SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-14162
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 94-3211970
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real,
Suite 1100 San Mateo, California
(415) 343-9300 94402-1708
(Address of principal executive offices (Zip Code)
and telephone number)
Securities registered under Section 12(b) of the Act:
Name of Exchange
Title of each class: on which registered:
Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of May 15, 1997, 13,194,692 shares of Common Stock ($.001 par value) were
outstanding.
Page 1 of 35
<PAGE>
INDEX
GLENBOROUGH REALTY TRUST INCORPORATED
Page No.
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of Glenborough
Realty Trust Incorporated (Unaudited except for the
Consolidated Balance Sheet at December 31, 1996):
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 4
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 5
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1997 and 1996 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 7-8
Notes to Consolidated Financial Statements 9-16
Consolidated Financial Statements of Glenborough Hotel Group
(Unaudited):
Consolidated Balance Sheets at March 31, 1997 and 1996 17
Consolidated Statements of Income for the three months
ended March 31, 1997 and 1996 18
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1997 and 1996 19
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 20
Notes to Consolidated Financial Statements 21-23
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Glenborough Realty Trust Incorporated 24-28
Glenborough Hotel Group 29-30
Page 2 of 35
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PART II OTHER INFORMATION
Item 1. Legal Proceedings 31-32
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
EXHIBIT INDEX 35
Page 3 of 35
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, December 31,
1997 1996
(Unaudited) (Audited)
-------------- -------------
ASSETS
<S> <C> <C>
Rental property, net of accumulated depreciation of
$30,251 and $28,784 in 1997 and 1996, respectively $ 173,316 $ 161,945
Investments in Associated Companies and Glenborough
Partners 6,864 7,350
Investment in management contract, net 289 322
Mortgage loans receivable, net of provision for loss of
$863 in 1996 3,454 9,905
Cash and cash equivalents 42,603 1,355
Other assets 7,916 4,643
------------- -------------
TOTAL ASSETS $ 234,442 $ 185,520
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans $ 59,007 $ 54,584
Secured bank line - 21,307
Other liabilities 3,353 3,198
------------- -------------
Total liabilities 62,360 79,089
------------- -------------
Minority interest 8,856 8,831
Stockholders' Equity:
Common stock, 13,161,553 and 9,661,553 shares issued
and outstanding at March 31, 1997, and
December 31, 1996, respectively 13 10
Additional paid-in capital 172,257 105,952
Deferred compensation (352) (399)
Retained earnings (deficit) (8,692) (7,963)
------------- -------------
Total stockholders' equity 163,226 97,600
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 234,442 $ 185,520
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
Page 4 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1997 and 1996
(in thousands, except per share amounts)
(Unaudited)
1997 1996
-------------- -------------
REVENUE
<S> <C> <C>
Rental revenue $ 7,907 $ 3,589
Fees and reimbursements from affiliate 187 66
Interest and other income 344 191
Equity in earnings of Associated Companies 145 425
Gain on collection of mortgage loan receivable 154 -
------------- ------------
Total revenue 8,737 4,271
------------- ------------
EXPENSES
Property operating expenses 2,382 1,017
General and administrative 651 281
Depreciation and amortization 1,537 897
Interest expense 1,573 722
Consolidation costs - 6,082
Litigation costs - 1,155
-------------- -------------
Total expenses 6,143 10,154
------------- -------------
Income (loss) from operations before minority interest 2,594 (5,883)
Minority interest (231) (101)
------------- -------------
Net income (loss) $ 2,363 $ (5,984)
============= =============
Primary earnings per share $ 0.23 $ (1.04)
============= =============
Primary weighted average shares outstanding 10,256,129 5,753,709
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
Page 5 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
Common Stock Additional Deferred Retained
Par Paid-in Compen- Earnings
Shares Value Capital sation (Deficit) Total
------------- ------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 9,662 $ 10 $ 105,952 $ (399) $ (7,963) $ 97,600
Issuance of common stock, net of offering
costs of $4,567 3,500 3 66,305 - - 66,308
Amortization of deferred compensation - - - 47 - 47
Distributions - - - - (3,092) (3,092)
Net income - - - - 2,363 2,363
-----------------------------------------------------------------------------------
Balance at March 31, 1997 13,162 $ 13 $ 172,257 $ (352) $ (8,692) $ 163,226
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional Deferred Retained
Par Paid-in Compen- Earnings
Shares Value Capital sation (Deficit) Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 5,754 $ 6 $ 55,622 $ - $ (7,963) $ 55,628
Net loss - - - - (5,984) (5,984)
-----------------------------------------------------------------------------------
Balance at March 31, 1996 5,754 $ 6 $ 55,622 $ - $ (5,984) $ 49,644
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
Page 6 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
1997 1996
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 2,363 $ (5,984)
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Depreciation and amortization 1,537 897
Amortization of loan fees, included in
interest expense 64 36
Minority interest in income from operations 231 101
Equity in earnings of Associated
Companies (145) (425)
Gain on collection of mortgage loan receivable (154) -
Amortization of deferred compensation 47 -
Consolidation costs - 6,082
Litigation costs - 1,155
Changes in certain assets and liabilities, net (3,219) (2,169)
-------------- ---------------
Net cash provided by (used for) operating
activities 724 (307)
-------------- ---------------
Cash flows from investing activities:
Additions to rental property (8,226) (27)
Additions to mortgage loans receivable (250) -
Principal receipts on mortgage loans receivable 6,855 14
Investments in Associated Companies - (389)
Distributions from Associated Companies and
Glenborough Partners 631 -
-------------- ---------------
Net cash used for investing activities (990) (402)
-------------- ---------------
continued
See accompanying notes to consolidated financial statements
</TABLE>
Page 7 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -continued
For the three months ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
1997 1996
------------- --------------
Cash flows from financing activities:
<S> <C> <C>
Proceeds from borrowings $ 10,700 $ -
Repayment of borrowings (32,196) (69)
Payment of investor notes - (2,483)
Distributions to minority interest holders (206) -
Distributions (3,092) -
Proceeds from issuance of stock, net of offering costs
66,308 -
------------- --------------
Net cash provided by (used for) financing
activities 41,514 (2,552)
------------- --------------
Net increase (decrease) in cash and cash equivalents 41,248 (3,261)
Cash and cash equivalents at beginning of period 1,355 4,587
------------- --------------
Cash and cash equivalents at end of period $ 42,603 $ 1,326
============= ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,467 $ 509
============= ==============
Supplemental disclosure of Non-Cash Investing and Financing
Activities:
Acquisition of real estate through assumption of first
trust deed note payable $ 4,612 $ -
============= ==============
See accompanying notes to consolidated financial statements
</TABLE>
Page 8 of 35
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
March 31, 1997
Note 1. ORGANIZATION
Glenborough Realty Trust Incorporated (the "Company") was organized in the State
of Maryland on August 26, 1994. It is the intent of the Company to qualify as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended (the "Code"). The Company completed a Consolidation with certain
public California limited partnerships and other entities (the "Consolidation")
engaged in real estate activities (the "GRT Predecessor Entities") through an
exchange of assets of the GRT Predecessor Entities for 5,753,709 shares of
Common Stock of the Company. The Consolidation occurred on December 31, 1995,
and the Company commenced operations on January 1, 1996.
Subsequent to the Consolidation on December 31, 1995, and through March 31,
1997, the following Common Stock transactions occurred: (i) 35,000 shares of
Common Stock were issued to officers and directors as stock compensation; (ii)
3,666,000 shares were issued in a public equity offering in October 1996; (iii)
206,844 shares were issued in connection with the acquisition of the TRP and
Carlsberg Properties; and (iv) 3,500,000 shares were issued in a public equity
offering in March 1997, resulting in total shares of Common Stock issued and
outstanding at March 31, 1997, of 13,161,553. In addition, fully converted
shares issued and outstanding (including 644,120 Operating Partnership Units)
totaled 13,805,673 at March 31, 1997.
To maintain the Company's qualification as a REIT, no more than 50% in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will not
fail this test, the Company's Articles of Incorporation provides for certain
restrictions on the transfer of the Common Stock to prevent further
concentration of stock ownership.
The Company, through several subsidiaries, is engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of various income-producing properties. The Company's major
consolidated subsidiary, in which it holds a 1% general partner interest and a
93.32% limited partner interest, is Glenborough Properties, L.P. (the "Operating
Partnership"). As of March 31, 1997, the Operating Partnership, directly and
through various subsidiaries in which it and the Company own 100% of the
ownership interests, controls a total of 55 real estate projects and 2 mortgage
loans receivable.
The Company also holds 100% of the non-voting preferred stock of the following
three Associated Companies (the "Associated Companies"):
Glenborough Corporation (formerly known as Glenborough Realty Corporation)
("GC") is the general partner of eight partnerships and provides asset and
property management services for these eight partnerships (the "Controlled
Partnerships"). It also provides property management services for a limited
portfolio of property owned by unaffiliated third parties.
Glenborough Inland Realty Corporation ("GIRC") provides partnership
administration, asset management, property management and development
services under a long term contract to an additional group of unaffiliated
partnerships which include six public partnerships.
Glenborough Hotel Group ("GHG") leases the five Country Suites By Carlson
hotels owned by the Company and operates them for its own account. It also
operates two Country Suites By Carlson hotels owned by the Controlled
Partnerships, and two resort condominium hotels.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the consolidated financial
position of the Company as of March 31, 1997, and December 31, 1996, and the
consolidated results of operations and cash flows of the Company for the
Page 9 of 35
<PAGE>
three months ended March 31, 1997 and 1996. All intercompany transactions,
receivables and payables have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal accruals) necessary to
present fairly the financial position and results of operations of the Company
as of March 31, 1997, and for the period then ended.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the results of operations during the reporting period. Actual results could
differ from those estimates.
Investments in Real Estate
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 1995. SFAS 121 requires that an evaluation of
an individual property for possible impairment 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
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 follows:
Buildings and Improvements 10 to 40 years
Tenant Improvements Term of the related lease
Furniture and Equipment 5 to 7 years
Investments in Associated Companies
The Company's investments in the Associated Companies are accounted for using
the equity method, as discussed further in Note 4.
Investment in Management Contract
Investment in management contract is recorded at cost and is amortized on a
straight-line basis over the term of the contract.
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
Page 10 of 35
<PAGE>
information concerning the operation of the properties. Interest on mortgage
loans is recognized as revenue as it accrues during the period the loan is
outstanding. Mortgage loans receivable will be evaluated for impairment if it
becomes evident that the borrower is unable to meet its debt service obligations
in a timely manner and cannot satisfy its payments using sources other than the
operations of the property securing the loan. If it is concluded that such
circumstances exist, then the loan will be considered to be impaired and its
recorded amount will be reduced to the fair value of the collateral securing it.
Interest income will also cease to accrue under such circumstances. Due to
uncertainties inherent in the valuation process, it is reasonably possible that
the amount ultimately realized from the Company's collection on these
receivables will be different than the recorded amounts.
Cash Equivalents
The Company considers short-term investments (including certificates of deposit)
with a maturity of three months or less at the time of investment to be cash
equivalents.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Company, the carrying amount of debt approximates fair value.
Cash and cash equivalents consist of demand deposits, certificates of deposit
and short-term investments 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 5.68% limited partner interests in the
Operating Partnership not held by the Company.
Revenues
All leases are classified as operating leases. Rental revenue is recognized as
earned over the terms of the leases.
For the three months ended March 31, 1997, no tenants represented 10% or more of
rental revenue of the Company.
Fees and reimbursement revenue consists of property management fees, overhead
administration fees, and transaction fees from the acquisition, disposition,
refinance, leasing and construction supervision of real estate.
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 has made an election to be taxed as a REIT under Sections 856
through 860 of the Code. As a REIT, the Company generally will not be subject to
Federal income tax to the extent that it distributes at least 95% of its REIT
taxable income to its shareholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its income
and property and to Federal income and excise taxes on its undistributed income.
Earnings Per Share
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share."
SFAS No. 128 requires the disclosure of basic earnings per share and
Page 11 of 35
<PAGE>
modifies existing guidance for computing fully diluted earnings per share. Under
the new standard, basic earnings per share is computed as earnings divided by
weighted average shares, excluding the dilutive effects of stock options and
other potentially dilutive securities. The effective date of SFAS No. 128 is
December 15, 1997, and early adoption is not permitted. The Company intends to
adopt SFAS No. 128 during the quarter and year ended December 31, 1997. Had the
provisions of SFAS No. 128 been applied to the Company's results of operations
for the quarters ended March 31, 1997 and 1996, the Company's basic earnings per
share would not have been materially different than amounts already reported.
Reference to 1996 Audited Financial Statements
These unaudited financial statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in the 1996 audited
financial statements.
Note 3. RENTAL PROPERTY
In February 1997, the Company acquired a 163-suite hotel Property (the
"Scottsdale Hotel"), which began operations in January 1996 and is located in
Scottsdale, Arizona. The total acquisition cost, including capitalized costs,
was approximately $12.1 million, which consisted of approximately $4.6 million
of mortgage debt assumed, and the balance in cash. The cash portion was financed
through advances under the Company's Line of Credit. As with four of the
Company's other hotel Properties, the Scottsdale Hotel is marketed as a Country
Suites by Carlson.
Note 4. INVESTMENTS IN ASSOCIATED COMPANIES AND GLENBOROUGH PARTNERS
The Company's investments in the Associated Companies are accounted for using
the equity method as the Company has significant ownership interests through its
100% preferred stock ownership but does not own any voting interests. The
Company records earnings on its investments in the Associated Companies equal to
its cash flow preference, to the extent of earnings, plus its pro rata share of
remaining earnings, based on cash flow allocation percentages. Distributions
received from the Associated Companies are recorded as a reduction of the
Company's investments.
The Company's investment in Glenborough Partners ("GP") is accounted for using
the cost method as the Company holds only a 3.97% limited partner interest.
As of March 31, 1997, the Company had the following investments in the
Associated Companies and GP (in thousands):
<TABLE>
<CAPTION>
GC GIRC GHG GP Total
------ ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Investment at December 31, 1996 $ 1,386 $ 3,875 $ 1,504 $ 585 $ 7,350
Distributions (200) (403) (16) (12) (631)
Equity in earnings (loss) (111) 120 136 - 145
------ ----- ----- ---- -----
Investment at March 31, 1997 $ 1,075 $ 3,592 $ 1,624 $ 573 $ 6,864
====== ===== ===== ==== =====
</TABLE>
Note 5. INVESTMENT IN MANAGEMENT CONTRACT, NET
Investment in management contract included in the Company's balance sheet as of
March 31, 1997, represents the unamortized portion of the asset management
agreement for the Glenborough Institutional Fund I partnership. The contract is
being amortized on a straight-line basis over eleven years.
Note 6. MORTGAGE LOANS RECEIVABLE
The Company held a first mortgage loan with a principal balance of $7,563,000
and a carrying value of $6,700,000 at December 31, 1996, secured by an office
and research complex in Eatontown, New Jersey. The loan had an
Page 12 of 35
<PAGE>
original maturity date of November 1, 1996 with interest only payable monthly at
the fixed rate of eight percent (8%) per annum. In 1995, due to the uncertainty
surrounding the borrower's ability to payoff the note receivable upon its
November 1996 maturity, the Company recorded a $863,000 loss provision on this
mortgage loan receivable to reduce its carrying value to the estimated fair
value of the underlying property. The terms of the note were renegotiated in
December 1996 with the maturity date extended to February 1, 1997. The interest
rate continued at 8% per annum. The borrower had the right to payoff the loan at
a discount between January 10 and January 31, 1997. The discounted payoff was i)
$6,863,000 in cash and ii) a note for $500,000 payable over a term of twelve
years at six percent (6%) interest amortized over twenty-five years. On January
28, 1997, the borrower paid off the note at the above discounted terms,
resulting in a gain to the Company of $154,000 ($163,000 net of $9,000 in legal
costs) which has been recognized in the Company's Consolidated Statement of
Operations for the three months ended March 31, 1997. The additional gain
associated with the $500,000 note receivable will be recorded as income when
cash is received. As of March 31, 1997, the balance of the new note receivable
was $498,553. As this new note receivable is not secured by the Hovpark
property, it is included in Other Assets in the Company's Consolidated Balance
Sheet as of March 31, 1997.
At March 31, 1997, the Company held a first mortgage loan in the amount of
$511,000 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 (ended June 1996) and at nine percent (9%) per annum
for the next sixty months until the note matures in June 2001. Monthly payments
of principal and interest, computed based on a thirty year amortization
schedule, commenced January 1995 and continue until maturity.
In 1996, the Operating Partnership entered into a Loan Agreement and Option
Agreement with Carlsberg Properties, LTD. ("the Borrower"). The loan amount was
$3,600,000, of which $2,694,000 was initially disbursed to the Borrower and
$906,000 was held by the Operating Partnership as leasing and interest reserves.
During the three months ended March 31, 1997, $249,000 of reserves were
disbursed to the borrower which resulted in an outstanding balance at March 31,
1997, of $2,943,000. The loan is secured by a 48,000 square foot medical
building in Phoenix, Arizona (the "Grunow Building"), and matures on November
19, 1999, with interest only payable monthly at the fixed rate of eleven percent
(11%) per annum calculated on the full amount of the loan. The Option Agreement
provides the Operating Partnership the option to purchase the Grunow Building on
either the second or third anniversary of the closing date of November 19, 1996,
for the greater of i) the then outstanding loan balance plus $50,000 or ii) the
value of the Secured Property as defined in the Option Agreement.
Note 7. SECURED LIABILITIES
The Company had the following mortgage loans, bank lines, and notes payable
outstanding as of March 31, 1997, and December 31, 1996 (in thousands):
1997 1996
---------- ----------
Secured$50,000,000 line of credit with a bank with
variable interest rates of LIBOR plus 2.375% and prime
rate plus 0.50% (7.88% and 9.00%, respectively at March
31, 1997), monthly interest only payments and a
maturity date of July 14, 1998, with an option to
extend for 10 years.The line is secured by nineteen
properties with an aggregate net carrying value of
$60,286 and $67,118 at March 31, 1997, and December 31,
1996, respectively. $ - $ 21,307
Secured loan with a bank with variable interest rates
of LIBOR plus 2.375% and prime rate plus 0.50% (7.88%
and 9.00%, respectively at March 31, 1997), monthly
interest only payments and a maturity date of July 14,
1998. The loan is secured by ten properties with an
aggregate net carrying value of $8,050 and $8,112 at
March 31, 1997, and December 31, 1996, respectively. 6,120 6,120
Page 13 of 35
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1997 1996
---------- ----------
Secured loan with an investment bank with a fixed
interest rate of 7.57%, monthly principal (based upon a
25 year amortization) and interest payments of $149 and
a maturity date of January 1, 2006. The loan is secured
by nine properties with an aggregate net carrying value
of $38,913 and $39,298 at March 31, 1997 and December
31, 1996, respectively. $ 19,671 $ 19,744
Secured loans with various lenders, bearing interest at
fixed rates between 7.75% and 9.25%, with monthly
principal and interest payments ranging between $13 and
$62 and maturing at various dates through January 1,
2006. These loans are secured by properties with an
aggregate net carrying value of $30,316 and $30,441 at
March 31, 1997, and December 31, 1996, respectively. 17,523 17,581
Secured loans with various banks, bearing interest at
variable rates (ranging between 7.87% and 8.18% at
March 31, 1997), monthly principal and interest
payments ranging between $15 and $46 and maturing at
various dates through August 15, 2015. These loans are
secured by properties with an aggregate net carrying
value of $18,901 and $6,975 at March 31, 1997, and
December 31, 1996, respectively. 8,389 3,807
Secured loan with an investment company with a fixed
interest rate of 7.50%, monthly principal and interest
payments of $55 and a maturity date of March 1, 2021.
The loan is secured by a Housing and Urban Development
property with a net carrying value of $9,440 and $9,491
at March 31, 1997, and December 31, 1996, respectively. 7,304 7,332
------- ------
Total $ 59,007 $ 75,891
======= ======
The December 31, 1996, outstanding balance of $21,307,000 on the $50,000,000
line of credit was paid down with proceeds from the March 1997 Offering
discussed below.
The required principal payments on the Company's debt for the next five years
and thereafter, as of March 31, 1997, are as follows (in thousands):
Year Ending
December 31,
------------
1997 $ 717
1998 14,534
1999 2,363
2000 3,086
2001 1,128
Thereafter 37,179
------
Total $ 59,007
======
Note 8. RELATED PARTY TRANSACTIONS
Fee and reimbursement income earned by the Company from related partnerships
totaled $187,000 and $66,000 for the three months ended March 31, 1997, and
1996, respectively, and consisted of property management fees and asset
management fees for the three months ended March 31, 1997, and asset management
fees for the three months ended March 31, 1996.
Page 14 of 35
<PAGE>
Note 9. STOCK COMPENSATION PLAN
In May 1996, the Company adopted an employee stock incentive plan (the "Plan")
to provide incentives to attract and retain high quality executive officers and
key employees. The Plan provides for options to purchase shares of the Company's
Common Stock ("Stock") and for the sale or bonus grant of Stock to eligible
individuals. The number of shares of Stock reserved for issuance under the Plan
equals ten percent of the outstanding shares of Stock as of each December 31st
for the ensuing twelve month period (199,567 as of December 31, 1996). The
Company accounts for the fair value of the options and bonus grants in
accordance with APB Opinion No. 25. As of March 31, 1997, 35,000 shares of bonus
grants have been issued under the Plan. The fair value of the shares granted
have been recorded as deferred compensation in the accompanying financial
statements and will be charged to earnings ratably over the respective vesting
periods which range from 2 to 5 years. As of March 31, 1997, 836,000 options to
purchase shares of Stock have been granted. The exercise price of each option
granted is equal to the per-share fair market value of the Stock on the date the
option is granted. To date all options granted have been at higher than the fair
market value of the shares on the grant date, and as such, no compensation
expense has been recognized as accounted for under APB Opinion No. 25. The
options vest over periods between 1 and 6 years, and have a maximum term of 10
years. At the Company's annual meeting of stockholders, which is to be held on
May 15, 1997, the stockholders will vote upon certain amendments to the Plan.
Note 10. PUBLIC STOCK OFFERING
In March 1997, the Company completed the "March 1997 Offering" of 3,500,000
shares of Common Stock. The 3,500,000 shares were sold at a per share price of
$20.25 for total proceeds of $70,875,000 (net of 6% underwriting fee of
$3,920,000). This additional capital was used to acquire the Scottsdale Hotel
and the Lennar, Riverview and Ellis & Lane Properties (discussed below) and to
repay the outstanding balance under the Company's Line of Credit with Wells
Fargo. In addition, approximately $647,000 in other costs had been incurred as
of March 31, 1997, in connection with the offering.
Note 11. DECLARATION OF DIVIDENDS
On April 22, 1997, the Company's Board of Directors declared a dividend for the
first quarter of $0.32 per share or $4,222,301 payable on May 13, 1997 to
stockholders of record at the close of business on May 2, 1997. Such dividend
will be made from the Company's cash reserves at March 31, 1997, combined with
the dividends received from the Associated Companies.
Note 12. SUBSEQUENT EVENTS
On April 8, 1997, the Company acquired from two limited partnerships and one
limited liability company managed by affiliates of Lennar Partners, a portfolio
of three properties, aggregating approximately 282,000 square feet (the "Lennar
Properties"). The total acquisition cost, including capitalized costs, was
approximately $23.2 million, which was paid in cash from the proceeds of the
Company's March 1997 Offering. The Lennar Properties consist of one office
building located in Virginia, and one R&D building and one industrial building
both located in Massachusetts.
On April 14, 1997, the Company acquired from a private seller a 227,000 square
foot, 15-story office building located in Bloomington, Minnesota (the "Riverview
Property"). The total acquisition cost, including capitalized costs, was
approximately $20.5 million, of which approximately $16.3 million was paid in
cash from the proceeds of the Company's March 1997 Offering, and the balance was
paid in cash from borrowings under the Company's existing line of credit (the
"Line of Credit").
On April 18, 1997, the Company acquired from seven partnerships and their
general partner, a Southern California syndicator, a portfolio of eleven
Properties, aggregating approximately 522,000 square feet, together with
associated management interests (the "Ellis & Lane Properties"). The total
acquisition cost, including capitalized costs, was approximately $22.2 million,
which consisted of (i) approximately $12.8 million of mortgage debt assumed,
(ii)
Page 15 of 35
<PAGE>
approximately $6.7 million in the form of approximately 352,000 partnership
units in the Operating Partnership (based on an agreed per unit value of
$19.075), (iii) approximately $633,000 in the form of approximately 33,000
shares of common Stock of the Company (based on an agreed per share value of
$19.075), and (iv) the balance in cash. The cash portion was paid in part from
proceeds of the March 1997 Offering and in part from advances under the Line of
Credit. Of the $12.8 million of mortgage debt assumed in the acquisition,
approximately $8.9 million was paid off on May 1, 1997, through a draw on the
Line of Credit. The Ellis & Lane Properties consist of one office and ten
industrial properties, all located in Southern California.
On April 29, 1997, the Company acquired from two partnerships formed and managed
by affiliates of CIGNA, a portfolio of six Properties, aggregating approximately
616,000 square feet and 224 multi-family units (the "CIGNA Properties"). The
total acquisition cost, including capitalized costs, was approximately $45.4
million, which was paid entirely in cash from the proceeds of a new $40 million
unsecured loan from Wells Fargo Bank (discussed below) and a draw under the
existing Line of Credit. The CIGNA Properties are located in four states and
consist of two office properties, two industrial properties, a shopping center
and a multi-family property.
In April 1997, the Operating Partnership entered into a $40 million unsecured
loan with Wells Fargo Bank (the "Unsecured Loan"). The Unsecured Loan has a term
of three months (extendible to six months at the Company's option), bears
interest at a variable annual rate equal to 175 basis points above 30-day LIBOR,
is unsecured and is guaranteed by the Company. Required payments under the
Unsecured Loan are monthly, interest only. Management is currently in the
process of obtaining new financing to pay off this unsecured loan.
Note 13. PENDING ACQUISITIONS
In April 1997, the Company entered into a definitive agreement with five real
estate funds organized by affiliates of T. Rowe Price to acquire the T. Rowe
Price Properties, a portfolio of 27 properties, aggregating approximately
2,888,000 square feet. The total acquisition cost, including capitalized costs,
is expected to be up to approximately $146.8 million. The T. Rowe Price
Properties consist of five office properties, nineteen industrial properties
(including eight office/industrial complexes) and three retail properties
located in 12 states. These acquisitions are subject to a number of
contingencies, including approval of the acquisition by a majority in interest
of the voting power of the limited partners of each of the selling partnerships,
satisfactory completion of title and environmental due diligence and customary
closing conditions. Accordingly, there can be no assurance that any or all of
these acquisitions will be completed.
Page 16 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, December 31,
1997 1996
(Unaudited) (Audited)
---------- ------------
ASSETS
<S> <C> <C>
Cash $ 1,123 $ 461
Accounts receivable 519 247
Investments in management contracts, net 411 430
Rental property and equipment, net of
accumulated depreciation of $116 and $111
in 1997 and 1996, respectively 201 170
Investment in Atlantic Pacific Assurance Company, Limited 755 755
Prepaid expenses 137 156
Other assets 6 36
----- -----
TOTAL ASSETS $ 3,152 $ 2,255
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued lease expense $ 640 $ 285
Mortgage loan 55 61
Other liabilities 796 407
----- -----
Total liabilities 1,491 753
----- -----
Stockholders' Equity:
Common stock (1,000 shares authorized,
issued and outstanding) 20 20
Non-voting preferred stock (50 shares
authorized, issued and outstanding) - -
Additional paid-in capital 1,568 1,568
Retained earnings 73 (86)
----- -----
Total stockholders' equity 1,661 1,502
----- -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,152 $ 2,255
===== =====
See accompanying notes to consolidated financial statements
</TABLE>
Page 17 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
1997 1996
-------- --------
REVENUE
<S> <C> <C>
Hotel revenue $ 2,918 $ 1,915
Fees and reimbursements 567 550
Other revenue - 79
----- -----
Total revenue 3,485 2,544
----- -----
EXPENSES
Leased Hotel Properties:
Room expenses 637 576
Lease payments to an affiliate 1,048 683
Sales and marketing 272 185
Property general and administrative 232 163
Other operating expenses 286 190
Managed Hotel Properties:
Salaries and benefits 400 401
Other Expenses:
General and administrative 270 231
Depreciation and amortization 24 25
Interest expense 1 1
----- -----
Total expenses 3,170 2,455
----- -----
Income from operations before provision
for income taxes 315 89
Provision for income taxes (136) (40)
----- -----
Net income $ 179 $ 49
===== =====
See accompanying notes to consolidated financial statements
</TABLE>
Page 18 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1997 and 1996
(in thousands, except shares)
(Unaudited)
Addi-
Preferred Stock Common Stock tional Retained
Par Par Paid-in Earnings
Shares Value Shares Value Capital (Deficit) Total
------ ----- ------ ----- ------- -------- -------
BALANCE at
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 50 $ - 1,000 $ 20 $ 1,568 $ (86) $ 1,502
Dividends - - - - - (20) (20)
Net income - - - - - 179 179
------ ----- ------ ----- ------- -------- -------
BALANCE at
March 31, 1997 50 $ - 1,000 $ 20 $ 1,568 $ 73 $ 1,661
====== ===== ====== ===== ======= ======== =======
Addi-
Preferred Stock Common Stock tional Retained
Par Par Paid-in Earnings
Shares Value Shares Value Capital (Deficit) Total
------ ----- ------ ----- ------- -------- -----
BALANCE at
December 31, 1995 50 $ - 1,000 $ 20 $ 1,368 $ - $ 1,388
Dividends - - - - 200 - 200
Net income - - - - - 49 49
------ ----- ------ ----- ------- -------- -----
BALANCE at
March 31, 1996 50 $ - 1,000 $ 20 $ 1,568 $ 49 $ 1,637
====== ===== ====== ===== ======= ======== =====
See accompanying notes to consolidated financial statements
</TABLE>
Page 19 of 35
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
1997 1996
------ ------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 179 $ 49
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 24 25
Changes in certain assets and liabilities 521 292
----- -----
Net cash provided by operating activities 724 366
----- -----
Cash flows from investing activities:
Additions to equipment (36) -
----- -----
Net cash used for investing activities (36) -
----- -----
Cash flows from financing activities:
Dividends (20) -
Capital contributions - 200
Repayment of borrowings (6) (5)
----- -----
Net cash provided by (used for) financing activities (26) 195
----- -----
Net increase in cash 662 561
Cash at beginning of period 461 33
----- -----
Cash at end of period $ 1,123 $ 594
===== =====
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1 $ 1
===== =====
See accompanying notes to consolidated financial statements
</TABLE>
Page 20 of 35
<PAGE>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
March 31, 1997
Note 1. ORGANIZATION
Glenborough Hotel Group ("GHG") was organized in the State of Nevada on
September 23, 1991. As of March 31, 1997, GHG operates hotel properties owned by
Glenborough Realty Trust Incorporated ("GLB") under five separate percentage
leases and manages three hotel properties owned by two partnerships whose
managing general partner is Glenborough Corporation. GLB owns 100% of the 50
shares of non-voting preferred stock of GHG and three individuals, including
Terri Garnick, an executive officer of GLB, each own 33 1/3% of the 1,000 shares
of voting common stock of GHG.
GHG also owns approximately 80% of the common stock of Resort Group, Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six units at one of the properties.
GHG receives 100% of the earnings of RGI and consolidates its operations with
its own.
GHG also owns 94% of the outstanding common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic Pacific Assurance
Company, Limited ("APAC"), a Bermuda corporation formed to underwrite certain
insurable risks of certain of GLB's predecessor partnerships and related
entities. APAC no longer underwrites any business and is expected to be
liquidated in 1997. GHG accounts for its investment in APAC using the cost
method due to its anticipated liquidation.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal accruals) necessary to
present fairly, the financial position and results of operations of GHG as of
March 31, 1997, and for the period then ended.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying financial statements present the
consolidated financial position of GHG and RGI as of March 31, 1997 and 1996 and
the consolidated results of operations and cash flows of GHG and RGI for the
three months ended March 31, 1997 and 1996. All intercompany transactions,
receivables and payables have been eliminated in the consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the results of operations during the reporting period. Actual
results could differ from those estimates.
Rental Property - Rental properties are stated at cost unless circumstances
indicate that cost cannot be recovered, in which case, the carrying value of the
property is reduced to estimated fair value.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Investments in Management Contracts - Investments in management contracts are
recorded at cost and are amortized on a straight-line basis over the term of the
contracts.
Cash Equivalents - GHG 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.
Income Taxes - Provision for income taxes is based on financial accounting
income.
Page 21 of 35
<PAGE>
Note 3. INVESTMENTS IN MANAGEMENT CONTRACTS, NET
Investments in management contracts reflects the unamortized portion of the
management contracts RGI holds with the two beachfront resort condominium hotel
properties for both management of the homeowners associations and the rental
pool programs.
Note 4. RENTAL PROPERTY
Rental property and equipment represents the six condominium hotel units owned
by RGI as well as furniture and fixtures in GHG's corporate offices. The six
units owned by RGI participate in a resort rental program on an "at will" basis,
whereby there is no fixed term of participation. Such participation generated
approximately $3,000 and $1,000 of cash flow after deductions for capital
reserves for the three months ended March 31, 1997 and 1996, respectively.
Note 5. MORTGAGE LOAN
Mortgage loan of $55,000 at March 31, 1997, represents the debt secured by the
six condominium hotel units owned by RGI. Such debt bears interest at 7%,
payable in monthly installments of principal and interest totaling $2,304, and
matures June 30, 1999.
Note 6. THE PERCENTAGE LEASES
GHG is leasing the five hotels owned by GLB for a term of five years pursuant to
individual 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 room revenues (the "Percentage Rent"). Each hotel is separately
leased to GHG (the "lessee"). The lessee's ability to make rent payments will,
to a large degree, depend on its ability to generate cash flow from the
operations of the hotels. Each Percentage Lease contains the provisions
described below.
Each Percentage Lease has a non-cancelable term of five years, subject to
earlier termination upon the occurrence of certain contingencies described in
the Percentage Lease. The lessee under the Percentage Lease has one five-year
renewal option at the then current fair market rent.
During the term of each Percentage Lease, the lessee is obligated to pay the
greater of Base Rent or Percentage Rent. Base Rent is required to be paid
monthly in advance. Percentage Rent is calculated by multiplying fixed
percentages by room revenues for each of the five 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 Consumer
Price Index. Percentage Rent is due quarterly.
The table below sets forth the annual Base Rent and the Percentage Rent formulas
for each of the five hotels.
<TABLE>
<CAPTION>
Hotel Lease Rent Provisions
Percentage Rent
incurred for the three
Initial Annual months ended Annual Percentage
Hotel Base Rent March 31, 1997 Rent Formulas
- ----- -------------- ---------------------- ---------------------------------------------------------
<S> <C> <C> <C>
Ontario, CA $ 240,000 $ 88,000 24% of the first $1,575,000 of room revenue plus 40%
of room revenue above $1,575,000 and 5% of other revenue
continued
</TABLE>
Page 22 of 35
<PAGE>
<TABLE>
<CAPTION>
Hotel Lease Rent Provisions - continued
Percentage Rent
incurred for the three
Initial Annual months ended Annual Percentage
Hotel Base Rent March 31, 1997 Rent Formulas
- ----- -------------- --------------------- ---------------------------------------------------------
<S> <C> <C> <C>
Arlington, TX $ 360,000 $ 49,000 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 $ 296,000 40% of the first $1,350,000 of room revenue plus 46%
of room revenue above $1,350,000 and 5% of other revenue
San Antonio, TX $ 312,000 $ 0 33% of the first $1,200,000 of room revenue plus 40%
of room revenue above $1,200,000 and 5% of other revenue
Scottsdale, AZ $ 360,000 $ 207,000 45% of the first $3,200,000 of room revenue plus 60%
of room revenue above $3,200,000 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 GLB, the Percentage Leases
require the lessees to pay rent, insurance, salaries, utilities and all other
operating costs incurred in the operation of the Hotels.
Note 7. DECLARATION OF DIVIDENDS
The board of directors of GHG declared the following dividends (in thousands):
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
----------- ---------- -----------
<S> <C> <C> <C>
April, 1997 $ 39 $ 10 $ 49
----------- ---------- -----------
Total paid from 1997 earnings $ 39 $ 10 $ 49
=========== ========== ===========
</TABLE>
Page 23 of 35
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GLENBOROUGH REALTY TRUST INCORPORATED
Background
Glenborough Realty Trust Incorporated (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged primarily in the
ownership, operation, management, leasing and acquisition of various types of
income-producing properties. As of March 31, 1997, the Company owned and
operated 55 income-producing properties (the "Properties," and each a
"Property") and held two mortgage loans receivable. The Properties are comprised
of 14 industrial Properties, 21 retail Properties, 3 multi-family Properties, 6
hotel Properties and 11 office Properties, located in 17 states. Included in the
55 income-producing Properties are three Properties in which the Company holds a
participating first mortgage interest, not fee title. These three Properties
consist of one retail Property, one industrial Property and one hotel Property
which are each owned by AFP Partners. In accordance with GAAP, the Company
accounts for these properties 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 mortgages.
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
5,753,709 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 Glenborough Corporation, 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 Company holds a 93.32% limited partner interest as of March 31,
1997. The Company operates the assets acquired in the Consolidation and in
subsequent acquisitions and intends to invest in income-producing property
directly and through joint ventures. In addition, the Associated Companies may
acquire general partner interests in other real estate limited partnerships. The
Company expects to qualify as a REIT under the Internal Revenue Code of 1986, as
amended.
The Company seeks to achieve sustainable long-term growth in Funds from
Operations primarily through the following strategies: (i) acquiring portfolios
or individual properties on attractive terms often from public and private
partnerships; (ii) acquiring properties from entities controlled by the
Associated Companies; (iii) improving the performance of Properties in the
Company's portfolio; and (iv) constantly reviewing the Company's current
portfolio for opportunities to redeploy capital from certain existing Properties
into other properties which the Company believes have characteristics more
suited to its overall growth strategy and operating goals.
Consistent with the Company's strategy for growth, the Company acquired 21
properties in the third and fourth quarter of 1996 and the Scottsdale Hotel
Property in February 1997 and such acquired Properties consist of an aggregate
of approximately 1.4 million rentable square feet, 538 multi-family units and
227 hotel suites and had aggregate acquisition costs, including capitalized
costs, of approximately $105.5 million. In addition, the Company has entered
into a definitive agreement to acquire 27 properties in 12 states, aggregating
approximately 2.9 million rentable square feet. There can be no assurance that
any or all of these acquisitions will be completed.
Results of Operations
Comparison of the three months ended March 31, 1997 to the three months ended
March 31, 1996.
Rental Revenues. Rental revenues increased $4,318,000, or 120%, to $7,907,000
for the three months ended March 31, 1997, from $3,589,000 for the three months
ended March 31, 1996. The increase included growth in revenues from the office,
industrial, retail, multi-family and hotel Properties of $1,985,000, $433,000,
$639,000, $936,000 and $326,000, respectively. Of this increase, $4,069,000
represents rental revenues generated from the
Page 24 of 35
<PAGE>
acquisition of 21 properties (the "1996 Acquisitions") in the third and fourth
quarters of 1996, and $237,000 represents rental revenues generated from the
acquisition of the Scottsdale Hotel in February 1997.
Fees and Reimbursements. Fees and reimbursements revenue consists primarily of
property management fees and asset management fees paid to the Company by a
controlled partnership. This revenue increased $121,000, or 183%, to $187,000
for the three months ended March 31, 1997, from $66,000 for the three months
ended March 31, 1996. The increase consisted of an increase in the asset
management fees of $55,000 and property management fees of $76,000; in 1996,
such fees were paid to GC, an Associated Company, and during the first quarter
of 1997, they were paid to the Company.
Interest and Other Income. Interest and other income consists primarily of
interest on mortgage loans receivable and increased $153,000, or 80%, to
$344,000 for the three months ended March 31, 1997, from $191,000 for the three
months ended March 31, 1996. The increase was primarily due to a $50,000 loan
fee received for the extension of the Hovpark mortgage loan receivable and
$99,000 of interest income on the Carlsberg Properties, Ltd. mortgage loan
receivable, both of which were received during the three months ended March 31,
1997. The Carlsberg Properties, Ltd. mortgage loan receivable originated on
November 19, 1996.
Equity in Earnings of Associated Companies. Equity in earnings from Associated
Companies decreased $280,000, or 66%, to $145,000 for the three months ended
March 31, 1997, from $425,000 for the three months ended March 31, 1996. This
decrease is primarily due to GC's write-off of the unamortized balance of its
investment in a management contract.
Gain on Collection of Mortgage Loan Receivable. The gain on collection of
mortgage loan receivable of $154,000 during the three months ended March 31,
1997, resulted from the collection of the Hovpark mortgage loan receivable which
had a net carrying value of $6,700,000. The payoff amount totaled $6,863,000,
which, net of legal costs, resulted in a gain of $154,000.
Property Operating Expenses. Property operating expenses increased $1,365,000,
or 134%, to $2,382,000 for the three months ended March 31, 1997, from
$1,017,000 for the three months ended March 31, 1996. Of this increase,
$1,456,000 represents the property operating expenses of the 1996 Acquisitions,
offset in part by the reduction in expenses resulting from the sale of the All
American Self Storage industrial properties which were sold in June 1996.
General and Administrative Expenses. General and administrative expenses
increased $370,000, or 132%, to $651,000 for the three months ended March 31,
1997, from $281,000 for the three months ended March 31, 1996. The increase is
primarily due to increased overhead costs resulting from the 1996 Acquisitions
and the growth of the Company.
Depreciation and Amortization. Depreciation and amortization increased $640,000,
or 71%, to $1,537,000 for the three months ended March 31, 1997, from $897,000
for the three months ended March 31, 1996. The increase is primarily due to
depreciation and amortization associated with the 1996 acquisitions.
Interest Expense. Interest expense increased $851,000, or 118%, to $1,573,000
for the three months ended March 31, 1997, from $722,000 for the three months
ended March 31, 1996. Substantially all of the increase was the result of higher
average borrowings during the three months ended March 31, 1997 as compared to
the three months ended March 31, 1996. The increased borrowings primarily
resulted from new debt and assumption of debt related to the 1996 Acquisitions.
Consolidation Costs. Consolidation costs during the three months ended March 31,
1996, consisted of the costs associated with preparing, printing and mailing the
Prospectus/Consent Solicitation Statement and other documents related to the
Consolidation, and all other costs incurred in the forwarding of the
Prospectus/Solicitation Statement to investors.
Litigation Costs. Litigation costs during the three months ended March 31, 1996,
consisted of the legal fees incurred in connection with defending two class
action complaints filed by investors in certain of the Company's predecessor
entities, as well as an accrual for the proposed settlement in one case.
Page 25 of 35
<PAGE>
Liquidity and Capital Resources
For the three months ended March 31, 1997, cash provided by operating activities
increased by $1,031,000, or 336%, to $724,000 as compared to $307,000 used for
operating activities for the same period in 1996. The increase is primarily due
to the increase in net income resulting from the 1996 and 1997 acquisitions.
Cash used for investing activities increased by $588,000, or 146%, to $990,000
for the three months ended March 31, 1997, as compared to $402,000 for the same
period in 1996. The increase is primarily due to the acquisition of the
Scottsdale Hotel in February 1997. This increase is partially offset by the
collection of the Hovpark mortgage loan receivable. Cash provided by financing
activities increased by $44,066,000, or 1727%, to $41,514,000 for the three
months ended March 31, 1997, as compared to $2,552,000 used for financing
activities for the same period in 1996. This increase is primarily due to the
net proceeds from the March 1997 Offering (as defined below) which are partially
offset by the repayment of the outstanding balance under the Line of Credit (as
defined below).
The Company expects to meets its short-term liquidity requirements generally
through its working capital, its Line of Credit (as defined below) and cash
generated by operations. As of March 31, 1997, the Company had no material
commitments for capital improvements other than certain expansion related
improvements estimated at approximately $1,750,000 at its existing shopping
center in Tampa, Florida. Other planned capital improvements consist of tenant
improvements, expenditures necessary to lease and maintain the Properties and
expenditures for furniture and fixtures and building improvements at the hotel
Properties.
The Company's principal sources of funding for acquisitions, development,
expansion and renovation of properties are a secured Line of Credit (as defined
below), permanent secured debt financings, public equity and privately placed
financing, the issuance of partnership units in the Operating Partnership and
cash flow provided by operations.
Mortgage loans receivable decreased from $9,905,000 at December 31, 1996, to
$3,454,000 at March 31, 1997. This decrease was primarily due to the payoff of
the Hovpark mortgage loan receivable which had a net carrying value of
$6,700,000. This decrease is partially offset by draws on the Grunow mortgage
loan receivable leasing and interest reserves by the borrower of $249,000.
Mortgage loans payable increased from $54,584,000 at December 31, 1996, to
$59,007,000 at March 31, 1997. This increase resulted from the assumption of a
$4,612,000 mortgage loan in connection with the acquisition of the Scottsdale
Hotel in February 1997, partially offset by scheduled principal payments. The
Company has a $50,000,000 secured line of credit provided by Wells Fargo Bank
(the "Line of Credit"). Outstanding borrowings under the Line of Credit
decreased from $21,307,000 at December 31, 1996, to $0 at March 31, 1997, due to
the paydown of the Line of Credit from the net proceeds of the Company's equity
offering in March 1997. Borrowings under the Line of Credit currently bear
interest at an annual rate of LIBOR plus 1.75%.
In October 1996, the Company completed a public equity offering of 3,666,000
shares of Common Stock at an offering price of $13.875 per share. The net
proceeds from the offering of approximately $47.8 million were used to fund
certain of the 1996 Acquisitions and to repay outstanding indebtedness.
In March 1997, the Company completed a public equity offering of 3,500,000
shares of Common Stock at an offering price of $20.25 per share (the "March 1997
Offering"). The net proceeds from the offering of approximately $66.3 million
were used to fund certain 1997 acquisitions and to repay outstanding
indebtedness.
In January 1997, the Company filed a shelf registration statement (the "January
1997 Shelf Registration Statement") with the Securities and Exchange Commission
to register $250.0 million of equity securities. The January 1997 Shelf
Registration Statement was declared effective by the Securities and Exchange
Commission on February 25, 1997. After the completion of the March 1997
Offering, the Company has the capacity pursuant to the January 1997 Shelf
Registration Statement to issue up to approximately $179.1 million in equity
securities.
In May 1997, the Company filed a shelf registration statement to register an
additional $350.0 million of equity securities of the Company. This shelf
registration has not yet been declared effective by the Securities and Exchange
Commission.
Page 26 of 35
<PAGE>
At March 31, 1997, the Company's total indebtedness included fixed-rate debt of
$44,498,000, or 75% of the Company's aggregate indebtedness, and floating-rate
indebtedness of $14,509,000, or 25% of the Company's aggregate indebtedness.
Inflation
Substantially all of the leases at the retail Properties provide for
pass-through to tenants of certain operating costs, including real estate taxes,
common area maintenance expenses, and insurance. Leases at the multi-family
Properties generally provide for an initial term of one month or one year and
allow for rent adjustments at the time of renewal. Leases at the office
Properties typically provide for rent adjustment and pass-through of certain
operating expenses during the term of the lease. All of these provisions permit
the Company to increase rental rates or other charges to tenants in response to
rising prices and therefore, serve to minimize the Company's exposure to the
adverse effects of inflation.
Funds from Operations and Cash Available for Distribution
The Company believes that funds from operations ("FFO") is a measure of cash
flow which, when considered in conjunction with other measures of operating
performance, affects the value of equity REITs such as the Company. FFO means
income (loss) from operations before minority interests and extraordinary items
plus depreciation and amortization, except amortization of deferred financing
costs and loss provisions.
FFO is not necessarily indicative of cash flow available to fund cash needs and
is not the same as cash flow from operations as defined by GAAP, and should not
be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating, investing and financing activities as a measure of liquidity or
ability to make distributions. Management generally considers FFO to be a useful
financial performance 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 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. FFO as
disclosed by other REITs may not be comparable to the Company's calculation of
FFO.
Cash available for distribution ("CAD") represents net income (loss) (computed
in accordance with GAAP), excluding extraordinary gains or losses or loss
provisions, plus depreciation and amortization including amortization of
deferred financing costs, less lease commissions and capital expenditures. CAD
should not be considered an alternative to net income as a measure of the
Company's financial performance or to cash flow from operating activities
(computed in accordance with GAAP) as a measure of the Company's liquidity, nor
is it necessarily indicative of sufficient cash flow to fund all of the
Company's cash needs.
The following table sets forth the Company's calculation of FFO and CAD for the
three months ended March 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
1997
----------
<S> <C>
Net income (loss) before minority interest $ 2,594
Gain on collection of mortgage loan receivable (154)
Depreciation and amortization 1,537
Adjustment to reflect FFO of Associated
Companies (1) 623
----------
FFO $ 4,600
==========
Amortization of deferred financing fees 64
Capital reserve (110)
Capital expenditures (421)
----------
CAD $ 4,133
==========
Page 27 of 35
<PAGE>
Distributions per share (2) $ 0.32
==========
Fully diluted weighted average
shares outstanding 10,935,951
==========
</TABLE>
(1) Reflects the adjustments to FFO required to reflect the FFO of the
Associated Companies allocable to the Company. The Company's investments in the
Associated Companies are accounted for using the equity method of accounting.
(2) The distributions for the three months ended March 31, 1997, were paid on
May 13, 1997.
Forward Looking Statements; Factors That May Affect Operating Results
This Report on Form 10-Q contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934, including statements regarding the Company's
expectations, hopes, intentions, beliefs and strategies regarding the future.
Forward looking statements include statements regarding potential acquisitions,
the anticipated performance of future acquisitions, recently completed
acquisitions and existing properties, and statements regarding the Company's
financing activities. All forward looking statements included in this document
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statements. It
is important to note that the Company's actual results could differ materially
from those stated or implied in such forward looking statements. Factors which
may cause the Company's results to differ include defaults or non-renewal of
leases, increased interest rates and operation costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, environmental uncertainties,
risks related to natural disasters, financial market fluctuations, changes in
real estate and zoning laws, increases in real property tax rates and other
factors discussed under the caption "Forward Looking Statements; Factors That
May Affect Operating Results" in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. In addition, past
performance of the Company's Common Stock is not necessarily indicative of
results that will be obtained in the future from an investment in the Company's
Common Stock. Furthermore, the Company makes distributions to stockholders if,
as and when declared by its Board of Directors, and expects to continue its
policy of paying quarterly distributions, however, there can be no assurance
that distributions will continue or be paid at any specific level.
Page 28 of 35
<PAGE>
GLENBOROUGH HOTEL GROUP
Background
Glenborough Hotel Group ("GHG") was organized in the state of Nevada on
September 23, 1991. As of March 31, 1997, GHG operates hotel properties owned by
the Company under five separate percentage leases and manages three hotel
properties owned by two partnerships whose managing general partner is
Glenborough Corporation. The Company owns 100% of the 50 shares of non-voting
preferred stock of GHG and three individuals, including Terri Garnick, an
executive officer of the Company, each own 33 1/3% of the 1,000 shares of voting
common stock of GHG.
In January 1997, due to the insufficient cash flow of one of the managed hotel
properties in relation to the debt service requirements, the owner of the
property, a California limited partnership owned by an affiliate, stopped making
debt service payments. As a result, in April 1997, the lender foreclosed on the
property, and GHG is no longer managing this hotel.
GHG also owns approximately 80% of the common stock of Resort Group, Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six rental units at one of the
properties. GHG receives 100% of the earnings of RGI and consolidates their
operations with its own.
GHG also owns 94% of the outstanding common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic Pacific Assurance
Company, Limited ("APAC"). APAC was formed to underwrite certain insurable
risks, however, it no longer underwrites any business and is expected to be
liquidated in June 1997. GHG accounts for its investment in APAC using the cost
method due to its anticipated liquidation.
Liquidity and Capital Resources
GHG's primary source of funding is the cash generated by the operations of the
five hotels leased from the Company and fees received for (i) managing three
hotels (through March 31, 1997) owned by two partnerships and (ii) managing the
homeowners associations and rental pools for the resort condominium hotel
properties as discussed above.
The boards of directors of GHG declared and paid the following quarterly
dividends for the three months ended March 31, 1997:
1st Quarter
-----------
Preferred dividends to the Company $ 7,500
Additional dividends to the Company 30,938
Total dividends to the Company 38,438
Dividends to others 10,312
--------
Total dividends $ 48,750
========
Results of Operations
Hotel revenue, which represents the revenue earned on the five hotels leased
from the Company, increased $1,003,000, or 52%, to $2,918,000 for the three
months ended March 31, 1997, from $1,915,000 for the three months ended March
31, 1996. This increase is primarily due to the acquisition of the San Antonio
Hotel in August 1996 and the acquisition of the Scottsdale Hotel in February
1997.
Fee revenue and salary reimbursements of $567,000 represents the fees earned for
managing three hotels and two resort condominium hotels. The increase from the
three months ended March 31, 1996, to the three months ended March 31, 1997, was
not significant.
The primary expenses associated with the leased hotels are room expenses, lease
payments, sales and marketing and other operating expenses, including utilities,
maintenance and insurance. All leased hotel expenses increased from the three
months ended March 31, 1996, to the three months ended March 31, 1997, due to
the acquisition of two hotels as discussed above.
Page 29 of 35
<PAGE>
The only direct expenses incurred in connection with the management of the three
hotels and two resort condominium hotel properties are salaries and benefits
which remained constant from the three months ended March 31, 1996, to the three
months ended March 31, 1997.
General and administrative costs represent the overhead costs associated with
administering the business of GHG. Such costs primarily consist of
administrative salaries and benefits, rent, legal fees and accounting fees.
These costs increased $39,000, or 17%, to $270,000 for the three months ended
March 31, 1997, from $231,000 for the three months ended March 31, 1996. The
increase is primarily due to higher salaries and benefits related to the growth
of GHG.
Page 30 of 35
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Blumberg. On February 21, 1995, a class action complaint was filed in the
Superior Court of the State of California in and for San Mateo County in
connection with the Consolidation. The plaintiff is Anthony E. Blumberg, an
Investor in Equitec B, on behalf of himself and all others (the "Blumberg
Action") similarly situated. The defendants are GC (formerly known as
Glenborough Realty Corporation), Glenborough Realty Corporation ("GRC"), Robert
Batinovich, the Partnerships and the Company.
The complaint alleged breaches by the defendants of their fiduciary duty and
duty of good faith and fair dealing to investors in the Partnerships. The
complaint sought injunctive relief and compensatory damages. The complaint
alleged that the valuation of GC was excessive and was done without appraisal of
GC's business or assets. The complaint further alleged that the interest rate
for the Notes to be issued to investors in lieu of shares of Common Stock, if
they so elected was too low for the risk involved and that the Notes would
likely sell, if at all, at a substantial discount from their face value (as a
matter entirely distinct from the litigation and subsequent settlement, the
Company, as it had the option to, paid in full the amounts due plus interest in
lieu of issuing Notes).
On October 9, 1995 the parties entered into an agreement to settle the action.
The defendants, in entering into the settlement agreement, did not acknowledge
any fault, liability or wrongdoing of any kind and continue to deny all material
allegations asserted in the litigation. Pursuant to the settlement agreement,
the defendants will be released from all claims, known or unknown, that have
been, could have been, or in the future might be asserted, relating to, among
other things, the Consolidation, the acquisition of the Company's shares
pursuant to the Consolidation, any misrepresentation or omission in the
Registration Statement on Form S-4, filed by the Company on September 1, 1994,
as amended, or the prospectus contained therein ("Prospectus/Consent
Solicitation Statement"), or the subject matter of the lawsuit. In return, the
defendants agreed to the following: (a) the inclusion of additional or expanded
disclosure in the Prospectus Consent Solicitation Statement, and (b) the
placement of certain restrictions on the sale of 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 scheduled a hearing 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.
Objections were received from a small number of 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 brought the
BEJ Action described below.
At a hearing on January 17, 1996, 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. On June 4, 1996, the court
granted approval of the settlement, finding it fundamentally fair, adequate and
reasonable to the respective parties to the settlement. However, the objectors
gave notice of their intent to appeal the June 4 decision, and filed their
opening brief with the court of appeals on November 15, 1996. The Company and
the other defendants filed their answering brief on January 17, 1997.
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 "BEJ Action"). 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 California limited partnerships known as Outlook Properties
Fund IV, Glenborough All Suites Hotels, L.P., Glenborough Pension Investors,
Equitec Income Real Estate Investors-Equity Fund 4, Equitec Income Real Estate
Investors C and Equitec Mortgage Investors Fund 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.
Page 31 of 35
<PAGE>
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, 1996 hearing in the Blumberg Action. Following several
stipulated extensions of time for the Company to respond to the complaint, the
Company filed a motion to dismiss the case. The Company has since withdrawn its
motion to dismiss the case, and the plaintiffs have agreed to take the case off
calendar pending final resolution of the Blumberg action.
It is management's position that the BEJ Action, and the objections to the
settlement of the Blumberg Action, are without merit, and management intends to
pursue a vigorous defense in both matters. However, given the inherent
uncertainties of litigation, there can be no assurance that the ultimate outcome
in these two legal proceedings will be in the Company's favor.
Page 32 of 35
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibit Index attached hereto is hereby incorporated
by reference to this item.
(b) Reports on Form 8-K:
On February 5, 1997, the Company filed a report on Form
8-K to provide certain additional ownership and operation
information concerning the Company and the properties
owned or managed by it as of December 31, 1996.
On February 24, 1997, the Company filed reports on Form
8-K/A, Amendment No. 2, with respect to the acquisitions
of the UCT, TRP and Carlsberg Properties.
On March 19, 1997, the Company filed a report on Form 8-K
with respect to the acquisition of the Scottsdale Hotel
and with respect to the March 1997 public offering.
On April 23, 1997, the Company filed a report on Form 8-K
with respect to the acquisition of the Lennar Properties
and the Riverview Property.
On April 24, 1997, the Company filed a report on Form 8-K
to announce the declaration of dividends and funds from
operations for the first quarter of 1997 and to provide
certain additional operation information concerning the
Company.
On April 25, 1997, the Company filed a report on Form 8-K
to provide certain additional ownership and operation
information concerning the Company and the properties
owned or managed by it as of March 31, 1997.
On May 2, 1997, the Company filed a report on Form 8-K
with respect to the acquisition of the Ellis & Lane
Properties and the CIGNA Properties.
On May 14, 1997, the Company filed a report on Form
8-K/A, Amendment No. 1, with respect to the acquisitions
of the Lennar Properties and the Riverview Property.
On May 14, 1997, the Company filed a report on Form
8-K/A, Amendment No. 1, with respect to the acquisitions
of the E&L Properties and the CIGNA Properties.
Page 33 of 35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
By: Glenborough Realty Trust Incorporated,
Date: May 15, 1997 /s/ Andrew Batinovich
-----------------------------------
Andrew Batinovich
Director, Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 1997 /s/ Terri Garnick
-----------------------------------
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
Page 34 of 35
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Title
- ----------- ----------------------------------------------------
10.1 Lease Agreement relating to the Scottsdale Hotel (1)
12.1 Statement re Computation of Ratios(2)
27.1 Financial Data Schedule
(1) Incorporated by reference to the identically numbered
Exhibit to the Company's Current Report on Form
8-K which was filed on March 19, 1997.
(2) Incorporated by reference to the identically numbered
Exhibit to the Company's Registration Statement on
Form S-3 filed with the Securities and Exchange
Commission on May 9, 1997.
Page 35 of 35
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000929454
<NAME> GLENBOROUGH REALTY TRUST INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 42,603
<SECURITIES> 0
<RECEIVABLES> 1,062
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,634
<PP&E> 203,567
<DEPRECIATION> 30,251
<TOTAL-ASSETS> 234,442
<CURRENT-LIABILITIES> 1,948
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 163
<TOTAL-LIABILITY-AND-EQUITY> 234,442
<SALES> 0
<TOTAL-REVENUES> 8,737
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,573
<INCOME-PRETAX> 2,594
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,594
<DISCONTINUED> 0
<EXTRAORDINARY> (231)
<CHANGES> 0
<NET-INCOME> 2,363
<EPS-PRIMARY> $0.23
<EPS-DILUTED> $0.23
</TABLE>
