<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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, 94402-1708
Suite 1100 San Mateo, California - (415) 343-9300 (Zip Code)
(Address of principal executive offices 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
As of March 28, 1996, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $62,741,426. The aggregate market value was
computed with reference to the closing price on the New York Stock Exchange on
such date. This calculation does not reflect a determination that persons are
affiliates for any other purpose.
As of March 28, 1996, 5,754,021 shares of Common Stock ($.001 par value) were
outstanding.
DOCUMENTS INCORPORATED:
Part III: Portions of the Registrant's definitive proxy statement to be issued
in conjunction with the Registrant's annual stockholder's meeting to be held on
May 30, 1996.
<PAGE> 2
Explanatory Note
All items of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 are included herein; however, only the items set forth
below are hereby amended, to the extent set forth herein, by this Form 10-K/A:
Part I
------
Item 1
Part II
-------
Item 6
Item 7
Item 9
Part III
--------
Item 11
Item 14
TABLE OF CONTENTS
Page No.
PART I
Item 1 Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of
Security Holders 16
PART II
Item 5 Market for Registrant's Common Stock
and Related Stockholder Matters 17
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis
of Financial Condition and
Results of Operations 21
Item 8 Financial Statements and Supplementary
Data 24
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 24
PART III
Item 10 Directors and Executive Officers of
the Registrant 25
Item 11 Executive Compensation 25
Item 12 Security Ownership of Certain
Beneficial Owners and Management 25
Item 13 Certain Relationships and Related
Transactions 25
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K 26
<PAGE> 3
PART I
ITEM 1. BUSINESS
General Development and Description of Business
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 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 19 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
interests 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.
The Associated Companies
Glenborough Corporation ("GC", formerly known as Glenborough Realty
Corporation). GC provides management services, including asset management,
property management, and general partner services, to partnerships of which it
is the general partner which were not included in the Consolidation.
The Company owns 100% of the 19,000 shares (representing 95% of total
outstanding shares) of non-voting preferred stock of GC. Three individuals,
including Sandra Boyle, an executive officer of the Company, own 33 1/3% each of
the 1,000 shares, (representing 5% of total outstanding shares) of voting common
stock of GRC. It is intended that the Company's interest in GC will 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 must be paid
before any dividends can be paid with respect to the common stock of GC. Once
the cumulative preferred dividend requirement has been satisfied, any additional
dividends are paid 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 be entitled to
receive a preferred liquidation value of $95.00 per share plus all cumulative
<PAGE> 4
and unpaid dividends. The preferred stock is subject to redemption at the option
of GC after a "lock-out" period of ten years, for a redemption price of $95.00
per share.
This structure is intended to provide the Company with a significant portion of
the economic benefits of the operations of GC. The financial results of GC are
accounted for by utilizing the equity method.
Glenborough Inland Realty Corporation ("GIRC"). GIRC provides management
services for certain partnerships sponsored by Rancon Financial Corporation, an
unaffiliated corporation (the "Rancon Partnerships"). These services include
asset management, development, Securities and Exchange Commission reporting,
accounting, investor relations and 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 non-voting preferred stock of GIRC. Three individuals,
including Frank Austin, an executive officer of the Company, own 33 1/3% each of
the 1,000 shares, (representing 5% of total outstanding shares) of voting common
stock of GIRC. It is intended that the Company's interest in GIRC will 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 must be paid before
any dividends can be paid with respect to the common stock. Once the cumulative
preferred dividend requirement has been satisfied, any additional dividends are
paid 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 a "lock-out" period of ten years, for a redemption price of $55.00 per
share.
This structure is intended to provide the Company with a significant portion of
the economic benefits of the operations of GIRC. The financial results of GIRC
are accounted for by utilizing the equity method.
Glenborough Hotel Group ("GHG"). 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. Two other hotels,
owned by a partnership whose general partner is GC, are also managed by GHG
under a contract with the partnership.
The Company owns 100% of the 50 shares of non-voting preferred stock of GHG.
Three individuals, including Terri Garnick, an executive officer of the Company,
own 33 1/3% each of the 1,000 shares, of voting common stock of GHG. It is
intended that the Company's interest in GHG will comply with REIT qualification
standards.
The Company, through its ownership of preferred stock, is entitled to receive
cumulative, preferred dividends of $600 per share, which must be paid before any
dividends can be paid with respect to the common stock. Once the cumulative
preferred dividend requirement has been satisfied, any additional dividends are
paid in equal amounts per share on both the preferred stock and the common
stock, i.e., in aggregate, 75% to the preferred stock and 25% to 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 is subject to redemption at the option of GHG
after a "lock-out" period of four years, for a redemption price of $40,000 per
share.
This structure is intended to provide the Company with a significant portion of
the economic benefits of the operations of GHG. The financial results of GHG
will be accounted for by utilizing the equity method.
<PAGE> 5
GHG 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 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 the Company'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.
Employees
As of December 31, 1995, the Company and the Associated Companies had
approximately 410 full-time employees.
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 with respect to 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. Such competition may
lead to rent concessions that 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 REIT's, life insurance companies, pension
funds, trust funds, partnerships and individual investors.
Working Capital
The Company's practice is to maintain cash reserves for normal repairs,
replacements, improvements, working capital and other contingencies.
Other Factors
Compliance with laws and regulations regarding the discharge of materials into
the environment, or otherwise relating to the protection of the environment, is
not expected to have any material effects upon the capital expenditures,
earnings and competitive position of the Company.
The Properties have each been subject to Phase I Environmental Assessments
("Phase I Reports") and, where such an assessment was indicated by findings in a
Phase I Report, Phase II Environmental Assessments ("Phase II Reports" and,
collectively, the "Environmental Reports") have been conducted on certain
Properties. These reports did not indicate any significant environmental issues.
<PAGE> 6
In the event pre-existing environmental conditions not disclosed in the
Environmental Reports and requiring remediation are discovered subsequently, the
cost of remediation will be borne by the Company. Additionally, no assurances
can be given that (i) future laws, ordinances, or regulations will not impose
any material environmental liability, (ii) the current environmental condition
of the Properties has not been or will not be affected by tenants and occupants
of the Properties, by the condition of properties in the vicinity of the
Properties or by third parties unrelated to the Company or (iii) that the
Company will not otherwise incur significant liabilities associated with costs
of remediation relating to the Properties.
ITEM 2. PROPERTIES
The Location and Type of the Company's Properties
The Company's Properties consist of 36 properties which are diversified by type
(retail, industrial, office, apartment and hotel) and are located in four
geographic regions and 19 states within the United States comprising numerous
local markets. The following table sets forth, as of December 31, 1995, the
location and type of Properties by rentable square feet and/or units along with
average occupancy.
<TABLE>
<CAPTION>
Sq. Ft. Sq. Ft. Sq. Ft. Units Units # of
Region Retail Industrial Office Apt. Hotel Props.
- ------ ------ ---------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
West 73,500 198,457 -- 104 277 6
Central 16,000 1,116,570 106,076 -- 222 16
Northeast -- 274,000 -- -- -- 1
South 196,158 -- -- -- -- 13
------- --------- ------- --- --- --
Total 285,658 1,589,027 106,076 104 499 36
======= ========= ======= === === ==
No. of Properties 19 10 2 1 4
Average Occupancy 95% 99% 97% 93% 73%
</TABLE>
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 historical combined total rental revenue of the GRT Predecessor Entities. A
complete listing of Properties owned by the Company at December 31, 1995 is
included as part of Schedule III in Item 14 below.
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, summarized as follows:
<TABLE>
<S> <C>
Loan secured by nine properties with a fixed interest rate
of 7.57% requiring monthly payments of principal and
interest of $149,000, based on a 25 year amortization with a
maturity date of January 1, 2006 $20,000,000
Lines of credit secured by nine properties with a variable
interest rate of LIBOR plus 2.365%, requiring monthly
interest only payments and having maturity dates of November
29, 1998 and December 29, 1998 10,000,000
Loan secured by one property with a fixed interest rate of
7.75%, requiring monthly payments of principal and interest
of $20,000 based on a 25 year amortization, with a maturity
date of January 1, 2006 2,650,000
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Loan secured by one property with a fixed interest rate of
8%, requiring monthly payments of principal and interest of
$13,000 based on a 25 year amortization, with a maturity
date of September 1, 2005 1,035,000
-----------
$33,685,000
</TABLE>
The Company's annual property tax expense is anticipated to be approximately
$980,000, which is approximately 1.17% of the appraised value of its Properties.
Retail Properties
The retail portfolio consists of 19 Properties with a total of 285,658 square
feet. As of December 31, 1995, the occupancy of the retail Properties was 95%.
Three of the retail Properties, representing 198,908 square feet or 70% of the
total retail space, are anchored community shopping centers. The anchor tenants
are national or regional supermarkets and drug stores.
Ten of the retail Properties are leased to QuikTrip Corporation on long-term
leases expiring in 2008, 2010 or 2014. 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 such 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 above described QuikTrip leases) generally include
fixed or Consumer Price Index ("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
typically 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 leases contain options to renew at market rates or
specified rates.
The Company holds fee title to all of the retail Properties except one of the
community centers ("Park Center"), which is owned by AFP Partners, one of the
partnerships managed by GC. The Company holds a participating first mortgage
interest in Park Center. In accordance with generally accepted accounting
principles ("GAAP"), the Company is accounting for Park Center as though it
holds 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 note.
The following table sets forth, for the periods specified, the aggregate average
occupancy and average annual base rent per leased square foot for the retail
properties.
RETAIL PROPERTIES
HISTORICAL RENT AND OCCUPANCY
<TABLE>
<CAPTION>
Average
Average Effective Total
Total Occupancy Base Rent Effective
Rentable for the per Leased Annual Base
Year Area (Sq Ft) Period Sq Ft (1) Rent ($000s)(2)
- ---- ------------ ------ --------- ---------------
<S> <C> <C> <C> <C>
1995 285,658 95% $10.80 $2,927
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.
<PAGE> 8
The following table sets forth the contractual lease expirations for leases for
the retail Properties as of December 31, 1995.
RETAIL PROPERTIES
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
Annual Base
Rentable Square Rent Under Percentage of Total
Number of Footage Expiring Annual Base Rent
Leases Subject to Leases Represented by
Year Expiring Expiring Leases ($000s)(1) Expiring Leases (2)
- ---- -------- --------------- ---------- -------------------
<S> <C> <C> <C> <C>
1996 15 23,723 $ 280 9.16%
1997 13 26,112 275 9.00
1998 14 26,153 280 9.16
1999 13 22,902 275 9.00
2000 13 31,777 367 12.00
2001 3 44,380 264 8.63
Thereafter 12 94,856 1,316 43.05
-- ------- ------ ------
Total 83 269,903(2) $3,057(3) 100.00%
== ======= ====== =======
</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 1995,
and thus differs from "Total Annual Base Rent" in the preceding table
which is based on 1995 rental amounts.
Industrial Properties
The Company owns ten industrial Properties aggregating 1,589,027 rentable square
feet. Eight of 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 self-storage facilities with 311 units and
499 units. Four of the warehouse Properties are currently leased to multiple
tenants and four are leased to single tenants. Three of the four single-tenant
warehouse Properties, including the two largest facilities, are adaptable in
design for multi-tenant use. As of December 31, 1995 the warehouse Properties
were approximately 99% leased to 24 tenants and the self-storage facilities were
approximately 92% leased.
The four single-tenant Properties all have nine 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 maintenance, property taxes, insurance and all repairs including structural
repairs. All four of the single-tenant 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 of 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 provide a purchase option exercisable by the tenant on March 1, 1999 and
2002 for an amount equal to the greater of the appraised value or a specified
minimum price. Management does not believe, based on discussions with both
tenants, that either tenant currently intends to exercise any purchase options
at this time.
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 Property's
operating costs, common area maintenance, property taxes, insurance and
non-structural
<PAGE> 9
repairs. Some of the leases are "industrial gross" leases, whereby the tenant
pays as additional rent their pro rata share of common area maintenance and
repair costs and their 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 40,482
square foot warehouse facility in Seattle ("Sea Tac II"), which 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 is accounting for Sea Tac II as though it holds 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 note.
The following table sets forth, for the periods specified, the aggregate average
occupancy and average Annual Base Rent per leased square foot for the Industrial
Properties.
<TABLE>
<CAPTION>
INDUSTRIAL PROPERTIES
HISTORICAL RENT AND OCCUPANCY
Total Average Average Effective Total Effective
Rentable Occupancy Base Rent per Annual Base
Year Area (Sq Ft) for the Period Leased Sq Ft (1) Rent ($000s)(2)
- ---- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C>
1995 1,589,027 99% $2.52 $3,985
1994 1,589,092 99 2.48 3,887
1993 1,589,092 97 2.37 3,648
1992 1,589,092 96 2.31 3,518
1991 1,589,092 97 2.35 3,617
</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.
The following table sets forth the contractual lease expirations for leases for
the industrial Properties as of December 31, 1995.
INDUSTRIAL PROPERTIES
LEASE EXPIRATIONS (1)
<TABLE>
<CAPTION>
Percentage of Total
Rentable Annual Annual Base
Year Number of Square Footage Base Rent Rent Represented
of lease Leases Subject to Under Expiring by Expiring
Expiration Expiring Expiring Leases Leases ($000s) (2) Leases (3)
- ---------- -------- --------------- ------------------ ----------
<S> <C> <C> <C> <C>
1996 3 15,600 $ 67 1.94%
1997 9 63,000 229 6.62
1998 5 99,800 340 9.83
1999 6 14,400 87 2.52
2000 1 1,200 7 .20
Thereafter 6 1,297,827 2,729 78.89
-- --------- ------ ------
Total 30 1,491,827(3) $3,459(4) 100.00%
== ========= ====== ======
</TABLE>
(1) Excludes self-storage facilities.
(2) Annual base rent expiring during each period, divided by total annual base
rent (both adjusted for contractual increases).
(3) 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).
(4) This figure incorporates contractual rent increases arising after 1995,
and thus differs from "Total Annual Base Rent" in the preceding table
which is based on 1995 rents.
<PAGE> 10
Office Properties
The Company owns two office Properties with total rentable square footage of
106,076. Both are suburban mid-rise buildings. The leases for the office
Properties have terms ranging from one to six years. The office 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. As of December 31, 1995, the office Properties were approximately 97%
leased.
The following table sets forth, for the periods specified, the aggregate average
occupancy and average Annual Base Rent per leased square foot.
OFFICE PROPERTIES
HISTORICAL RENT AND OCCUPANCY
<TABLE>
<CAPTION>
Total Average Average Effective Total Effective
Rentable Occupancy Base Rent per Annual Base
Year Area (Sq Ft) for the Period Leased Sq Ft (1) Rent ($000s) (2)
- ---- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
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.
The following table sets forth the contractual lease expirations for leases for
the office Properties as of December 31, 1995.
OFFICE PROPERTIES
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
Percentage of
Rentable Annual Total Annual Base
Year Number of Square Footage Base Rent Rent Represented
of lease Leases Subject to Under Expiring by Expiring
Expiration Expiring Expiring Leases Leases ($000s) (1) Leases (2)
- ---------- -------- --------------- --------------- -------
<S> <C> <C> <C> <C>
1996 5 12,346 $ 140 8.81%
1997 8 14,678 201 12.65
1998 4 45,922 774 48.71
1999 3 12,988 150 9.44
2000 -- -- -- --
Thereafter 2 17,275 324 20.39
-- ------- ------ ------
Total 22 103,209 (2) $1,589 (3) 100.00%
== ======= ====== ======
</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 1995,
and thus differs from "Total Annual Base Rent" in the preceding table
which is based on 1995 rents.
<PAGE> 11
Tenant Improvements and Leasing Commissions
The following table summarizes by year the capitalized tenant improvement and
leasing commission expenditures incurred in the renewal or re-leasing of
previously occupied space since January 1, 1991.
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
Square footage renewed or re-leased 108,200 52,491 66,500 89,000 141,523
Capitalized tenant improvements and
commissions($000s) $ 41 $ 21 $ 64 $ 60 $ 19
Average per square foot of renewed or
re-leased space $ 0.38 $ 0.40 $ 0.96 $ 0.67 $ 0.13
OFFICE PROPERTIES
Square footage renewed or re-leased 45,586 26,989 23,909 18,384 79,745
Capitalized tenant improvements and
commissions ($000s) $ 515 $ 192 $ 59 $ 58 $ 323
Average per square foot of renewed or
re-leased space $ 11.29 $ 7.12 $ 2.47 $ 3.18 $ 4.05
RETAIL PROPERTIES
Square footage renewed or re-leased 14,136 26,403 31,443 46,833 33,294
Capitalized tenant improvements and
commissions ($000s) $ 16 $ 63 $ 59 $ 59 $ 98
Average per square foot of renewed or
re-leased space $ l.13 $ 2.38 $ 1.87 $ l.25 $ 2.94
ALL PROPERTIES
Square footage renewed or re-leased 167,922 105,883 121,852 154,217 254,562
Capitalized tenant improvement and
leasing commission expenditures ($000s) $ 572 $ 276 $ 182 $ 176 $ 440
Average per square foot of renewed or
re-leased space $ 3.40 $ 2.61 $ 1.49 $ 1.14 $ 1.73
</TABLE>
Apartment 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. As
of December 31, 1995, Summerbreeze was approximately 93% occupied.
<PAGE> 12
The following table sets forth, for the periods specified, the average
occupancy, average base rent per unit and annual base rent for the Summerbreeze
Apartments.
APARTMENT PROPERTIES
HISTORICAL RENT AND OCCUPANCY
<TABLE>
<CAPTION>
Average
Total Average Effective Total Effective
Rentable Occupancy Base Rent per Annual Base
Year Area(Units) for the Period Leased Unit (1) Rent ($000s) (2)
- ---- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
1995 104 94% $ 601 $ 697
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.
Hotels
Overview. The Hotel portfolio consists of four all-suite hotels (the "Hotels,"
and each a "Hotel") ranging from 90 to 157 rooms each. All of the hotels are
currently operating 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,
Minnesota. 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.
The Company holds fee title to three of the four Hotels. The fourth Hotel, the
Country Suites in Irving, Texas ("Country Suites"), is actually owned by AFP
Partners, one of the Partnerships managed by GC. The Company holds a
participating first mortgage interest in Country Suites. In accordance with
GAAP, the Company is accounting for Country Suites as though it holds 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 note. The hotels owned in fee
title are currently leased to GHG (see "The Percentage Leases," discussed
below). The Irving, TX hotel is managed by GHG under terms of a pre-existing
contract.
<PAGE> 13
The following table contains occupancy, average daily rate ("ADR") and revenue
per available room ("REVPAR") information for the Company's Hotels as well as
comparative information for all U.S. Hotels and all Country Lodging hotels.
<TABLE>
<CAPTION>
Year Ended December 31: 1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
IRVING, TX
Occupancy 57.4% 66.1% 76.3% 77.5% 76.0%
ADR $ 61.77 $ 53.53 $ 50.22 $ 58.52 $ 66.55
REVPAR $ 35.46 $ 35.37 $ 38.33 $ 45.36 $ 50.57
ONTARIO, CA
Occupancy 54.7% 59.3% 59.6% 56.4% 65.5%
ADR $ 56.46 $ 52.93 $ 51.61 $ 52.02 $ 48.38
REVPAR $ 30.89 $ 31.42 $ 30.74 $ 29.35 $ 31.67
ARLINGTON, TX
Occupancy 73.3% 67.6% 61.0% 63.4% 70.2%
ADR $ 58.44 $ 57.85 $ 51.58 $ 62.73 $ 64.96
REVPAR $ 42.84 $ 39.14 $ 31.46 $ 39.79 $ 45.63
TUCSON, AZ
Occupancy 73.4% 71.8% 77.4% 77.4% 79.0%
ADR $ 51.28 $ 54.38 $ 54.46 $ 57.21 $ 58.93
REVPAR $ 37.66 $ 39.05 $ 42.16 $ 44.29 $ 46.53
ALL U.S. HOTELS(1)
Occupancy 60.3% 61.8% 63.7% 65.2% 66.0%
ADR $ 59.03 $ 59.84 $ 60.99 $ 63.63 $ 66.88
REVPAR $ 35.60 $ 36.98 $ 38.85 $ 41.48 $ 44.14
COUNTRY LODGING SYSTEM(2)
Occupancy 68.1% 67.1% 71.4% 75.0% 75.4%
ADR $ 48.30 $ 50.62 $ 50.00 $ 53.00 $ 56.00
REVPAR $ 32.90 $ 33.94 $ 35.72 $ 39.75 $ 41.00
</TABLE>
(1) Source: Smith Travel Research, Arthur Andersen LLP, Country
Hospitality.
(2) Source: Country Hospitality. Data for the years 1989, 1990 and 1991
include Canadian properties. Data for all other years are limited to
U.S. properties.
THE PERCENTAGE LEASES
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate the Hotels. Therefore, the three owned Hotels
are leased to GHG 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> 14
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>
Initial Annual
Hotel Base Rent Annual Percentage Rent Formulas
----- --------- -------------------------------
<S> <C> <C>
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
</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.
Under the Percentage Leases, the Company is required to maintain the underground
utilities and the structural elements of the improvements, including exterior
walls (excluding plate glass) and roof. In addition, the Company is required to
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: Arlington-$25,000; Ontario-$22,750 and Tucson-$28,500. These
amounts will be increased annually in accordance with the CPI. These obligations
will be carried forward to the extent not expended, and any unexpended amounts
will remain the property of the Company upon termination of the Percentage
Leases except for capital improvements and maintenance of structural elements
and underground utilities, the lessee will be required, 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 will not be permitted to sublet all or any part of the Hotels or to
assign its interest under any of the Percentage Leases, other than to an
affiliate of the lessee, without the prior written consent of the Company. No
assignment or subletting will release the lessee from any of its obligations
under the Percentage Leases.
In the event the Company enters into an agreement to sell or otherwise transfer
a Hotel, the Company will have the right to terminate the Percentage Lease with
respect to such 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 Company, another lessee or a new
owner, with a payment of $2,500 per hotel.
<PAGE> 15
Mortgage Receivables
The Company holds two notes receivable which have a total outstanding principal
balance at December 31, 1995 of $8,079,000, and are summarized in the table
below. As of March 29, 1996, all payments were current.
SUMMARY OF MORTGAGE RECEIVABLES
<TABLE>
<CAPTION>
Principal
Collateral Property Balance at Interest
Name Type 12/31/95 Rate Maturity
- ---- ---- -------- ---- --------
<S> <C> <C> <C> <C>
Hovpark Industrial/Office $7,563,000 8.00% 11/1/96
Laurel Cranford Industrial $ 516,000 8.00% 6/1/01
</TABLE>
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.
ITEM 3. 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 (the "Notes") 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 (All of the Notes were paid off at face value plus interest subsequent to
year end).
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.
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.
<PAGE> 16
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 March 29, 1995, 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
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 April 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of the fiscal year ended December 31, 1995.
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of the Company's common stock are traded on the New York Stock
Exchange under the symbol "GLB."
Market Information
The Company's Common Stock has been traded on the New York Stock Exchange since
January 31, 1996. Consequently, price information is not applicable for the
period ended December 31, 1995.
On March 28, 1996, the closing stock sales price on the NYSE was $13.875 per
share.
Holders
The approximate number of holders of record of the shares of the Company's
common stock was 11,006 as of March 26, 1996.
Dividends and Distributions
No dividends have been declared or paid to date.
The Company intends to declare regular quarterly dividends to its stockholders.
Federal income tax law requires that a REIT distribute annually at least 95% of
its REIT taxable income. Future dividends by the Company will be at the
discretion of the Board of Directors and will depend upon the actual Funds from
Operations of the Company, its financial condition, capital requirements, the
annual distribution requirements under the REIT provisions of the Internal
Revenue Code, applicable legal restrictions and such other factors as the Board
of Directors deems relevant. Although the Company intends to make quarterly
distributions to its stockholders, no assurances can be given as to the amounts
of dividends that will be distributed.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are selected financial data for:
Glenborough Realty Trust Incorporated: Consolidated balance sheet data
is presented as of December 31, 1995.
The GRT Predecessor Entities: Combined operating data is presented for
the years ended December 31, 1995, 1994, 1993, 1992 and 1991. The
combined balance sheet data is presented as of December 31, 1995, 1994,
1993, 1992 and 1991.
Glenborough Realty Trust Incorporated: Pro forma consolidated operating
data is presented for the year ended December 31, 1995 and assumes the
consolidation and related transactions occurred on January 1, 1994.
<PAGE> 18
This selected financial data should be read in conjunction with financial
statements of Glenborough Realty Trust Incorporated, including the notes
thereto, included in Item 14.
As of and for the years ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Pro Historical Pro Historical Historical Historical Historical
Forma Combined Forma Combined Combined Combined Combined
----- -------- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue (1) $ 16,428 $ 34,171 $ 15,885 $ 30,681 $ 32,224 $ 31,128 $ 28,726
Net income
(loss) (2) $ 3,796 $ 524 $ 4,144 $ 1,580 $ 4,418 $ (2,681) $ 1,301
Per share:
Net income (3) $ 0.66 $ -- $ 0.72 $ -- $ -- $ -- $ --
Distributions $ 1.20 $ -- $ 1.20 $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Net rental property $ -- $ 77,574 $ -- $ 63,994 $ 70,245 $ 75,022 $ 77,717
Mortgage loans
receivable, net $ -- $ 7,216 $ -- $ 19,953 $ 18,825 $ 18,967 $ 24,018
Total debt $ -- $ 36,168 $ -- $ 17,906 $ 12,172 $ 15,350 $ 12,269
Shareholders'
equity $ -- $ 55,628 $ -- $ 80,558 $ 85,841 $ 87,172 $ 96,958
OTHER DATA:
EBIDA (4) $ 11,361 $ 9,291 $ 11,258 $ 10,269 $ 10,326 $ 8,815 $ 9,256
Cash flow provided by (used for):
Operating activities 9,998 (10,608) 5,742 22,426 12,505 6,891 7,103
Investing activities (48,034) 8,656 1,710 (1,947) (2,002) (1,437) (44)
Financing activities 36,246 (17,390) (6,408) (2,745) (8,927) (9,476) (2,868)
FFO (5) $ 9,811 $ 7,162 $ 9,709 $ 9,129 $ 9,025 $ 7,349 $ 7,692
7,692
FFO per share(6) $ 1.56 $ -- $ 1.54 $ -- $ -- $ -- $ --
FAD (7) $ 8,579 $ 4,215 $ 8,477 $ 6,888 $ 6,114 $ 4,731 $ 4,595
FAD per share(6) $ 1.36 $ -- $ 1.35 $ -- $ -- $ -- $ --
Distributions $ 7,556 $ -- $ 7,556 $ -- $ -- $ -- $ --
Distributions
per share $ 1.20 $ -- $ 1.20 $ -- $ -- $ -- $ --
</TABLE>
(1) Certain revenues which are included in the historical combined amounts
are not included on a pro forma basis. These revenues are included in
three unconsolidated Associated Companies (GHG, GRC and GIRC), on a pro
forma basis, from which the Company receives lease payments and/or equity
in earnings.
(2) Pro forma net income excludes Consolidation costs. During the year ended
December 31, 1995, Equitec Mortgage Fund IV had recorded a loss provision
of $863 to reduce the carrying value of its
<PAGE> 19
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 addition, GC had recorded loss provisions of
$955 on investments in and advances to certain affiliated real estate
partnerships not deemed to be realizable at December 31, 1995. For the
year ended December 31, 1994, Glenborough Corporation had recorded a loss
provision of $533 to reduce its investment in Glenborough Partners to its
estimated market value. Historical combined net loss in 1992 includes a
non-recurring write-down of $4,282 on Glenborough Pension Investor's
("GPI") investment in master agreement that resulted from GPI's
in-substance foreclosure on certain of its notes receivable.
(3) Pro forma net income per share equals pro forma net income excluding
Consolidation costs divided by weighted average shares outstanding
(assuming GPA Ltd.'s interest in the Operating Partnership is not
converted into shares of common stock of the Company).
(4) EBIDA means earnings before interest expense, depreciation, amortization
and minority interests. EBIDA is computed as income from operations
before minority interests and extraordinary items plus interest expense,
depreciation, amortization and unrealized loss provisions. 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. EBIDA does not represent net income or cash flows from
operation, 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.
(5) See the discussion which follows regarding Funds from Operations ("FFO").
(6) Pro forma distributions, FFO and FAD per share equals distributions, FFO
and FAD divided by the weighted average shares outstanding, assuming
conversion of GPA, Ltd.'s interest in the Operating Partnership into
shares of common stock of the Company. GPA Ltd.'s interest in the
Operating Partnership entitles it to a cash distribution equal to that
which it would receive if a conversion had taken place.
(7) FAD means funds available for distribution. FAD represents Funds from
Operations 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.
FUNDS FROM OPERATIONS
The Company believes that 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 means 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 to facilitate a clear understanding of the combined
historical operating results of the Properties, FFO and FAD should be considered
in conjunction with net income as presented in the pro forma consolidating
statements of operations. 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.
<PAGE> 20
In February 1995, NAREIT established new guidelines for calculating FFO that
clarify the previous guidelines established by NAREIT. 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 are 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 will calculate its FFO
based upon the new NAREIT definition and, accordingly, will no longer add back
amortization of deferred financing fees and costs. The change does not affect
the Company's FAD.
The following table sets forth the Company's calculation of pro forma FFO, based
upon the new NAREIT definition and pro forma FAD for the year ended December 31,
1995 (dollars in thousands).
<TABLE>
<S> <C>
Net income before minority
interest and extraordinary items $ 4,077
Depreciation and amortization 3,654
Loss provisions 863
Adjustment to reflect FFO of
Associated Companies (1) 1,044
FFO 9,638
Amortization of deferred financing fees 173
Principal receipts on mortgage loans 100
Capital reserve (955)
Principal amortization reserve (377)
FAD $ 8,579
FFO per share $ 1.53
FAD per share $ 1.36
Distributions per share $ 1.20
Fully converted weighted
average shares outstanding (2) 6,296,354
</TABLE>
(1) On a pro forma basis, reflects the adjustments to FFO required to reflect
the pro forma 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. The following table
sets forth the calculation of the necessary adjustments.
<TABLE>
<CAPTION>
1995
----
<S> <C>
Pro forma FFO:
Glenborough Realty Corporation $ 756
Glenborough Inland Realty
Corporation 2,019
Glenborough Hotel Group 120
------
Total FFO of Associated Companies 2,895
------
FFO attributable to other owners (160)
Company's equity in earnings (1,691)
------
Adjustment $ 1,044
=======
</TABLE>
<PAGE> 21
(2) On a pro forma basis, assumes conversion of GPA's units in the Operating
Partnership into shares of common stock of the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the selected data in
Item 6 and the Consolidated Financial Statements of Glenborough Realty Trust
Incorporated and the GRT Predecessor Entities, including the notes thereto,
included in Item 14.
BACKGROUND
The balance sheet as of December 31, 1994, and the 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 GC and the
Partnerships. These statements have been adjusted to reflect the consolidation
of two joint ventures which were, in aggregate, wholly owned by the
Partnerships.
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. In the future, the Company intends to rely
upon 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
December 31, 1995, 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 and fixtures and building improvements at the Hotel Properties. The
Company believes that its cash generated by operations will be adequate to meet
both operating requirements and declare 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 long-term secured and unsecured borrowings and the issuance of
debt and equity securities of the Company.
Mortgage loans receivable decreased from $19,953,000 at December 31, 1994 to
$7,216,000 at December 31, 1995. The decrease was primarily due to the early
payoff of the $10,275,000 Finley Square note receivable on April 28, 1995.
$545,000 in interest and prepayment fees and penalties was also received by the
Company in connection with the early payoff of the Finley Square note
receivable.
Additionally in 1995, due to the uncertainty of the borrower's ability to payoff
the note receivable upon its November 1996 maturity, the Company recorded a
$863,000 loss provision on the mortgage loan receivable secured by the office
and research complex in Eatontown, New Jersey. The carrying value of the note
was written down to the estimated fair value of the property, resulting in the
$863,000 loss.
Mortgage loans receivable further decreased by $1,513,000 due to the early
repayment in January and June of 1995 of three of the four notes secured by the
Laurel Cranford buildings.
<PAGE> 22
Cash and cash equivalents decreased from $23,929,000 at December 31, 1994 to
$4,587,000 at December 31, 1995. This decrease was primarily due to the payment
of consolidation and litigation costs, partner distributions, redemption of
investor units and repayment of debt.
Mortgage loans and secured bank lines payable increased from $17,906,000 at
December 31, 1994 to $33,685,000 at December 31, 1995 due to new borrowings
obtained in 1995. Approximately $4,000,000 of the new debt was incurred to
finance the acquisition of the Summerbreeze apartment complex (see following
paragraph) and approximately $7,500,000 was incurred to finance the acquisition
of the Rancon management contracts. Of the remaining $4,200,000 of new debt,
$3,000,000 was fully secured by a $3,000,000 certificate of deposit held by
Robert Batinovich ("Batinovich"), approximately $1,100,000 was Batinovich's debt
assumed in a stock redemption and the remaining $100,000 was incurred to
purchase an investment in real estate related to the acquisition of RGI and is
secured by the related real estate.
On January 12, 1995, Glenborough Pension Investors ("GPI"), one of the GRT
Predecessor entities, acquired the Summerbreeze apartment complex (the
"Property") by a deed-in-lieu of foreclosure. GPI had formerly held a note
secured by a second deed of trust on the Property. The former owners of the
Property agreed to grant a deed-in-lieu of foreclosure to GPI in exchange for
$150,000 and GPI's assumption of the first trust deed note which was in default.
On May 18, 1995, the debt was refinanced with a $4,000,000 first mortgage loan.
The net operating income of the property continues to be sufficient to cover the
related debt service.
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. See Note 2 to the Financial Statements for a further discussion of this
adoption.
RESULTS OF OPERATIONS
ANALYSIS OF TRENDS
The composition of the assets of the GRT Predecessor Entities changed
substantially from 1993 to 1995. In 1994, Glenborough Partners disposed of a
substantial portion of its real estate investments. As a result of the
disposition of these assets and a loss of related revenues, GC downsized its
property management business resulting in lower general and administrative
expenses in 1994. However, in 1995, GC increased its management business through
the acquisition of the management contracts for nine Rancon Financial
Corporation affiliated partnerships (the "Rancon Contracts"). The Rancon
Contracts contributed to a substantial increase in asset and property management
fee revenue as well as an increase in operating and general and administrative
expenses.
Additionally, in connection with the 1995 Consolidation with the Company,
certain of GC's 1995 operations reflect expense items related to the
Consolidation that will not be recurring in the Company or its Associated
Companies. Such expenses that are included in the accompanying Combined
Statement of Income for the year ended December 31, 1995, before provision for
income taxes, totaled $4,261,000 and include salaries, general and
administrative expenses, professional fees, a shareholder guarantee fee and a
loss on disposition of certain assets.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO 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 due to overall
increases in occupancy and average daily room rates.
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 the Rancon and RGI management contracts. This increase
<PAGE> 23
was offset by decreased transaction fees because of one-time fees earned by 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 Rancon and RGI
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 the Rancon and RGI 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 the Rancon management contracts acquisition 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 (as previously discussed) and for
unrealizable investments in and advances to certain affiliated real estate
partnerships of GC. In addition, $58,000 related to a portion of the $116,000
loss on the hedge transaction recorded by GC during fiscal 1995, as further
discussed in Note 11. Additionally, GC's investment in Carroll Vista Associates,
Glenco Squaw Associates and GRC Airport Associates were written down by
$400,000, $374,000 and $181,000, respectively, to reflect the net realizable
value of the underlying assets of the respective partnerships.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO 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 due to
increases in the average daily room rates ranging between 1% and 22% of the 1994
average daily room rates. These increases were partially 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.
<PAGE> 24
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, $533,000 was due to a loss on the sale of
units of Glenborough Partners, $557,000 was for the write-down of an investment
in Glenborough Partners, a real estate partnership and $58,000 related to a loss
on the hedge transaction recorded by GC, as further discussed in Note 11. The
Laurel Cranford Property had been for sale or lease since early 1993. In March
1994, Outlook IV received an 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. The write-down of the investment in Glenborough Partners
was recorded to reflect the net realizable value of the underlying assets of the
partnership.
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 Glenborough Partners and for
performance on a guarantee of an affiliate's development debt. In addition, a
loss on the sale of the Fort Worth hotel 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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 30, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The Company began its operations on December 31, 1995. Therefore, no
compensation was paid to any executive officers for services rendered to the
Company during 1995. The following table sets forth compensation received from
GC by the named executive officers for services rendered to GC during 1995.
<TABLE>
<CAPTION>
OFFICER NAME POSITION BASE COMPENSATION BONUS (1)
------------ -------- ----------------- ---------
<S> <C> <C> <C>
Robert Batinovich Chairman, President and $900,000 --
Chief Executive Officer
Andrew Batinovich Director, Executive Vice 265,000 --
President, Chief
Operating Officer and
Chief Financial Officer
Frank Austin Senior Vice President, 176,800 $400,000
General Counsel and
Secretary
Sandra Boyle Senior Vice President 180,000 400,000
Terri Garnick Senior Vice President and 90,000 100,000
Chief Accounting Officer
</TABLE>
(1) Represents bonuses paid in 1995 from GC for services rendered to GC during
the full term of employment of the named executive officers, which varied
from approximately seven to twelve years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders meeting to be
held on May 30, 1996.
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
(a) (1) Financial Statements
Report of Independent Public Accountants F-1
Glenborough Realty Trust Incorporated and
GRT Predecessor Entities Balance Sheets F-2
GRT Predecessor Entities Combined
Statements of Income F-3
Glenborough Realty Trust Incorporated and
GRT Predecessor Entities Statements of Equity F-4
Glenborough Realty Trust Incorporated and
GRT Predecessor Entities Statements of
Cash Flows F-5, F-6
Notes to Financial Statements F-7
(2) Financial Statement Schedules
Schedule III - Real Estate and
Accumulated Depreciation F-17
Schedule IV - Mortgage Loans on
Real Estate F-20
(3) Exhibits
The Exhibit Index attached hereto is
hereby incorporated by reference
to this Item 47
(b) Reports on Form 8-K
No reports on Form 8-K were filed by
the registrant during the last quarter
of the period covered by this report.
</TABLE>
<PAGE> 27
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 schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 schedule listed in the index to
financial statements and schedule is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
San Francisco, California
March 13, 1996
F-1
<PAGE> 28
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
BALANCE SHEETS
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 -- 11406
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-2
<PAGE> 29
GRT PREDECESSOR ENTITIES
COMBINED STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993
(in thousands, except per unit amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUE
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-3
<PAGE> 30
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>
GRT Predecessor Entities Combined
-----------------------------------------------------------------------------------------
Additional Receivable Retained
General Limited Common Paid-in from Retained
Partner Partners Stock Capital Stockholder (Deficit) Total
------- -------- ----- ------- ----------- --------- -----
<S> <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)
------- --------- ---- ------- ------- -------- --------
BALANCE AT
DECEMBER 31, 1995 $ -- $ -- $ -- $ -- $ -- $ -- $ --
------- --------- ---- ------- ------- -------- --------
<CAPTION>
Glenborough Realty Trust Incorporated
--------------------------------------------------
Common Stock Additional
-------------------- Paid-in
Shares Par Value Capital Total
------ --------- ------- -----
<S> <C> <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 5,754 6 55,622 55,628
----- ---- ------- -------
BALANCE AT
DECEMBER 31, 1995 5,754 $ 6 $55,622 $55,628
----- ---- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 31
GLENBOROUGH REALTY TRUST INCORPORATED
AND 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 (loss) $ 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 interest -- (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)
Redemption 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 provided by (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 period 23,929 6,195 4,619
-------- ------- ------
Cash and cash equivalents at end of period $ 4,587 $23,929 $6,195
======== ======= ======
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 32
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
STATEMENTS OF CASH FLOWS - CONTINUED
For the years ended December 31, 1995, 1994
and 1993
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
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
Incorporated $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-6
<PAGE> 33
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 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-7
<PAGE> 34
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
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:
Buildings and improvements 10 to 40 years
Tenant Improvements Term of the related lease
Furniture and Equipment 5 to 7 years
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 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
F-8
<PAGE> 35
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
December 31, 1995 and 1994
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 Association 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.
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
F-9
<PAGE> 36
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
December 31, 1995 and 1994
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, NET
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
1995: Land Improvements Total Depreciation
----- ---- ------------ ----- ------------
<S> <C> <C> <C> <C>
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
------
$53,358
</TABLE>
F-10
<PAGE> 37
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
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 associated
companies and Glenborough Partners (in thousands):
ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
Glenborough
Glenborough Inland Realty Glenborough Glenborough
Corporation Corporation Hotel Group Partners
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
100% 100% 100% 3.9%
Nature of investment Preferred Preferred Preferred Limited partner
stock stock stock 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. Interest will continue to accrue at 8% of the face value of
the $7,563,000 note. As of December 31, 1995, the borrower was current on all
interest payments.
F-11
<PAGE> 38
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
December 31, 1995 and 1994
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.
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 (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 2.365% (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 25 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
</TABLE>
F-12
<PAGE> 39
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
December 31, 1995 and 1994
<TABLE>
<S> <C> <C>
Secured loan with a variable interest rate of 1.5% over lenders prime
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 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>
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.
F-13
<PAGE> 40
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
December 31, 1995 and 1994
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.
F-14
<PAGE> 41
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
December 31, 1995 and 1994
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.
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 are as follows:
<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.
F-15
<PAGE> 42
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Financial Statements
December 31, 1995 and 1994
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 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> 43
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Cost Capitalized
(Reduced)
Initial Cost to Subsequent to Gross Amount Carried
Company(1) Acquisition(6) at December 31, 1995
--------------- ---------------- ---------------------
Buildings Building
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
-------- ------- -------- ------- ------- -------
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
<CAPTION>
COLUMN F COLUMN G COLUMN H
(1) Life
Accumulated Date Depreciated
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) 37 99/86 5-25 yrs.
QuickTrips:
#668 - Granite City, IL 12 59/90 5-20 yrs.
#722 - Lithonia, GA 11 89/90 20 yrs.
#718 - Norcross, GA 11 79/90 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
-----
Industrial Properties:
All American Self Storage:
Eagan, MN 104 7/86 5-25 yrs.
New Hope, MN 244 7/86 5-25 yrs.
Benicia Industrial Park 1,569 7/86 5-30 yrs.
</TABLE>
(continued)
F-17
<PAGE> 44
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995 - CONTINUED -
(In Thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Cost Capitalized
(Reduced)
Initial Cost to Subsequent to Gross Amount Carried
Company(1) Acquisition(6) at December 31, 1995
---------------- ---------------- --------------------
Buildings Building
and and (3)
Description Encumbrances Land Improvements Improvements Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial Properties (continued)
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
------- -------- -------- ------- -------- --------
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
======== ======= ======== ======== ======= ======== ========
<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H
(1) Life
Accumulated Date Depreciated
Description Depreciation Acquired Over
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial Properties (continued)
Case Equipment Corp.:
Kansas City, KS 477 3/84 50 yrs.
Memphis, TN 378 3/84 50 yrs.
Navistar Intntl Trans.:
W. Chicago, IL 1,596 3/84 50 yrs.
Baltimore, MD 717 3/84 50 yrs.
Park 100 - Building 42 & 46 403 10/86 5-25 yrs.
Sea Tac II(2) 177 2/86 5-25 yrs.
-------
5,665
-------
Office Properties:
4500 Plaza 2,285 3/86 5-30 yrs.
Regency Westpointe 1,142 6/87 5-30 yrs.
-------
3,427
-------
Hotel Properties:
Country Suites by Carlson:
Arlington, TX 3,161 12/86 7-25 yrs.
Irving, TX(2) 403 10/86 5-25 yrs.
Ontario, CA 2,842 11/86 5-30 yrs.
Tucson, AZ 4,213 12/86 7-25 yrs.
-------
10,619
-------
Residential Property:
Summer Breeze 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-18
<PAGE> 45
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(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-19
<PAGE> 46
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
Description of Loan Final Maturity
and Securing Property Interest Rate Date
- --------------------- ------------- --------------
<S> <C> <C> <C>
First Mortgage Loan 8% 11/1/96
Office and research
complex,
Eatontown, NY
First Mortgage Loan 8%-9% 6/1/01
Industrial property,
Los Angeles, CA
<CAPTION>
COLUMN A COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
Principal Amount
of Loans Subject
Description of Loan Periodic Face Carrying to Delinquent
and Securing Property Payment Terms Prior Liens Amount Amount (1) Principal or Interest
- --------------------- -------------------------- ----------- ------ ---------- ---------------------
<S> <C> <C> <C> <C> <C>
First Mortgage Loan Monthly interest payments,
Office and research principal due upon maturity
complex, Decreasing prepayment penalty None $7,600 $6,700 None
Eatontown, NY of between $76 and $380
commencing February 1, 1991
First Mortgage Loan Monthly interest and principal None 553 516 None
----- -----
Industrial property, payments, commencing
Los Angeles, CA January 1, 1996 based on a
thirty year amortization
8,153 $7,216
===== ======
</TABLE>
F-20
<PAGE> 47
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1995
The following is a summary of changes in the carrying amount of mortgage loans
for the years ended December 31, 1995, 1994 and 1993 (in thousands):
<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-21
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
Date: February 21, 1997 By: /s/ Terri Garnick
---------------------------------
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
<PAGE> 49
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
--------- --------------------------------------------------------------
3.01 Articles of Amendment and Restatement of Articles of
Incorporation of Glenborough Realty Trust Incorporated. (1)
3.02 Bylaws of Glenborough Realty Trust Incorporated. (1)
4.02 Form of Common Stock Certificate. (1)
10.01 First Amended and Restated Agreement of Limited Partnership of
Glenborough Properties, L.P. (1)
10.02 Form of Indemnification Agreement for existing Officers and
Directors of Glenborough Realty Trust Incorporated. (1)
10.04* 1996 Employee Stock Incentive Plan. (1)
10.05* 1996 Non-Employee and Director Stock Incentive Plan. (1)
10.06 Lease Agreements between Glenborough Properties, L.P. and
Glenborough Hotel Group for Country Suites-Ontario and Country
Suites-Arlington (2)
10.07* Employment Agreement between Glenborough Realty Trust
Incorporated and Robert Batinovich (2)
10.08* Employment Agreement between Glenborough Realty Trust
Incorporated and Andrew Batinovich (2)
10.14 Management, Administration and Consulting Agreement dated as
of December 20, 1994 between Glenborough Inland Realty
Corporation and the General Partners of nine Rancon
Partnerships. (1)
10.15 Amendment to Management, Administration and Consulting
Agreement dated March 30, 1995 between Glenborough Inland
Realty Corporation and the General Partners of nine Rancon
Partnership. (1)
10.18 Agreement between Glenborough Corporation and Bear, Stearns &
Co., Inc., dated October 7, 1994. (1)
10.19* Employment Agreement between Glenborough Realty Corporation
Robert Batinovich (2)
10.20* Employment Agreement between Glenborough Realty Corporation
Andrew Batinovich (2)
10.21* Employment Agreement between Glenborough Inland Realty
Corporation and Andrew Batinovich (2)
<PAGE> 50
EXHIBIT
NUMBER EXHIBIT TITLE
--------- --------------------------------------------------------------
10.22* Employment Agreement between Glenborough Inland Realty
Corporation and Andrew Batinovich (2)
10.23* Employment Agreement between Glenborough Hotel Group and
Andrew Batinovich (2)
10.24 Form of Indemnification Agreement for Existing Officers and
Directors of Glenborough Hotel Group. (1)
10.25 Form of Indemnification Agreement for Existing Officers and
Directors of Glenborough Realty Corporation. (1)
10.26 Form of Indemnification Agreement for Existing Officers and
Directors of Glenborough Inland Realty Corporation. (1)
10.27 Registration Agreement between Glenborough Realty Trust
Incorporated and GPA, Ltd. (2)
10.28 Lock Up Agreements. (2)
10.29 Subscription Agreement between Glenborough Properties, L.P.
and GPA, Ltd. (2)
10.30 Form of Agreement for Purchase and Sale of Real Estate to be
entered into by and between Glenborough Realty Trust
Incorporated and Outlook Income Fund 9. (1)
10.31 Indemnification Agreement for Glenborough Realty Corporation
and Glenborough Realty Trust Incorporated, with Robert
Batinovich as indemnitor. (2)
* Indicates management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-4 (Registration No. 33-83506),
which became effective October 26, 1995.
(2) Incorporated by references to the identically numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
