, rules,
ordinances, codes, licenses or permits relating in any way to the
protection of the environment, including, without limitation, the Clean
Air Act, the Federal Water Pollution Control Act of 1972, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
and the Toxic Substances Control Act and any amendments or extensions of
the foregoing and the regulations promulgated thereunder (collectively,
the "Environmental Laws"). BOND's existing use of the Property complies
with and BOND is not currently, in any material respect, in violation of
any current Environmental Laws in connection with the ownership, lease,
occupancy, use, maintenance, or operation of the Property and the conduct
of the Business. During the time BOND has owned, leased or used the
Property, BOND has not received any written notification from the Federal
Environmental Protection Agency, or the environmental protection agency or
similar agency of any of the States, that a permit is required by BOND for
any reason whatsoever, including, without limitation, the use or
maintenance of any improvement or facility on the Property and, to the
Transferors' knowledge, no such permit has been required. Neither Company,
nor to the best of Transferors' knowledge, any third party
12
<PAGE> 13
has installed, used or removed any storage tank on, from or in connection
with the Property except in full compliance with all Environmental Laws,
and to the best of Transferors' knowledge there are no storage tanks or
wells (whether existing or abandoned) located on, under or about the
Property and to the best of Transferors' knowledge no storage tank has
been installed on, used on or removed from or used in connection with the
Property in violation of any Environmental Laws. To the best of
Transferors' knowledge, the Property does not consist of any building
materials that contain Hazardous Materials. No claim, action, suit or
proceeding is pending or, to the Transferors' knowledge, threatened
against BOND, before any court or other governmental authority or
arbitration tribunal, relating to Hazardous Materials, pollution or the
environment, and there is no outstanding judgment, order, writ,
injunction, decree or award against or affecting BOND or the Property with
respect to the same. There is not presently occurring, nor to the
Transferors' knowledge, has there ever been any "release" of any Hazardous
Materials onto or from the Property in violation of an Environmental Law.
To the best of Transferors' knowledge, there has never been, nor is there
presently occurring, any "release" of any "hazardous substance" from any
location where BOND transported, treated, disposed of or arranged or
caused the transportation, treatment or disposal of Hazardous Materials in
violation of an Environmental Law. BOND has utilized, stored, delivered
for disposal, disposed of and transported all wastes, whether hazardous or
not, in material compliance with the then applicable laws, rules,
regulations and ordinances and the common law and so as not to give rise
to any reporting, remediation or clean-up obligation under any currently
applicable law, rule, regulation or ordinance or the common law. The
provisions of this Subparagraph 6(u) shall also apply to the real property
of, and actions taken by, each person controlled by BOND during all
periods in which such person was controlled by BOND; provided, however,
that for purposes of this Subparagraph 6(u), BOND shall not be deemed to
be in control of any Tenant of the Property. BOND has not received any
written notice from any government agency advising it that it is
responsible for response costs with respect to a release, a threatened
release or clean up of chemical produced by, or resulting from, any
business, commercial, or industrial activities, operations, or processes,
including, but not limited to, Hazardous Materials, and has not received
any written information requests under CERCLA from any government agency.
As used herein, "release" shall have the same meaning as defined in
CERCLA.
(v) Intellectual Property. BOND does not utilize or otherwise
conduct any business under any trademark, service mark or tradename. BOND has
not been charged with, nor, to the knowledge of Transferors, has it infringed,
or, is it threatened to be charged with infringement of, any patent, proprietary
rights or trade secrets of others in the conduct of its Business, and, to the
date hereof, BOND has not, to Transferors' knowledge, received any notice of
conflict with or violation of the asserted rights in intangibles or trade
secrets of others.
13
<PAGE> 14
(w) Brokers' Fees. Neither the Transferors nor BOND has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(x) Accuracy of Information. Neither Transferor has knowledge
of any events, transactions or other facts which, either individually or in the
aggregate might reasonably give rise to circumstances or conditions which might
have a material adverse affect on the general affairs, business, prospects,
financial position, results of operations or net worth of BOND.
(y) No Indemnification Liabilities. There are no existing
liabilities that require BOND to indemnify its partners for acts or omissions by
such persons acting on behalf of BOND or existing agreements to provide
indemnification for such liabilities.
(z) No Foreign Persons. Neither Transferor is a "foreign
person" within the meaning of Section 1445(f)(3) of the Code.
(aa) Investment Representations.
(i) (A) Each Transferor is acquiring the Units for
investment for its own account, not as a nominee or agent, and not with a
view to the sale in connection with a public distribution of any part
thereof; and (B) each Transferor has no present intention of selling,
granting a participation in or otherwise distributing, and does not have
any contract, undertaking, agreement or arrangement with any natural
person, corporation, partnership, association or other entity ("Person")
to sell, transfer or grant a participation to such person, or to any third
person, with respect to any of the Units.
(ii) Each Transferor understands that the Units are not
registered under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act") on the ground
that the sale and the issuance of the Units hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and
regulations issued thereunder, and that the GPLP's reliance on such
exemption is predicated on Transferors' representations set forth herein.
(iii) Each Transferor represents that it either (A) is
both an "accredited investor" as that term is defined in Regulation D
promulgated under the Securities Act and a purchaser excluded from the
count of investors under Section 25102(f) of the California Corporations
code; or (B) alone or together with its professional advisor, has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of investment in the GPLP and
has the capacity to protect its own interest in connection with the
transactions contemplated hereby. Each Transferor further represents that,
during the course of the transaction and prior to its purchase of shares
of the Units, it had access to, the opportunity to ask questions of, and
receive answers from, representatives of the GPLP concerning the terms and
conditions of the offering and to obtain additional information (to the
extent the GPLP possessed such information or could acquire it without
14
<PAGE> 15
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access.
(iv) Each Transferor has relied solely on its own
investigations in making a decision to purchase the Units, and has
received no representation or warranty from GPLP, or any of its
affiliates, employees or agents, other than those set forth in this
Agreement.
(v) Each Transferor understands that the Units may not
be sold, transferred or otherwise disposed of without registration under
the Securities Act or pursuant to an exemption therefrom, and that in the
absence of an effective registration statement covering the Units or an
available exemption from registration under the Securities Act, the Units
must be held indefinitely. In particular, each Transferor is aware that
the Units may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of that Rule are met. Each
Transferor represents that, in the absence of an effective registration
statement covering the Units, it will sell, transfer or otherwise dispose
of the Units only in a manner consistent with its representations set
forth herein and then only in accordance with the provisions of this
Agreement, GPLP's Partnership Agreement, and applicable laws and
regulations.
(vi) Each Transferor agrees that, except as specifically
contemplated hereunder, in no event will it transfer or dispose of any of
the Units other than pursuant to an effective registration statement under
the Securities Act, unless and until (i) there is compliance with all
requirements contained in other sections of this Agreement and the GPLP's
partnership agreement; (ii) the Transferor shall have notified GPLP of the
proposed disposition and shall have furnished GPLP with a statement of the
circumstances surrounding the disposition; (iii) if requested by GPLP, at
the expense of such Transferor, or its transferee, it shall have furnished
to GPLP an opinion of counsel, reasonably satisfactory to GPLP, to the
effect that such transfer may be consummated without registration under
the Securities Act; and (iv) the transferee executes and delivers an
assumption of the terms and conditions of this Agreement and the GPLP's
Partnership Agreement satisfactory to GPLP.
7. Representations and Warranties of GPLP. GPLP hereby represents
and warrants to Transferors as follows: GPLP is a duly organized and validly
existing limited partnership under the laws of the State of California; this
Agreement and all documents executed by GPLP which are to be delivered to
Transferors at the Closing are or at the time of Closing will be duly
authorized, executed and delivered by GPLP, and are or at the Closing will be
legal, valid and binding obligations of GPLP, and do not and at the time of
Closing will not violate any provisions of any agreement or judicial order to
which GPLP is subject.
8. Indemnification.
(a) Each party hereby agrees to indemnify the other party and
defend and hold it harmless from and against any and all claims, demands,
liabilities, costs, expenses,
15
<PAGE> 16
penalties, damages and losses, including, without limitation, attorneys' fees,
resulting from any misrepresentation or breach of warranty or breach of covenant
made by such party in this Agreement or in any document, certificate, or Exhibit
given or delivered to the other pursuant to or in connection with this
Agreement.
(b) Transferors agree on a joint and several basis to
indemnify GPLP and BOND and defend and hold GPLP and BOND harmless from and
against any and all claims, demands, liabilities, costs, expenses, penalties,
damages and losses, including, without limitation, attorneys' fees, asserted
against, incurred or suffered by GPLP or BOND resulting from or arising out of
any transaction entered into, any state of facts existing, or any personal
injury or property damage occurring in, on or about the Property or relating
thereto, before the Closing Date, from any cause whatsoever other than as a
consequence of the acts or omissions of GPLP, its agents, employees or
contractors.
(c) GPLP and BOND agree to indemnify Transferors and defend
and hold Transferors harmless from any claims, losses, demands, liabilities,
costs, expenses, penalties, damages and losses, including, without limitation,
attorneys' fees, asserted against, incurred or suffered by Transferors resulting
from or arising out of any transaction entered into, any state of facts
existing, or any personal injury or property damage occurring in, on or about
the Property or relating thereto, after the Closing Date, from any cause
whatsoever other than as a consequence of the acts or omissions of either
Transferor, or their respective agents, employees or contractors.
(d) Transferors agree on a joint and several basis to and do
hereby indemnify, defend and hold harmless GPLP, its shareholders and BOND and
the respective agents, contractors, employees, shareholders, trustees,
investment advisors, and representatives of each of GPLP, its shareholders, and
BOND and each of their successors and assigns, from and against any and all
liabilities, claims, demands, suits, administrative proceedings, causes of
action, costs, damages, personal injuries and property damages, losses and
expenses, both known and unknown, present and future, at law or in equity,
arising out of or related in any way to any active or inactive underground
storage tanks at the Property ("USTs") or the presence of any hazardous
substances in or about the Property or any portion thereof existing on or prior
to the Closing Date. This indemnification includes, without limitation, (i) any
and all remedial costs (including, without limitation, all costs, expenses and
fees incurred in connection with any corrective action, preventative measures,
or any response, removal, transport, disposal, clean-up, abatement, treatment
and monitoring actions relating to hazardous substances, including, regulatory
costs, penalties, fines, legal fees and disbursements and the costs of
environmental contractors and consultants) associated with any USTs or hazardous
substances, (ii) to the maximum extent allowed by law, all fines and/or
penalties that may be imposed in connection with any USTs, (iii) defense of any
claim made by any individual or entity (including any government or governmental
agency or entity) concerning any of the foregoing, which defense shall be
conducted by counsel and with the assistance of environmental advisors and
consultants, in all cases subject to the prior written approval of GPLP, and
(iv) reasonable attorneys' fees and costs and environmental advisors' and
consultants' fees incurred by GPLP and BOND with respect to enforcing its rights
under this indemnification provision.
16
<PAGE> 17
(e) The indemnification provisions of this Paragraph 8 shall
survive beyond the Closing, or, if the Closing does not occur pursuant to this
Agreement, beyond any termination of this Agreement.
9. Risk of Loss.
(a) Minor Loss. GPLP shall be bound to transfer the Units in
exchange for the Partnership Interests as required by the terms hereof, without
regard to the occurrence or effect of any damage to the Property or destruction
of any improvements thereon or condemnation of any portion of the Property,
provided that: (a) the cost to repair any such damage or destruction does not
exceed five percent (5%) of the fair market value of the Property or, in the
case of a partial condemnation, the value of the portion of the Property taken
does not exceed five percent (5%) of the fair market value of the Property; (b)
upon the Closing, there shall be a credit reducing the number of Units (at $15
per Unit) to be transferred by GPLP hereunder equal to the amount of any
insurance proceeds or condemnation awards collected by the Transferors as a
result of any such damage or destruction or condemnation, plus seventy-five
percent (75%) of the amount of any insurance deductible; (c) insurance or
condemnation proceeds available to BOND are sufficient to cover the cost of
restoration; and (d) the insurance carrier has admitted liability for the
payment of such costs. If the proceeds or awards have not been collected as of
the Closing, then Transferors' right, title and interest to such proceeds or
awards shall be assigned to GPLP.
(b) Major Loss. If the cost to repair such damage or
destruction to the Property exceeds fifteen percent (15%) of the fair market
value of the Property or, in the case of condemnation, if the value of the
Property taken exceeds fifteen percent (15%) of the fair market value of the
Property, then GPLP may, at its option to be exercised by written notice to
Transferors within twenty (20) days of Transferors' notice to GPLP of the
occurrence of the damage or destruction or the commencement of condemnation
proceedings, either (a) elect to terminate this Agreement, in which event each
party shall have no further right, liability or obligation to the other, except
as set forth herein by express reference in a paragraph or provision which
provides that such paragraph or provision shall survive termination of this
Agreement, or (b) consummate the purchase of all of the Property as required by
the terms hereof, subject to the credits against the Units provided below. If
GPLP elects to proceed with the purchase of all of the Property, then, upon the
Closing, GPLP shall be given a credit reducing the number of Units (at $15 per
Unit) to be transferred by GPLP hereunder equal to the amount of any insurance
proceeds or condemnation awards collected by the Transferors as a result of any
such damage or destruction or condemnation, plus seventy-five percent (75%) of
the amount of any insurance deductible. If the proceeds or awards have not been
collected as of the Closing, then Transferors' right, title and interest to such
proceeds or awards shall be assigned to GPLP. If GPLP fails to give Transferors
notice within such 20-day period, then GPLP will be deemed to have elected to
terminate this Agreement.
10. Inspections. Prior to the Closing Date, Transferors shall afford
authorized representatives of GPLP reasonable access to the Property for
purposes of satisfying GPLP with respect to the representations, warranties and
covenants of Transferors contained herein and with
17
<PAGE> 18
respect to satisfaction of any Conditions Precedent to the Closing contained
herein, including, without limitation, the drilling of test wells on and the
taking of soil borings from the Property. GPLP hereby agrees to indemnify and
hold Transferors harmless from any damage or injury to persons or property
caused by GPLP or its authorized representatives during their entry and
investigations prior to the Closing. In the event this Agreement is terminated,
GPLP shall restore the Property to substantially the condition in which it was
found. This indemnity shall survive the termination of this Agreement or the
Closing, as applicable.
11. Actions Prior to Closing. Subject to the provisions of Paragraph
12 below, from and after the Effective Date and until the Closing Date, or until
this Agreement shall be terminated as herein provided, Transferors shall not and
shall not otherwise cause BOND to (i) merge with or into, consolidate with, or
sell its assets to any other corporation or person, or enter into any other
transaction not in the ordinary course of the Business consistent with past
practice, (ii) incur any liability or obligation, make any commitment or
disbursement, acquire or dispose of any property or asset, make any contract or
agreement or engage in any transaction, except in the ordinary course of the
Business consistent with past practice, (iii) subject any of its properties or
assets to a Lien, (iv) hire any employee(s), or enter into any employment
agreement, engage in any activity, enter into any transaction or fail to take
any action which would be inconsistent with any of the representations and
warranties as set forth in this Agreement as if such representations and
warranties were made at a time subsequent to such activity or transaction and
all references to the date of this Agreement were deemed to be such later time,
(v) amend BOND's Partnership Agreement, or (vii) waive any material right.
12. Leases And Other Agreements; Capital Improvements. Except as
otherwise contemplated or permitted by this Agreement or approved by GPLP in
writing, from the Effective Date to the Closing Date, Transferors will cause
BOND to operate, maintain, repair and lease the Property in a prudent manner, in
the ordinary course, on an arm's-length basis and consistent with their past
practices (and without limiting the foregoing, Transferors shall cause BOND, in
the ordinary course, negotiate with prospective tenants and enter into leases of
the Property, enforce leases in all material respects, pay all costs and
expenses of the Property, including, without limitation, debt service, real
estate taxes and assessments, maintain insurance and pay and perform obligations
under the Loan Documents) and will not dispose of or encumber any of the
Property, except for dispositions of personal property in the ordinary course of
business. Without the written consent of GPLP, which consent GPLP may grant or
deny in its sole and absolute discretion, Transferors shall not enter into any
contract or lease with a term of more than one (1) year and consideration
payable or to be received of more than Fifty Thousand Dollars ($50,000).
13. Cooperation. Transferors and GPLP shall cooperate and do all
acts as may be reasonably required or requested by the other with regard to the
fulfillment of any Condition Precedent or the consummation of the transactions
contemplated hereby including execution of any documents, applications or
permits. Transferors hereby irrevocably authorize GPLP and its agents to make
all inquiries of any third party, including any governmental authority, as GPLP
may reasonably require to complete its due diligence.
18
<PAGE> 19
14. Miscellaneous.
(a) Notices. Any notice, consent or approval required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given upon (i) hand delivery, (ii) one (1) day after being
deposited with Federal Express or another reliable overnight courier service or
transmitted by facsimile telecopy, or (iii) two (2) days after being deposited
in the United States mail, registered or certified mail, postage prepaid, return
receipt required, and addressed as follows:
If to Transferors: GPA, Ltd.
400 South El Camino Real
San Mateo, CA 94402-1708
Att'n: Andrew Batinovich
Telephone: (415) 343-9300
Fax No.: (415) 343-9690
Glenborough Corporation
400 South El Camino Real
San Mateo, CA 94402-1708
Telephone: (415) 343-9300
Attn: Robert Batinovich
Fax No.: (415) 343-9690
If to GPLP: Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, California 94402-1708
Att'n: Frank E. Austin
Telephone: (415) 343-9300
Fax: (415) 343-9690
With a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304-1018
Att'n: William L. Myers
Telephone: (415) 813-5770
Fax : (415) 494-0792
or such other address as either party may from time to time specify in writing
to the other.
(b) Brokers and Finders. Neither party has had any contact or
dealings regarding the Property, or any communication in connection with the
subject matter of this transaction, through any real estate broker or other
person who can claim a right to a commission or finder's fee in connection with
the sale contemplated herein. In the event that any other broker or finder
perfects a claim for a commission or finder's fee based upon any such contact,
dealings or communication, the party through whom the broker or finder makes its
claim
19
<PAGE> 20
shall be responsible for said commission or fee and shall indemnify and hold
harmless the other party from and against all liabilities, losses, costs and
expenses (including reasonable attorneys' fees) arising in connection with such
claim for a commission or finder's fee. The provisions of this Subparagraph
shall survive the Closing.
(c) Successors and Assigns. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors, heirs, administrators and assigns. GPLP shall have the right, with
notice to Transferors (but without the necessity of Transferors' consent), to
assign its right, title and interest in and to this Agreement to one or more
assignees at any time before the Closing Date, and in such event, the party
originally designated as GPLP shall be relieved of any and all obligations under
this Agreement and any other instruments executed pursuant hereto, and such
assignee(s) shall be substituted in its place and will assume all obligations of
GPLP hereunder. Transferors shall not have the right to assign any of their
respective interest in this Agreement.
(d) Amendments. Except as otherwise provided herein, this
Agreement may be amended or modified only by a written instrument executed by
Transferors and GPLP.
(e) Continuation and Survival of Representations and
Warranties, Etc. All representations and warranties by the respective parties
contained herein or made in writing pursuant to this Agreement are intended to
and shall remain true and correct as of the time of Closing, shall be deemed to
be material, and, together with all conditions, covenants and indemnities made
by the respective parties contained herein or made in writing pursuant to this
Agreement (except as otherwise expressly limited or expanded by the terms of
this Agreement), shall survive the execution and delivery of this Agreement and
the Closing, or, to the extent the context requires, beyond any termination of
this Agreement.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(g) Merger of Prior Agreements. This Agreement and the
Exhibits hereto constitute the entire agreement between the parties and
supersede all prior agreements and understandings between the parties relating
to the subject matter hereof.
(h) Enforcement. If either party hereto fails to perform any
of its obligations under this Agreement or if a dispute arises between the
parties hereto concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such dispute
shall pay any and all costs and expenses incurred by the other party on account
of such default and/or in enforcing or establishing its rights hereunder,
including, without limitation, court costs and attorneys' fees and
disbursements. Any such attorneys' fees and other expenses incurred by either
party in enforcing a judgment in its favor under this Agreement shall be
recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable from
the other provisions of this Agreement and to survive and not be merged into any
such judgment.
20
<PAGE> 21
(i) Time of the Essence. Time is of the essence of this
Agreement.
(j) Severability. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
(k) Marketing. Transferors agree not to market or show the
Property or market the Partnership Interests to any other prospective purchasers
during the term of this Agreement.
(l) Effective Date. As used herein, the term "Effective Date"
shall mean the first date on which both Transferors and GPLP shall have executed
this Agreement.
(m) Joint and Several. The representations, warranties,
covenants and obligations of Transferors and GPLP are joint and several.
(n) Confidentiality. GPLP and Transferors shall each maintain
as confidential any and all material or information about the other or, in the
case of GPLP and its agents, employees, consultants and contractors, about the
Property, and shall not disclose such information to any third party, except, in
the case of information about the Property and BOND, to Transferors or GPLP's
lender or prospective lenders, underwriters and their counsel, insurance and
reinsurance firms, attorneys, environmental assessment and remediation service
firms and consultants, as may be reasonably required for the consummation of the
transaction contemplated hereunder and/or as required by law.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
GPLP:
GLENBOROUGH PROPERTIES, L.P.
a California limited partnership
Dated:_______________ By: Glenborough Realty Trust Incorporated,
a Maryland corporation, its general partner
By:____________________________________________
Its:___________________________________________
Transferors:
GPA: GPA, LTD., a California limited partnership
Dated: _____________ By: Glenborough Corporation,
a California corporation, its general partner
By:____________________________________________
Its:___________________________________________
Glenborough: GLENBOROUGH CORPORATION,
a California corporation
By:____________________________________________
Its:___________________________________________
22
<PAGE> 23
GRT CORP., a Georgia corporation
By:____________________________________________
Its:___________________________________________
23
