SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14162
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 94-3211970
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real,
Suite 1100 San Mateo, California
(415) 343-9300 94402-1708
(Address of principal executive offices (Zip Code)
and telephone number)
Securities registered under Section 12(b) of the Act:
Name of Exchange
Title of each class: on which registered:
Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of May 10, 1996, 5,753,709 shares of Common Stock ($.001 par
value) were outstanding.
Page 1 of 34
INDEX
GLENBOROUGH REALTY TRUST INCORPORATED
Page No.
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of
Glenborough Realty Trust Incorporated
and Combined Financial Statements of
the GRT Predecessor Entities (Unaudited
except for the Consolidated Balance
Sheet at December 31, 1995):
Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 4
Consolidated and Combined Statements
of Income for the three months ended
March 31, 1996 and 1995 5
Consolidated and Combined Statements
of Equity for the three months ended
March 31, 1996 and 1995 6
Consolidated and Combined Statements
of Cash Flows for the three months
ended March 31, 1996 and 1995 7-8
Notes to Consolidated Financial
Statements 9-15
Consolidated Financial Statements of
Glenborough Hotel Group (Unaudited):
Consolidated Balance Sheet at
March 31, 1996 16
Consolidated Statement of Income for
the three months ended March 31, 1996 17
Consolidated Statement of Equity for
the three months ended March 31, 1996 18
Consolidated Statement of Cash Flows
for the three months ended
March 31, 1996 19
Notes to Consolidated Financial
Statements 20-23
Page 2 of 34
INDEX
GLENBOROUGH REALTY TRUST INCORPORATED
Page No.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations:
Glenborough Realty Trust Incorporated 24-28
Glenborough Hotel Group 29-30
PART II OTHER INFORMATION
Item 1. Legal Proceeding 31-33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
Page 3 of 34
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
March 31, December 31,
1996 1995
ASSETS -------- ---------
Rental property, net of accumulated
depreciation of $25,312 and $24,877
in 1996 and 1995, respectively $ 74,300 $ 77,574
Property held for sale, net of
accumulated depreciation of $378 in
1996 2,570 ---
Investments in Associated Companies
and Glenborough Partners 6,577 5,763
Investments in management contracts
and other, net 433 484
Mortgage loans receivable, net of
provision for loss of $863 in 1996
and 1995 7,451 7,465
Cash and cash equivalents 1,326 4,587
Prepaid consolidation costs --- 6,082
Prepaid litigation costs --- 1,155
Other assets 2,605 2,630
-------- --------
TOTAL ASSETS $ 95,262 $ 105,740
======== ========
LIABILITIES
Mortgage loans $ 23,616 $ 23,685
Secured bank line 10,000 10,000
Investor notes payable --- 2,483
Other liabilities 3,939 5,982
-------- --------
Total liabilities 37,555 42,150
-------- --------
MINORITY INTEREST 8,063 7,962
STOCKHOLDERS' EQUITY
Common stock (5,753,709 shares
issued and outstanding) 6 6
Additional paid-in capital 55,622 55,622
Retained earnings (deficit) (5,984) ---
-------- --------
Total stockholders' equity 49,644 55,628
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 95,262 $ 105,740
======== ========
The accompanying notes are an integral part
of these financial statements.
Page 4 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
For the three months ended March 31, 1996 and 1995
(in thousands, except per share amounts)
(Unaudited)
Glenborough GRT
Realty Trust Predecessor
Incorporated Entities
Consolidated Combined
March 31, 1996 March 31, 1995
------------ ------------
REVENUES
Rental revenue $ 3,589 $ 3,928
Fees and reimbursements
(including $66 and
$1,264 to affiliates
in 1996 and 1995) 66 3,707
Interest and other income 191 918
Equity in earnings of
Associated Companies 425 ---
-------- --------
Total revenue 4,271 8,553
-------- --------
OPERATING EXPENSES
Operating expenses 1,017 1,457
General and administrative 281 3,678
Depreciation and amortization 897 1,061
Interest expense 722 503
-------- --------
Total operating expense 2,917 6,699
-------- --------
Income from operations before
provision for income taxes
and minority interest 1,354 1,854
Provision for income taxes --- (160)
Minority interest (101) ---
------- --------
Net income before Consolidation
costs 1,253 1,694
Consolidation costs (6,082) ---
Litigation costs (1,155) ---
-------- --------
Net income (loss) $ (5,984) $ 1,694
======== ========
Net income per share before
Consolidation costs $ 0.22
========
Net loss per share $ (1.04)
========
Weighted average shares
outstanding 5,753,709
=========
The accompanying notes are an integral part
of these financial statements.
Page 5 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
For the three months ended March 31, 1996 and 1995
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
GRT Predecessor Entities Combined
- - ----------------------------------------------------------------
Add- Receivable
itional from
Retained
General Limited Common Paid-in Stock-
Earnings
Partner Partners Stock Capital holder
(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 (8) (956) --- --- ---
--- (964)
Redemption of shares --- --- (2) (6,613) ---
(4,002) (10,617)
Repayment of
Stockholder
advances, net --- --- --- --- 8,763
--- 8,763
Net income 11 1,001 --- --- ---
682 1,694
------ ------ ------ ------ ------
- - ------ ------
BALANCE at
March 31, 1995 $(1,727) $85,382 $ 3 $ --- $ ---
$(4,224) $79,434
====== ====== ====== ====== ======
====== ======
<CAPTION>
Glenborough Realty Trust
Incorporated
- - -----------------------------------------------
Common Stock Add -
----------------- itional Retained
Par Paid-in Earnings
Shares Value Capital (Deficit)
Total
----- ----- ------- -------
-----
<S> <C> <C> <C> <C>
<C>
BALANCE at
December 31, 1995 5,754 $ 6 $55,622 $ ---
$55,628
Net income --- --- --- (5,984)
(5,984)
------- ------- ------- -------
- - -------
Balance at
March 31, 1996 5,754 $ 6 $55,622 $(5,984)
$49,644
======= ======= ======= =======
=======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
Page 6 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
For the three months ended March 31, 1996 and 1995
(in thousands)
(Unaudited)
Glenborough GRT
Realty Trust Predecessor
Incorporated Entities
Consolidated Combined
March 31, 1996 March 31, 1995
------------ ------------
Cash flows from operating
activities:
Net income (loss) $ (5,984) $ 1,694
Adjustments to reconcile net
income (loss) to net cash
used for operating
activities:
Depreciation and amortization 897 1,061
Amortization of loan fees 36 23
Minority interest in income
from operations 101 ---
Equity in earnings of
Associated Companies (425) ---
Consolidation costs 6,082 ---
Litigation costs 1,155 ---
Changes in certain assets and
liabilities, net (2,169) (15,589)
-------- --------
Net cash used for operating
activities (307) (12,811)
-------- --------
Cash flows from investing
activities:
Additions to rental property (27) (2,459)
Principal receipts on mortgage
loans receivable 14 415
Investment in Associated Companies (389) ---
-------- --------
Net cash used for investing
activities (402) (2,044)
-------- --------
- continued -
Page 7 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS - continued
For the three months ended March 31, 1996 and 1995
(in thousands)
(Unaudited)
Glenborough GRT
Realty Trust Predecessor
Incorporated Entities
Consolidated Combined
March 31, 1996 March 31, 1995
------------ ------------
Cash flows from financing
activities:
Repayment of borrowings (69) (1,043)
Payment of investor notes (2,483) ---
Payments from Stockholder, net --- 8,763
Distributions --- (964)
Redemption of shares --- (10,617)
-------- --------
Net cash used for
financing activities (2,552) (3,861)
-------- --------
Net decrease in cash and cash
equivalents (3,261) (18,716)
Cash and cash equivalents, at
beginning of period 4,587 23,929
-------- --------
Cash and cash equivalents, at
end of period $ 1,326 $ 5,213
======== ========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 509 $ 480
======== ========
The accompanying notes are an integral part
of these financial statements.
Page 8 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
March 31, 1996
(Unaudited)
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 completed a Consolidation with
certain associated 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 and an 85.37% limited partner interest in
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 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
Page 9 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
March 31, 1996
(Unaudited)
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 and one
private 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.
The Associated Companies are accounted for using the equity
method.
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 March 31,
1996 and for the period then ended.
Reclassification - Certain 1995 balances have been reclassified
to conform with the current year 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation -
The accompanying financial statements present the consolidated
financial position of the Company as of March 31, 1996 and
December 31, 1995, the consolidated statements of income and cash
flows of the Company for the three months ended March 31, 1996
and the combined statements of income and cash flows of the GRT
Predecessor Entities for the three months ended March 31, 1995,
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.
Page 10 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
March 31, 1996
(Unaudited)
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.
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 stockholders. 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, provisions for such taxes have been included in the
accompanying combined results of operations of the GRT
Predecessor Entities.
Note 4. INVESTMENTS IN ASSOCIATED COMPANIES AND GLENBOROUGH
-------------------------------------------------------
PARTNERS
--------
The Compan' 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. The Company's investment in Glenborough
Partners ("GP") is accounted for on the cost method as the
Company has minimal ownership interest in the partnership.
Page 11 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
March 31, 1996
(Unaudited)
As of March 31, 1996 and December 31, 1995 the Company had the
following investments in Associated Companies and GP (in
thousands):
<TABLE>
<CAPTION>
GC GIRC GHG GP
Total
--------- --------- --------- ---------
- - ---------
<S> <C> <C> <C> <C>
<C>
Investment at
December 31,
1995 $ (109) $ 3,919 $ 1,368 $ 585
$ 5,763
Cash contribution 94 95 200 ---
389
Equity in
earnings 61 320 44 ---
425
------ ------ ------ ------
------
Investment at
March 31,
1996 $ 46 $ 4,334 $ 1,612 $ 585
$ 6,577
====== ====== ====== ======
======
3.9%
100% 100% 100% Limited
Nature of Preferred Preferred Preferred partner
investment stock stock stock interest
</TABLE>
On April 23, 1996, the boards of directors of the Associated
Companies declared the following respective dividends to be made
in April 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 127 481 32
640
------ ------ ------
------
Total dividends
to the Company 131 485 39
655
Dividends to others 7 25 11
43
------ ------ ------
------
Total dividends $ 138 $ 510 $ 50
$ 698
====== ====== ======
======
</TABLE>
Financial statements and notes thereto of Glenborough Hotel Group
follow Note 11 of the Company's Notes to Financial Statements.
Page 12 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
March 31, 1996
(Unaudited)
Note 5. PREPAID CONSOLIDATION AND LITIGATION COSTS
------------------------------------------
Prepaid consolidation costs at December 31, 1995 included 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, printing, postage, travel, meetings,
legal and other professional 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. The entire balance of prepaid
consolidation costs was expensed as of January 1, 1996.
Prepaid litigation costs at December 31, 1995 included the legal
fees incurred in connection with defending two class action
complaints filed by investors in certain of the GRT Predecessor
Entities as well as an accrual for the amount of the settlement
that the plaintiff's counsel in one case was requesting be
awarded by the court. The entire balance in prepaid litigation
costs was expensed as of January 1, 1996.
It is management's position that the cases are without merit and
management intends to pursue a vigorous defense in both cases.
Although, given the inherent uncertainties of litigation, no
assurance can be made as to the outcome of these complaints.
Note 6. INVESTOR NOTES PAYABLE
----------------------
Included in the proxy to approve or disapprove the Consolidation,
was the option on the part of the investors to choose notes
(the "Notes") in lieu of shares of Common Stock. However, the
Company reserved the option to pay cash in lieu of issuing Notes.
In the vote approving the consolidation, investors elected to
receive Notes in the aggregate amount of $2,483,000, which
represented an unsecured obligation of the Company at December
31, 1995. The Company exercised its option to pay cash in lieu
of issuing Notes, and on January 29, 1996, the Company paid the
notes in full, along with accrued interest thereon.
Note 7. RELATED PARTY TRANSACTIONS
--------------------------
Fee and reimbursement income earned by the Company and the GRT
Predecessor Entities from related partnerships totaled $66,000
and $1,264,000 for the three months ended March 31, 1996 and
1995, respectively.
Page 13 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
March 31, 1996
(Unaudited)
Note 8. 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 and others to participate in the
ownership of the Company. No option awards under the Incentive
Plan were made during the quarter.
Shares of Common Stock will be reserved for issuance under the
Incentive Plan which will equal the greater of 680,000 shares of
Common Stock, or ten percent (10%) of the total number of shares
of Common Stock outstanding, as of each December 31 of the
preceding twelve-month period, which includes 60,000 shares which
may be granted directly. The Incentive Plan is 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 9. COMMITMENTS AND CONTINGENCIES
-----------------------------
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 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. However, given the
inherent uncertainties of litigation, there can be no assurance
that the ultimate outcome of these proceedings will be in the
Company's favor.
Note 10. PROPERTY SALES AND ACQUISITIONS
-------------------------------
The Company has entered into an agreement to sell the two self-
storage facilities included in its industrial portfolio, for a
sale price of $2,900,000. Such properties currently have a net
book value of $2,570,000. The sale, which is expected to close
in June or July, is anticipated to be structured as a Section
1031 tax-deferred exchange, in which the Company will acquire
other property in exchange for the self-storage facilities. The
Page 14 of 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
March 31, 1996
(Unaudited)
amount of net cash proceeds to be generated will depend on the
degree to which the acquisition of the exchange property is
financed with debt.
Subsequent to March 31, 1996, the Company purchased property
adjacent to one of its retail facilities for $106,000. This
property will be used to expand the parking at the facility.
Simultaneous to the acquisition, the Company and the existing
tenant modified the term of the lease to extend it for an
additional five years and increase the annual return.
Note 11. 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
payable on May 13, 1996 to stockholders of record at the close of
business on May 6, 1996. Such dividend will be made from the
Company's cash reserves at March 31, 1996 combined with the
dividends received from the Associated Companies, as was
discussed in Note 4.
Page 15 of 34
GLENBOROUGH HOTEL GROUP
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
(Unaudited)
March 31,
1996
--------
ASSETS
Rental property and equipment, net of
accumulated depreciation of $96 $ 189
Investments in management contracts, net 487
Cash and cash equivalents 594
Investment in Atlantic Pacific Assurance
Company, Limited 755
Other assets 446
--------
TOTAL ASSETS $ 2,471
========
LIABILITIES
Mortgage loan $ 80
Accrued lease expense 383
Other liabilities 371
--------
Total liabilities 834
--------
STOCKHOLDERS' EQUITY
Common stock (1,000 shares) 20
Non-Voting preferred stock (50 shares) ---
Additional paid-in capital 1,568
Retained earnings 49
--------
Total stockholders' equity 1,637
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,471
========
The accompanying notes are an integral part
of these financial statements.
Page 16 of 34
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENT OF INCOME
(in thousands)
(Unaudited)
Three Months
Ended
March 31,
1996
-----------
REVENUES
Room revenue $ 1,915
Fees and reimbursements 550
Other revenue 79
-------
Total revenue 2,544
-------
EXPENSES
Hotel Leased Properties
-----------------------
Room expenses 576
Lease payments 683
Sales and marketing 185
Property general and administrative 163
Other operating expenses 190
Hotel Managed Properties
------------------------
Salaries and benefits 401
Other Expenses
--------------
General and administrative 231
Depreciation and amortization 25
Interest expense 1
-------
Total expense 2,455
-------
Income from operations before provision
for income taxes 89
Provision for income taxes (40)
-------
Net income $ 49
=======
The accompanying notes are an integral part
of these financial statements.
Page 17 of 34
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENT OF EQUITY
For the three months ended March 31, 1996
(in thousands, except shares)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Add -
--------------- ------------- itional
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
Net income --- --- --- --- ---
49 49
------- ------- ------- ------- -------
- - ------- -------
Balance At
March 31, 1996 50 $ --- 1,000 $ 20 $ 1,568 $
49 $1,637
======= ======= ======= ======= =======
======= =======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
Page 18 of 34
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months
Ended
March 31,
1996
-----------
Cash flows from operating activities:
Net income $ 49
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 25
Changes in certain assets and
liabilities 292
--------
Net cash provided by operating
activities 366
--------
Cash flows from financing activities:
Capital contributions 200
Repayment of borrowings (5)
--------
Net cash provided by
financing activities 195
--------
Net increase in cash 561
Cash and cash equivalents at
beginning of period 33
--------
Cash and cash equivalents at
at end of period $ 594
========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 1
========
The accompanying notes are an integral part
of these financial statements.
Page 19 of 34
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
March 31, 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 results of operations of GHG as of March 31, 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
March 31, 1996 and the consolidated results of operations and
cash flows of GHG and RGI for the three months ended March 31,
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
Page 20 of 34
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
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 $96,000 at March 31, 1996 represents the six
condominium hotel units owned by RGI as well as furniture and
fixtures in GHG's 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 $3,000 of net rental pool
profit and approximate cash flow of $1,000 after deductions for
capital reserves for the three months ended March 31, 1996.
Note 4. INVESTMENTS IN MANAGEMENT CONTRACTS, NET
----------------------------------------
Investments in management contracts reflects 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. INVESTMENT IN APAC
------------------
GHG owns 94% of the outstanding common stock of Atlantic Pacific
Holdings, Ltd., the sole owner of 100% of the common stock of
APAC. 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.
Note 6. MORTGAGE LOAN
-------------
Mortgage loan of $80,000 represents the debt secured by the six
condominium hotel units owned by RGI. Such debt bears interest
Page 21 of 34
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
at 7% payable in monthly installments of principal and interest
totaling $2,304 and matures June 30, 1999.
Note 7. 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 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.
Page 22 of 34
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
The table below sets forth the annual Base Rent and the
Percentage Rent formulas for each of the three hotels.
Hotel Lease Rent Provisions
Initial
Annual
Hotel Base Rent Annual Percentage Rent Formulas
--------- ---------- ---------------------------------
Ontario, CA $ 240,000 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 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 40% of the first $1,350,000 of
room revenue plus 46% of room
revenue above $1,350,000 and 5% of
other revenue
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 8. 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 will
be made to GRT as the preferred stockholder and the balance to
the holders of GHG's common stock.
Page 23 of 34
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
GLENBOROUGH REALTY TRUST INCORPORATED AND GRT PREDECESSOR
ENTITIES
Background
----------
Glenborough Realty Trust Incorporated (the "Company") is a self-
administered and self-managed equity real estate investment trust
("REIT") engaged primarily in the ownership, operation,
management, leasing and acquisition of various types of income-
producing properties. As of March 31, 1996 and December 31, 1995
the Company owned and operated 36 income-producing properties
(the "Properties," and each a "Property") and held two mortgage
receivables. The Properties are comprised of 10 industrial
Properties, 19 retail Properties, one residential Property, four
hotel Properties and two office Properties, located in 17 states.
The Company was incorporated in the state of Maryland on August
26, 1994. On December 31, 1995, the Company completed a
consolidation (the "Consolidation") in which Glenborough
Corporation, a California corporation ("GC") and eight public
limited partnerships (the "Partnerships") collectively, the "GRT
Predecessor Entities", merged with and into the Company. The
Company (i) issued shares (the "Shares") of the $.001 par value
Common Stock of the Company to the Partnerships in exchange for
the net assets of the Partnerships; (ii) merged with GC, with the
Company being the surviving entity; (iii) acquired an interest in
three companies (the "Associated Companies") that provide asset
and property management services, as well as other services; and
(iv) through a subsidiary operating partnership, Glenborough
Properties, L.P. (the "Operating Partnership"), acquired
interests in certain warehouse distribution facilities from GPA,
Ltd., a California limited partnership ("GPA"). 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 interest not held by the Company are
held by GPA. The Company operates the assets acquired in the
Consolidation and intends to invest in income property directly
and through joint ventures. In addition, the Associated
Companies may acquire general partner interests in other real
estate limited partnerships. The Company intends to qualify as a
REIT under the Internal Revenue Code of 1986, as amended. The
common stock of the Company (the "Common Stock") is listed on the
New York Stock Exchange ("NYSE") under the trading symbol "GLB".
The Company's principal business objectives are to achieve a
stable and increasing source of cash flow available for
distribution to Stockholders. By achieving these objectives, the
Company will seek to raise Stockholder value over time.
Page 24 of 34
Liquidity and Capital Resources
General
-------
Historically for the Partnerships, the principal sources of
funding for the acquisition of Properties was the sale of limited
partnership interests in the Partnerships and permanent
financing. The Company intends to rely upon cash generated by
operations, permanent debt financing, public debt and equity as
its funding sources for acquisition, expansion and renovation of
properties.
The Company expects to meet its short-term liquidity requirements
generally through its initial working capital and cash generated
by operations. As of March 31, 1996, the Company had no material
commitments for capital improvements. Planned capital
improvements consist only of tenant improvements and other
expenditures necessary to lease and maintain the Properties and
furniture fixtures and building improvements at the Hotel
Properties. The Company believes that its cash generated by
operations has been and will continue to be adequate to meet both
operating requirements and dividends in accordance with REIT
requirements in both the short and the long-term. However, there
can be no assurance that the Company's results of operations will
not fluctuate in the future and at times negatively affect its
ability to meet its operating requirements and to declare
dividends on a regular basis.
The Company expects to meet certain of its long-term liquidity
requirements, such as scheduled debt maturities and possible
acquisitions, through a combination of cash generated by
operations, long-term secured and unsecured borrowings and the
issuance of debt and equity securities of the Company.
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of" in the fourth quarter of
1995. The adoption of SFAS No. 121 did not have a material
effect on the recorded amounts of the Company's long-lived
assets.
On April 23, 1996, the boards of directors of the Associated
Companies declared dividends to be made in April 1996 of
$138,000, $510,000 and $50,000 by GC, GIRC and GHG, respectively.
Of such dividends, the amounts to be received by the Company are
$131,300, $484,700 and $39,400 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 $1,726,000
payable on May 13, 1996 to stockholders of record at the close of
business on May 6, 1996. Such dividend will be made from the
Company's cash reserves at March 31, 1996 combined with the
dividends received from the Associated Companies, as discussed
above.
Page 25 of 34
Results of Operations
Certain components of the Company's results of operations are not
comparable to those of the GRT Predecessor Entities. The primary
reason for the difference is due to the segregation in 1996 of
the operations (management fees and reimbursements, as well as
related expenses) of GHG, GIRC and GC (the Associated Companies),
all of which were consolidated 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 and accounts for its interests under the
equity method. Also contributing to the comparability difference
is the change in the operations structure of the three hotel
properties (the "Hotels"). The Hotels were wholly owned by the
GRT Predecessor Entities and thereby, 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 for operation. The
Company includes only the related lease payments received from
GHG in its statement of operations. The decrease in fees and
reimbursements by $3,641,000 or 98% from $3,707,000 in 1995 to
$66,000 in 1996 and the decrease of $3,397,000, or 92% in general
and administrative expenses, including salaries, from $3,678,000
in 1995 to $281,000 in 1996 are the primary components affected
by these changes in structure.
Average occupancy at the Company's properties, summarized by
property type, at March 31 was:
1996 1995
----- -----
Retail 92.1% 94.5%
Industrial 99.5% 99.2%
Office 98.0% 92.3%
Residential 89.4% 96.0%
Hotel 77.9% 76.4%
Interest and other income decreased $727,000, or 79%, to $191,000
in the three months ended March 31, 1996 from $918,000 in 1995.
This decrease resulted primarily from the 1995 short-term
investment of funds generated 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. In 1996, cash
balances have been used to prepay the investor notes payable and
consolidation costs.
Operating expenses decreased by $440,000 or 30% to $1,017,000 in
the three months ended March 31, 1996 from $1,457,000 in the same
period in 1995. The decrease is primarily due to the change in
operational structure of the leased hotels as previously
discussed.
Depreciation and amortization expense decreased $164,000, or 15%,
to date in 1996 to $897,000 from $1,061,000 in the same period in
1995. The decrease was primarily due to certain of the Company's
Page 26 of 34
fixed assets and deferred leasing commissions becoming fully
depreciated and amortized in 1995.
Interest expense increased $219,000 or 44% in the three months
ended March 31, 1996 to $722,000 from $503,000 during the three
months ended March 31, 1995. The increase is primarily the
result of an increase in average borrowings during 1996 compared
to 1995.
Funds From Operations
The Company believes that Funds From Operations ("FFO") is a
measure of cash flow which, 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 (computed in accordance with GAAP) excluding
gains (losses) from debt restructuring and sales of property,
plus depreciation and amortization, 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 is no
longer added back to net income in calculating FFO. The new
guidelines are 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 Funds Available
for Distribution ("FAD"). FAD represents FFO plus recurring
principal receipts from mortgage loans 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.
Page 27 of 34
The following table sets forth the Company's calculation of FFO,
based upon the new NAREIT definitions, and FAD for the three
months ended March 31, 1996 (dollars in thousands).
March 31,
1996
---------
Net income before minority
interest and extraordinary
items $ 1,354
Depreciation and amortization 897
Loss provisions ---
Adjustment to reflect FFO of
Associated Companies (1) 284
--------
FFO 2,535
--------
Amortization of deferred
financing fees 36
Principal receipts on mortgage
loans 14
Capital reserve (185)
Capital expenditures (54)
Principal amortization reserve (86)
--------
FAD $ 2,260
========
Distributions per share $ 0.30
Fully converted weighted
average shares outstanding 6,296,042
(1) Reflects the adjustments to FFO required to reflect the FFO
of the Associated Companies attributable to the Company. The
Company s investments in the Associated Companies are
accounted for using the equity method of accounting.
Page 28 of 34
GLENBOROUGH HOTEL GROUP
Background
----------
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 rental units at one of the properties.
GHG receives 100% of the earnings of RGI and consolidates their
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 APAC. 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.
Liquidity and Capital Resources
GHG's primary source of funding is the cash generated by the
operations of the three hotels leased from GRT and fees received
for (i) managing three hotels owned by two partnerships and (ii)
managing the homeowners associations and rental pools for the
resort condominium hotel properties as discussed above.
As of March 31, 1996, GHG has no plans for major capital
improvements. Any capital expenditures associated with the six
condominium units owned by RGI would be performed by the rental
pool and be deducted from the rental checks received monthly.
On April 23, 1996, the board of directors of GHG declared
dividends for the first quarter of $50,000 of which $39,400 will
be made to GRI as the preferred stockholder and the balance to
the holders of GHG's common stock.
Results of Operations
Room revenue of $1,915,000 represents the revenue earned on the
three hotels leased from GRT.
Fee revenue of $550,000 represents the fees earned for managing
three hotels and two resort condominium hotels.
Page 29 of 34
The primary expenses associated with the leased hotels are room
expense of $576,000, lease payments of $683,000, sales and
marketing of $185,000 and other operating expenses of $190,000.
The only direct expenses incurred in connection with the
management of the three hotels and two resort condominium hotel
properties are salaries and benefits of $401,000.
General and administrative costs of $231,000 represent the
overhead costs associated with administering the business of GHG.
Page 30 of 34
PART 2. OTHER INFORMATION
Item 1. 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, on behalf of
himself and all others similarly situated. The
defendants are GRC, GC and Robert Batinovich. The
Partnerships and the Company are nominal defendants.
The complaint alleged breaches by the defendants of
their fiduciary duty and duty of good faith and fair
dealing to investors in the Partnerships. 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, 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 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 or Prospectus, 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 the 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, plaintiffs counsel
indicated it would request the court for an award of
$5,000 payable to Anthony E. Blumberg as the class
representative. The defendants agreed not to oppose
such requests.
Page 31 of 34
On October 11, 1995, the court certified the class for
purposes of settlement, and set a hearing on 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 Litigation in the issuer 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.
As of May 10, 1996, no decision has been issued.
BEJ Equity Partners - On December 1, 1995, a second
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 IV, All Suites, GPI,
Equitec 4, Equitec C and Equitec Mortgage IV, on behalf
of themselves and all others similarly situated. The
defendants are GRC, GC, the Company, GPA, Ltd., Robert
Batinovich and Andrew Batinovich. The Partnerships are
named as nominal defendants.
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
Page 32 of 34
scheduled January 17 hearing in the Blumberg case.
Given the delays in the resolution of the Blumberg
case, the court and the parties in BEJ have postponed
all proceedings in BEJ, and the defendants responsive
pleading in BEJ is now due on June 1, 1996.
It is management s position that the BEJ action, and
the objections to the settlement of the Blumberg
action, are without merit, and management intends to
pursue a vigorous defense in both matters. However,
given the inherent uncertainties of litigation, there
can be no assurance that the ultimate outcome in these
two legal proceedings will be in the Company's favor.
Item 5. Other Information
The Company's annual stockholders meeting has been
scheduled for May 30, 1996, and a Proxy Statement was
distributed on April 15, 1996. Stockholders of record
as of April 5, 1996 will be entitled to vote on the
matters submitted to a vote of the stockholders.
Subject to approval of the Company's 1996 Stock
Incentive Plan at the annual meeting, the Company has
awarded to each of the independent directors (i) 5,000
shares of the Company's Common Stock, and (ii) options
to acquire 2,000 shares of the Company's Common Stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
On January 12, 1996, the Company filed a report on Form
8-K to make available Unaudited Consolidated Pro Forma
Financial Statements of the Company as of December 31,
1995.
On January 12, 1996, the Company filed a report on Form
8-K to make available additional ownership and
operation information concerning the Company and the
properties owned or managed by it as of December 31,
1995, in the form of a Supplemental Information
package.
Page 33 of 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
By: Glenborough Realty Trust Incorporated,
Date: /s/ Andrew Batinovich
Andrew Batinovich
Director, Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial Officer)
Date: /s/ Terri Garnick
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
Page 34 of 34
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000929454
<NAME> GLENBOROUGH REALTY TRUST INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,326
<SECURITIES> 0
<RECEIVABLES> 7,451
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,931
<PP&E> 99,612
<DEPRECIATION> (25,312)
<TOTAL-ASSETS> 95,262
<CURRENT-LIABILITIES> 3,939
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 49,638
<TOTAL-LIABILITY-AND-EQUITY> 95,262
<SALES> 0
<TOTAL-REVENUES> 4,271
<CGS> 0
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 722
<INCOME-PRETAX> 1,354
<INCOME-TAX> 1,354
<INCOME-CONTINUING> 1,253
<DISCONTINUED> 0
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