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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): OCTOBER 23, 1997
(October 20, 1997)
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of Registrant as
Specified in its Charter)
MARYLAND
(State or Other Jurisdiction
of Incorporation)
001-14162
(Commission File Number)
94-3211970
(IRS Employer Identification No.)
400 SOUTH EL CAMINO REAL, SUITE 1100
SAN MATEO, CA 94402
(650) 343-9300
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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Item 5. OTHER EVENTS.
On October 20, 1997, Glenborough Realty Trust Incorporated (the
"Company") priced its offering of 11,500,000 shares (the "Shares") of its Common
Stock (including an over-allotment option of 1,500,000 shares) at $25.00 per
share. Attached hereto as exhibits to this Current Report on Form 8-K is the (i)
Underwriting Agreement dated as of October 20, 1997 among the Company and
Glenborough Properties, L.P., on the one hand, and Bear, Stearns & Co., Inc.,
Salomon Brothers Inc, Smith Barney Inc., BancAmerica Robertson Stephens,
Jefferies & Company, Inc. and McDonald & Company Securities, Inc., on the other
hand, relating to the issuance of the Shares; (ii) an opinion of counsel
relating to the Shares; (iii) an opinion of counsel relating to the tax status
of the Company; and (iv) the Prospectus Supplement of the Company dated October
20, 1997.
Item 7. Exhibits
1.1 Underwriting Agreement
5.1 Opinion of Counsel (relating to the Common Stock)
8.1 Opinion of Counsel (relating to the tax status of the Company)
99.0 Prospectus Supplement of the Company dated October 20, 1997.
2
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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
October 22, 1997 By: /s/ Terri Garnick
----------------------
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
3
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------------------- -------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement
5.1 Opinion of Morrison & Foerster (relating to the Common Stock)
8.1 Opinion of Morrison & Foerster (relating to the tax status of the
Company)
99.0 Prospectus Supplement of the Company dated October 20, 1997
</TABLE>
4
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EXHIBIT 1.1
10,000,000 Shares of Common Stock
GLENBOROUGH REALTY TRUST INCORPORATED
UNDERWRITING AGREEMENT
October 20, 1997
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
JEFFERIES & COMPANY, INC.
MCDONALD & COMPANY SECURITIES, INC.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Ladies and Gentlemen:
Glenborough Realty Trust Incorporated, a corporation organized
and existing under the laws of Maryland (the "Company") and the sole general
partner of Glenborough Properties, L.P. (the "Operating Partnership"), proposes,
subject to the terms and conditions stated herein, to issue and sell to Bear,
Stearns & Co. Inc., Salomon Brothers Inc, Smith Barney Inc., BancAmerica
Robertson Stephens, Jefferies & Company, Inc. and McDonald & Company Securities,
Inc. (collectively, the "Underwriters") an aggregate of 10,000,000 shares (the
"Firm Shares") of its common stock, par value $0.001 per share (the "Common
Stock") and, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Shares, at the option of the Underwriters, up to an
additional 1,500,000 shares (the "Additional Shares") of Common Stock. The Firm
Shares and any Additional Shares purchased by the Underwriters are referred to
herein as the "Shares". The Shares are more fully described in the Second
Registration Statement referred to below.
1. Representations and Warranties of the Company and the
Operating Partnership. The Company and the Operating Partnership, jointly and
severally, represent and warrant to, and agree with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") registration statements on Form S-3 (Nos.
333-19279 and 333-26815), and any amendments thereto, and related preliminary
prospectuses for the registration under the Securities Act of 1933, as amended
(the "Securities Act") of preferred stock, common
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stock (including the Shares) and warrants to purchase shares of preferred stock
or common stock, each of which registration statements, as so amended, has been
declared effective by the Commission and copies of which have heretofore been
delivered to the Underwriters. Such registration statements (and any
registration statement increasing the size of the offering (a "Rule 462(b)
Registration Statement") filed pursuant to Rule 462(b) under the Securities
Act), in the respective forms in which they were declared effective, as amended,
including all exhibits thereto and the documents incorporated or deemed to be
incorporated by reference therein through the date hereof, are each hereinafter
referred to as a "Registration Statement" and are collectively referred to as
the "Registration Statements". Registration Statement No. 333-26815 is herein
referred to as the "Second Registration Statement". Other than a Rule 462(b)
Registration Statement, which became effective upon filing, no other document
with respect to the Registration Statements or document incorporated by
reference therein has heretofore been filed with the Commission (other than
prospectuses filed pursuant to Rule 424(b) of the rules and regulations of the
Commission under the Act, each in the form heretofore delivered to the
Underwriters). No stop order suspending the effectiveness of either Registration
Statement or the Rule 462(b) Registration Statement, if any, has been issued and
no proceeding for that purpose has been initiated or, to the Company's
knowledge, threatened by the Commission. The Company proposes to file with the
Commission pursuant to Rule 424(b) of the rules and regulations of the
Commission under the Securities Act (the "Securities Act Regulations") the
Prospectus Supplement (as defined in Section 4(j) hereof) relating to the Shares
and the Company's base prospectus dated October 20, 1997 (the "Base
Prospectus"), and has previously advised the Underwriters of all further
information (financial and other) with respect to the Company set forth therein.
The Base Prospectus together with the Prospectus Supplement, in their respective
forms on the date hereof (being the forms in which they are to be filed with the
Commission pursuant to Rule 424(b) of the Securities Act Regulations), including
all documents incorporated or deemed to be incorporated by reference therein
through the date hereof, are hereinafter referred to as the "Prospectus," except
that if any revised prospectus or prospectus supplement shall be provided to the
Underwriters by the Company for use in connection with the offering and sale of
the Shares which differs from the Prospectus (whether or not such revised
prospectus or prospectus supplement is required to be filed by the Company
pursuant to Rule 424(b) of the Securities Act Regulations), the term
"Prospectus" shall refer to such revised prospectus or prospectus supplement, as
the case may be, from and after the time it is first provided to the
Underwriters for such use. As used herein, the term "date of the Prospectus"
shall be deemed to refer to the date of the Prospectus Supplement. Any
preliminary prospectus or prospectus subject to completion included in the
Second Registration Statement or filed with the Commission pursuant to Rule 424
under the Securities Act is hereafter called a "Preliminary Prospectus." Unless
the context otherwise requires, all references in this Agreement to documents,
financial statements and schedules and other information which is "contained",
"included", "stated", "described in" or "referred to" in the Registration
Statements or the Prospectus (and all other references of like import) shall be
deemed to mean and include all such documents, financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statements or the Prospectus, as the case may be,
and all references in this Agreement to amendments or supplements to the
Registration Statements or the Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934 (the
"Exchange Act") after the date of this Agreement
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which is or is deemed to be incorporated by reference in the Registration
Statements or the Prospectus, as the case may be. Additionally, all references
in this Agreement to the Registration Statements, the Rule 462(b) Registration
Statement, a Preliminary Prospectus, the Base Prospectus, the Prospectus
Supplement and the Prospectus, or any amendments or supplements to any of the
foregoing, shall be deemed to include any copy thereof filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval System
("EDGAR").
(b) The Second Registration Statement and the Base Prospectus
(including the documents incorporated by reference therein), at the time the
Second Registration Statement became effective and as of the Closing Date,
complied and comply in all material respects with the requirements of the
Securities Act and the Securities Act Regulations (including Rule 415(a) of the
Securities Act Regulations), and did not and as of the Closing Date do not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Prospectus (including the documents incorporated by reference
therein), as of the date hereof (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company for use in
connection with the offering of the Shares which differs from the Prospectus
filed with the Commission pursuant to Rule 424(b) of the Securities Act
Regulations, in which case at the time it is first provided to the Underwriters
for such use) and on the Closing Date referred to in Section 2 hereof, does not
and will not include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection (b) shall not apply
to statements in or omissions from the Second Registration Statement or
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by any Underwriter expressly
for use in the Second Registration Statement or the Prospectus. Each Preliminary
Prospectus and Prospectus filed as part of the Second Registration Statement, as
part of any amendment thereto or pursuant to Rule 424 under the Securities Act
Regulations, if filed by electronic transmission pursuant to EDGAR (except as
may be permitted by Regulations S-T under the Securities Act) was identical to
the copy thereof delivered to the Underwriters for use in connection with the
offer and sales of the Shares. There are no contracts or other documents
required to be described in the Prospectus or to be filed as exhibits to the
Second Registration Statement under the Securities Act that have not been
described, filed or incorporated by reference therein as required.
(c) Arthur Andersen LLP, whose reports are incorporated by
reference into the Registration Statements, are independent public accountants
with respect to the Company and with respect to the Company's subsidiaries, in
each case as required by the Securities Act and the Securities Act Regulations.
(d) Subsequent to the respective dates as of which information is
given in the Second Registration Statement and the Prospectus, except as set
forth in the Second Registration Statement and the Prospectus, there has been no
material adverse change in the business, business prospects, properties,
operations, condition (financial or other) or results of operations of the
Company or the Operating Partnership and their respective subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business (any such
3
<PAGE> 4
change with respect to any entity being referred to herein as a "Material
Adverse Change"), and since the date of the latest balance sheet included or
incorporated by reference in the Second Registration Statement and the
Prospectus, neither the Company, the Operating Partnership nor any of their
respective subsidiaries has incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company, the
Operating Partnership and their respective subsidiaries taken as a whole, except
for liabilities or obligations which are set forth in or contemplated by the
Second Registration Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein have
been duly and validly authorized by the Company and the Operating Partnership
and this Agreement has been duly and validly executed and delivered by the
Company and the Operating Partnership.
(f) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach of any of the terms and provisions of,
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company,
the Operating Partnership or any of their respective subsidiaries pursuant to,
any agreement, instrument, franchise, license or permit to which the Company,
the Operating Partnership or any of their respective subsidiaries is a party or
by which any of such entities or their respective properties or assets may be
bound or (ii) violate or conflict with any provision of the partnership
agreement of the Operating Partnership, the certificate of incorporation or
by-laws of the Company or any of the subsidiaries of the Company or Operating
Partnership or any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company, the Operating Partnership or any of their
subsidiaries or any of their respective properties or assets, except for those
violations or conflicts that would not have a material adverse effect on the
Company, the Operating Partnership and their respective subsidiaries, taken as a
whole. No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company,
the Operating Partnership or any of their respective subsidiaries or any of
their respective properties or assets is required for the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance, sale and delivery of the Shares to
be issued, sold and delivered by the Company hereunder, except the registration
under the Securities Act of the Shares and such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits as may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters.
(g) All of the outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and nonassessable and were not issued
and are not now in violation of or subject to any preemptive rights. The Shares,
when issued, delivered and sold in accordance with this Agreement, were or will
be, as the case may be, duly and validly issued and outstanding, fully paid and
nonassessable, and will not have been issued in violation of or be subject to
any preemptive rights. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus Supplement under the caption
"Capitalization" and in
4
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the descriptions thereof incorporated by reference in the Prospectus. The Common
Stock, including the Shares, conform to the description thereof contained in the
Second Registration Statement and the Prospectus. The Company is the sole
general partner of the Operating Partnership; the partnership agreement of the
Operating Partnership has been duly authorized, executed and delivered by each
partner thereto and is valid, legally binding and enforceable in accordance with
its terms; all of the partnership interests in the Operating Partnership have
been duly and validly authorized and issued and (except as described in the
Prospectus) the partnership interests owned directly or indirectly by the
Company in the Operating Partnership are free and clear of all liens,
encumbrances, equities or claims. All issued and outstanding securities of the
Operating Partnership have been duly and validly authorized and issued in
compliance with the federal and state securities laws. The units of the
Operating Partnership issued in connection with the acquisitions described in
the Prospectus Supplement under the caption "Recent Activities" were duly and
validly issued in compliance with the federal and state securities laws.
(h) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Maryland. The
Operating Partnership has been duly organized and is validly existing as a
limited partnership in good standing under the laws of the State of California.
The Company is duly qualified and in good standing as a foreign corporation, and
the Operating Partnership has been duly qualified and is in good standing as a
foreign limited partnership, in each jurisdiction in which the character or
location of its respective properties (owned, leased or licensed) or the nature
or conduct of its respective business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole. Each of the
Company and the Operating Partnership has all requisite power and authority, and
all necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties and
conduct its business as now being conducted and as described in the Second
Registration Statement and the Prospectus, except for the absence of which
individually or in the aggregate would not have a material adverse effect on the
Company, the Operating Partnership and their respective subsidiaries taken as a
whole, and no such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome restriction
not adequately disclosed in the Second Registration Statement and the
Prospectus.
(i) Each subsidiary of the Company or the Operating Partnership
has been duly organized and is validly existing as a corporation or partnership
in good standing under the laws of the jurisdiction of its organization. Each
subsidiary of the Company or the Operating Partnership is duly qualified and in
good standing as a foreign corporation or partnership in each jurisdiction in
which the character or location of its properties (owned, leased or licensed) or
the nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole. Each subsidiary
of the Company and the Operating Partnership has all requisite power and
authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all public,
regulatory or governmental agencies
5
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and bodies, to own, lease and operate its properties and conduct its business as
now being conducted and as described in the Second Registration Statement and
the Prospectus, except for the absence of which individually or in the aggregate
would not have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries taken as a whole, and no such
consent, approval, authorization, order, registration, qualification, license or
permit contains a materially burdensome restriction not adequately disclosed in
the Second Registration Statement and the Prospectus. All of the capital stock
or partnership units in each subsidiary of the Company or the Operating
Partnership has been duly and validly authorized and issued and (except as
described in the Prospectus) the capital stock or partnership units in each such
subsidiary owned directly or indirectly by the Company or the Operating
Partnership, as the case may be, is free and clear of all liens, encumbrances,
equities or claims.
(j) Except as described or incorporated by reference in the
Prospectus, there is no litigation or governmental proceeding to which the
Company, the Operating Partnership or any of their respective subsidiaries is a
party or to which any property of the Company, the Operating Partnership or any
of their respective subsidiaries is subject or which is pending or, to the
knowledge of the Company and the Operating Partnership, contemplated against the
Company, the Operating Partnership or any of their respective subsidiaries which
might result in any material adverse change in the business, business prospects,
properties, operations, condition (financial or other) or, results of operations
of the Company, the Operating Partnership and their respective subsidiaries
taken as a whole, which might materially and adversely affect the transactions
contemplated by this Agreement or which is required to be disclosed in the
Second Registration Statement or the Prospectus or in any documents incorporated
by reference therein. The descriptions of litigation matters in the Base
Prospectus under the captions "Risk Factors -- Litigation Related to
Consolidation" and "Risk Factors -- Chapter 11 Reorganization of Partnership
Consolidation by Senior Management" and the descriptions of such matters
incorporated by reference in the Prospectus are complete and accurate in all
material respects.
(k) Neither the Company nor the Operating Partnership has taken
or will take, directly or indirectly, any action designed to cause or result in,
or which constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(l) The financial statements, including the notes thereto, and
supporting schedules included or incorporated by reference in the Second
Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company, its subsidiaries and their predecessors in
interests of the dates indicated and the results of their operations for the
periods specified; except as otherwise stated in the Second Registration
Statement, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; the
supporting schedules included in the Second Registration Statement present
fairly the information required to be stated therein; and no other financial
statements or supporting schedules are required to be included in the Second
Registration Statement. The Company's ratios of earnings to fixed charges and
ratios of earnings to combined fixed charges and preferred stock dividends
included in the Base Prospectus under
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the caption "Ratio of Earnings to Fixed Charges" and in Exhibit 12.1 to the
Second Registration Statement have been calculated in compliance with Item
503(d) of Regulation S-K of the Securities Act Regulations. The financial data
incorporated by reference in the Prospectus and set forth in the Prospectus
Supplement under the captions "Selected Historical and Pro Forma Financial and
Other Data", and "Capitalization" and elsewhere in the Prospectus and in the
Second Registration Statement fairly present the information set forth therein
on a basis consistent with that of the audited financial statements contained or
incorporated by reference in the Second Registration Statement; and the pro
forma condensed consolidated financial statements of the Company and the related
notes thereto incorporated by reference in the Prospectus and included under the
caption "Selected Historical and Pro Forma Financial and Other Data" and
elsewhere in the Prospectus and in the Second Registration Statement present
fairly the information contained therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements and have been properly presented on the bases described therein, and
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(m) Except as described or incorporated by reference in the
Prospectus, no holder of securities of the Company or the Operating Partnership
has any rights to the registration of securities of the Company or securities of
the Operating Partnership that are convertible, exchangeable or exercisable for
securities of the Company because of the filing of either Registration Statement
or otherwise in connection with the sale of the Shares contemplated hereby.
(n) Except as described in the Prospectus, the Company, the
Operating Partnership and their respective subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(l) above or elsewhere in the Prospectus, in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as are described
in the Prospectus and such as do not materially and adversely affect the value
of such property and do not materially interfere with the use made or proposed
to be made of such property by the Company, the Operating Partnership or any of
their respective subsidiaries. The real property, improvements, equipment and
personal property held under lease by the Company, the Operating Partnership or
their respective subsidiaries are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company, the Operating Partnership or any
of their respective subsidiaries.
(o) The Company, the Operating Partnership and their respective
subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns and have paid all taxes required to be paid by any of them
and, if due and payable, any related or similar assessment, fine or penalty
levied against any of them, except insofar as the failure to file such returns
would not have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole. The Company,
the Operating Partnership and their respective subsidiaries have made adequate
charges, accruals and reserves in their respective
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financial statements in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company,
the Operating Partnership or any of their respective subsidiaries has not been
finally determined, except to the extent of any inadequacy that would not have a
material adverse effect on the Company, the Operating Partnership and their
respective subsidiaries, taken as a whole.
(p) Except as described in the Prospectus, the Company, the
Operating Partnership and each of their respective subsidiaries are insured by
recognized financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks that the Company
believes are adequate to insure against potential losses, with such policies
including, but not limited to, policies covering real and personal property
owned or leased by the Company, the Operating Partnership or any of their
respective subsidiaries against theft, damage, destruction, acts of vandalism
and such other risks. Neither the Company nor the Operating Partnership has any
reason to believe that they or any of their respective subsidiaries will not be
able (i) to renew their existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct their business as now conducted and at a
cost that would not result in a Material Adverse Change in the Company, the
Operating Partnership or any of their respective subsidiaries. Neither the
Company, the Operating Partnership nor any of their respective subsidiaries has
been denied any insurance coverage for which it has sought or applied.
(q) Except as otherwise disclosed in the Prospectus or as would
not, individually or in the aggregate, result in a Material Adverse Change in
the Company, the Operating Partnership and their respective subsidiaries, taken
as a whole, (i) neither the Company, the Operating Partnership nor any of their
respective subsidiaries is in violation of any federal, state, local or foreign
laws and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
(collectively, "Materials of Environmental Concern"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required for
the operation of the business of the Company, the Operating Partnership or any
of their respective subsidiaries under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company, the
Operating Partnership or any of their respective subsidiaries received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company, the Operating Partnership
or any of their respective subsidiaries is in any such violation; (ii) there is
no claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company, the Operating
Partnership or any of their respective subsidiaries has received written notice,
and no written notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses costs, natural
resources damages, property damages, personal injuries, attorneys' fees or
penalties arising out of, based on or resulting from the presence, or
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<PAGE> 9
release into the environment, or any Material of Environmental Concern at any
location owned, leased or operated by the Company, the Operating Partnership or
any of their respective subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the best knowledge of the Company and
the Operating Partnership, threatened against the Company, the Operating
Partnership or any of their respective subsidiaries or, to the best knowledge of
the Company or the Operating Partnership, against any person or entity whose
liability for any Environmental Claim the Company, the Operating Partnership or
any of their respective subsidiaries has retained or assumed either
contractually or by operation of law; and (iii) to the best of knowledge of the
Company and the Operating Partnership, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a violation
of any Environmental Law or form the basis of a potential Environmental Claim
against the Company, the Operating Partnership or any of their respective
subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company, the Operating Partnership or any of their
respective subsidiaries has retained or assumed either contractually or by
operation of law.
(r) In the ordinary course of their business, the Company and the
Operating Partnership conduct periodic reviews of the effect of Environmental
Laws on the business, operations and properties of the Company, the Operating
Partnership and their respective subsidiaries, in the course of which they
identify and evaluate associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review and the amount of
their established reserves, the Company and the Operating Partnership have
reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, result in a Material Adverse Change in the
Company, the Operating Partnership and their respective subsidiaries, taken as a
whole.
(s) Reserved.
(t) The Company has elected to be taxed as a "real estate
investment trust" ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), effective beginning in its taxable year 1996. The Company has at
all times beginning on January 1, 1996 qualified for taxation as a REIT under
the Code and intends to continue to operate in such manner.
(u) The Common Stock (including the Shares) is registered
pursuant to Section 12(g) of the Exchange Act and is listed on the New York
Stock Exchange (the "NYSE"), and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or delisting the Common Stock from the NYSE, nor has the
Company received any notification that the Commission or the NYSE is
contemplating terminating such registration or listing.
(v) Neither the Company, the Operating Partnership nor any of
their respective subsidiaries is, or, after giving effect to the issue and sale
of the Shares by the Company
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<PAGE> 10
will be, an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940.
(w) The conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.
(x) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were filed with the Commission,
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission under the Exchange Act, and, when
read together with the other information in the Prospectus, at the respective
times the Second Registration Statement and any amendments thereto became
effective, at the date hereof and at the Closing Date, did not and do not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Any certificate signed by an officer of the Company or the Operating
Partnership and delivered to the Underwriters or their counsel shall be deemed
to be a representation and warranty by the Company or the Operating Partnership,
as the case may be, as to the matters covered thereby.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $23.725, the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the office of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York, or at such other place as shall be
agreed upon by the Underwriters and the Company, at 10:00 A.M. on the third or
fourth business day (as permitted under Rule 15c6-1 under the Exchange Act)
(unless postponed in accordance with the provisions of Section 9 hereof) after
the determination of the public offering price of the Shares, or such other time
not later than ten business days after such date as shall be agreed upon by the
Underwriters and the Company (such time and date of payment and delivery being
herein called the "Closing Date"). Payment shall be made to the Company by wire
transfer in same day funds, against delivery to the Underwriters of certificates
for the Shares to be purchased by them. Certificates for the Shares shall be
registered in such name or names and in such authorized denominations as the
Underwriters may request in writing at least 48 hours prior to the Closing Date.
The Company will permit the Underwriters to examine and package such
certificates for delivery at least 24 hours prior to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters
the
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<PAGE> 11
option to purchase up to 1,500,000 Additional Shares at the same purchase price
per share to be paid by the Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering over-allotments in
the sale of Firm Shares by the Underwriters. This option may be exercised at any
time, in whole or in part, on or before the thirtieth day following the date of
the Prospectus, by written notice by the Underwriters to the Company. Such
notice shall set forth the aggregate number of Additional Shares as to which the
option is being exercised and the date and time, as reasonably determined by the
Underwriters, when the Additional Shares are to be delivered (such date and time
being herein sometimes referred to as the "Additional Closing Date"); provided,
however, that the Additional Closing Date shall not be earlier than the Closing
Date or earlier than the second full business day after the date on which the
option shall have been exercised nor later than the eighth full business day
after the date on which the option shall have been exercised (unless such time
and date are postponed in accordance with the provisions of Section 9 hereof).
Certificates for the Additional Shares shall be registered in such name or names
and in such authorized denominations as the Underwriters may request in writing
at least 48 hours prior to the Additional Closing Date. The Company will permit
the Underwriters to examine and package such certificates for delivery at least
24 hours prior to the Additional Closing Date.
(d) The number of Additional Shares to be sold to each
Underwriter shall be the number which bears the same ratio to the aggregate
number of Additional Shares being purchased as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to the total number of Firm
Shares being purchased from the Company, subject, however, to such adjustments
to eliminate any fractional shares as the Underwriters in their sole discretion
shall make.
(e) Payment for the Additional Shares shall be made by wire
transfer in same day funds at the office Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York, or such other location as may be mutually
acceptable, upon delivery of the certificates for the Additional Shares to the
Underwriters.
3. Offering. Upon the Underwriters' authorization of the release of the
Firm Shares, the Underwriters propose to offer the Shares for sale to the public
upon the terms set forth in the Prospectus.
4. Covenants of the Company and the Operating Partnership. The Company
and the Operating Partnership jointly and severally covenant and agree with the
Underwriters that:
(a) The Company will notify the Underwriters immediately (and, if
requested by the Underwriters, will confirm such notice in writing) (i) when any
post-effective amendment to the Registration Statements becomes effective, (ii)
of any request by the Commission for any amendment of or supplement to the
Registration Statements or the Prospectus or for any additional information,
(iii) of the mailing or the delivery to the Commission for filing of the
Prospectus or any amendment of or supplement to the Registration Statements or
the Prospectus or any document to be filed pursuant to the Exchange Act during
any period when
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<PAGE> 12
the Prospectus is required to be delivered under the Securities Act, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of
either Registration Statement or any post-effective amendment thereto or of the
initiation, or the threatening, of any proceedings therefor, (v) of the receipt
of any comments or inquiries from the Commission, and (vi) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or threatening of
any proceeding for that purpose. If the Commission shall propose or enter a stop
order at any time, the Company will make every reasonable effort to prevent the
issuance of any such stop order and, if issued, to obtain the lifting of such
order as soon as possible. The Company will not file any post-effective
amendment to the Registration Statements or any amendment of or supplement to
the Prospectus (including any revised prospectus which the Company proposes for
use by the Underwriters in connection with the offering of the Shares which
differs from the prospectus filed with the Commission pursuant to Rule 424(b) of
the Securities Act Regulations, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the Securities Act Regulations)
to which the Underwriters or Underwriters' Counsel (as hereinafter defined)
shall reasonably object, will furnish the Underwriters with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement or use any such prospectus to which the Underwriters or counsel for
the Underwriters shall reasonably object.
(b) If any event shall occur as a result of which the Prospectus
would, in the judgment of the Underwriters or the Company include an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement the Prospectus or either
Registration Statement to comply with the Securities Act or the Securities Act
Regulations, or to file under the Exchange Act so as to comply therewith any
document incorporated by reference in the Registration Statements or the
Prospectus or in any amendment thereof or supplement thereto, the Company will
notify the Underwriters promptly and prepare and file with the Commission an
appropriate amendment or supplement (in form and substance satisfactory to the
Underwriters) which will correct such statement or omission or which will effect
such compliance.
(c) The Company has delivered to the Underwriters four signed
copies of the Second Registration Statement as originally filed, including
exhibits and all documents incorporated or deemed to be incorporated by
reference therein and all amendments thereto, and the Company will promptly
deliver to each of the Underwriters, from time to time during the period that
the Prospectus is required to be delivered under the Securities Act or the
Exchange Act, such number of copies of the Prospectus and the Registration
Statements, and all amendments of and supplements to such documents, if any, as
the Underwriters may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with
the Underwriters, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares of such
jurisdictions as the Underwriters may designate and to maintain such
qualification in effect for so long as required for the distribution thereof;
except that
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<PAGE> 13
in no event shall the Company be obligated in connection therewith to qualify as
a foreign corporation or to execute a general consent to service of process.
(e) The Company will make generally available (within the meaning
of Section 11(a) of the Securities Act) to its security holders and to the
Underwriters as soon as practicable, but not later than 45 days after the end of
its fiscal quarter in which the first anniversary date of the effective date of
the Second Registration Statement occurs (or if such fiscal quarter is the
Company's fourth fiscal quarter, not later than 90 days after the end of such
quarter), an earnings statement (in form complying with the provisions of Rule
158 of the Regulations) covering a period of at least twelve consecutive months
beginning after the effective date of the Second Registration Statement (as
defined in Rule 158(c) under the Securities Act).
(f) During the period of 60 days from the date of the Prospectus,
the Company and the Operating Partnership will not, directly or indirectly
without the prior written consent of Bear, Stearns & Co. Inc., issue, sell,
offer or agree to sell, grant any option to purchase, or otherwise dispose (or
announce any offer, sale, grant of an option to purchase or other disposition)
of, any shares of Common Stock (or any securities convertible into, exchangeable
or exercisable for shares of Common Stock), other than (i) the Company's sale of
Shares hereunder and the Company's issuance of Common Stock upon the exercise of
stock options outstanding at the date of the Prospectus, (ii) the exchange of
outstanding units in the Operating Partnership for Common Stock, (iii) the
issuance, in connection with bona fide acquisitions of real property or
interests therein, to the sellers of such property, of shares of Common Stock or
units in the Operating Partnership such that the aggregate number of shares of
Common Stock issued, or which may be issued upon conversion or exchange of such
units, will not exceed 3,500,000 (the "Permitted Securities"); provided,
however, that as a precondition to any such issuance, the Company or the
Operating Partnership, as the case may be, shall obtain the undertaking of each
such holder that it will not engage in any of the aforementioned transactions
during the period of 60 days from the date of the Prospectus and place on the
face of any such Permitted Security a legend to that effect.
(g) Reserved.
(h) During a period of three years from the date of the
Prospectus, the Company will furnish to the Underwriters copies of (i) all
reports to its stockholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange.
(i) The Company will apply the proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Base Prospectus and the
Prospectus Supplement.
(j) Immediately following the execution of this Agreement, the
Company will prepare a prospectus supplement, dated the date hereof (the
"Prospectus Supplement"), containing the plan of distribution of the Shares and
such other information as may be required by the Securities Act or the
Securities Act Regulations or as the Underwriters and the Company deem
appropriate, and will file or transmit for filing with the Commission in
accordance
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<PAGE> 14
with Rule 424(b) of the Securities Act Regulations copies of the Prospectus
(including such Prospectus Supplement).
(k) If the Company elects to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement, no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission, and all requests for additional information on the
part of the Commission shall have been complied with to the Underwriters'
reasonable satisfaction.
(l) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act or the Exchange Act, will file
all documents required to be filed with the Commission pursuant to Sections 13,
14 or 15 of the Exchange Act within the time periods required by the Exchange
Act and the rules and regulations thereunder.
5. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statements, as originally filed and all amendments thereof (including all
exhibits thereto), any Preliminary Prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreement) and all
other documents related to the public offering of the Shares (including those
supplied to the Underwriters in quantities as hereinabove stated), (ii) the
issuance, transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the qualification of the Shares
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing a preliminary and final "Blue Sky Memorandum" and the fees
of counsel in connection therewith and such counsel's disbursements in relation
thereto, (iv) listing the Shares on the NYSE, (v) filing fees of the Commission
and the National Association of Securities Dealers, Inc. (the "NASD"), (vi) the
cost of printing certificates representing the Shares and (vii) the cost and
charges of any transfer agent or registrar; provided, however, except as
provided for in Section 11, that the Company shall have no obligation to
reimburse the Underwriters for (a) fees, disbursements and out-of-pocket
expenses of counsel for the Underwriters or the Underwriters other than pursuant
to clause (iii) above or (b) expenses in connection with the offering that are
customarily borne by the underwriters in public offerings of securities of real
estate investment trusts.
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company and the Operating Partnership herein contained, as of
the date hereof and as of the Closing Date (for purposes of this Section 6,
"Closing Date" shall refer to the Closing Date for the Firm Shares and any
Additional Closing Date, if different, for the Additional Shares), to the
absence from any certificates, opinions, written statements or letters furnished
to the Underwriters or to Latham & Watkins ("Underwriters' Counsel") pursuant to
this Section 6 of any misstatement or omission, to
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<PAGE> 15
the performance by the Company and the Operating Partnership of their respective
obligations hereunder, and to the following additional conditions:
(a) On the Closing Date, no stop order suspending the
effectiveness of either Registration Statement shall have been issued under the
Securities Act or proceedings therefor initiated or threatened by the
Commission. The Prospectus (including the Prospectus Supplement referred to in
Section 4(j) hereof) shall have been filed or transmitted for filing with the
Commission pursuant to Rule 424(b) of the Securities Act Regulations within the
prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Underwriters of such timely filing or
transmittal.
(b) On the Closing Date the Underwriters shall have received the
opinion of Morrison & Foerster LLP, counsel for the Company and the Operating
Partnership, dated the Closing Date addressed to the Underwriters and in form
and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Maryland.
(ii) The Company is duly qualified and in good standing
as a foreign corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business makes such qualification necessary, except for
those failures to be so qualified or in good standing which will not in
the aggregate have a material adverse effect on the Company, the
Operating Partnership and their respective subsidiaries, taken as a
whole.
(iii) The Company has all requisite corporate power and
authority to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Second
Registration Statement and in the Prospectus.
(iv) The Operating Partnership has been duly formed
under the laws of the State of California, with a stated term beyond the
term of the documents being executed in connection with the transactions
contemplated hereby; the partnership agreement of the Operating
Partnership has been duly authorized, executed and delivered by each
partner thereto and is valid, legally binding and enforceable in
accordance with its terms, except as enforcement thereof may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and by the effect of general principles of
equity; and all of the partnership interests in the Operating
Partnership have been duly and validly authorized and issued and (except
as described in the Prospectus) the partnership interests owned directly
or indirectly by the Company are free and clear of all liens,
encumbrances, equities or claims. All issued and outstanding securities
of the Operating Partnership have been duly and validly authorized and
issued in compliance with the federal and state securities laws. The
units of the Operating Partnership issued in connection with the
acquisitions described in the Prospectus Supplement under the caption
"Recent Activities" were duly and validly issued in compliance with the
federal and state securities laws.
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<PAGE> 16
(v) The Operating Partnership has been duly qualified as
a foreign limited partnership and is in good standing in each
jurisdiction in which the character or location of its properties
(owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so
qualified or in good standing which will not in the aggregate have a
material adverse effect on the Company, the Operating Partnership and
their respective subsidiaries, taken as a whole.
(vi) The Operating Partnership has all requisite power
and authority to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Second
Registration Statement and the Prospectus.
(vii) Each subsidiary of the Company or the Operating
Partnership that is a "significant subsidiary" (as such term is defined
in Rule 1-02 of Regulation S-X of the Commission) (collectively, the
"Material Subsidiaries") has been duly organized and is validly existing
as a corporation or partnership in good standing under the laws of the
jurisdiction of its organization.
(viii) Each Material Subsidiary is duly qualified and in
good standing as a foreign corporation or partnership in each
jurisdiction in which the character or location of its properties
(owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so
qualified or in good standing which will not in the aggregate have a
material adverse effect on the Company, the Operating Partnership and
their respective subsidiaries taken as a whole.
(ix) Each Material Subsidiary has all requisite power
and authority to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Second
Registration Statement and the Prospectus.
(x) All of the capital stock or partnership units in
each Material Subsidiary has been duly and validly authorized and issued
and (except as described in the Prospectus) such capital stock or
partnership units owned directly or indirectly by the Company or the
Operating Partnership, as the case may be, are free and clear of all
liens, encumbrances, equities or claims.
(xi) The Company has an authorized capital stock as set
forth in the Second Registration Statement and the Prospectus. All of
the outstanding shares of Common Stock are duly and validly authorized
and issued, are fully paid and nonassessable. The Shares to be delivered
on the Closing Date have been duly and validly authorized and, when
delivered by the Company in accordance with this Agreement, will be duly
and validly issued, fully paid and nonassessable and will not have been
issued in violation of or subject to any preemptive rights. The Common
Stock, the Firm Shares and the Additional Shares conform to the
descriptions thereof contained in the Second Registration Statement and
the Prospectus.
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(xii) The Common Stock currently outstanding is listed,
and the Shares to be sold under this Agreement to the Underwriters are
duly authorized for listing, on the NYSE.
(xiii) This Agreement and the transactions contemplated
herein have been duly and validly authorized by the Company and the
Operating Partnership and this Agreement has been duly and validly
executed and delivered by the Company and the Operating Partnership.
(xiv) To the best knowledge of such counsel and except
as described in the Prospectus, there is no litigation or governmental
proceeding to which the Company, the Operating Partnership or any of the
Material Subsidiaries is a party or to which any property of the
Company, the Operating Partnership or any of the Material Subsidiaries
is subject or which is pending or contemplated against the Company, the
Operating Partnership or any of the Material Subsidiaries which might
result in any material adverse change or any development involving a
material adverse change in the business, business prospects, properties,
operations, condition (financial or other) or results of operations of
the Company, the Operating Partnership and their respective subsidiaries
taken as a whole, which might materially and adversely affect the
transactions contemplated by this Agreement or which is required to be
disclosed in the Second Registration Statement and the Prospectus. The
descriptions of litigation matters in the Base Prospectus under the
captions "Risk Factors -- Litigation Related to Consolidation" and "Risk
Factors -- Chapter 11 Reorganization of Partnership Consolidation by
Senior Management" are complete and accurate in all material respects.
(xv) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby
do not and will not (A) conflict with or result in a breach of any of
the terms and provisions of, or constitute a default (or an event which
with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the Operating
Partnership or any of the Material Subsidiaries pursuant to any
agreement, instrument, franchise, license or permit known to such
counsel to which the Company, the Operating Partnership or any of the
Material Subsidiaries is a party or by which any of such entities or
their respective properties or assets may be bound that is material to
the Company, the Operating Partnership and their subsidiaries, taken as
a whole (collectively, the "Material Contracts") or (B) violate or
conflict with any provision of the partnership agreement of the
Operating Partnership, the certificate of incorporation or by-laws of
the Company or any of the Material Subsidiaries, or, to the best
knowledge of such counsel, any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency
or
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<PAGE> 18
body having jurisdiction over the Company, the Operating Partnership or
any of the Material Subsidiaries or any of their respective properties
or assets, except for those violations or conflicts that would not have
a material adverse effect on the Company, the Operating Partnership and
their subsidiaries, taken as a whole. To such counsel's knowledge, no
consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company, the Operating Partnership or any of the Material Subsidiaries
or any of their respective properties or assets is required for the
execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except for (A)
such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters (as to which such counsel need express no opinion) and (B)
such as have been made or obtained under the Securities Act or the rules
of the NYSE.
(xvi) At the time the Second Registration Statement
became effective and on the date hereof, the Second Registration
Statement and the Prospectus as amended or supplemented (other than the
financial statements and schedules and other financial data included or
incorporated by reference therein, as to which no opinion need be
rendered) complied and comply as to form in all material respects with
the requirements of the Securities Act and the Securities Act
Regulations.
(xvii) The documents incorporated or deemed to be
incorporated by reference in the Prospectus (other than the financial
statements and schedules and other financial data included or
incorporated by reference therein, as to which no opinion need be
rendered), at the time they were filed with the Commission, complied as
to form in all material respects with the requirements of the Securities
Act and the Securities Act Regulations.
(xviii) Each of the Registration Statements, including
any Rule 462(b) Registration Statement, is effective under the
Securities Act, and, to the best knowledge of such counsel, no stop
order suspending the effectiveness of either Registration Statement or
any post-effective amendment thereof or the Rule 462(b) Registration
Statement has been issued and no proceedings therefor have been
initiated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Regulations has been made in the manner and within the time period
required by such Rule 424(b).
(xix) To the best knowledge of such counsel and except
as described or incorporated by reference in the Prospectus, no holder
of securities of the Company or the Operating Partnership has any rights
to the registration of securities of the Company or securities of the
Operating Partnership that are convertible, exchangeable or exercisable
for securities of the Company because of the filing of either
Registration Statement or otherwise in connection with the sale of the
Shares contemplated hereby.
(xx) Commencing with its fiscal year ending December 31,
1996, the Company has been organized in conformity with the requirements
for qualification as a REIT and its method of operation enables it to
continue to meet the requirements for qualification and taxation as a
REIT under the Code, and the conversion rights of the limited partners
of the Operating Partnership or of other holders of securities of the
Operating Partnership will not cause the Company to fail to be "closely
held" within the meaning of Section 856(a)(6) of the Code.
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(xxi) The Operating Partnership is properly treated (A)
as a partnership for federal income tax purposes and (B) not as an
association or publicly traded partnership taxable as a corporation.
(xxii) Neither the Company, the Operating Partnership
nor any Material Subsidiary is, or, after giving effect to the issue and
sale of the Shares by the Company will be, an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940.
(xxiii) The statements in the Base Prospectus under the
captions "Description of Preferred Stock", "Description of Common
Stock", "Description of Warrants", "Risk Factors -- Certain Tax Risks",
"Certain Provisions of the Company's Charter and Bylaws" and "Federal
Income Tax Consequences" and (ii) in Item 15 of the Second Registration
Statement, insofar as such statements constitute matters of law,
summaries of legal matters, the Company's charter or by-law provisions,
legal documents or legal proceedings, or legal conclusions, has been
reviewed by such counsel and, as of the date of the Prospectus
Supplement and as of the Closing Date hereof, fairly present and
summarize, in all material respects, the matters referred to therein.
(xxiv) In addition, such opinion shall also contain a
statement that such counsel has participated in conferences with
officers and representatives of the Company and the Operating
Partnership, representatives of the independent public accountants for
the Company and the Operating Partnership and the Underwriters at which
the contents of the Second Registration Statement and the Prospectus and
related matters were discussed and, although they are not passing upon,
and do not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Second Registration
Statement or Prospectus or incorporated by reference therein, and they
have not made any independent check or verification thereof, on the
basis of the foregoing, no facts have come to the attention of such
counsel which would lead such counsel to believe that either the Second
Registration Statement at the time it became effective (including the
information incorporated by reference therein or deemed to be part of
the Second Registration Statement, as amended (except for financial
statements and schedules and other financial or statistical data
included or incorporated by reference therein, as to which such counsel
need make no statement) or any subsequent amendment thereof made prior
to the Closing Date as of the date of such amendment, contained an
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, including the documents
incorporated or deemed to be incorporated by reference therein (except
for financial statements and schedules and other financial or
statistical data included or incorporated by reference therein, as to
which counsel need make no statement), as of the date it was first
provided by the Company to the Underwriters for use in connection with
the offer and sale of the Shares and as of the Closing Date, contained
or contains an untrue statement of a material fact or omitted or omits
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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(xxv) In rendering such opinion, such counsel may rely
as to matters involving the application of laws other than the laws of
the United States, California and any other jurisdictions in which they
are admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to Underwriters' Counsel) of
other counsel familiar with the applicable laws and reasonably
acceptable to Underwriters' Counsel; provided, that such opinion shall
expressly state that the Underwriters may rely on such opinion as if it
were addressed to them. In rendering such opinion, such counsel may rely
as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and the Operating Partnership and
certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the
existence or good standing of the Company, the Operating Partnership and
their respective subsidiaries, provided that such opinion shall state
that such counsel and the Underwriters are justified in so relying upon
any such certificate. The opinion of such counsel for the Company shall
state that the opinion of any such other counsel is in form satisfactory
to such counsel and, in their opinion, the Underwriters and they are
justified in relying thereon.
(c) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be satisfactory in
form and substance to the Underwriters and to Underwriters' Counsel, and the
Underwriters shall have received from Underwriters' Counsel a favorable opinion,
dated as of the Closing Date with respect to the issuance and sale of the
Shares, the Second Registration Statement and the Prospectus and such other
related matters as the Underwriters may reasonably require, and the Company
shall have furnished to Underwriters' Counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(d) At the Closing Date the Underwriters shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company on behalf of the Company and as the sole general partner of the
Operating Partnership, dated the Closing Date to the effect that (i) the
condition set forth in subsection (a) of this Section 6 has been satisfied, (ii)
as of the date hereof and as of the Closing Date the representations and
warranties of the Company and the Operating Partnership set forth in Section 1
hereof are accurate, (iii) as of the Closing Date the obligations of the Company
and the Operating Partnership to be performed hereunder on or prior thereto have
been duly performed and (iv) subsequent to the respective dates as of which
information is given in the Second Registration Statement and the Prospectus,
the Company, the Operating Partnership and their respective subsidiaries have
not sustained any material loss or interference with their respective businesses
or properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has not been any material adverse change in
the business, business prospects, properties, operations, condition (financial
or other), or results of operations of the Company or the Operating Partnership
and their respective subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except in each case as
described in or contemplated by the Prospectus in the form first provided by the
Company to the Underwriters for use in connection with the offer and sale of the
20
<PAGE> 21
Shares.
(e) At the time this Agreement is executed and at the Closing
Date, the Underwriters shall have received a letter from Arthur Andersen LLP,
independent public accountants for the Company, dated, respectively, as of the
date of this Agreement and as of the Closing Date addressed to the Underwriters
and in form and substance satisfactory to the Underwriters, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to financial statements and
certain information of the Company and its subsidiaries contained or
incorporated by reference in the Registration Statements and the Prospectus.
(f) Prior to the Closing Date the Company and the Operating
Partnership shall have furnished to the Underwriters such further information,
certificates and documents as they may reasonably request.
(g) Reserved.
(h) At the Closing Date, the Shares shall have been approved for
listing on the NYSE.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to the Underwriters or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to the Underwriters and
to Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by the Underwriters at, or at any time prior to, the Closing Date and
the obligations of the Underwriters to purchase the Additional Shares may be
canceled by the Underwriters at, or at any time prior to, the Additional Closing
Date. Notice of such cancellation shall be given to the Company in writing, or
by telephone, telex or telegraph, confirmed in writing.
7. Indemnification.
(a) The Company and the Operating Partnership, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act against any and all
losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
either Registration Statement, as originally filed or any amendment thereof, or
any related preliminary prospectus, preliminary prospectus supplement or the
prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein
21
<PAGE> 22
or necessary to make the statements therein not misleading; provided, however,
that neither the Company nor the Operating Partnership will be liable in any
such case (i) to the extent but only to the extent that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company or the Operating Partnership by or on behalf of any
Underwriter expressly for use therein and (ii) with respect to any preliminary
prospectus or preliminary prospectus supplement to the extent that any such
loss, claim, damage or liability results from the fact that an Underwriter sold
Shares to a person as to whom there was not sent or given, at or prior to
written confirmation of such sale, a copy of the prospectus or prospectus
supplement as then amended or supplemented in any case where such delivery is
required by the Securities Act if the Company has previously furnished copies
thereof to such Underwriter and the loss, claim, damage or liability of the
Underwriters results from an untrue statement or omission of a material fact
contained in the preliminary prospectus or preliminary prospectus supplement
which was corrected in the prospectus or prospectus supplement as then amended.
This indemnity agreement will be in addition to any liability which the Company
and the Operating Partnership may otherwise have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statements, the Operating Partnership and each other person, if any, who
controls the Company or the Operating Partnership within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, against any
losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
either Registration Statement, as originally filed or any amendment thereof, or
any related preliminary prospectus, preliminary prospectus supplement or
prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company or the Operating Partnership by or on
behalf of any Underwriter expressly for use therein; provided, however, that in
no case shall any Underwriter be liable or responsible for any amount in excess
of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder. This indemnity will be in addition to any liability which
any Underwriter may otherwise have including under this Agreement. The Company
and the Operating Partnership acknowledge that the statements set forth in (i)
the last paragraph of the outside front cover of the Prospectus Supplement,
concerning the delivery of the shares of Common Stock to the Underwriters and
the offering of such shares
22
<PAGE> 23
by the Underwriters; (ii) the paragraph on the inside front cover of the
Prospectus Supplement, concerning transactions that stabilize, maintain, or
otherwise affect the price of the Common Stock; (iii) the second paragraph under
the caption "Underwriting" in the Prospectus Supplement, concerning the proposed
public offering price, discount and concession; and (iv) the last paragraph
under the caption "Plan of Distribution" in the Base Prospectus and the sixth
paragraph under the caption "Underwriting" in the Prospectus Supplement,
concerning transactions that stabilize, maintain, or otherwise affect the price
of the Common Stock, constitute the only information furnished in writing by or
on behalf of any Underwriter expressly for use in the Second Registration
Statement, as originally filed or in any amendment thereof, any related
Preliminary Prospectus or preliminary prospectus supplement or the Prospectus or
in any amendment thereof or supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7, except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability that it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
8. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company, the Operating Partnership
and the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses
23
<PAGE> 24
suffered by the Company or the Operating Partnership any contribution received
by the Company or the Operating Partnership from persons, other than the
Underwriters, who may also be liable for contribution, including persons who
control the Company or the Operating Partnership within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statements and directors of the Company) as
incurred to which the Company, the Operating Partnership and one or more of the
Underwriters may be subject, in such proportions as is appropriate to reflect
the relative benefits received by the Company, the Operating Partnership and the
Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company, the
Operating Partnership and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Operating Partnership on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as (x) the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and (y) the underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company, the Operating Partnership, and
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Operating Partnership, or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Operating
Partnership and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) in no case shall any Underwriter be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company or the
Operating Partnership within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statements and each director of the Company shall have
the same rights to contribution as the Company or the Operating Partnership, as
the case may be, subject in each case to clauses (i) and (ii) of this
24
<PAGE> 25
Section 8. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties, notify each party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Firm Shares or Additional Shares with respect to which such default relates
do not (after giving effect to arrangements, if any, made by the Underwriters
pursuant to subsection (b) below) exceed in the aggregate 10% of the number of
Firm Shares or Additional Shares, the Firm Shares or Additional Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase shall be purchased by the non-defaulting Underwriters in proportion to
the respective proportions which the numbers of Firm Shares set forth opposite
their respective names in Schedule I hereto bear to the aggregate number of Firm
Shares set forth opposite the names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of
the Firm Shares or Additional Shares, as the case may be, the Underwriters may
in their discretion arrange for themselves or for another party or parties
(including any non-defaulting Underwriter or Underwriters who so agree) to
purchase such Firm Shares or Additional Shares, as the case may be, to which
such default relates on the terms contained herein. In the event that within 5
calendar days after such a default the Underwriters do not arrange for the
purchase of the Firm Shares or Additional Shares, as the case may be, to which
such default relates as provided in this Section 9, this Agreement, or in the
case of a default with respect to the Additional Shares, the obligations of the
Underwriters to purchase and of the Company to sell the Additional Shares, shall
thereupon terminate, without liability on the part of the Company with respect
thereto (except in each case as provided in Section 5, 7(a) and 8 hereof) or the
Underwriters, but nothing in this Agreement shall relieve a defaulting
Underwriter or Underwriters of its or their liability, if any, to the other
Underwriters and the Company for damages occasioned by its or their default
hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
the Underwriters or the Company shall have the right to postpone the Closing
Date or Additional Closing Date, as the case may be for a period, not exceeding
five business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statements or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statements or the Prospectus which,
in the opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include any
25
<PAGE> 26
party substituted under this Section 9 with like effect as if it had originally
been a party to this Agreement with respect to such Firm Shares or Additional
Shares.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters, the Company and the
Operating Partnership contained in this Agreement, including the agreements
contained in Section 5, the indemnity agreements contained in Section 7 and the
contribution agreements contained in Section 8, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person thereof or by or on behalf of the
Company, any of its officers and directors, the Operating Partnership or any
controlling person of the Company or the Operating Partnership, and shall
survive delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon the execution of
this Agreement.
(b) The Underwriters shall have the right to terminate this
Agreement at any time prior to the Closing Date or the obligations of the
Underwriters to purchase the Additional Shares at any time prior to the
Additional Closing Date, as the case may be, if (A) any domestic or
international event or act or occurrence has materially disrupted, or in the
Underwriters' opinion will in the immediate future materially disrupt, the
market for the Company's securities or securities in general; or (B) if trading
on the NYSE or the American Stock Exchange shall have been suspended, or minimum
or maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required, on the NYSE or the American
Stock Exchange by such exchanges or by order of the Commission or any other
governmental authority having jurisdiction; or (C) if a banking moratorium has
been declared by a state or federal authority or if any new restriction
materially adversely affecting the distribution of the Firm Shares or the
Additional Shares, as the case may be, shall have become effective; or (D) there
shall have occurred any Material Adverse Change with respect to the Company, the
Operating Partnership and their respective subsidiaries taken as a whole; or (E)
(i) if the United States becomes engaged in hostilities or there is an
escalation of hostilities involving the United States or there is a declaration
of a national emergency or war by the United States or (ii) if there shall have
been such change in political, financial or economic conditions if the effect of
any such event in (i) or (ii) as in the Underwriters' judgment makes it
impracticable or inadvisable to proceed with the offering, sale and delivery of
the Firm Shares or the Additional Shares, as the case may be, on the terms
contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall
be by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to Section 9(b) or 11(b) hereof), or
if the sale of the
26
<PAGE> 27
Shares provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth herein is not satisfied or because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof, the Company will, subject
to demand by the Underwriters, reimburse the Underwriters for all out-of-pocket
expenses (including the fees and expenses of their counsel), incurred by the
Underwriters in connection herewith.
12. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and , if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, N.Y. 10167, Attention: Keith Locker; if sent to the Company, shall be
mailed, delivered, or telegraphed and confirmed in writing to the Company, 400
South El Camino Real, Suite 100, San Mateo, CA 94402-1708, Attention: Frank
Austin.
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Company, the Operating Partnership
and the controlling persons, directors, officers, employees and agents referred
to in Section 7 and 8, and their respective successors and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. The term "successors and assigns" shall not include a
purchaser, in its capacity as such, of Shares from any of the Underwriters.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in such State, without regard to principles of conflicts of
law.
27
<PAGE> 28
If the foregoing correctly sets forth the understanding among the
Underwriters, the Company and the Operating Partnership, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
GLENBOROUGH REALTY TRUST INCORPORATED
By
--------------------------------------
Name
-----------------------------------
Title
-----------------------------------
GLENBOROUGH PROPERTIES, L.P.
By Glenborough Realty Trust Incorporated
Its General Partner
By
--------------------------------------
Name
-----------------------------------
Title
-----------------------------------
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
JEFFERIES & COMPANY, INC.
MCDONALD & COMPANY SECURITIES, INC.
BEAR, STEARNS & CO. INC.
By
---------------------------------
Name
--------------------------------
Title
-------------------------------
<PAGE> 29
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
<S> <C>
Bear, Stearns & Co. Inc. .......................................2,000,000
Salomon Brothers Inc ...........................................2,000,000
Smith Barney Inc. ..............................................2,000,000
BancAmerica Robertson Stephens .................................2,000,000
Jefferies & Company, Inc. ......................................1,000,000
McDonald & Company Securities, Inc. ............................1,000,000
Total..........................................................10,000,000
</TABLE>
<PAGE> 1
[MORRISON & FOERSTER LLP LETTERHEAD]
EXHIBIT 5.1
October 22, 1997
Glenborough Realty Trust Incorporated
Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, CA 94402-1708
Ladies and Gentlemen:
We have acted as counsel to Glenborough Realty Trust Incorporated, a
Maryland corporation (the "Company"), and Glenborough Properties, L.P., a
California limited partnership (the "Operating Partnership"), in connection with
the issuance and sale by the Company of up to 10,000,000 shares (the "Firm
Shares") of its common stock, par value $.001 per share (the "Common Stock"),
plus up to an additional 1,500,000 shares (the "Additional Shares") of Common
Stock which may be issued upon exercise of the Underwriters' over-allotment
option, (the Firm Shares and the Additional Shares, collectively, the "Shares")
pursuant to the terms of an Underwriting Agreement (the "Underwriting
Agreement") dated October 20, 1997, among the Company, the Operating
Partnership, and the several underwriters named in Schedule I of the
Underwriting Agreement (the "Underwriters"). The Shares are the subject of a
Registration Statement (the "Registration Statement") filed by the Company on
Form S-3 under the Securities Act of 1933, as amended (the "Act").
In connection with this opinion, we have made such examinations and
inquiries, and examined such corporate records, documents, instruments,
certificates of public officials and of the Company and the Operating
Partnership, and such questions of law as we have deemed necessary for the
purpose of rendering the opinions set forth herein. We also have examined the
Registration Statements on Form S-3 (Nos. 333-26815 and 333-19279) each filed by
the Company with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Act"),
and the related form of final prospectus, dated October 20, 1997 (the "Base
Prospectus"), as supplemented by a prospectus supplement dated October 20, 1997
(the "Prospectus Supplement," and together with the Base Prospectus, the
"Prospectus"), in the form in which each was transmitted to the Commission for
filing pursuant to Rule 424(b)(5)
<PAGE> 2
[MORRISON & FOERSTER LLP LETTERHEAD]
Glenborough Realty Trust Incorporated
Glenborough Properties, L.P.
October 22, 1997
Page 2
under the Act. We have also examined evidence satisfactory to us that the
Registration Statements, as so amended, became effective under the Act on
February 25, 1997 and May 21, 1997, respectively. The Registration Statements,
as amended when each became effective, are hereinafter referred to as the
"Registration Statements."
In such examination, we have assumed the genuineness of all signatures
and the authenticity of all items submitted to us as originals and the
conformity with originals of all items submitted to us as copies. In making our
examination of documents executed by entities other than the Company and the
Operating Partnership, we have assumed that each other entity had the power to
enter into and perform all of its obligations thereunder and we also have
assumed the due authorization by each such other entity of all requisite actions
and the due execution and delivery of such documents by each such other entity.
Based upon and subject to the foregoing, it is our opinion that:
(i) the Shares have been duly and validly authorized, and
(ii) when delivered by the Company in accordance with the Underwriting
Agreement, will be duly and validly issued, fully paid and nonassessable.
We express no opinion as to matters governed by laws of any
jurisdiction other than the substantive laws of the State of California, the
State of Maryland and the State of New York, and the federal laws of the United
States of America as in effect on the date hereof.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
[MORRISON & FOERSTER LLP LETTERHEAD]
October 22, 1997
EXHIBIT 8.1
Glenborough Realty Trust Incorporated
400 South El Camino Real
San Mateo, CA 94402-1708
Ladies and Gentlemen:
We have acted as counsel to Glenborough Realty Trust Incorporated, a
Maryland corporation (the "Company"), and Glenborough Properties, L.P., a
California limited partnership (the "Operating Partnership"), in connection with
the issuance and sale by the Company of up to 10,000,000 shares (the "Firm
Shares") of its common stock, par value $.001 per share (the "Common Stock"),
plus up to an additional 1,500,000 shares (the "Additional Shares") of Common
Stock which may be issued upon exercise of the Underwriters' over-allotment
option, (the Firm Shares and the Additional Shares, collectively, the "Shares")
pursuant to the terms of an Underwriting Agreement (the "Underwriting
Agreement") dated October 20, 1997, among the Company, the Operating
Partnership, and the several underwriters named in Schedule I of the
Underwriting Agreement (the "Underwriters"). The Shares are the subject of two
Registration Statements (the "Registration Statements") each filed by the
Company on Form S-3 under the Securities Act of 1933, as amended (the "Act"). We
have been requested to provide you with our opinion as to whether the Company
currently is organized in conformity with the requirements for qualification and
taxation as a real estate investment trust ("REIT"), within the meaning of
Section 856(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Capitalized terms not otherwise defined herein shall have the meaning given to
them in the Registration Statements.
For purposes of the opinion set forth below, we have relied, with your
consent, upon the accuracy and completeness of the statements and
representations contained in the certificate of the Company dated October 22,
1997 (the "Certificate"). We have neither investigated nor verified any of the
statements and representations in the Certificate. We have also relied upon the
accuracy of the Registration Statements.
<PAGE> 2
[MORRISON & FOERSTER LLP LETTERHEAD]
Glenborough Realty Trust Incorporated
October 22, 1997
Page 2
Based upon such statements, representations and assumptions, and
subject to, the next two succeeding paragraphs, we are of the opinion that, as
of the date hereof, and for its taxable year ended December 31, 1996, the
Company has operated in a manner that would qualify it as a REIT under the Code,
and if it continues to operate in the same manner, it will continue to so
qualify.
Our opinion is based upon the documents referred to above and the
current provisions of the Code, Treasury Regulations promulgated thereunder,
published pronouncements of the Internal Revenue Service and case law, any of
which may be changed at any time, possibly with retroactive effect. You should
also be aware that opinions of counsel are not binding upon the Internal Revenue
Service or the courts. Any change in applicable law, or any inaccuracy in the
statements, representations and assumptions on which we have relied may affect
the continuing validity of the opinion set forth herein.
This opinion addresses only the operation of the Company in a manner
that qualifies it as a REIT as of the date hereof and during the taxable year
ended December 31, 1996. We undertake no obligation to update this opinion, or
to ascertain after the date hereof whether circumstances occurring after such
date may affect the conclusions set forth herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 20, 1997)
<TABLE>
<S> <C> <C>
LOGO 10,000,000 SHARES
LOGO
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
</TABLE>
------------------------------
Glenborough Realty Trust Incorporated (the "Company") is a self-administered
and self-managed real estate investment trust that owns a diversified portfolio
of 102 office, office/flex, industrial, retail, multi-family and hotel
properties located in 22 states throughout the country. In addition, two
Associated Companies provide comprehensive asset, partnership and property
management services for a diversified portfolio of 55 additional properties that
are not owned by the Company. The combined portfolios encompass approximately 16
million rentable square feet in 24 states.
All of the 10,000,000 shares of Common Stock, $.001 par value per share (the
"Common Stock"), of the Company offered hereby are being offered by the Company.
The Company is in the process of acquiring 32 properties aggregating
approximately 2.8 million square feet for an aggregate acquisition cost of
approximately $210.7 million, in five separate transactions, each subject to a
number of contingencies. See "Recent Activities -- Pending Acquisitions." The
Company intends to fund some of these acquisitions in part with a portion of the
net proceeds from this offering.
The Company's Common Stock is listed on the New York Stock Exchange ("NYSE")
under the trading symbol "GLB." On October 20, 1997, the last reported sale
price of the Company's Common Stock as reported on the NYSE Composite Tape was
$25.00. See "Price Range of Common Stock and Distribution History." To assist
the Company in maintaining its status as a real estate investment trust for
federal income tax purposes, ownership by any person generally is limited to
9.9% of the issued and outstanding shares of Common Stock. See "Description of
Common Stock -- Restrictions on Ownership and Transfer of Common Stock" in the
accompanying Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
===========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
Per Share................................ $25.00 $1.275 $23.725
Total(3)................................. $250,000,000 $12,750,000 $237,250,000
===========================================================================================================
</TABLE>
(1) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable to the Company estimated at $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,500,000 additional shares of Common Stock to cover over-allotments, if
any. If all such additional shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $287,500,000,
$14,662,500 and $272,837,500, respectively.
------------------------------
The shares of Common Stock are offered severally by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made against
payment therefor on or about October 24, 1997 at the offices of Bear, Stearns &
Co. Inc., 245 Park Avenue, New York, New York 10167.
------------------------------
BEAR, STEARNS & CO. INC. SALOMON BROTHERS INC
SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
JEFFERIES & COMPANY, INC.
MCDONALD & COMPANY SECURITIES, INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER 20, 1997
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus Supplement and
the accompanying Prospectus and incorporated by reference herein and therein.
Unless indicated otherwise, the information contained in this Prospectus
Supplement assumes that the Underwriters' overallotment option is not exercised.
As used herein, the term "Company" means Glenborough Realty Trust Incorporated,
a Maryland corporation, and its consolidated subsidiaries for the periods from
and after December 31, 1995 (the date the Company merged (the "Consolidation")
with and into Glenborough Corporation, a California corporation ("Old GC") and
eight public limited partnerships (collectively with Old GC, the "GRT
Predecessor Entities")) and the Company's predecessor partnerships and companies
for periods prior to the Consolidation, and the term "Operating Partnership"
means Glenborough Properties, L.P. in which the Company holds a 1% interest as
sole general partner and an approximate 89% limited partner interest. The
offering of 10,000,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), made hereby is herein referred to as the "Offering."
Information regarding shares of Common Stock, unless otherwise indicated, is
based on a per share market price of $25.00, the last reported sale price on the
New York Stock Exchange (the "NYSE") on October 20, 1997. Unless otherwise
indicated, ownership percentages of the Common Stock have been computed on a
fully converted basis, assuming an exchange of Operating Partnership units for
shares of Common Stock on a one-for-one basis. This Prospectus Supplement and
the accompanying Prospectus, and the documents incorporated herein and therein,
contain 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 (the "Exchange Act"), which statements involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" in the accompanying Prospectus and elsewhere in this
Prospectus Supplement and the accompanying Prospectus.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that owns a diversified portfolio of 102 office, office/flex,
industrial, retail, multi-family and hotel properties (the "Properties")
aggregating approximately 10.1 million square feet located in 22 states
throughout the country. In addition, two associated companies, Glenborough
Corporation and Glenborough Hotel Group (the "Associated Companies"), provide
comprehensive asset, partnership and property management services for a
diversified portfolio of 55 additional properties that are not owned by the
Company. The combined portfolios encompass approximately 16 million rentable
square feet in 24 states. The Company is in the process of acquiring the Copley
Properties, Bryant Lake, the Rancon IV Portfolio, the Rancon V Portfolio and the
Prudential-Bache/Equitec Portfolio (each as defined below, and collectively, the
"Pending Acquisitions"), aggregating approximately 2.8 million square feet for
an aggregate acquisition cost of approximately $210.7 million, in five separate
transactions, each subject to a number of contingencies. See "Recent
Activities."
The Company's principal growth strategy is to capitalize on the opportunity
to acquire diversified portfolios or individual properties on attractive terms.
This strategy has evolved from the Company's predecessors' experience since 1978
in managing real estate partnerships and their assets and, since 1989, in
acquiring portfolios and management interests from third parties. In particular,
unlike most other REITs, the Company seeks to purchase diversified portfolios of
properties. The Company believes such diversified portfolios can be acquired
from partnerships as well as other REITs and life insurance companies and other
institutions.
The Company believes it can acquire diversified property portfolios at
attractive prices because it can provide liquidity to the owners who otherwise
face a limited market for such portfolios, and can, through the Company's UPREIT
structure, address the current owners' tax concerns and structure transactions
that may defer taxable gains. Consistent with its acquisition strategy, the
Company intends to use a portion of the proceeds of the Offering to finance in
part the Pending Acquisitions. The Pending Acquisitions are each subject to a
number of contingencies. Accordingly, there can be no assurance that the
acquisition of all or any
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<PAGE> 4
of these properties will be completed. See "Recent Activities -- Pending
Acquisitions." If each of the Pending Acquisitions is completed, then, upon
completion, the Company will have completed since the Consolidation property
acquisitions aggregating a total acquisition cost in excess of over $745
million.
The following table sets forth certain information with respect to the
Company's properties as of the date of this Prospectus Supplement, assuming that
the Pending Acquisitions had each been completed as of such date. For
information regarding only the Properties the Company owned as of the date of
this Prospectus Supplement, see "Properties."
PRO FORMA PROPERTY TABLE BY PROPERTY TYPE(1)
<TABLE>
<CAPTION>
OCCUPANCY RATE
RENTABLE AS OF
TYPE OF PROPERTY SQ. FT. JUNE 30, 1997(2)
--------------------------------------------- ---------------- ----------------
<S> <C> <C>
Office....................................... 3,430,909 91%
Office/Flex.................................. 3,551,068 92
Industrial................................... 3,560,535 97
Retail....................................... 1,139,242 94
---------- ---
Subtotal/Weighted Average.................. 11,681,754 93%
---------- ---
</TABLE>
<TABLE>
<CAPTION>
RENTABLE SQ. FT.
(UNITS/ROOMS)
----------------
<S> <C> <C>
Multi-family................................. 945,542(866) 95%(3)
Hotels....................................... 326,701(726) 70(4)
----------
Subtotal Square Feet......................... 1,272,243
----------
Total Square Feet.......................... 12,953,997
==========
</TABLE>
- ---------------
(1) Includes 32 properties expected to be acquired. See "Recent
Activities -- Pending Acquisitions."
(2) Represents economic occupancy. Includes June 30, 1997 occupancy rates of
properties acquired or to be acquired after June 30, 1997.
(3) Represents average economic occupancy (calculated using month-end actual
occupancy rates) for the 12 months ended June 30, 1997. For properties
acquired or to be acquired after June 30, 1996, average occupancy rates were
calculated based on post December 31, 1996 monthly occupancy rates.
(4) Represents average economic occupancy for the 12 months ended June 30, 1997.
The Company believes its strategy of acquiring properties that are broadly
diversified with respect to type and location reduces the risks otherwise
associated with focusing on a single property type or a single geographical
region.
The Company commenced operations on December 31, 1995 through the merger of
eight public limited partnerships and a management company with and into the
Company. Since the Consolidation, the Company has:
- Increased its annualized quarterly distributions from $1.20 per share to
$1.28 per share;
- Completed three follow-on offerings of Common Stock in October 1996,
March 1997 and July 1997 (respectively, the "October 1996 Offering," the
"March 1997 Offering," and the "July 1997 Offering"), with aggregate
gross proceeds of approximately $279.6 million;
- Obtained a $50 million revolving line of credit (the "Line of Credit"), a
$60 million term loan (the "$60 Million Secured Loan") and a $114 million
interim unsecured loan (the "$114 Million Unsecured Loan") from Wells
Fargo Bank, N.A. ("Wells Fargo Bank"). The Company has received a
proposal from Wells Fargo Bank to replace the Line of Credit with a $250
million unsecured line of credit, see "Recent Activities -- Financing
Activities;" and
S-4
<PAGE> 5
- Increased its rentable square feet, number of multi-family units and
number of hotel suites through the acquisition of (i) 26 office
Properties, 31 office/flex Properties, 16 industrial Properties and six
retail Properties aggregating approximately 7,468,127 rentable square
feet, (ii) three multi-family Properties aggregating 762 units and (iii)
two hotels aggregating 227 rooms, for an aggregate total acquisition cost
of approximately $534.7 million. If each of the Pending Acquisitions is
completed, then, upon completion, the Company will have completed since
the Consolidation property acquisitions aggregating a total acquisition
cost in excess of $745 million.
The Company's directors and seven executive officers collectively own or
exercise voting control with respect to approximately 9.4% of the Company's
Common Stock, and will own or exercise voting control with respect to
approximately 6.5% after giving effect to the Offering. The executive officers
have been with the Company or its predecessors for an average of ten years. The
Company and the Associated Companies employ an experienced staff of
approximately 430 employees who provide a full range of real estate services
from their headquarters in San Mateo, California and from 29 property management
offices located in 14 states.
RECENT ACTIVITIES
The following is a summary of the Company's acquisition and financing
activities since January 1, 1997 through the date of this Prospectus Supplement.
PENDING ACQUISITIONS
Copley Properties. The Company has entered into a definitive agreement to
acquire eight properties from six separate limited partnerships in which
affiliates of AEW Capital Management, L.P. (successors in interest to one or
more affiliates of Copley Advisors Inc.) serve as general partners (the "Copley
Properties"). The total acquisition cost, including capitalized costs, is
expected to be approximately $63.3 million, which is to be paid entirely in
cash. The Copley Properties comprise 766,269 square feet of industrial space,
with one property located in Tempe, Arizona, one in Anaheim, California, one in
Columbia, Maryland and five in Las Vegas, Nevada. The Company anticipates the
acquisition of the Copley Properties will be completed in late October 1997. The
acquisition is subject to certain closing conditions, and, thus, there can be no
assurance that this acquisition will ultimately be completed.
Bryant Lake. The Company has entered into a definitive agreement to acquire
a 171,789 square-foot office/flex building in Eden Prairie, Minnesota ("Bryant
Lake"), from Outlook Income Fund 9, a limited partnership in which Glenborough
Corporation, one of the Associated Companies, is managing general partner.
Robert Batinovich, the Company's Chairman and Chief Executive Officer, is
co-general partner of Outlook Income Fund 9 and holds an indirect economic
interest therein equal to an approximate 0.83% limited partnership interest.
Because of this affiliation, and consistent with the Company's Board of
Directors' policy, neither Robert Batinovich nor Andrew Batinovich, the
Company's President and Chief Operating Officer, voted when the Board of
Directors considered and acted to approve this acquisition. The price to be paid
for Bryant Lake is equal to 100% of the appraised value as determined by an
independent appraiser. The sale of Bryant Lake to the Company has been approved
by the limited partners of Outlook Income Fund 9. The total acquisition cost,
including capitalized costs, is expected to be approximately $9.4 million,
comprising approximately $4.6 million in the form of cash and the balance in the
form of assumption of debt.
Rancon IV Portfolio. The Company has entered into a definitive agreement to
acquire all of the real estate assets of Rancon Realty Fund IV, a California
limited partnership which has been managed by Glenborough Corporation since
January 1995 (the "Rancon IV Portfolio"). The total acquisition cost, including
capitalized costs, is expected to be approximately $49.0 million, comprising
approximately $32.0 million in the form of cash and the balance in the form of
assumption of debt. The Rancon IV Portfolio comprises three office properties
aggregating 223,938 square feet; one office/flex property containing 62,605
square feet; four retail properties aggregating 135,554 square feet; one
multi-family property with 240 units containing 214,400 square feet; and
approximately 74 acres of undeveloped land. All of the office and retail
properties, and approximately 26 acres of the undeveloped land, are located
within the Tri-City mixed use complex in San Bernardino, California. The
multi-family complex is located in Vista (San Diego County),
S-5
<PAGE> 6
California, and the remaining approximately 48 acres of undeveloped land are
located in three separate sites in the Inland Empire region of Southern
California. Robert Batinovich holds an indirect economic interest in Rancon Fund
IV equal to an approximate 0.54% limited partnership interest. Because of this
interest, and consistent with the Company's Board of Directors' policy, neither
Robert Batinovich nor Andrew Batinovich voted when the Board of Directors
considered and acted to approve this acquisition. This acquisition is subject to
approval by a majority vote of the limited partners of Rancon Realty Fund IV,
which has filed with the Securities and Exchange Commission a preliminary proxy
statement to solicit such approval. As a result, there can be no assurance that
this transaction will be completed.
Rancon V Portfolio. The Company has entered into a definitive agreement to
acquire all of the real estate assets of Rancon Realty Fund V, a California
limited partnership which has been managed by Glenborough Corporation since
January 1995 (the "Rancon V Portfolio"). The total acquisition cost, including
capitalized costs, is expected to be $45.5 million, comprising approximately
$31.8 million in the form of cash and the balance in the form of assumption of
debt. The Rancon V Portfolio comprises five office properties aggregating
390,785 square feet; one office/flex property containing 50,804 square feet; one
industrial property with an area of approximately 245,000 square feet; two
retail properties aggregating 31,500 square feet; and approximately 139 acres of
undeveloped land. All of the office and retail properties, and approximately 14
acres of the undeveloped land, are located within the Tri-City mixed use complex
in San Bernardino, California. The industrial property is located in Ontario,
California, and the remaining approximately 125 acres of undeveloped land are
located in three separate sites in the Inland Empire region of Southern
California. Robert Batinovich holds an indirect economic interest in Rancon
Realty Fund V equal to an approximate 0.7% limited partnership interest. Because
of this interest, and consistent with the Company's Board of Directors' policy,
neither Robert Batinovich nor Andrew Batinovich voted when the Board of
Directors considered and acted to approve this acquisition. This acquisition is
subject to approval by a majority vote of the limited partners of Rancon Realty
Fund V, which has filed with the Securities and Exchange Commission a
preliminary proxy statement to solicit such approval. As a result, there can be
no assurance that this transaction will be completed.
Prudential-Bache/Equitec Portfolio. The Company has entered into a
definitive agreement to acquire all of the real estate assets of
Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership in which the managing general partner is Prudential-Bache
Securities, Inc., and in which Glenborough Corporation and Robert Batinovich
have served as co-general partners since March of 1994, but do not hold a
material equity interest (the "Prudential-Bache/Equitec Portfolio"). The total
acquisition cost, including capitalized costs, is expected to be approximately
$43.5 million, which is to be paid entirely in cash. The
Prudential-Bache/Equitec Portfolio comprises four office buildings aggregating
405,825 square feet and one office/flex property containing 121,645 square feet.
The largest of these properties are in Rockville, Maryland (186,680 square feet)
and Memphis, Tennessee (100,901 square feet), with the remaining properties
located in Sacramento, California and Kirkland, Washington. This acquisition is
subject to approval by a majority vote of the limited partners of
Prudential-Bache/Equitec Real Estate Limited Partnership, and thus there can be
no assurance that this transaction will be completed.
1997 COMPLETED ACQUISITIONS
Citibank Park. In September 1997, the Company acquired a 147,978
square-foot office building in Las Vegas, Nevada ("Citibank Park"). The total
acquisition cost, including capitalized costs, was approximately $23.3 million,
which consisted of (i) approximately $1.66 million in the form of 61,211
partnership units in the Operating Partnership (based on an agreed per unit
value of $27.156), and (ii) the balance in cash.
Advance Properties. In September 1997, the Company acquired from a group of
partnerships affiliated with The Advance Group a portfolio of 10 Properties
aggregating 755,006 square feet (the "Advance Properties"). The total
acquisition cost, including capitalized costs, was approximately $103.0 million,
which consisted of (i) approximately $13.6 million in the form of 599,508
partnership units in the Operating Partnership (based on an agreed per unit
value of $22.625), (ii) approximately $7.4 million in assumption of debt, and
(iii) the balance in cash. The Advance Properties consist of five office
Properties and three office/ flex Properties located in northern New Jersey and
Maryland and two industrial Properties located in northern
S-6
<PAGE> 7
New Jersey. Concurrent with this acquisition, the Company entered into a joint
venture with The Advance Group for the development of new projects in the New
Jersey market. This joint venture owns 57 acres of land suitable for office and
office/flex development of up to 560,000 square feet.
T. Rowe Price Properties. In September 1997, the Company acquired from five
limited partnerships, two general partnerships and one private REIT, each
organized by affiliates of T. Rowe Price, a portfolio of 27 Properties
aggregating approximately 2,888,000 square feet (the "T. Rowe Price
Properties"). The total acquisition cost, including capitalized costs, was
approximately $146.8 million, which was paid entirely in cash. The T. Rowe Price
Properties consist of four office Properties, 12 office/flex Properties, eight
industrial Properties and three retail Properties located in 12 states.
Centerstone Property. In July 1997, the Company acquired an office Property
containing 155,021 square feet (the "Centerstone Property") located in Irvine,
California. The total acquisition cost, including capitalized costs, was
approximately $30.4 million, which consisted of (i) approximately $5.5 million
in the form of 275,000 partnership units in the Operating Partnership (based on
an agreed per unit value of $20.00), and (ii) the balance in cash.
CRI Properties. In June 1997, the Company acquired from Carlsberg Realty
Inc. a portfolio of three Properties, aggregating approximately 245,600 square
feet (the "CRI Properties"). The total acquisition cost, including capitalized
costs, was approximately $14.8 million, which was paid entirely in cash. The CRI
Properties consist of one office Property in California, and one office/flex
Property and one industrial Property in Arizona. The CRI Properties have been
managed by Glenborough Corporation, one of the Associated Companies, since
November 1996.
CIGNA Properties. In April 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. The CIGNA
Properties consist of two office Properties, two office/flex Properties, a
shopping center and a multi-family Property, and are located in four states.
E&L Properties. In April 1997, the Company acquired from seven partnerships
and their general partner, a Southern California syndicator, a portfolio of 11
Properties, aggregating approximately 523,000 square feet, together with
associated management interests (the "E&L 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)
approximately $6.7 million in the form of 352,197 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 33,198 shares of Common
Stock of the Company (based on an agreed per share value of $19.075), and (iv)
the balance in cash. The E&L Properties consist of one office Property, nine
office/flex Properties and one industrial Property, all located in Southern
California.
Riverview Property. In April 1997, the Company acquired from a private
seller a 15-story office property containing 227,129 square feet located in
Bloomington, Minnesota (the "Riverview Property"). The total acquisition cost,
including capitalized costs, was approximately $20.5 million, which was paid
entirely in cash.
Lennar Properties. In April 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 entirely in
cash. The Lennar Properties consist of one office Property located in Virginia
and one office/flex Property and one industrial Property, each located in
Massachusetts.
Scottsdale Hotel. 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 Scottsdale Hotel and four of the Company's other hotel Properties are
marketed as Country Suites by Carlson.
S-7
<PAGE> 8
OTHER ACQUISITION OPPORTUNITIES
Acquisition Pipeline. The Company maintains an active acquisition
department which identifies, evaluates, negotiates and consummates portfolio and
individual property investments. Currently, other than the Pending Acquisitions,
the Company has no potential acquisitions that it considers probable, but is
considering acquisitions involving, in the aggregate, in excess of $1.0 billion
in total capitalized costs. Any future acquisition would be subject to a number
of contingencies, including a review of the physical and economic
characteristics of the properties involved, negotiation of detailed terms and
formal documentation. There can be no assurance that any of the acquisitions
under consideration will ultimately be consummated. See "Risk Factors -- Risks
Associated with Acquisitions" in the accompanying Prospectus.
Possible Tender Offer Acquisitions. In addition to its current program of
negotiated property and portfolio acquisitions, the Company intends to consider
opportunities to acquire interests in properties and portfolios of properties
through tender offers for public and private limited partnerships, and REITs.
Depending upon the opportunity and the circumstances, these offers may be made
with or without the cooperation of their respective general partners or boards
of directors. As the Company is currently evaluating this addition to its
acquisition strategy and no tender offer transactions have been initiated, there
is no certainty that the Company will adopt this strategy or that any such
transactions will be completed. See "Risk Factors -- Risks Associated with
Tender Offers" in the accompanying Prospectus.
REDEPLOYMENT OF ASSETS
The Company periodically reviews its current portfolio of investments for
opportunities to redeploy capital from certain existing Properties or mortgage
receivables to other properties or investments that the Company believes have
characteristics more suited to its overall growth strategy and operating goals.
Consistent with this strategy, the Company sold from its retail portfolio six
Atlanta Auto Care Center Properties and ten QuikTrip Properties for an aggregate
sales price of approximately $13.1 million. The Company intends to use the net
proceeds from the sale of such properties to fund the acquisition of properties
which the Company believes have greater growth potential. The Company also has
entered into a definitive agreement to sell the Shannon Crossing Property, which
is a retail Property. This sale is subject to a number of contingencies, and
there can be no assurance that such sale will be consummated.
FINANCING ACTIVITIES
$250 Million Acquisition Credit Facility. The Company has received a
proposal from Wells Fargo Bank to replace the existing secured Line of Credit
with a new $250 million unsecured line of credit (the "Acquisition Credit
Facility"). The proposal provides that the Acquisition Credit Facility will bear
interest on a sliding scale ranging from LIBOR plus 0.8% to LIBOR plus 1.3%,
which represents a rate that is lower by at least 0.45% than the rate under the
Company's existing $50 million Line of Credit. There can be no assurance that
the Acquisition Credit Facility will ultimately be established.
$50 Million Line of Credit. The Company has a $50 million secured Line of
Credit from Wells Fargo Bank. The Line of Credit bears interest at an annual
rate equal to LIBOR plus 1.75%. As of October 1, 1997, approximately $28.9
million was outstanding under the Line of Credit. The Company anticipates that
it will repay a portion of this amount with net proceeds of the Offering.
$60 Million Secured Loan. In September 1997, the Company closed a $60
Million Secured Loan with Wells Fargo Bank. This loan has a 10-year term, bears
interest at a fixed annual rate of 7.5%, and requires monthly payments based on
a 25-year amortization schedule. This loan is secured by the Lennar Properties,
the Riverview Property, the Centerstone Property and five of the CIGNA
Properties. The proceeds of this loan were used to fund in part the acquisitions
of the Advance Properties and the T. Rowe Price Properties.
$114 Million Interim Unsecured Loan. In September 1997, the Company closed
a $114 million unsecured loan (the "$114 Million Interim Unsecured Loan") with
Wells Fargo Bank. This loan has a 90-day term with two 90-day extension options,
bears interest at a fixed annual rate of 7.5% and requires monthly payments of
interest only. The proceeds of this loan were used to fund a portion of the
purchase price for the
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<PAGE> 9
T. Rowe Price Properties. The Company anticipates repaying a portion of the
outstanding balance under the $114 Million Interim Unsecured Loan with net
proceeds of the Offering.
July 1997 Offering. In July 1997, the Company completed a public offering
of 6,980,000 shares of its Common Stock at a price of $22.625 per share. The net
proceeds of approximately $149.3 million were used to fund acquisitions and for
general corporate purposes.
March 1997 Offering. In March 1997, the Company completed a public offering
of 3,500,000 shares of its Common Stock at a price of $20.25 per share. The net
proceeds of approximately $66.1 million were used for the acquisition of certain
Properties and to repay approximately $24.9 million of the then outstanding
balance under the Line of Credit.
Increased Distributions. In January 1997, the Company announced a 6.7%
increase in its regular quarterly distribution from $.30 to $.32 per share of
Common Stock. See "Price Range of Common Stock and Distribution History."
THE OFFERING
All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders is selling any shares of Common
Stock in the Offering.
<TABLE>
<S> <C>
Shares of Common Stock Offered................... 10,000,000
Shares of Common Stock Outstanding
Before the Offering(1)......................... 22,106,728
Shares of Common Stock Outstanding
After the Offering(1).......................... 32,106,728
Use of Proceeds.................................. To fund in part the Pending Acquisitions,
repayment of debt and for general
corporate purposes.
NYSE Symbol...................................... "GLB"
</TABLE>
- ---------------
(1) Assumes the exchange of all 1,932,036 units of the Operating Partnership not
owned by the Company for shares of Common Stock.
S-9
<PAGE> 10
THE COMPANY
The Company is a self-administered and self-managed REIT that owns a
diversified portfolio of 102 office, office/flex, industrial, retail,
multi-family and hotel Properties aggregating approximately 10.1 million square
feet located in 22 states throughout the country. In addition, two Associated
Companies provide comprehensive asset, partnership and property management
services for a diversified portfolio of 55 additional properties that are not
owned by the Company. The combined portfolios encompass approximately 16 million
rentable square feet in 24 states.
The Company was incorporated in the state of Maryland on August 26, 1994.
On December 31, 1995, the Company completed the Consolidation in which the GRT
Predecessor Entities merged with and into the Company. A portion of the
Company's operations are conducted through the Operating Partnership, in which
the Company holds a 1% interest as the sole general partner and an approximate
89% limited partnership interest. The Company's executive offices are located at
400 South El Camino Real, Suite 1100, San Mateo, California 94402-1708, and its
telephone number is (650) 343-9300.
GROWTH STRATEGY
The Company seeks to achieve sustainable long-term growth in Funds from
Operations primarily through the following strategies:
- Acquiring diversified portfolios or individual properties on attractive
terms, often from public and private partnerships as well as from other
REITs and life insurance companies and other institutions;
- Acquiring properties from entities controlled by Glenborough Corporation,
one of the Associated Companies;
- Improving the performance of the Properties in the Company's portfolio;
and
- 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.
Acquisitions
Acquisition Characteristics. The Company primarily seeks to acquire
diversified portfolios and individual properties with certain of the following
characteristics: (i) a stable stream of income, both historical and projected;
(ii) existing management fees and costs that, when internalized, would augment
the Company's investment return; (iii) properties generally constructed after
1970; (iv) little or no exposure to hazardous materials; (v) prudent debt
levels; (vi) potential for substantial overhead savings that could be converted
to distributions; (vii) low-to-moderate vacancy levels; (viii) diversified
tenant risk; (ix) low-to-moderate deferred maintenance; (x) substantial
geographic overlap with the Company's existing portfolio, to capitalize on the
Company's existing management capabilities; and (xi) predominantly comprised of
office, office/flex, industrial, retail and multi-family properties.
Portfolio Acquisitions. The Company seeks to grow by acquiring diversified
property portfolios, and believes there are significant acquisition
opportunities for such portfolios. The Company believes that public and private
partnerships, other REITs and life insurance companies and other institutions
own diversified portfolios which represent significant acquisition
opportunities. For example, according to Robert A. Stanger & Co., Inc.
("Stanger"), a substantial percentage of public and private partnerships,
representing original equity investments in excess of $70 billion, own
portfolios that are diversified geographically or by property type or both.
The Company believes that it can acquire diversified portfolios on
attractive terms because it can provide liquidity to the owners who otherwise
face a limited market for their portfolios and can, through the Company's UPREIT
structure, address the current owners' tax concerns and structure transactions
that may defer taxable gains. The Company further believes that there is a
limited number of purchasers who seek to buy diversified portfolios. For
example, most REITs pursue a strategy that focuses either on specific property
S-10
<PAGE> 11
types or geographic regions or both, and thus do not provide an outlet for bulk
sales by diversified portfolio owners. For a diversified portfolio seller that
is seeking to liquidate, an alternative to a bulk sale would be a gradual
sell-off of assets. Such an approach, however, may require an extended period of
time and be prohibitively expensive.
The Company believes that, in particular, limited partnerships and the
limited partners in such partnerships face difficult liquidity alternatives.
According to Stanger, few of the private partnerships, and less than half of the
public partnerships, are traded in any active secondary market. The Company
believes the majority of the limited partners in these partnerships would be
interested in solutions providing liquidity. The principal options available to
such limited partners include (i) selling their units for cash on the secondary
market, which according to Stanger, has a pricing structure that typically
discounts unit values relative to underlying asset values, and (ii) more
recently, selling their units for cash to large, well-financed investors who
solicit limited partners to sell their interests at prices that are higher than
prevailing secondary market prices but generally lower than the seller's
underlying asset value. In addition to their discounted pricing structure, these
solutions may not be preferred by limited partners who, as a result of past tax
benefits or other factors, may incur significant tax liabilities as a result of
such sale.
Given the limited alternatives available to partnerships and other holders
of diversified portfolios as described above, the Company believes that its
emphasis on diversified portfolios, its long-term investment strategy and
self-managed structure enable it to compete effectively for the bulk acquisition
of diversified portfolios. The Company believes it can offer consideration (in
the form of units of the Operating Partnership, Common Stock of the Company,
and/or cash) which both exceeds that otherwise available to diversified
portfolio owners and meets the Company's investment criteria.
Individual Property Acquisitions. From time to time the Company will
acquire individual properties that it believes will enhance the Company's
profitability and take advantage of existing management resources.
Possible Tender Offer Acquisitions. In addition to its current program of
negotiated portfolio and individual property acquisitions, the Company intends
to consider opportunities to acquire interests in portfolios and individual
properties through tender offers for public and private limited partnerships and
REITs. Depending upon the opportunity and the circumstances, such offers may be
made with or without the cooperation of their respective general partners or
boards of directors. As the Company is currently evaluating this addition to its
acquisition strategy and no tender offer transactions have been initiated, there
is no certainty that the Company will adopt this strategy or that any such
transactions will be completed. See "Risk Factors -- Risks Relating to Tender
Offers" in the accompanying Prospectus.
The Associated Companies
Glenborough Corporation. The Company seeks to acquire properties from
entities controlled by Glenborough Corporation ("GC"), a California corporation
formerly known as Glenborough Realty Corporation, which (i) serves as general
partner of several real estate limited partnerships for whom it provides
management services, asset management and property management services, (ii)
provides property management services for a limited portfolio of properties
owned by unaffiliated third parties, and (iii) provides management services for
certain partnerships sponsored by Rancon Financial Corporation, an unaffiliated
corporation which has significant real estate assets in the Inland Empire region
of Southern California (the "Rancon Partnerships"); these services include asset
management, property development, Securities and Exchange Commission reporting,
accounting, investor relations and property management services. The Company is
in the process of acquiring all the assets of Rancon Realty Fund IV, Rancon
Realty Fund V and Prudential-Bache/Equitec Real Estate Partnership, three
partnerships managed by GC. See "Recent Activities -- Pending Acquisitions."
Glenborough Hotel Group. The Company, through the Operating Partnership,
leases its hotel properties to Glenborough Hotel Group ("GHG"). The Operating
Partnership holds a first mortgage on another hotel, which is managed by GHG
under a contract with its owner. GHG also manages one other hotel and two resort
condominium hotels.
S-11
<PAGE> 12
Internal Growth
The Company seeks to increase cash flow from its existing portfolio by (i)
increasing the occupancy of all Properties that are not fully leased, (ii)
maintaining high occupancy rates, (iii) increasing economies of scale in
management and leasing activities and (iv) controlling operating expenses and
capital expenditures.
Redeployment of Assets
The Company periodically reviews the existing Properties, and sells certain
Properties and reinvests the proceeds in other properties which the Company
believes have characteristics more suited to its overall growth strategy and
operating goals. For example, the Company may (i) sell properties that have
matured beyond a point of significant future growth potential and replace them
with properties with comparable cash flow but higher growth potential; (ii) sell
some smaller or management intensive properties and replace them with larger or
more management-efficient properties; and (iii) seek to reduce the number of
cities in which it does business. By redeploying assets in this manner, the
Company believes it can achieve certain economies of scale with respect to
staffing and overhead levels. See "Recent Activities -- Redeployment of Assets."
FINANCING ACTIVITIES
The Company seeks to utilize the most appropriate sources of capital for
acquisitions, development, joint ventures and capital improvements, which
sources include undistributed Funds from Operations, borrowings under its credit
facilities, issuances of unsecured or secured debt or equity securities and/or
bank and other institutional borrowings. As of June 30, 1997, the Company's
total debt constituted approximately 21.9% of the total market capitalization of
the Company after giving pro forma effect to the Offering, the use of proceeds
thereof, completion of the Pending Acquisitions, and certain other pro forma
adjustments.
S-12
<PAGE> 13
RECENT ACTIVITIES
The following is a summary of the Company's acquisition and financing
activities since January 1, 1997 through the date of this Prospectus Supplement.
PENDING ACQUISITIONS
Copley Properties. The Company has entered into a definitive agreement to
acquire the Copley Properties. The total acquisition cost, including capitalized
costs, is expected to be approximately $63.3 million, which is to be paid
entirely in cash. The Copley Properties comprise 766,269 square feet of
industrial space, with one property located in Tempe, Arizona, one in Anaheim,
California, one in Columbia, Maryland and five in Las Vegas, Nevada. The Company
anticipates the acquisition of the Copley Properties will be completed in late
October 1997. The acquisition is subject to certain closing conditions, and,
thus, there can be no assurance that this acquisition will ultimately be
completed.
COPLEY PROPERTIES
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE RATE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
------------------------------------ ---------- ---- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL
Fairmont Commerce Center.......... Tempe AZ 1980 83,200 100%
East Anaheim...................... Anaheim CA 1986 106,232 100
-------- ---
TOTAL INDUSTRIAL.................... 189,432 100%
-------- ---
OFFICE/FLEX
Columbia Warehouse................ Columbia MD 1974 38,840 88%
Palms Business Center III......... Las Vegas NV 1990 136,160 100
Palms Business Center IV.......... Las Vegas NV 1991 37,414 100
Palms Business Center North....... Las Vegas NV 1988 92,087 98
Palms Business Center South....... Las Vegas NV 1988 132,387 100
Post Palms Business Center........ Las Vegas NV 1991 139,949 93
-------- ---
TOTAL OFFICE/FLEX................... 576,837 97%
-------- ---
TOTAL COPLEY PROPERTIES............. 766,269 98%
======= ============
</TABLE>
- ---------------
(1) Represents economic occupancy.
Bryant Lake. The Company has entered into a definitive agreement to acquire
Bryant Lake, a 171,789 square-foot office/flex building in Eden Prairie,
Minnesota, from Outlook Income Fund 9, a limited partnership in which GC is
managing general partner. Robert Batinovich, the Company's Chairman and Chief
Executive Officer, is co-general partner of Outlook Income Fund 9 and holds an
indirect economic interest therein equal to an approximate 0.83% limited
partnership interest. Because of this affiliation, and consistent with the
Company's Board of Directors' policy, neither Robert Batinovich nor Andrew
Batinovich, the Company's President and Chief Operating Officer, voted when the
Board of Directors considered and acted to approve this acquisition. The price
to be paid for Bryant Lake is equal to 100% of the appraised value as determined
by an independent appraiser. The sale of Bryant Lake to the Company has been
approved by the limited partners of Outlook Income Fund 9. The total acquisition
cost, including capitalized costs, is expected to be approximately $9.4 million,
comprising approximately $4.6 million in the form of cash and the balance in the
form of assumption of debt.
S-13
<PAGE> 14
BRYANT LAKE
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE RATE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
---------------------------------- ------------- ---- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
OFFICE/FLEX
Bryant Lake Business Center..... Eden Prairie MN 1985 171,789 93%
</TABLE>
- ---------------
(1) Represents economic occupancy.
Rancon IV Portfolio. The Company has entered into a definitive agreement to
acquire the Rancon IV Portfolio. The total acquisition cost, including
capitalized costs, is expected to be approximately $49.0 million, comprising
approximately $32.0 million in the form of cash and the balance in the form of
assumption of debt. The Rancon IV Portfolio comprises three office properties
aggregating 223,938 square feet; one office/flex property containing 62,605
square feet; four retail properties aggregating 135,554 square feet; one
multi-family property with 240 units containing 214,400 square feet; and
approximately 74 acres of undeveloped land. All of the office and retail
properties, and approximately 26 acres of the undeveloped land, are located
within the Tri-City mixed use complex in San Bernardino, California. The
multi-family complex is located in Vista (San Diego County), California, and the
remaining approximately 48 acres of undeveloped land are located in three
separate sites in the Inland Empire region of Southern California. Robert
Batinovich holds an indirect economic interest in Rancon Fund IV equal to an
approximate 0.54% limited partnership interest. Because of this interest, and
consistent with the Company's Board of Directors' policy, neither Robert
Batinovich nor Andrew Batinovich voted when the Board of Directors considered
and acted to approve this acquisition. This acquisition is subject to approval
by a majority vote of the limited partners of Rancon Realty Fund IV, which has
filed with the Securities and Exchange Commission a preliminary proxy statement
to solicit such approval. As a result, there can be no assurance that this
transaction will be completed.
S-14
<PAGE> 15
RANCON IV PORTFOLIO
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE RATE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
-------------------------------- --------------- ---- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
OFFICE
Inland Regional Center........ San Bernardino CA 1996 81,079 100%
One Vanderbilt................ San Bernardino CA 1986 73,809 90
Two Vanderbilt................ San Bernardino CA 1987 69,050 90
-------- ---
TOTAL OFFICE.................... 223,938 94%
-------- ---
OFFICE/FLEX
Carnegie Business Center I.... San Bernardino CA 1987 62,605 81%
-------- ---
RETAIL
Circuit City.................. San Bernardino CA 1997 39,123 100%
Promotional Retail Center..... San Bernardino CA 1993 66,265 97
Service Retail Center......... San Bernardino CA 1987 20,780 100
TGI Friday's.................. San Bernardino CA 1985 9,386 100
-------- ---
TOTAL RETAIL.................... 135,554 99%
-------- ---
MULTI-FAMILY
Shadowridge/Woodbend Apts..... Vista CA 1987 214,400(2) 97%(3)
-------- ---
TOTAL RANCON IV PORTFOLIO....... 636,497 93%
======= ============
</TABLE>
- ---------------
(1) Represents economic occupancy.
(2) Represents 240 units.
(3) Represents average economic occupancy calculated based on post December 31,
1996 monthly occupancy rates.
Rancon V Portfolio. The Company has entered into a definitive agreement to
acquire the Rancon V Portfolio. The total acquisition cost, including
capitalized costs, is expected to be $45.5 million, comprising approximately
$31.8 million in the form of cash and the balance in the form of assumption of
debt. The Rancon V Portfolio comprises five office properties aggregating
390,785 square feet; one office/flex property containing 50,804 square feet; one
industrial property with an area of approximately 245,000 square feet; two
retail properties aggregating 31,500 square feet; and approximately 139 acres of
undeveloped land. All of the office and retail properties, and approximately 14
acres of the undeveloped land, are located within the Tri-City mixed use complex
in San Bernardino, California. The industrial property is located in Ontario,
California, and the remaining approximately 125 acres of undeveloped land are
located in three separate sites in the Inland Empire region of Southern
California. Robert Batinovich holds an indirect economic interest in Rancon
Realty Fund V equal to an approximate 0.7% limited partnership interest. Because
of this interest, and consistent with the Company's Board of Directors' policy,
neither Robert Batinovich nor Andrew Batinovich voted when the Board of
Directors considered and acted to approve this acquisition. This acquisition is
subject to approval by a majority vote of the limited partners of Rancon Realty
Fund V, which has filed with the Securities and Exchange Commission a
preliminary proxy statement to solicit such approval. As a result, there can be
no assurance that this transaction will be completed.
S-15
<PAGE> 16
RANCON V PORTFOLIO
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE RATE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
-------------------------------- --------------- ---- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
OFFICE
Lakeside Tower................ San Bernardino CA 1989 112,866 83%
One Parkside.................. San Bernardino CA 1992 70,069 66
One Carnegie Plaza............ San Bernardino CA 1987 102,637 92
Santa Fe...................... San Bernardino CA 1989 36,288 100
Two Carnegie Plaza............ San Bernardino CA 1988 68,925 81
-------- ---
TOTAL OFFICE.................... 390,785 84%
-------- ---
OFFICE/FLEX
Carnegie Business Center II... San Bernardino CA 1987 50,804 74%
INDUSTRIAL
Rancon Centre Ontario......... Ontario CA 1988 245,000 80%
RETAIL
Bally's Health Club........... San Bernardino CA 1996 25,000 100%
Outback Steakhouse............ San Bernardino CA 1996 6,500 100
-------- ---
TOTAL RETAIL.................... 31,500 100%
-------- ---
TOTAL RANCON V PORTFOLIO........ 718,089 82%
======= ============
</TABLE>
- ---------------
(1) Represents economic occupancy.
Prudential-Bache/Equitec Portfolio. The Company has entered into a
definitive agreement to acquire all of the real estate assets of
Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership in which the managing general partner is Prudential-Bache
Securities, Inc., and in which GC and Robert Batinovich have served as
co-general partners since March of 1994, but do not hold a material equity
interest. The total acquisition cost, including capitalized costs, is expected
to be approximately $43.5 million, which is to be paid entirely in cash. The
Prudential-Bache/Equitec Portfolio comprises four office buildings aggregating
405,825 square feet and one office/flex property containing 121,645 square feet.
The largest of these properties are in Rockville, Maryland (186,680 square feet)
and Memphis, Tennessee (100,901 square feet), with the remaining properties
located in Sacramento, California and Kirkland, Washington. This acquisition is
subject to approval by a majority vote of the limited partners of
Prudential-Bache/Equitec Real Estate Limited Partnership, and thus there can be
no assurance that this transaction will be completed.
S-16
<PAGE> 17
PRUDENTIAL-BACHE/EQUITEC PORTFOLIO
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE RATE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
----------------------------------- ----------- ---- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
OFFICE
Gateway Professional Center...... Sacramento CA 1985 50,556 96%
Park Plaza....................... Sacramento CA 1985 67,688 75
Montrose Office Park............. Rockville MD 1980 186,680 89
Poplar Towers.................... Memphis TN 1974 100,901 86
-------- ---
TOTAL OFFICE....................... 405,825 84%
-------- ---
OFFICE/FLEX
Totem Valley....................... Kirkland WA 1983 121,645 99%
-------- ---
TOTAL PRUDENTIAL BACHE/EQUITEC..... 527,470 90%
======= ============
</TABLE>
- ---------------
(1) Represents economic occupancy.
1997 COMPLETED ACQUISITIONS
Citibank Park. In September 1997, the Company acquired Citibank Park, a
147,978 square-foot office building in Las Vegas, Nevada. The total acquisition
cost, including capitalized costs, was approximately $23.3 million, which
consisted of (i) approximately $1.66 million in the form of 61,211 partnership
units in the Operating Partnership (based on an agreed per unit value of
$27.156), and (ii) the balance in cash.
Advance Properties. In September 1997, the Company acquired from a group of
partnerships affiliated with The Advance Group, the Advance Properties, a
portfolio of 10 Properties aggregating 755,006 square feet. The total
acquisition cost, including capitalized costs, was approximately $103.0 million,
which consisted of (i) approximately $13.6 million in the form of 599,508
partnership units in the Operating Partnership (based on an agreed per unit
value of $22.625), (ii) approximately $7.4 million in assumption of debt, and
(iii) the balance in cash. The Advance Properties consist of five office
Properties and three office/flex Properties located in northern New Jersey and
Maryland and two industrial Properties located in northern New Jersey.
Concurrent with this acquisition, the Company entered into a joint venture with
The Advance Group for the development of new projects in the New Jersey market.
This joint venture owns 57 acres of land suitable for office and office/flex
development of up to 560,000 square feet.
T. Rowe Price Properties. In September 1997, the Company acquired from five
limited partnerships, two general partnerships and one private REIT the T. Rowe
Price Properties, a portfolio of 27 properties aggregating approximately
2,888,000 square feet. The total acquisition cost, including capitalized costs,
was approximately $146.8 million, which was paid entirely in cash. The T. Rowe
Price Properties consist of four office Properties, 12 office/flex Properties,
eight industrial Properties and three retail Properties located in 12 states.
Centerstone Property. In July 1997, the Company acquired the Centerstone
Property, an office Property containing 155,021 square feet located in Irvine,
California. The total acquisition cost, including capitalized costs, was
approximately $30.4 million, which consisted of (i) approximately $5.5 million
in the form of 275,000 partnership units in the Operating Partnership (based on
an agreed per unit value of $20.00), and (ii) the balance in cash.
CRI Properties. In June 1997, the Company acquired from Carlsberg Realty
Inc. the CRI Properties, a portfolio of three Properties, aggregating
approximately 245,600 square feet. The total acquisition cost, including
capitalized costs, was approximately $14.8 million, which was paid entirely in
cash. The CRI Properties consist of one office Property in California, and one
office/flex Property and one industrial Property in Arizona. The CRI Properties
have been managed by Glenborough Corporation, one of the Associated Companies,
since November 1996.
S-17
<PAGE> 18
CIGNA Properties. In April 1997, the Company acquired from two partnerships
formed and managed by affiliates of CIGNA the CIGNA Properties, a portfolio of
six Properties, aggregating approximately 616,000 square feet and 224
multi-family units. The total acquisition cost, including capitalized costs, was
approximately $45.4 million, which was paid entirely in cash. The CIGNA
Properties consist of two office Properties, two office/flex Properties, a
shopping center and a multi-family Property, and are located in four states.
E&L Properties. In April 1997, the Company acquired from seven partnerships
and their general partner, a Southern California syndicator, the E&L Properties,
a portfolio of 11 Properties, aggregating approximately 523,000 square feet,
together with associated management interests. 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) approximately
$6.7 million in the form of 352,197 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 33,198 shares of Common Stock of the
Company (based on an agreed per share value of $19.075), and (iv) the balance in
cash. The E&L Properties consist of one office Property, nine office/flex
Properties and one industrial Property, all located in Southern California.
Riverview Property. In April 1997, the Company acquired from a private
seller the Riverview Property, a 15-story office property containing 227,129
square feet located in Bloomington, Minnesota. The total acquisition cost,
including capitalized costs, was approximately $20.5 million, which was paid
entirely in cash.
Lennar Properties. In April 1997, the Company acquired from two limited
partnerships and one limited liability company managed by affiliates of Lennar
Partners the Lennar Properties, a portfolio of three Properties, aggregating
approximately 282,000 square feet. The total acquisition cost, including
capitalized costs, was approximately $23.2 million, which was paid entirely in
cash. The Lennar Properties consist of one office Property located in Virginia
and one office/flex Property and one industrial Property, each located in
Massachusetts.
Scottsdale Hotel. In February 1997, the Company acquired the Scottsdale
Hotel, 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 Scottsdale Hotel and four of the Company's other hotel
Properties are marketed as Country Suites by Carlson.
OTHER ACQUISITION OPPORTUNITIES
Acquisition Pipeline. The Company maintains an active acquisition
department which identifies, evaluates, negotiates and consummates portfolio and
individual property investments. Currently, other than the Pending Acquisitions,
the Company has no potential acquisitions that it considers probable, but is
considering acquisitions involving, in the aggregate, in excess of $1.0 billion
in total capitalized costs. Any future acquisition would be subject to a number
of contingencies, including a review of the physical and economic
characteristics of the properties involved, negotiation of detailed terms and
formal documentation. There can be no assurance that any of the acquisitions
under consideration will ultimately be consummated. See "Risk Factors -- Risks
Associated with Acquisitions" in the accompanying Prospectus.
Possible Tender Offer Acquisitions. In addition to its current program of
negotiated property and portfolio acquisitions, the Company intends to consider
opportunities to acquire interests in properties and portfolios of properties
through tender offers for public and private limited partnerships, and REITs.
Depending upon the opportunity and the circumstances, these offers may be made
with or without the cooperation of the general partner. As the Company is
currently evaluating this addition to its acquisition strategy and no tender
offer transactions have been initiated, there is no certainty that the Company
will adopt this strategy or that any such transactions will be completed. See
"Risk Factors -- Risks Associated with Tender Offers" in the accompanying
Prospectus.
S-18
<PAGE> 19
REDEPLOYMENT OF ASSETS
The Company periodically reviews its current portfolio of investments for
opportunities to redeploy capital from certain existing Properties or mortgage
receivables to other properties or investments that the Company believes have
characteristics more suited to its overall growth strategy and operating goals.
Consistent with this strategy, the Company sold from its retail portfolio six
Atlanta Auto Care Center Properties and ten QuikTrip Properties for an aggregate
sales price of approximately $13.1 million. The Company intends to use the net
proceeds from the sale of such Properties to fund the acquisition of properties
which the Company believes have greater growth potential. The Company also has
entered into a definitive agreement to sell the Shannon Crossing Property, which
is a retail Property. This sale is subject to a number of contingencies, and
there can be no assurance that such sale will be consummated.
FINANCING ACTIVITIES
$250 Million Acquisition Credit Facility. The Company has received a
proposal from Wells Fargo Bank to replace the existing secured Line of Credit
with a new $250 million unsecured line of credit. The proposal provides that the
Acquisition Credit Facility will bear interest on a sliding scale ranging from
LIBOR plus 0.8% to LIBOR plus 1.3%, which represents a rate that is lower by at
least 0.45% than the rate under the Company's existing $50 million Line of
Credit. There can be no assurance that the Acquisition Credit Facility will
ultimately be established.
$50 Million Line of Credit. The Company has a $50 million secured line of
credit from Wells Fargo Bank. The Line of Credit bears interest at an annual
rate equal to LIBOR plus 1.75%. As of October 1, 1997, approximately $28.9
million was outstanding under the Line of Credit. The Company anticipates that
it will repay a portion of this amount with net proceeds of the Offering.
$60 Million Secured Loan. In September 1997, the Company closed a $60
Million Secured Loan with Wells Fargo Bank. This loan has a 10-year term, bears
interest at a fixed annual rate of 7.5%, and requires monthly payments based on
a 25-year amortization schedule. This loan is secured by the Lennar Properties,
the Riverview Property, the Centerstone Property and five of the CIGNA
Properties. The proceeds of this loan were used to fund in part the acquisitions
of the Advance Properties and the T. Rowe Price Properties.
$114 Million Interim Unsecured Loan. In September 1997, the Company closed
a $114 million unsecured loan (the "$114 Million Interim Unsecured Loan") with
Wells Fargo Bank. This loan has a 90-day term with two 90-day extension options,
bears interest at a fixed annual rate of 7.5% and requires monthly payments of
interest only. The proceeds of this loan were used to fund a portion of the
purchase price for the T. Rowe Price Properties. The Company anticipates
repaying a portion of the outstanding balance under the $114 Million Interim
Unsecured Loan with net proceeds of the Offering.
July 1997 Offering. In July 1997, the Company completed a public offering
of 6,980,000 shares of its Common Stock at a price of $22.625 per share. The net
proceeds of approximately $149.3 million were used to fund acquisitions and for
general corporate purposes.
March 1997 Offering. In March 1997, the Company completed a public offering
of 3,500,000 shares of its Common Stock at a price of $20.25 per share. The net
proceeds of approximately $66.1 million were used for the acquisition of certain
Properties and to repay approximately $24.9 million of the then outstanding
balance under the Line of Credit.
Increased Distributions. In January 1997, the Company announced a 6.7%
increase in its regular quarterly distribution from $.30 to $.32 per share of
Common Stock. See "Price Range of Common Stock and Distribution History."
S-19
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are expected to be approximately $236.7 million (approximately $272.2
million if the over-allotment option is exercised in full). The Company intends
to contribute such proceeds to the Operating Partnership to purchase an
additional proportionate interest in the Operating Partnership. The Operating
Partnership intends to use approximately $173.7 million of the net proceeds to
fund the cash portion of the Pending Acquisitions and the balance to reduce debt
and for general corporate purposes.
The only indebtedness to be repaid with a portion of the net proceeds from
the Offering are portions of the outstanding balances under the Line of Credit
and the $114 Million Interim Unsecured Loan. As of September 30, 1997, the
interest rate on the Line of Credit was 7.30% and the initial maturity date of
the Line of Credit was July 14, 1998, subject to certain extension provisions,
and the interest rate on the $114 Million Interim Unsecured Loan was 7.5% and
the initial maturity date was December 12, 1997, subject to 90-day extensions.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Company's Common Stock is listed on the NYSE under the symbol "GLB." On
October 20, 1997, the last reported sale price per share of the Company's Common
Stock on the NYSE was $25.00. The following table sets forth the high and low
closing prices per share of the Company's Common Stock for the periods
indicated, as reported on the NYSE composite tape, and the distributions per
share paid by the Company with respect to the periods indicated.
<TABLE>
<CAPTION>
QUARTERLY PERIOD HIGH LOW DISTRIBUTIONS
--------------------------------------------------- --- --- -------------
<S> <C> <C> <C>
1996
First Quarter(1)................................. $14 1/4 $13 $0.30
Second Quarter................................... 15 1/8 13 1/2 0.30
Third Quarter.................................... 14 5/8 13 3/8 0.30
Fourth Quarter................................... 17 5/8 13 5/8 0.32
1997
First Quarter.................................... $20 1/2 $16 3/4 $0.32
Second Quarter................................... 25 1/4 19 3/8 0.32
Third Quarter.................................... 283/16 225/16 (2)
Fourth Quarter(3)................................ 28 1/2 25 (2)
</TABLE>
- ---------------
(1) Although the Consolidation occurred on December 31, 1995 and the Company
began paying distributions on its Common Stock based on earnings in the
first quarter of 1996, the Common Stock did not begin trading on the NYSE
until January 31, 1996.
(2) Distributions for the quarters ended September 30, 1997 and December 31,
1997 had not been declared as of October 20, 1997.
(3) High and low stock closing prices through October 20, 1997.
DISTRIBUTION POLICY
The Company currently intends to continue making regular quarterly
distributions on its Common Stock and to distribute amounts sufficient to
maintain its status as a REIT. Distributions are reviewed quarterly by the Board
of Directors and future distributions will depend upon factors deemed relevant
by the Board of Directors including operating performance, cash flow
requirements and other needs. Although the Company intends to continue to make
quarterly distributions to its stockholders, no assurance can be given as to the
amounts to be distributed in the future.
Although the Company believes that a small portion of its distributions for
1997 will be classified as a return of capital for federal income tax purposes,
it cannot currently predict the portion of 1997 or future distributions that may
be so classified. See "Federal Income Tax Consequences -- Taxation of
Stockholders -- Taxation of Taxable Domestic Stockholders" in the accompanying
Prospectus. No part of the 1996 distributions were classified as a return of
capital for federal income tax purposes.
S-20
<PAGE> 21
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of June 30, 1997, and on a pro forma basis as if (i) the acquisition of the
Copley Properties, Bryant Lake, the Rancon IV Portfolio, the Rancon V Portfolio,
the Prudential-Bache/Equitec Portfolio, the T. Rowe Price Properties, Citibank
Park, the Advance Properties and the Centerstone Property, (ii) the July 1997
Offering, (iii) certain debt financing transactions and (iv) the Offering and
the application of the net proceeds therefrom as described in "Use of Proceeds,"
had each been completed on June 30, 1997. This capitalization table should be
read in conjunction with all pro forma and historical financial statements and
notes thereto included in this Prospectus Supplement and the accompanying
Prospectus or incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Line of Credit(1)............................................ $ 36,118 $ --
Mortgage loans(2)............................................ 56,563 99,621
$60 Million Secured Loan..................................... -- 60,000
$114 Million Interim Unsecured Loan(3)....................... -- 64,908
$60 Million unsecured bridge loan(4)......................... 60,000 --
-------- --------
Total debt........................................... 152,681 224,529
-------- --------
MINORITY INTEREST(5)........................................... 15,652 36,378
-------- --------
STOCKHOLDERS' EQUITY:
Common stock: $0.001 par value, 50,000,000 shares authorized,
13,194,692 and 30,174,692 issued and outstanding,
respectively(6)........................................... 13 30
Additional paid-in capital................................... 172,621 558,681
Deferred compensation........................................ (304) (304)
Retained deficit............................................. (8,673) (8,384)
-------- --------
Total stockholders' equity........................... 163,657 550,023
-------- --------
TOTAL CAPITALIZATION........................................... $ 331,990 $ 810,930
======== ========
</TABLE>
- ---------------
(1) The pro forma balance reflects borrowings under the Line of Credit due to
property acquisitions completed after June 30, 1997 and a full repayment of
these borrowings with the use of proceeds from the July 1997 Offering and
the Offering.
(2) The pro forma balance reflects the assumption of mortgage loans in
connection with the acquisition of the Advance Properties, Bryant Lake, the
Rancon IV Portfolio and the Rancon V Portfolio.
(3) The pro forma balance reflects the $114 Million Interim Unsecured Loan and a
partial repayment of this loan with the use of proceeds from the Offering.
(4) The pro forma balance reflects the full repayment of a $60 million unsecured
bridge loan with the use of proceeds from the July 1997 Offering.
(5) The pro forma minority interest reflects the issuance of 935,719 units of
partnership interest in the Operating Partnership in connection with the
acquisitions of the Advance Properties, the Centerstone Property and
Citibank Park.
(6) The pro forma outstanding Common Stock includes the issuance of 6,980,000
shares of Common Stock in connection with the July 1997 Offering and
10,000,000 shares of Common Stock in connection with the Offering.
S-21
<PAGE> 22
THE PROPERTIES
The Company owns a diversified portfolio of 102 office, office/flex,
industrial, retail, multi-family and hotel Properties located in 22 states
throughout the country. In addition, the Associated Companies provide
comprehensive asset, partnership and property management services for a
diversified portfolio of 55 additional properties that are not owned by the
Company. The following table lists the Properties owned by the Company as of the
date of the Prospectus Supplement excluding the Pending Acquisitions and the 55
additional properties.
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
- --------------------------------- ------------------ ---- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
OFFICE
Tradewinds..................... Phoenix AZ 1986 17,778 91%
Vintage Pointe................. Phoenix AZ 1985 56,112 81
Warner......................... Fountain Valley CA 1977 32,272 92
Hillcrest...................... Fullerton CA 1974 34,623 88
Centerstone Plaza.............. Irvine CA 1988 155,021 98
University Tech Center......... Pomona CA 1986 100,516 85
Academy Center................. Rolling Hills CA 1974 29,185 83
Dallidet....................... San Luis Obispo CA 1993 23,051 85
Buschwood III.................. Tampa FL 1989 76,930 100
Westford Corporate Ctr......... Westford MA 1987 163,247 100
Montgomery Executive Center.... Gaithersburg MD 1982 118,348 90
Bond Street.................... Farmington Hills MI 1986 40,595 93
Riverview Tower................ Bloomington MN 1973 227,129 96
UCT............................ St. Louis MO 1974 272,443 94
Woodlands Plaza................ St. Louis MO 1993 71,209 95
One Professional............... Omaha NE 1980 34,906 88
Regency Westpointe............. Omaha NE 1981 35,937 94
Morristown Medical Offices..... Bedminster NJ 1990 14,255 100
Bridgewater Exec. Qtrs. I...... Bridgewater NJ 1995 65,000 100
Frontier Exec. Qtrs. I......... Bridgewater NJ 1986 224,314 100
Frontier Exec. Qtrs. II........ Bridgewater NJ 1987 41,880 100(2)
Gatehall I..................... Parsipanny NJ 1983 113,604 87
25 Independence................ Warren NJ 1989 106,879 100
Citibank Park.................. Las Vegas NV 1987 147,978 89
Post Oak Place................. Houston TX 1971 56,021 78
4500 Plaza..................... Salt Lake City UT 1983 70,001 97
700 South Washington........... Alexandria VA 1989 56,348 100
Globe.......................... Mercer Island WA 1979 24,779 94
--------------- ---
TOTAL OFFICE.............. 2,410,361 92%
============ ============
OFFICE/FLEX
Hoover Industrial.............. Mesa AZ 1985 57,441 100%
Magnolia Industrial............ Phoenix AZ 1984 35,385 100
Baseline Business Park......... Tempe AZ 1984 100,204 93
Kraemer Industrial Park........ Anaheim CA 1974 55,246 69
Dominguez Industrial........... Carson CA 1973 85,120 52
Sandhill Industrial Park....... Carson CA 1975 90,922 100
Chatsworth Industrial Park..... Chatsworth CA 1975 29,764 100
Glassell Industrial Center..... Orange CA 1976 46,912 70
Dunn Way Industrial............ Placentia CA 1968 59,832 71
Monroe Industrial.............. Placentia CA 1988 38,655 92
</TABLE>
S-22
<PAGE> 23
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
- --------------------------------- ------------------ ---- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Rancho Bernardo................ Rancho Bernardo CA 1982 52,865 83
Scripps Terrace................ San Diego CA 1986 56,796 90
Tierrasanta.................... San Diego CA 1985 104,234 62
San Dimas Industrial Center.... San Dimas CA 1980 35,996 41
Upland Industrial.............. Upland CA 1978 27,414 90
Valley Business Center......... Denver CO 1984 202,540 96
Newport Center................. Deerfield Beach FL 1984 60,661 98
Cypress Creek.................. Ft. Lauderdale FL 1982 66,372 91
Lake Point..................... Orlando FL 1985 135,032 92
The Business Park.............. Gwinett County GA 1984 155,125 97
Oakbrook Corners............... Norcross GA 1984 123,948 83
Park 100 -- Building 42........ Indianapolis IN 1980 37,200 81
Fisher-Pierce.................. Weymouth MA 1988 79,825 100
Germantown Business Center..... Germantown MD 1993 60,000 100
Winnetka Industrial Park....... Crystal MN 1982 188,260 100
Riverview Industrial Park...... St. Paul MN 1978 120,510 100
Woodlands Tech Center.......... St. Louis MO 1986 98,037 100
Fox Hollow Business Quarters
I........................... Branchburg NJ 1987 42,173 100
Fairfield Business Quarters.... Fairfield NJ 1978 42,762 100
Clark Avenue................... King of Prussia PA 1965 40,000 100
Walnut Creek................... Austin TX 1984 100,000 100
Kent Park...................... Kent WA 1981 138,157 100
--------------- ---
TOTAL OFFICE/FLEX......... 2,567,388 91%
============ ============
INDUSTRIAL
Fifth Street................... Phoenix AZ 1986 109,699 100%
Coronado....................... Anaheim CA 1975 95,732 100
Benicia Industrial Park........ Benicia CA 1980 156,800 100
Belshaw Industrial............. Carson CA 1973 23,826 100
Springdale..................... Santa Fe Springs CA 1985 144,000 100
Burnham........................ Boca Raton FL 1980 71,168 100
Airport Perimeter.............. College Park GA 1982 119,797 81
Atlantic....................... Gwinett County GA 1975 187,843 100
Bonnie Lane Industrial......... Elk Grove Village IL 1981 119,590 100
Navistar International Trans.
Corp........................ W. Chicago IL 1977 474,426 100
Glenn Avenue................... Wheeling IL 1981 82,000 100
Wood Dale...................... Wood Dale IL 1979 89,718 70
Park 100 -- Building 46........ Indianapolis IN 1981 102,400 100
Case Equipment Corp............ Kansas City KS 1975 199,750 100
Southworth-Milton.............. Milford MA 1989 146,125 100
Navistar International Trans.
Corp........................ Baltimore MD 1962 274,000 100
Eatontown Industrial........... Eatontown NJ 1988 36,800 100
Jencraft Industrial............ Totowa NJ 1967 120,943 100
Case Equipment Corp............ Memphis TN 1950 205,594 100
</TABLE>
S-23
<PAGE> 24
<TABLE>
<CAPTION>
OCCUPANCY
YEAR RENTABLE AS OF
PROPERTY CITY ST COMPLETED SQ. FT. JUNE 30, 1997(1)
- --------------------------------- ------------------ ---- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Pinewood....................... Arlington TX 1971 46,060 100
Mercantile..................... Dallas TX 1970 236,092 95
Quaker......................... Dallas TX 1974 42,083 100
SeaTac II...................... Seattle WA 1984 41,657 100
--------------- ---
TOTAL INDUSTRIAL.......... 3,126,103 98%
============ ============
RETAIL
Park Center.................... Santa Ana CA 1979 73,500 97%
Sonora Plaza................... Sonora CA 1974 162,126 99
Piedmont Plaza................. Apopka FL 1985 151,000 98
River Run...................... Miramar FL 1988 85,887 93
Westwood Plaza................. Tampa FL 1984 99,304 99
Shannon Crossing............... Atlanta GA 1981 64,039 96
Westbrook Commons.............. Westchester IL 1983 132,190 98
Goshen......................... Gaithersburg MD 1988 45,546 88
Auburn North................... Auburn WA 1978 158,596 71
--------------- ---
TOTAL RETAIL.............. 972,188 93%
============ ============
</TABLE>
<TABLE>
<CAPTION>
RENTABLE
SQ. FT. (UNITS)
---------------
<S> <C> <C> <C> <C> <C>
MULTI-FAMILY
Overlook Apartments............ Scottsdale AZ 1988 188,432(224) 93%
Summer Breeze.................. No. Hollywood CA 1981 73,284(104) 95
Sahara Gardens................. Las Vegas NV 1983 277,056(312) 95
Villas de Mission.............. Las Vegas NV 1979 192,370(226) 97
--------------- ---
TOTAL MULTI-FAMILY........ 731,142(866) 95%
============ ============
</TABLE>
<TABLE>
<CAPTION>
RENTABLE
SQ. FT. (ROOMS)
---------------
<S> <C> <C> <C> <C> <C>
HOTELS
Country Inn and Suites by
Carlson..................... Scottsdale AZ 1995 80,568(163) 68%
Country Suites by Carlson...... Tucson AZ 1986 61,552(157) 80
Country Suites by Carlson...... Ontario CA 1985 54,019(120) 76
Country Suites by Carlson...... Arlington TX 1986 56,200(132) 67
Country Suites by Carlson...... Irving TX 1986 45,032(90) 63
Country Inn by Carlson......... San Antonio TX 1997 29,330(64) 56
--------------- ---
TOTAL HOTELS.............. 326,701(726) 70%
============ ============
</TABLE>
- ---------------
(1) Represents economic occupancy. For multi-family and hotel Properties,
represents average economic occupancy for the 12 months ended June 30, 1997.
For multi-family properties acquired after June 30, 1996, average occupancy
rates were calculated based on post December 31, 1996 monthly occupancy
rates.
(2) This Property is (i) 69% leased to a single tenant that will assume
occupancy on January 1, 1998 pursuant to an existing signed lease, and (ii)
31% leased by the former owner of the Property for a period of two years.
S-24
<PAGE> 25
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data on a
historical, as adjusted and pro forma basis for the Company, and on a historical
combined basis for the GRT Predecessor Entities.
The following unaudited pro forma operating and other data for the six
months ended June 30, 1997, and for the year ended December 31, 1996 have been
prepared to reflect (i) all property acquisitions (including the debt assumed
and borrowings on the Line of Credit in connection therewith) completed in 1997,
as described under the caption "Recent Activities," and the Property
acquisitions completed in 1996, as described in footnote one of the Notes and
Adjustments to Pro Forma Consolidated Balance Sheet as of June 30, 1997, (ii)
the pending acquisitions of the Copley Properties, Bryant Lake, the Prudential-
Bache/Equitec Portfolio, the Rancon IV Portfolio and the Rancon V Portfolio
described under the caption "Recent Activities," (iii) the Offering, and the
application of the net proceeds therefrom as set forth in "Use of Proceeds," the
July 1997 Offering, the March 1997 Offering, and the October 1996 Offering, (iv)
the $60 Million Secured Loan and the $114 Million Interim Unsecured Loan as
described under the caption "Recent Activities" and the repayment of a $60
million unsecured bridge loan, a portion of the $114 Million Interim Secured
Loan and borrowings on the Line of Credit, (v) the sale of the two All American
Industrial Properties, the six Atlanta Auto Care Center properties and ten
QuikTrip properties, and use of sale proceeds for the repayment of mortgage debt
and the funding of certain property acquisitions, (vi) the collection on the
Hovpark mortgage loan receivable, and (vii) the sale of various properties held
by partnerships managed by the Associated Companies to the Company as described
under the caption "Recent Activities" and the sale of various properties held by
partnerships managed by the Associated Companies to third parties as if each of
such transactions had been completed on January 1, 1996. The unaudited pro forma
balance sheet data as of June 30, 1997 has been prepared to reflect (i) all
property acquisitions (including the debt assumed and borrowings on the Line of
Credit in connection therewith) completed in 1997, as described under the
caption "Recent Activities," (ii) the pending acquisitions of the Copley
Properties, Bryant Lake, the Prudential-Bache/Equitec Portfolio, the Rancon IV
Portfolio and the Rancon V Portfolio described under the caption "Recent
Activities," (iii) the Offering, and the application of the net proceeds
therefrom as set forth in "Use of Proceeds," (iv) the July 1997 Offering, (v)
the $60 Million Secured Loan and the $114 Million Interim Unsecured Loan as
described under the caption "Recent Activities" and the repayment of a $60
million unsecured bridge loan, a portion of the $114 Million Interim Unsecured
Loan and borrowings on the Line of Credit and (vi) the sale of one QuikTrip
property and the use of these sale proceeds as well as the proceeds from the
sale of the six Atlanta Auto Care Center properties and nine QuikTrip properties
sold in June 1997 for the repayment of mortgage debt and the funding of certain
property acquisitions as if such transactions had been completed on June 30,
1997. In the opinion of management, all adjustments necessary to reflect the
effects of the transactions have been made.
S-25
<PAGE> 26
The following unaudited as adjusted operating data, balance sheet data, and
other data have been prepared to reflect the Consolidation and related
transactions as if such transactions had occurred on January 1, 1994.
The pro forma selected financial and other data is unaudited and is not
necessarily indicative of the consolidated results which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or cash flows for future periods. The following
table should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and with all financial statements
and notes thereto included in this Prospectus Supplement and the accompanying
Prospectus or incorporated herein and therein by reference.
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------- --------------------------------------------------------
PRO PRO AS AS
FORMA HISTORICAL HISTORICAL FORMA HISTORICAL ADJUSTED HISTORICAL ADJUSTED
1997 1997 1996 1996 1996 1995 1995 1994
-------- ---------- ---------- -------- ---------- -------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental Revenue................ $ 61,371 $ 19,691 $ 7,039 $115,109 $ 17,943 $13,495 $ 15,454 $12,867
Fees and reimbursements....... 367 367 133 311 311 260 16,019 260
Interest and other income..... 563 1,835 691 822 1,401 982 2,698 1,109
Equity in earnings of
Associated Companies........ 403 603 969 796 1,598 1,691 -- 1,649
Total Revenues(1)............. 62,704 22,496 8,832 117,038 21,253 16,428 34,171 15,885
Property operating expenses... 19,828 6,045 1,909 39,103 5,266 4,084 8,576 3,673
General and administrative.... 2,678 1,374 675 4,301 1,393 983 15,947 954
Interest expense.............. 9,121 3,800 1,421 18,145 3,913 2,767 2,129 2,767
Depreciation and
Amortization................ 11,453 4,044 1,759 22,263 4,575 3,654 4,762 3,442
Income (loss) from operations
before minority interest and
extraordinary income........ 19,624 7,233 (4,169) 33,226 (1,131) 4,077 524 4,516
Net income (loss)(2).......... 18,478 6,604 (4,412) 31,284 (1,609) 3,796 524 (3,093)
Per share (3):
Net income (loss) before
extraordinary items....... $ 0.61 $ 0.55 $ (0.77) $ 1.03 $ (0.21) $ 0.66 -- $ 0.72
Net income (loss)........... 0.61 0.55 (0.77) 1.03 (0.24) 0.66 -- (0.54)
Distributions(4)............ 0.64 0.64 0.60 1.28 1.22 1.20 -- 1.20
BALANCE SHEET DATA:
Net investment in real
estate...................... $799,952 $ 315,837 -- -- $161,945 -- $ 77,574 --
Mortgage loans receivable,
net......................... 3,547 3,547 -- -- 9,905 -- 7,465 --
Total assets.................. 819,703 337,170 -- -- 185,520 -- 105,740 --
Total debt.................... 224,529 152,681 -- -- 75,891 -- 36,168 --
Stockholders' equity.......... 550,023 163,657 -- -- 97,600 -- 55,628 --
OTHER DATA:
EBIDA(5)...................... $ 40,198 $ 15,077 $ 6,248 $ 73,634 $ 14,273 $11,361 $ 9,291 $11,258
Cash flow provided by (used
for):
Operating activities........ 30,674 8,573 (448) 54,693 4,138 4,656 (10,608) 5,742
Investing activities........ 1,178 (124,080) (2,877) (636,417) (61,833) 3,263 8,656 1,710
Financing activities........ (20,548) 117,504 (5,326) 559,853 54,463 (7,933) (17,390) (6,408)
FFO(6)........................ 31,938 10,926 5,101 56,698 11,491 9,638 7,162 9,536
CAD(7), (8)................... 28,245 9,762 4,695 49,364 10,497 8,856 3,237 8,754
Debt to total market
capitalization(9)........... 21.9% 29.9 % -- -- 29.5% -- -- --
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
1994 1993 1992
---------- ---------- ----------
<S> <<C> <C> <C>
OPERATING DATA:
Rental Revenue................ $ 13,797 $ 13,546 $ 13,759
Fees and reimbursements....... 13,327 15,439 14,219
Interest and other income..... 3,557 3,239 3,150
Equity in earnings of
Associated Companies........ -- -- --
Total Revenues(1)............. 30,681 32,224 31,128
Property operating expenses... 6,782 7,553 8,692
General and administrative.... 13,454 14,321 13,496
Interest expense.............. 1,140 1,301 1,466
Depreciation and
Amortization................ 4,041 4,572 4,933
Income (loss) from operations
before minority interest and
extraordinary income........ 1,580 2,144 (2,139)
Net income (loss)(2).......... 1,580 4,418 (2,681)
Per share (3):
Net income (loss) before
extraordinary items....... -- -- --
Net income (loss)........... -- -- --
Distributions(4)............ -- -- --
BALANCE SHEET DATA:
Net investment in real
estate...................... $ 63,994 $ 70,245 $ 75,022
Mortgage loans receivable,
net......................... 19,953 18,825 18,967
Total assets.................. 117,321 102,635 108,168
Total debt.................... 17,906 12,172 15,350
Stockholders' equity.......... 80,558 85,841 87,172
OTHER DATA:
EBIDA(5)...................... $ 10,269 $ 10,326 $ 8,815
Cash flow provided by (used
for):
Operating activities........ 22,426 12,505 6,891
Investing activities........ (1,947) (2,002) (1,437)
Financing activities........ (2,745) (8,927) (9,476)
FFO(6)........................ 9,129 9,025 7,349
CAD(7), (8)................... 6,919 6,921 4,731
Debt to total market
capitalization(9)........... -- -- --
</TABLE>
S-26
<PAGE> 27
(1) Pro forma amounts exclude gains on the disposition of property which are
recognized on an historical basis. Certain revenues which are included in
the historical combined amounts for 1995 and prior are not included on an as
adjusted basis. These revenues are included in unconsolidated Associated
Companies, on an as adjusted basis, from which the Company receives lease
payments and dividend income.
(2) Historical 1996 and as adjusted 1994 net losses reflect $7,237 of
Consolidation and litigation costs incurred in connection with the
Consolidation. As adjusted 1994 data give effect to the Consolidation and
related transactions as if such transactions had occurred on January 1,
1994, whereas historical 1996 data reflect such transactions in the periods
they were expensed. The Consolidation and litigation costs were expensed on
January 1, 1996, the Company's first day of operations. Net loss in 1992
includes a non-recurring writedown of $4,282 on GPI's investment in the
master agreement that resulted from GPI's in-substance foreclosure on the
AFP Partners' properties.
(3) Pro forma net income per share is based upon pro forma weighted average
shares outstanding of 30,456,714 for the six months ended June 30, 1997 and
the year ended December 31, 1996. As adjusted net income per share is based
upon as adjusted weighted average shares outstanding of 5,753,709 for 1995
and 1994. The differences between primary and fully diluted per share
amounts, as well as the effects of implementing Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" are not material to
reported amounts.
(4) Consists of distributions declared for the period then ended.
(5) EBIDA represents and is computed as earnings before interest expense,
depreciation, amortization, loss provisions and minority interests. The
Company believes that in addition to cash flows and net income, EBIDA is a
useful financial performance measurement for assessing the operating
performance of an equity REIT because, together with net income and cash
flows, EBIDA provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. To evaluate EBIDA and the trends it depicts, the
components of EBIDA, such as rental revenues, rental expenses, real estate
taxes and general and administrative expenses, should be considered.
Excluded from EBIDA are financing costs such as interest as well as
depreciation and amortization, each of which can significantly affect a
REIT's results of operations and liquidity and should be considered in
evaluating a REIT's operating performance. Further, EBIDA does not represent
net income or cash flows from operating, financing and investing activities
as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows will be sufficient to fund cash needs.
It should not be considered as an alternative to net income as an indicator
of the Company's operating performance or to cash flows as a measure of
liquidity.
(6) Funds from Operations ("FFO") represents income (loss) from operations
before minority interests and extraordinary items plus depreciation and
amortization except amortization of deferred financing costs and loss
provisions. In 1996, Consolidation and litigation costs were also added back
to net income to determine FFO. 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.
(7) 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.
(8) CAD for the year ended December 31, 1995 excludes approximately $6,782 that
represents the net proceeds received from the prepayment of the Finley
mortgage loan and the repayment of the wrap note payable.
(9) Debt to total market capitalization is calculated as total debt at period
end divided by total debt plus the market value of the Company's outstanding
common stock, on a fully converted basis, based upon a sales price of the
Company's Common Stock of $25.00 per share on a pro forma basis on June 30,
1997 and the closing price of the Common Stock of $25.25 on June 30, 1997
and $17.625 on December 31, 1996 on an historical basis.
S-27
<PAGE> 28
PRO FORMA FINANCIAL INFORMATION
The following unaudited, pro forma consolidated balance sheet as of June
30, 1997 has been prepared to reflect (i) all property acquisitions (including
the debt assumed and borrowings on the Line of Credit in connection therewith)
completed in 1997, as described under the caption "Recent Activities," (ii) the
pending acquisitions of the Copley Properties, Bryant Lake, the
Prudential-Bache/Equitec Portfolio (the "Pru-Bache Portfolio"), the Rancon IV
Portfolio and the Rancon V Portfolio (collectively, the "Rancon IV and V
Portfolios") described under the caption "Recent Activities," (iii) the
Offering, and the application of the net proceeds therefrom as set forth in "Use
of Proceeds," (iv) the July 1997 Offering, (v) the $60 Million Secured Loan and
the $114 Million Interim Unsecured Loan as described under the caption "Recent
Activities" and the repayment of a $60 million unsecured bridge loan, a portion
of the $114 Million Interim Unsecured Loan and borrowings on the Line of Credit
and (vi) the sale of one QuikTrip property and the use of these sale proceeds as
well as the proceeds from the sale of the six Atlanta Auto Care Center
properties and nine QuikTrip properties sold in June 1997 for the repayment of
mortgage debt and the funding of certain property acquisitions as if such
transactions had been completed on June 30, 1997. The following unaudited, pro
forma consolidated statements of operations for the six months ended June 30,
1997, and for the year ended December 31, 1996, have been prepared to reflect
(i) all property acquisitions (including the debt assumed and borrowings on the
Line of Credit in connection therewith) completed in 1997, as described under
the caption "Recent Activities," and the Property acquisitions completed in
1996, as described in footnote one of the Notes and Adjustments to Pro Forma
Consolidated Balance Sheet as of June 30, 1997, (ii) the pending acquisitions of
the Copley Properties, the Bryant Lake Property, the Pru-Bache Portfolio and the
Rancon IV and V Portfolios described under the caption "Recent Activities,"
(iii) the Offering, and the application of the net proceeds therefrom as set
forth in "Use of Proceeds," the July 1997 Offering, the March 1997 Offering, and
the October 1996 Offering, (iv) the $60 Million Secured Loan and the $114
Million Interim Unsecured Loan as described under the caption "Recent
Activities" and the repayment of a $60 million unsecured bridge loan, a portion
of the $114 Million Interim Secured Loan and borrowings on the Line of Credit,
(v) the sale of the two All American Industrial Properties, the six Atlanta Auto
Care Center properties and ten QuikTrip properties, and use of sale proceeds for
the repayment of mortgage debt and the funding of certain property acquisitions,
(vi) the collection on the Hovpark mortgage loan receivable, and (vii) the sale
of various properties held by the partnerships managed by the Associated
Companies to the Company as described under the caption "Recent Activities" and
the sale of various properties held by the partnerships managed by the
Associated Companies to third parties as if each of such transactions had been
completed on January 1, 1996. These unaudited, pro forma consolidated financial
statements should be read in conjunction with the financial statements and
related notes of the Company, included in the Company's filings under the
Exchange Act, which are incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus. In the opinion of management, all adjustments
necessary to reflect the effects of the transactions have been made.
The pro forma consolidated financial information is unaudited and is not
necessarily indicative of the results of which would have occurred if the
transactions had been consummated in the periods presented, or on any particular
date in the future, nor does it purport to represent the financial position,
results of operations, or cash flows for future periods.
S-28
<PAGE> 29
GLENBOROUGH REALTY TRUST INCORPORATED
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPLETED PENDING REPAYMENT OF OTHER
HISTORICAL(1) TRANSACTIONS(2) ACQUISITIONS(3) OFFERING(4) DEBT(5) ADJUSTMENTS(6) PRO FORMA
------------- --------------- -------------- ----------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Rental property,
net.............. $ 286,553 $ 303,500 $ 210,700 $ -- $ -- $ (801) $799,952
Investments in
Associated
Companies........ 6,775 -- -- -- -- -- 6,775
Mortgage loans
receivable,
net.............. 3,547 -- -- -- -- -- 3,547
Cash and cash
equivalents...... 32,636 (32,636) (173,697) 236,650 (63,043) 1,090 1,000
Other Assets....... 7,659 770 -- -- -- -- 8,429
-------- -------- ------- -------- -------- ---- --------
Total
Assets..... $ 337,170 $ 271,634 $ 37,003 $ 236,650 $ (63,043) $ 289 $819,703
======== ======== ======= ======== ======== ==== ========
LIABILITIES
Line of Credit..... $ 36,118 $ (22,167) $ -- $ -- $ (13,951) $ -- $ --
Mortgage loans..... 56,563 7,438 35,620 -- -- -- 99,621
Secured Loan....... -- 60,000 -- -- -- -- 60,000
Interim Unsecured
Loan............. -- 114,000 -- -- (49,092) -- 64,908
Unsecured bridge
loan............. 60,000 (60,000) -- -- -- -- --
Other
liabilities...... 5,180 2,210 1,383 -- -- -- 8,773
-------- -------- ------- -------- -------- ---- --------
Total
Liabilities... 157,861 101,481 37,003 -- (63,043) -- 233,302
-------- -------- ------- -------- -------- ---- --------
MINORITY INTEREST.... 15,652 20,726 -- -- -- -- 36,378
-------- -------- ------- -------- -------- ---- --------
STOCKHOLDERS' EQUITY
Common stock....... $ 13 $ 7 $ -- $ 10 $ -- $ -- $ 30
Additional paid-in
capital.......... 172,621 149,420 -- 236,640 -- -- 558,681
Deferred
compensation..... (304) -- -- -- -- -- (304)
Retained earnings
(deficit)........ (8,673) -- -- -- -- 289 (8,384)
-------- -------- ------- -------- -------- ---- --------
Total
Equity..... 163,657 149,427 -- 236,650 -- 289 550,023
-------- -------- ------- -------- -------- ---- --------
Total
liabilities
and
Stockholders'
Equity..... $ 337,170 $ 271,634 $ 37,003 $ 236,650 $ (63,043) $ 289 $819,703
======== ======== ======= ======== ======== ==== ========
</TABLE>
S-29
<PAGE> 30
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
1. Reflects the historical consolidated balance sheet of the Company as of June
30, 1997, which includes the acquisitions of the following properties and
property portfolios:
<TABLE>
<CAPTION>
PURCHASE PRICE
PROPERTY (IN 000'S) DATE ACQUIRED
----------------------------------------------- -------------- -------------------
<S> <C> <C>
CRI Properties................................. $ 14,800 June 18, 1997
CIGNA Properties............................... 45,400 April 29, 1997
E&L Properties................................. 22,200 April 18, 1997
Riverview Property............................. 20,500 April 14, 1997
Lennar Properties.............................. 23,200 April 8, 1997
Scottsdale Hotel............................... 12,100 February 28, 1997
Carlsberg Properties........................... 23,200 November 19, 1996
TRP Properties................................. 43,800 October 17, 1996
Bond Street Property........................... 3,200 September 24, 1996
Kash n' Karry Property......................... 1,600 August 2, 1996
San Antonio Hotel.............................. 2,800 August 1, 1996
UCT Property................................... 18,800 July 15, 1996
</TABLE>
CRI Properties. In June 1997, the Company acquired from Carlsberg Realty Inc.
the CRI Properties, a portfolio of three Properties, aggregating
approximately 245,600 square feet. The total acquisition cost, including
capitalized costs, was approximately $14.8 million, which was paid entirely
in cash. The CRI Properties consist of one office Property in California, and
one office/flex Property and one industrial Property in Arizona. The CRI
Properties have been managed by GC since November 1996.
CIGNA Properties. In April 1997, the Company acquired from two partnerships
formed and managed by affiliates of CIGNA the CIGNA Properties, a portfolio
of six Properties, aggregating approximately 616,000 square feet and 224
multi-family units. The total acquisition cost, including capitalized costs,
was approximately $45.4 million, which was paid entirely in cash. The CIGNA
Properties consist of two office Properties, two office/flex Properties, a
shopping center and a multi-family Property, and are located in four states.
E&L Properties. In April 1997, the Company acquired from seven partnerships
and their general partner, a Southern California syndicator the E&L
Properties, a portfolio of 11 Properties, aggregating approximately 523,000
square feet, together with associated management interests. 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) approximately $6.7 million in the form of 352,197 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 33,198
shares of Common Stock of the Company (based on an agreed per share value of
$19.075), and (iv) the balance in cash. The E&L Properties consist of one
office Property, nine office/flex Properties and one industrial Property, all
located in Southern California.
Riverview Property. In April 1997, the Company acquired from a private seller
the Riverview Property, a 15-story office property containing 227,129 square
feet located in Bloomington, Minnesota. The total acquisition cost, including
capitalized costs, was approximately $20.5 million, which was paid entirely
in cash.
S-30
<PAGE> 31
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997
(UNAUDITED)
Lennar Properties. In April 1997, the Company acquired from two limited
partnerships and one limited liability company managed by affiliates of
Lennar Partners the Lennar Properties, a portfolio of three Properties,
aggregating approximately 282,000 square feet. The total acquisition cost,
including capitalized costs, was approximately $23.2 million, which was paid
entirely in cash. The Lennar Properties consist of one office Property
located in Virginia and one office/flex Property and one industrial Property,
each located in Massachusetts.
Scottsdale Hotel. In February 1997, the Company acquired the Scottsdale
Hotel, a 163-suite hotel Property, 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 Scottsdale Hotel and four of the Company's other hotel Properties are
marketed as Country Suites by Carlson.
Carlsberg Properties. In November 1996, the Company acquired a portfolio of
six Properties (including one property on which the Company made a mortgage
loan which included a purchase option), aggregating approximately 342,000
square feet, together with associated management interests (the "Carlsberg
Properties"). The total acquisition cost including the mortgage loan and
capitalized costs, was approximately $23.2 million, which consisted of (i)
approximately $8.9 million of mortgage debt assumed, (ii) approximately
$350,000 in the form of 24,844 shares of Common Stock of the Company (based
on a per share value of $14.09) and (iii) the balance in cash. The Carlsberg
Properties consist of five office Properties and one retail Property, located
in two states. Concurrently with the Company's acquisition of the Carlsberg
Properties, one of the Associated Companies assumed management of a portfolio
of 13 additional properties with an aggregate of one million square feet
under a venture with an affiliate of the seller. In June 1997, the Company
acquired three of these properties, the CRI Properties, for an aggregate
purchase price of $14.8 million.
TRP Properties. In October 1996, the Company acquired a portfolio of 12
Properties, aggregating approximately 784,000 square feet and 538
multi-family units, together with associated management interests (the "TRP
Properties"). The total acquisition cost, including capitalized costs, was
approximately $43.8 million, which consisted of (i) approximately $16.3
million of mortgage debt assumed, (ii) approximately $760,000 in the form of
52,387 partnership units in the Operating Partnership (based on a per unit
value of $14.50), (iii) approximately $2.6 million in the form of 182,000
shares of Common Stock of the Company (based on a per share value of $14.50)
and (iv) the balance in cash. The TRP Properties consist of three office,
three office/flex, three industrial, one retail and two multi-family
Properties, located in six states.
Bond Street Property. In September 1996, the Company acquired a two-story,
40,595 square foot office building, in Farmington Hills, Michigan (the "Bond
Street Property"). The total acquisition cost, including capitalized costs,
was approximately $3.2 million, which consisted of approximately $391,000 in
the form of 26,067 partnership units in the Operating Partnership (based on a
per unit value of $15.00), and the balance paid in cash.
Kash n' Karry Property. In August 1996, the Company also expanded an existing
shopping center in Tampa, Florida (the "Kash n' Karry Property") through a
purchase-leaseback transaction with the anchor tenant. The Company's initial
acquisition cost, including capitalized costs, was approximately $1.6
million, all of which was paid in cash. In addition, the Company committed an
additional $1.8 million for future expansion and tenant improvements, which
the Company expects will also be paid in cash.
S-31
<PAGE> 32
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997
(UNAUDITED)
San Antonio Hotel. In August 1996, the Company acquired a 64-room hotel
Property (the "San Antonio Hotel"), which is located in San Antonio, Texas.
The total acquisition cost, including capitalized costs, was approximately
$2.8 million, which was paid in cash.
UCT Property. In July 1996, the Company acquired a 23-story, 272,443 square
foot office building, in St. Louis, Missouri (the "UCT Property"). The total
acquisition cost, including capitalized costs, was approximately $18.8
million, which consisted of approximately $350,000 in the form of 23,333
partnership units in the Operating Partnership (based on a per unit value of
$15.00), and the balance paid in cash.
Also reflects the sale of the six Atlanta Auto Care Center Properties and
nine of the ten QuikTrip Properties in June 1997 for an aggregate sales price
of approximately $12.0 million. The remaining QuikTrip Property was sold in
October 1997 for a sale price of approximately $1.1 million.
Also reflects as cash approximately $29.3 million held in escrow for certain
purchase and sale transactions occurring on or about June 30, 1997 which were
classified as "rental property, net" in the historical balance sheet as of
June 30, 1997.
2. Reflects the completed acquisitions of the following properties and property
portfolios:
<TABLE>
<CAPTION>
PURCHASE PRICE
(IN 000'S) DATE ACQUIRED
-------------- -------------------
<S> <C> <C>
Citibank Park Property......................... $ 23,300 September 30, 1997
Advance Properties............................. 103,000 September 12, 1997
T. Rowe Price Properties....................... 146,800 September 12, 1997
Centerstone Property........................... 30,400 July 1, 1997
</TABLE>
Citibank Park. In September 1997, the Company acquired Citibank Park, a
147,978 square-foot office building in Las Vegas, Nevada. The total
acquisition cost, including capitalized costs, was approximately $23.3
million, which consisted of (i) approximately $1.66 million in the form of
61,211 partnership units in the Operating Partnership (based on an agreed per
unit value of $27.156), and (ii) the balance in cash.
Advance Properties. In September 1997, the Company acquired from a group of
partnerships affiliated with The Advance Group, the Advance Properties, a
portfolio of 10 Properties aggregating 755,006 square feet. The total
acquisition cost, including capitalized costs, was approximately $103.0
million, which consisted of (i) approximately $13.6 million in the form of
599,508 partnership units in the Operating Partnership (based on an agreed
per unit value of $22.625), (ii) approximately $7.4 million in assumption of
debt, and (iii) the balance in cash. The Advance Properties consist of five
office Properties and three office/flex Properties located in northern New
Jersey and Maryland and two industrial Properties located in northern New
Jersey. Concurrent with this acquisition, the Company entered into a joint
venture with The Advance Group for the development of new projects in the New
Jersey market. This joint venture owns 57 acres of land suitable for office
and office/flex development of up to 560,000 square feet.
T. Rowe Price Properties. In September 1997, the Company acquired from five
limited partnerships, two general partnerships and one private REIT the T.
Rowe Price Properties, a portfolio of 27 properties aggregating approximately
2,888,000 square feet. The total acquisition cost, including capitalized
costs, was approximately $146.8 million, which was paid entirely in cash. The
T. Rowe Price Properties consist of four office properties, 12 office/flex
Properties, eight industrial Properties and three retail Properties located
in 12 states.
Centerstone Property. In July 1997, the Company acquired the Centerstone
Property, an office Property containing 155,021 square feet located in
Irvine, California. The total acquisition cost, including
S-32
<PAGE> 33
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997
(UNAUDITED)
capitalized costs, was approximately $30.4 million, which consisted of (i)
approximately $5.5 million in the form of 275,000 partnership units in the
Operating Partnership (based on an agreed per unit value of $20.00), and (ii)
the balance in cash.
These acquisitions were funded with approximately $53.3 million of cash,
assumption of approximately $7.4 million of mortgage debt, the proceeds of
the $60 Million Secured Loan, the proceeds of the $114 Million Interim
Unsecured Loan, approximately $48.1 million of borrowings under the Line of
Credit, the issuance of 275,000 Operating Partnership units with an aggregate
approximate value of $5.5 million (based on $20.00 per unit value), the
issuance of 599,508 Operating Partnership units with an aggregate approximate
value of $13.6 million (based on $22.625 per unit value) and the issuance of
61,211 Operating Partnership units with an aggregate approximate value of
$1.6 million (based on $27.156 per unit value). The assumed mortgages bear
interest at rates of 8.13% to 8.87% and mature between 2005 and 2007. The
Line of Credit bears interest at LIBOR plus 2.375% (assumed to be 7.80%).
Subsequent to December 31, 1996, this interest rate was reduced to LIBOR plus
1.75% (assumed to be 7.30%). See Footnote 4 in Notes and Adjustments to Pro
Forma Consolidated Statements of Operations for further discussion on the
Line of Credit.
The $60 Million Secured Loan has a 10-year term, and bears interest at a
fixed annual rate of 7.50%. The $114 Million Interim Unsecured Loan has a
90-day term with two 90-day extension options and bears interest at a fixed
annual rate of 7.50%. In connection with obtaining the $60 Million Secured
Loan, the Company paid fees of $770,000 which are shown as a reduction of
cash and an increase in other assets.
Tenant security deposits of approximately $2.2 million related to these
acquisitions are reflected as cash and other liabilities.
Also reflects $149.3 million of net proceeds from the July 1997 Offering and
the repayment of a $60 million unsecured bridge loan and approximately $70.3
million of borrowings on the Line of Credit.
3. Reflects the pending acquisitions of the following properties and property
portfolios:
<TABLE>
<CAPTION>
PURCHASE
PRICE
(IN 000'S)
----------
<S> <C>
Copley Properties..................................... $ 63,300
Bryant Lake Property.................................. 9,400
Rancon IV Portfolio................................... 49,000
Rancon V Portfolio.................................... 45,500
Pru-Bache Properties.................................. 43,500
</TABLE>
Copley Properties. The Company has entered into a definitive agreement to
acquire the Copley Properties. The total acquisition cost, including
capitalized costs, is expected to be approximately $63.3 million, which is to
be paid entirely in cash. The Copley Properties comprise 766,269 square feet
of industrial space, with one property located in Tempe, Arizona, one in
Anaheim, California, one in Columbia, Maryland and five in Las Vegas, Nevada.
The Company anticipates the acquisition of the Copley Properties will be
completed in late October 1997. The acquisition is subject to certain closing
conditions, and, thus, there can be no assurance that this acquisition will
ultimately be completed.
Bryant Lake. The Company has entered into a definitive agreement to acquire
Bryant Lake, a 171,789 square-foot office/flex building in Eden Prairie,
Minnesota, from Outlook Income Fund 9, a limited partnership in which GC is
managing general partner. Robert Batinovich, the Company's Chairman and
S-33
<PAGE> 34
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997
(UNAUDITED)
Chief Executive Officer, is co-general partner of Outlook Income Fund 9 and
holds an indirect economic interest therein equal to an approximate 0.83%
limited partnership interest. Because of this affiliation, and consistent
with the Company's Board of Directors' policy, neither Robert Batinovich nor
Andrew Batinovich, the Company's President and Chief Operating Officer, voted
when the Board of Directors considered and acted to approve this acquisition.
The price to be paid for Bryant Lake is equal to 100% of the appraised value
as determined by an independent appraiser. The sale of Bryant Lake to the
Company has been approved by the limited partners of Outlook Income Fund 9.
The total acquisition cost, including capitalized costs, is expected to be
approximately $9.4 million, comprising approximately $4.6 million in the form
of cash and the balance in the form of assumption of debt.
Rancon IV Portfolio. The Company entered into a definitive agreement to
acquire the Rancon IV Portfolio. The total acquisition cost, including
capitalized costs, is expected to be approximately $49.0 million, comprising
approximately $32.0 million in the form of cash and the balance in the form
of assumption of debt. The Rancon IV Portfolio comprises three office
properties aggregating 223,938 square feet; one office/flex property
containing 62,605 square feet; four retail properties aggregating 135,554
square feet; one multi-family property with 240 units containing 214,400
square feet; and approximately 74 acres of undeveloped land. All of the
office and retail properties, and approximately 26 acres of the undeveloped
land, are located within the Tri-City mixed use complex in San Bernardino,
California. The multi-family complex is located in Vista (San Diego County),
California, and the remaining approximately 48 acres of undeveloped land are
located in three separate sites in the Inland Empire region of Southern
California. Robert Batinovich holds an indirect economic interest in Rancon
Fund IV equal to an approximate 0.54% limited partnership interest. Because
of this interest, and consistent with the Company's Board of Directors'
policy, neither Robert Batinovich nor Andrew Batinovich voted when the Board
of Directors considered and acted to approve this acquisition. This
acquisition is subject to approval by a majority vote of the limited partners
of Rancon Realty Fund IV, which has filed with the Securities and Exchange
Commission, a preliminary proxy statement to solicit such approval. As a
result, there can be no assurance that this transaction will be completed.
Rancon V Portfolio. The Company entered into a definitive agreement to
acquire the Rancon V Portfolio. The total acquisition cost, including
capitalized costs, is expected to be $45.5 million, comprising approximately
$31.8 million in the form of cash and the balance in the form of assumption
of debt. The Rancon V Portfolio comprises five office properties aggregating
390,785 square feet; one office/flex property containing 50,804 square feet;
one industrial property with an area of approximately 245,000 square feet;
two retail properties aggregating 31,500 square feet; and approximately 139
acres of undeveloped land. All of the office and retail properties, and
approximately 14 acres of the undeveloped land, are located within the
Tri-City mixed use complex in San Bernardino, California. The industrial
property is located in Ontario, California, and the remaining approximately
125 acres of undeveloped land are located in three separate sites in the
Inland Empire region of Southern California. Robert Batinovich holds an
indirect economic interest in Rancon Realty Fund V equal to an approximate
0.7% limited partnership interest. Because of this interest, and consistent
with the Company's Board of Directors' policy, neither Robert Batinovich nor
Andrew Batinovich voted when the Board of Directors considered and acted to
approve this acquisition. This acquisition is subject to approval by a
majority vote of the limited partners of Rancon Realty Fund V, which has
filed with the Securities and Exchange Commission, a preliminary proxy
statement to solicit such approval. As a result, there can be no assurance
that this transaction will be completed.
Prudential-Bache/Equitec Portfolio. The Company has entered into a definitive
agreement to acquire the Prudential-Bache/Equitec Portfolio. The total
acquisition cost, including capitalized costs, is expected to
S-34
<PAGE> 35
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997
(UNAUDITED)
be approximately $43.5 million, which is to be paid entirely in cash. The
Prudential-Bache/Equitec Portfolio comprises four office buildings
aggregating 405,825 square feet and one office/flex property containing
121,645 square feet. The largest of these properties are in Rockville,
Maryland (186,680 square feet) and Memphis, Tennessee (100,901 square feet),
with the remaining properties located in Sacramento, California and Kirkland,
Washington. This acquisition is subject to approval by a majority vote of the
limited partners of Prudential-Bache/Equitec Real Estate Limited Partnership,
and thus there can be no assurance that this transaction will be completed.
These acquisitions are expected to be funded with approximately $173.7
million of the net proceeds from the Offering (net of tenant security
deposits of approximately $1.4 million related to these acquisitions which
are reflected as an increase in cash and other liabilities), and assumption
of approximately $35.6 million of mortgage debt. These assumed mortgages bear
interest at rates of 7.95% to 9.39% per annum and mature between 1998 and
2006.
4. Reflects the net proceeds from the Offering of 10,000,000 shares of the
Company's Common Stock at a price of $25.00 per share. In connection with the
Offering, the Company is expected to incur costs of approximately $13.4
million.
5. Reflects the repayment of approximately $49.1 million of the $114 Million
Interim Unsecured Loan and the remaining borrowings on the Line of Credit
totalling $14.0 million using proceeds from the Offering.
6. Reflects the sale of one of the ten QuikTrip Properties which had a net book
value of approximately $801,000 at June 30, 1997. The net proceeds from the
sale of this property was approximately $1.1 million resulting in a gain on
sale of approximately $289,000. The sale of the six Atlanta Auto Care Center
Properties and the other nine QuikTrip Properties is reflected in the
historical balances as of June 30, 1997.
S-35
<PAGE> 36
GLENBOROUGH REALTY TRUST INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED PENDING DEBT OTHER
HISTORICAL(1) ACQUISITIONS(2) ACQUISITIONS(3) TRANSACTIONS(4) ADJUSTMENTS(5) PRO FORMA
------------- --------------- --------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenue............. $ 19,691 $28,055 $14,473 $ -- $ (848) $ 61,371
Equity in earnings of
Associated Companies.... 603 -- -- -- (200) 403
Fees, interest and other
income.................. 980 -- -- -- (50) 930
------------ ------- ------- -------- -------- -----------
Total Revenue...... 21,274 28,055 14,473 -- (1,098) 62,704
------------ ------- ------- -------- -------- -----------
OPERATING EXPENSES
Operating expenses......... 6,045 8,505 5,354 -- (76) 19,828
General and
administrative.......... 1,374 -- -- -- 1,304 2,678
Depreciation and
amortization............ 4,044 4,789 2,810 -- (190) 11,453
Interest expense........... 3,800 8,753 1,554 (4,735) (251) 9,121
------------ ------- ------- -------- -------- -----------
Total operating
expenses......... 15,263 22,047 9,718 (4,735) 787 43,080
------------ ------- ------- -------- -------- -----------
Income from operations before
minority interest.......... 6,011 6,008 4,755 4,735 (1,885) 19,624
Minority interest............ (629) -- -- -- (517) (1,146)
------------ ------- ------- -------- -------- -----------
Net income(6)................ $ 5,382 $ 6,008 $ 4,755 $ 4,735 $ (2,402) $ 18,478
============ ======= ======= ======== ======== ===========
Primary net income per common
share(7)................... $ 0.45 $ 0.61
============ ===========
Primary weighted average
common shares
outstanding(7)............. 11,852,810 30,456,714
============ ===========
Fully diluted net income per
common share(7)............ $ 0.45 $ 0.61
============ ===========
Fully diluted weighted
average
common shares
outstanding(7)............. 11,995,306 32,388,750
============ ===========
</TABLE>
S-36
<PAGE> 37
GLENBOROUGH REALTY TRUST INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED PENDING DEBT OTHER
HISTORICAL(1) ACQUISITIONS(2) ACQUISITIONS(3) TRANSACTIONS(4) ADJUSTMENTS(5) PRO FORMA
------------- --------------- --------------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenue.............. $ 17,943 $72,392 $26,694 $ -- $ (1,920) $ 115,109
Equity in earnings of
Associated Companies..... 1,598 -- -- -- (802) 796
Fees, interest and other
income................... 1,391 -- -- -- (258) 1,133
--------- ------- ------ ------- ------- ----------
Total Revenue....... 20,932 72,392 26,694 -- (2,980) 117,038
--------- ------- ------ ------- ------- ----------
OPERATING EXPENSES
Operating expenses.......... 5,266 23,357 10,755 -- (275) 39,103
General and
administrative........... 1,393 -- -- -- 2,908 4,301
Depreciation and
amortization............. 4,575 12,497 5,619 -- (428) 22,263
Interest expense............ 3,913 19,832 3,112 (8,178) (534) 18,145
--------- ------- ------ ------- ------- ----------
Total operating
expenses.......... 15,147 55,686 19,486 (8,178) 1,671 83,812
Income from operations before
minority interest........... 5,785 16,706 7,208 8,178 (4,651) 33,226
Minority interest............. (292) -- -- -- (1,650) (1,942)
--------- ------- ------ ------- ------- ----------
Net income(6)................. $ 5,493 $16,706 $ 7,208 $ 8,178 $ (6,301) $ 31,284
========= ======= ====== ======= ======= ==========
Primary net income per common
share(7).................... $ 0.83 $ 1.03
========= ==========
Primary weighted average
common shares
outstanding(7).............. 6,632,707 30,456,714
========= ==========
Fully diluted net income per
common share(7)............. $ 1.03
==========
Fully diluted weighted average
common shares
outstanding(7).............. 32,388,750
==========
</TABLE>
S-37
<PAGE> 38
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
1. Reflects the historical consolidated operations of the Company for the six
months ended June 30, 1997, excluding the gains on the sale of property and
the collection of a mortgage loan receivable totaling $1,222, and reflects
the historical consolidated operations of the Company for the year ended
December 31, 1996, excluding the gain on the sale of property of $321, an
extraordinary loss on refinancing of debt of $186, Consolidation costs of
$6,082 and litigation costs of $1,155. Consolidation and litigation costs
all related to the formation of the Company and are non-recurring.
2. Reflects the historical operations of Citibank Park, the Advance Properties
and the T. Rowe Price Properties (collectively the "Recent 1997
Acquisitions") for the six months ended June 30, 1997, as well as the
historical operations of the Centerstone Property, CRI Properties, CIGNA
Properties, E&L Properties, Riverview Property, Lennar Properties and the
Scottsdale Hotel (collectively, the "Prior 1997 Acquisitions") for the six
months ended June 30, 1997 or portion of 1997 prior to acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
(OR PORTION OF 1997 PRIOR TO ACQUISITION)
------------------------------------------------------
CITIBANK T. ROWE PRIOR 1997 COMBINED
PARK ADVANCE PRICE ACQUISITIONS TOTAL
-------- ------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues........................... $1,345 $6,766 $11,183 $ 8,761 $28,055
Operating expenses................. (276) (1,922) (3,612) (2,695) (8,505)
------ ------- ------- ------ -------
$1,069 $4,844 $7,571 $ 6,066 $19,550
====== ======= ======= ====== =======
</TABLE>
Reflects the historical operations of the Recent 1997 Acquisitions and the
Prior 1997 Acquisitions for the year ended December 31, 1996 and the
historical operations of the Carlsberg Properties, TRP Properties, Bond
Street Property, Kash n' Karry Property, San Antonio Hotel and UCT Property
(collectively, the "1996 Acquisitions") for the portion of 1996 prior to
acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
(OR PORTION OF 1996 PRIOR TO ACQUISITION)
---------------------------------------------------------------------
CITIBANK T. ROWE PRIOR 1997 1996 COMBINED
PARK ADVANCE PRICE ACQUISITIONS ACQUISITIONS TOTAL
-------- ------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $2,586 $12,353 $20,997 $ 24,513 $ 11,943 $72,392
Operating expenses..... (643) (3,897) (7,223) (7,270) (4,324) (23,357)
------ ------- ------- ------- ------- -------
$1,943 $8,456 $13,774 $ 17,243 $ 7,619 $49,035
====== ======= ======= ======= ======= =======
</TABLE>
Certain of the T. Rowe Price Properties' operating results reflect the year
ended September 30, 1996 rather than December 31, 1996. These have been
combined as if the year ends of all properties were the same. In the opinion
of management, the operations of these properties is not seasonal.
Also, reflects estimated annual depreciation and amortization, based upon
estimated useful lives of 30-40 years on a straight-line basis.
Also, reflects the estimated interest on the pro forma mortgage debt assumed
in connection with the acquisition of the Advance Properties, E&L Properties,
Scottsdale Hotel, TRP Properties and the Carlsberg Properties; the $60
Million Secured Loan, the $114 million Interim Unsecured Loan and the pro
forma advances under the Line of Credit in connection with the various 1997
and 1996 property acquisitions. The mortgage loans bear interest at rates
ranging from 7.34% to 9.25% per annum. The $60 Million Secured Loan and the
$114 Million Interim Unsecured Loan bear interest at a fixed annual rate of
7.50%. The Line of Credit bears interest at LIBOR plus 2.375% (assumed to be
7.80%) for the year
S-38
<PAGE> 39
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
ended December 31, 1996 and LIBOR plus 1.75% (assumed to be 7.30%) for the
six months ended June 30, 1997.
3. Reflects the historical operations of the Copley Properties, Bryant Lake, the
Rancon IV and V Portfolios and the Prudential-Bache/Equitec Portfolio (the
"Pru-Bache Portfolio") for the six months ended June 30, 1997 and for the
year ended December 31, 1996, respectively.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
-------------------------------------------------------------------------
COPLEY RANCON IV AND V PRU-BACHE COMBINED
PROPERTIES BRYANT LAKE PORTFOLIOS PORTFOLIO TOTAL
---------- ----------- --------------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................. $3,358 $ 915 $ 6,803 $ 3,397 $14,473
Operating expenses........ (663) (332) (3,142) (1,217) (5,354)
------ ------ ------- ------ -------
$2,695 $ 583 $ 3,661 $ 2,180 $ 9,119
====== ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------------------------------------------
COPLEY RANCON IV AND V PRU-BACHE COMBINED
PROPERTIES BRYANT LAKE PORTFOLIOS PORTFOLIO TOTAL
---------- ----------- --------------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................. $6,460 $ 1,778 $12,077 $ 6,379 $26,694
Operating expenses........ (1,216) (612) (6,245) (2,682) (10,755)
------ ------ ------- ------ -------
$5,244 $ 1,166 $ 5,832 $ 3,697 $15,939
====== ====== ======= ====== =======
</TABLE>
Also, reflects estimated annual depreciation and amortization based upon
estimated useful lives of 30 years on a straight-line basis.
Also, reflects the estimated interest on the assumption of approximately
$35.6 million in debt in connection with the acquisition of Bryant Lake and
the Rancon IV and V Portfolios. The weighted average interest rate on the
assumed debt is 8.73% per annum.
4. Reflects the estimated interest on the pro forma repayment of the Company's
original secured bank line with the borrowings on the Line of Credit for the
year ended December 31, 1996. Also, reflects the estimated interest on the
pro forma repayment on the Line of Credit, a $60 million unsecured bridge
loan and a portion of the $114 Million Interim Unsecured Loan from proceeds
from the July 1997 Offering and the Offering for the six months ended June
30, 1997 and the year ended December 31, 1996. The repayments result in a net
decrease in interest expense consisting of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Interest differential..................... $ 2,327 $ 6,305
Interest on repayments.................... (7,164) (14,749)
Amortization of new loan fees............. 39 178
Amortization of old loan fees............. -- (37)
Unused Line of Credit fees................ 63 125
-------- --------
$ (4,735) $ (8,178)
======== ========
</TABLE>
The Line of Credit is renewable from year to year at the option of Wells
Fargo Bank, provides for maximum borrowings of up to $50,000, but is limited
to a specified borrowing base ($50,000 on a pro
S-39
<PAGE> 40
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
forma basis), and bears interest at LIBOR plus 2.375% (assumed to be 7.80%)
prior to December 31, 1996, and LIBOR plus 1.75% (assumed to be 7.30%)
subsequent to December 31, 1996. So long as credit is available under the
Line of Credit, the Line of Credit requires monthly interest-only payments
and annual unused Line of Credit fees equal to 0.25% of the unused Line of
Credit balance.
The $114 Million Interim Unsecured Loan has a 90-day term with two 90-day
extension options and bears interest at a fixed annual rate of 7.50%. The $60
million unsecured bridge loan has no net impact on pro forma interest expense
as the loan was repaid in full from proceeds of the July 1997 Offering.
The amortization of the new loan fees is based upon total estimated fees and
costs of $1,778 over the respective terms of the related Line of Credit and
the $60 Million Secured Loan. The unused Line of Credit fees are based upon
0.25% of the pro forma unused Line of Credit capacity as of June 30, 1997 of
approximately $50,000.
S-40
<PAGE> 41
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
5. Reflects the following adjustments:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, ENDED
1997 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
Rental Revenue
Elimination of revenues of Sold Properties................. $ (848) $(1,920)
----- ------
Equity in earnings of the Associated Companies
GHG
Addition of the Scottsdale & San Antonio Hotels......... $ 77 $ 10
Disposition of properties from the managed portfolio.... (18) (93)
GC
Addition of the Carlsberg fee managed properties........ -- 141
Sale of property held by partnerships managed by the
Associated Companies to the Company................... (248) (933)
Sale of property held by partnerships managed by the
Associated Companies to third parties................. (161) (531)
----- ------
Net decrease in income................................ (350) (1,406)
Provision for income taxes............................ 150 604
----- ------
Net decrease in equity in earnings to the
Company.......................................... $ (200) $ (802)
===== ======
Fees, interest and other income
Additional Interest on Grunow note receivable relating to
the Carlsberg Properties acquisition at 11% per annum... $ -- $ 347
Reduction of interest due to collection of Hovpark note
receivable at 8% per annum.............................. (50) (605)
----- ------
Net decrease in fees, interest and other income.... $ (50) $ (258)
===== ======
Operating expenses
Elimination of expenses of Sold Properties................. $ (102) $ (360)
Additional expenses of the E&L Properties.................. 26 85
----- ------
Net decrease in operating expenses................. $ (76) $ (275)
===== ======
General and administrative expenses attributable to 1996 and
1997 acquisitions.......................................... $1,304 $ 2,908
===== ======
Depreciation and amortization
Elimination of expenses of Sold Properties................. $ (190) $ (428)
===== ======
Interest expense and loan fee amortization expense reduction
due to repayment of mortgage debt from proceeds from Sold
Properties................................................. $ (251) $ (534)
===== ======
</TABLE>
S-41
<PAGE> 42
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES AND ADJUSTMENTS TO PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
6. The pro forma taxable income before dividends paid deduction for the Company
for the six months ended June 30, 1997 and for the year ended December 31,
1996 is calculated as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED
1997 DECEMBER 31, 1996
------------ ------------------
<S> <C> <C>
Pro forma net income from operations............... $ 18,478 $ 31,284
Add: GAAP basis depreciation and amortization.... 11,453 22,263
Less: Tax basis depreciation and amortization.... (8,234) (16,647)
Other book-to-tax differences.................... 608 1,250
------- -------
Pro forma taxable income......................... $ 22,305 $ 38,150
======= =======
</TABLE>
7. Primary per share amounts reflect the dilutive effects of outstanding stock
options on a historical basis as of June 30, 1997 and December 31, 1996,
respectively based upon the average price per common share for the period
presented. Pro forma primary per share amounts for the same periods assume an
average price per share of $25.00. On an historical basis, there was no
dilutive effect resulting from the outstanding stock options for the year
ended December 31, 1996.
Fully diluted per share amounts reflect the dilutive effects of the units of
the Operating Partnership and outstanding options based upon an ending stock
price of $25.25 per share for the six months ended June 30, 1997 on an
historical basis and $25.00 per share on a pro forma basis for the six months
ended June 30, 1997 and the year ended December 31, 1996. On an historical
basis, the units of the Operating Partnership were antidilutive for the six
months ended June 30, 1997. Also on an historical basis, there was no
dilutive effect resulting from either outstanding options or units of the
Operating Partnership for the year ended December 31, 1996.
The impact on reported per share amounts resulting from the adoption of
Statement of Financial Accounting Standards No. 128 -- "Earnings Per Share"
will not be material.
S-42
<PAGE> 43
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock set forth opposite their
respective names below. The Underwriting Agreement provides that the obligations
of the Underwriters are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER COMMON STOCK
------------------------------------------------------------- ----------------
<S> <C>
Bear, Stearns & Co. Inc. .................................... 2,000,000
Salomon Brothers Inc ........................................ 2,000,000
Smith Barney Inc. ........................................... 2,000,000
BancAmerica Robertson Stephens............................... 2,000,000
Jefferies & Company, Inc. ................................... 1,000,000
McDonald & Company Securities, Inc. ......................... 1,000,000
-------
Total.............................................. 10,000,000
=======
</TABLE>
The Underwriters have advised the Company that the Underwriters propose to
offer the Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and to certain dealers at that
price less a concession not in excess of $0.76 per share. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $0.10 per share
on sales to certain other dealers. After the initial offering to the public, the
public offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus Supplement, to purchase up to 1,500,000
additional shares of Common Stock (the "Option Shares") to cover
over-allotments, if any, at the public offering price per share set forth on the
cover page of this Prospectus Supplement, less the underwriting discount. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of total Option Shares that the number of shares of Common Stock to
be purchased by it shown in the foregoing table bears to the shares of Common
Stock initially offered hereby.
In the Underwriting Agreement, the Company and the Operating Partnership
have agreed to indemnify the several Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended
or to contribute to payments the Underwriters may be required to make in respect
thereof.
The Company and the Operating Partnership have agreed not to, directly or
indirectly, issue, sell, offer or agree to sell, grant any option to purchase,
or otherwise dispose (or announce any offer, sale, grant of an option to
purchase or other disposition) of, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock for a period of
60 days after the date of this Prospectus Supplement without the prior written
consent of Bear, Stearns & Co. Inc. ("Bear Stearns") (except for issuances by
the Company upon the exercise of outstanding stock options, in connection with
bona fide acquisitions of real property or interests therein, of shares of
Common Stock or partnership units in the Operating Partnership such that the
aggregate number of shares of Common Stock issued, or which may be issued upon
conversion or exchange of such units, will not exceed 3,500,000).
In order to facilitate an offering of Common Stock, certain persons
participating in the Offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the Common Stock during and after the
Offering. Specifically, the Underwriters may over-allot or otherwise create a
short position in the Common Stock for their own account by selling more shares
of Common Stock than have been sold to them by the Company. The Underwriters may
elect to cover any such short position by purchasing shares of Common Stock in
the open market or by exercising any over-allotment option granted to the
Underwriters. In addition, such persons may stabilize or maintain the price of
the Common Stock by bidding for or purchasing shares of Common Stock in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in the Offering are
reclaimed if shares of
S-43
<PAGE> 44
Common Stock previously distributed in the Offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the NYSE or otherwise and, if commenced, may be
discontinued at any time.
Bear Stearns, BancAmerica Robertson Stephens and The Shemano Group, Inc.,
one of the participants in the selling group for the Offering, have provided
various financial advisory services to the Company or affiliates of the Company,
for which they have received customary compensation. Bear, Stearns Funding, Inc.
("Bear Stearns Funding"), an affiliate of Bear Stearns, has loaned the Company
$20,000,000 at an interest rate of 7.57% with a maturity date of January 1,
2006. Bear Stearns Funding has also made certain loans to limited partnerships
for which GC provides management services, including Rancon Realty Fund IV and
Rancon Realty Fund V. In connection with the acquisition of the Rancon IV and V
Portfolios, the Company intends to assume loans made by Bear Stearns Funding to
Rancon Realty Fund IV and Rancon Realty Fund V.
LEGAL MATTERS
The legality of the Common Stock offered by this Prospectus Supplement will
be passed upon for the Company by Morrison & Foerster LLP, Palo Alto,
California, and certain matters will be passed upon for the Underwriters by
Latham & Watkins, San Francisco, California. Morrison & Foerster LLP will rely
upon the opinion of Hogan & Hartson LLP, Baltimore, Maryland as to certain
matters of Maryland law. In addition, Morrison & Foerster LLP will provide an
opinion as the basis of the description of federal income tax consequences
contained in the accompanying Prospectus in the section entitled "Federal Income
Tax Consequences."
EXPERTS
The financial statements of the Company, the GRT Predecessor Entities,
Glenborough Hotel Group, Atlantic Pacific Assurance Company Limited and
Glenborough Inland Realty Corporation and related financial statement schedules
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, incorporated by reference herein, have been audited by Arthur Andersen
LLP, independent public accountants, to the extent and for the periods indicated
in their reports, and have been incorporated herein in reliance on such reports
given on the authority of that firm as experts in accounting and auditing.
In addition, the respective statements of revenues and certain expenses of
the Copley Properties, the Rancon IV and V Portfolios, the
Prudential-Bache/Equitec Portfolio and Bryant Lake included in this Prospectus
Supplement, to the extent and for the periods indicated in their reports, have
also been audited by Arthur Andersen LLP, independent public accountants, and
are included herein in reliance on such reports given on the authority of that
firm as experts in accounting and auditing.
In addition, the respective statements of revenues and certain expenses of
the UCT Property, the TRP Properties, the Carlsberg Properties, the CIGNA
Properties, the E&L Properties, the Lennar Properties, the Riverview Property,
the T. Rowe Price Properties, the Centerstone Property, the Advance Properties,
and Citibank Park, included in various Current Reports on Form 8-K and Form
8-K/A, incorporated by reference herein, have also been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the periods
indicated in their reports, and have been incorporated herein, in reliance on
such reports given on the authority of that firm as experts in accounting and
auditing.
S-44
<PAGE> 45
GLENBOROUGH REALTY TRUST INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
THE COPLEY PROPERTIES
Report of Independent Public Accountants.............................................. F-2
Combined Statements of Revenues and Certain Expenses of the Copley Properties for the
six months ended June 30, 1997 and the year ended December 31, 1996................. F-3
Notes to Combined Statements of Revenues and Certain Expenses of the Copley Properties
for the six months ended June 30, 1997 and the year ended December 31, 1996......... F-4
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF THE
PRUDENTIAL-BACHE/EQUITEC PORTFOLIO AND BRYANT LAKE
Report of Independent Public Accountants.............................................. F-5
Combined Statements of Revenues and Certain Expenses of the Prudential-Bache/Equitec
Portfolio and Bryant Lake for the six months ended June 30, 1997 and each of the
three years ended December 31, 1996, 1995 and 1994.................................. F-6
Notes to Combined Statements of Revenues and Certain Expenses of the
Prudential-Bache/Equitec Portfolio and Bryant Lake for the six months ended June 30,
1997 and each of the three years ended December 31, 1996, 1995 and 1994............. F-7
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF THE RANCON IV AND V PORTFOLIOS
Report of Independent Public Accountants.............................................. F-8
Combined Statements of Revenues and Certain Expenses of the Rancon IV and V Portfolios
for the six months ended June 30, 1997 and the year ended December 31, 1996......... F-9
Notes to Combined Statements of Revenues and Certain Expenses of the Rancon IV and V
Portfolios for the six months ended June 30, 1997 and the year ended December 31,
1996................................................................................ F-10
</TABLE>
F-1
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glenborough Realty Trust Incorporated:
We have audited the accompanying combined statement of revenues and certain
expenses of the Copley Properties, as defined in Note 1, for the year ended
December 31, 1996. This combined financial statement is the responsibility of
the management of the Company. Our responsibility is to express an opinion on
this combined financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Copley
Properties.
In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the
Copley Properties for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
October 10, 1997
F-2
<PAGE> 47
GLENBOROUGH REALTY TRUST INCORPORATED
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
THE COPLEY PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED
ENDED JUNE 30, DECEMBER
1997 31,
(UNAUDITED) 1996
-------------- -----------
<S> <C> <C>
REVENUES.......................................................... $3,358 $ 6,460
CERTAIN EXPENSES
Operating....................................................... 479 795
Real estate taxes............................................... 184 421
------ ------
663 1,216
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES............................ $2,695 $ 5,244
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 48
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
THE COPLEY PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICY.
Property Acquired -- The accompanying combined statements of revenues and
certain expenses include the operations (see "Basis of Presentation" below) of
the properties listed below (collectively "the Copley Properties") acquired by
the Company from an unaffiliated third party.
<TABLE>
<CAPTION>
PROPERTY CITY STATE TYPE
--------------------------------------------------- ---------- ----- -----------
<S> <C> <C> <C>
Fairmont Commerce Center........................... Tempe AZ Industrial
Post Palms Business Center......................... Las Vegas NV Office/Flex
Columbia Warehouse................................. Columbia MD Office/Flex
Palms Business Center North........................ Las Vegas NV Office/Flex
Palms Business Center South........................ Las Vegas NV Office/Flex
Palms Business Center III.......................... Las Vegas NV Office/Flex
Palms Business Center IV........................... Las Vegas NV Office/Flex
East Anaheim....................................... Anaheim CA Industrial
</TABLE>
Basis of Presentation -- The accompanying combined statements of revenues
and certain expenses are not intended to be a complete presentation of the
actual operations of the Copley Properties for the periods presented. Certain
expenses may not be comparable to the expenses expected to be incurred by the
Company in the future operations of the Copley Properties; however, the Company
is not aware of any material factors relating to the Copley Properties that
would cause the reported financial information not to be indicative of future
operating results. Excluded expenses consist of property management fees,
interest expense, depreciation and amortization and other costs not directly
related to the future operations of the Copley Properties.
These combined financial statements have been prepared for the purpose of
complying with certain rules and regulations of the Securities and Exchange
Commission.
Revenue Recognition -- All leases are classified as operating leases.
Rental revenue is recognized as earned over the terms of the leases.
2. LEASING ACTIVITY
The minimum future rental revenues from leases in effect as of July 1, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------------- --------
<S> <C>
1997 (six months)......................................... $ 2,595
1998...................................................... 3,349
1999...................................................... 1,958
2000...................................................... 1,172
2001...................................................... 378
Thereafter................................................ 419
--------
Total........................................... $ 9,871
========
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $567
(unaudited) for the six months ended June 30, 1997 and $1,130 for the year ended
December 31, 1996. Certain leases contain lessee renewal options.
F-4
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glenborough Realty Trust Incorporated:
We have audited the accompanying combined statements of revenues and
certain expenses of the Prudential-Bache/Equitec Portfolio and Bryant Lake, as
defined in Note 1, for each of the three years ended December 31, 1996, 1995 and
1994. These combined financial statements are the responsibility of the
management of the Company. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined statements of revenues and certain expenses have
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and are not intended
to be a complete presentation of the revenues and expenses of the
Prudential-Bache/Equitec Portfolio and Bryant Lake.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the revenues and certain expenses of the
Prudential-Bache/Equitec Portfolio and Bryant Lake for each of the three years
ended December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
October 10, 1997
F-5
<PAGE> 50
GLENBOROUGH REALTY TRUST INCORPORATED
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
THE PRUDENTIAL-BACHE/EQUITEC PORTFOLIO AND BRYANT LAKE
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE YEAR ENDED DECEMBER 31
30, 1997 ----------------------------
(UNAUDITED) 1996 1995 1994
------------- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES............................................ $ 4,312 $8,157 $8,241 $8,111
CERTAIN EXPENSES
Operating......................................... 1,041 2,267 2,285 2,144
Real estate taxes................................. 508 1,027 962 962
------ ------ ------ ------
1,549 3,294 3,247 3,106
------ ------ ------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES.............. $ 2,763 $4,863 $4,994 $5,005
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 51
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
PRUDENTIAL BACHE/EQUITEC PORTFOLIO AND BRYANT LAKE
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICY.
Property Acquired -- The accompanying combined statements of revenues and
certain expenses include the operations (see "Basis of Presentation" below) of
the properties listed below (collectively "Prudential Bache/Equitec Portfolio
and Bryant Lake") acquired by the Company from affiliates:
<TABLE>
<CAPTION>
PROPERTY CITY STATE TYPE
-------------------------------------------------- ------------- ---- ------------
<S> <C> <C> <C>
Bryant Lake Business Center....................... Eden Prairie MN Office/Flex
Gateway Professional Center....................... Sacramento CA Office
Park Plaza........................................ Sacramento CA Office
Montrose Office Park.............................. Rockville MD Office
Poplar Towers..................................... Memphis TN Office
Totem Valley...................................... Kirkland WA Office/Flex
</TABLE>
Basis of Presentation -- The accompanying combined statements of revenues
and certain expenses are not intended to be a complete presentation of the
actual operations of the Prudential Bache/Equitec Portfolio and Bryant Lake for
the periods presented. Certain expenses may not be comparable to the expenses
expected to be incurred by the Company in the future operations of the
Prudential Bache/Equitec Portfolio and Bryant Lake; however, the Company is not
aware of any material factors relating to the Prudential Bache/Equitec Portfolio
and Bryant Lake that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of property
management fees, interest expense, depreciation and amortization and other costs
not directly related to the future operations of the Prudential Bache/Equitec
Portfolio and Bryant Lake.
These combined financial statements have been prepared for the purpose of
complying with certain rules and regulations of the Securities and Exchange
Commission.
Revenue Recognition -- All leases are classified as operating leases.
Rental revenue is recognized as earned over the terms of the leases.
2. LEASING ACTIVITY
The minimum future rental revenues from leases in effect as of July 1, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------------------------------------------- -------
<S> <C>
1997 (six months).......................................... $ 3,889
1998....................................................... 7,551
1999....................................................... 6,258
2000....................................................... 4,545
2001....................................................... 3,191
2002....................................................... 1,614
Thereafter................................................. 5,608
--------
---
Total............................................ $32,656
===========
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $611
(unaudited) for the six months ended June 30, 1997 and $1,174, $1,282 and $1,184
for the years ended December 31, 1996, 1995 and 1994, respectively. Certain
leases contain lessee renewal options.
F-7
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glenborough Realty Trust Incorporated:
We have audited the accompanying combined statement of revenues and certain
expenses of the Rancon IV and V Portfolios, as defined in Note 1, for each of
the three years ended December 31, 1996. This combined financial statement is
the responsibility of the management of the Company. Our responsibility is to
express an opinion on this combined financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Rancon IV and
V Portfolios.
In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the
Rancon IV and V Portfolios for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
October 10, 1997
F-8
<PAGE> 53
GLENBOROUGH REALTY TRUST INCORPORATED
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
THE RANCON IV AND V PORTFOLIOS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER
(UNAUDITED) 31, 1996
------------------ ----------
<S> <C> <C>
REVENUES....................................................... $6,803 $ 12,077
CERTAIN EXPENSES
Operating.................................................... 2,173 4,430
Real estate taxes............................................ 969 1,815
------ -------
3,142 6,245
------ -------
REVENUES IN EXCESS OF CERTAIN EXPENSES......................... $3,661 $ 5,832
====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 54
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
THE RANCON IV AND V PORTFOLIOS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICY.
Property Acquired -- The accompanying combined statements of revenues and
certain expenses include the operations (see "Basis of Presentation" below) of
the properties listed below (collectively "the Rancon IV and V Portfolios")
acquired by the Company from an unaffiliated third party.
<TABLE>
<CAPTION>
PROPERTY CITY STATE TYPE
--------------------------------------------- --------------- ---- -------------
<S> <C> <C> <C>
One Vanderbilt............................... San Bernardino CA Office
Two Vanderbilt............................... San Bernardino CA Office
Inland Regional Center....................... San Bernardino CA Office
One Carnegie Plaza........................... San Bernardino CA Office
Two Carnegie Plaza........................... San Bernardino CA Office
Santa Fe..................................... San Bernardino CA Office
Lakeside Tower............................... San Bernardino CA Office
One Parkside................................. San Bernardino CA Office
Carnegie Business Center I................... San Bernardino CA Office/Flex
Carnegie Business Center II.................. San Bernardino CA Office/Flex
Rancon Centre Ontario........................ Ontario CA Industrial
Circuit City................................. San Bernardino CA Retail
Service Retail Center........................ San Bernardino CA Retail
Promotional Retail Center.................... San Bernardino CA Retail
TGI Friday's................................. San Bernardino CA Retail
Bally's Health Club.......................... San Bernardino CA Retail
Outback Steakhouse........................... San Bernardino CA Retail
Shadowridge/Woodbend Apartments.............. Vista CA Multi-Family
</TABLE>
Basis of Presentation -- The accompanying combined statements of revenues
and certain expenses are not intended to be a complete presentation of the
actual operations of the Rancon IV and V Portfolios for the periods presented.
Certain expenses may not be comparable to the expenses expected to be incurred
by the Company in the future operations of the Rancon IV and V Portfolios;
however, the Company is not aware of any material factors relating to the Rancon
IV and V Portfolios that would cause the reported financial information not to
be indicative of future operating results. Excluded expenses consist of property
management fees, interest expense, depreciation and amortization and other costs
not directly related to the future operations of the Rancon IV and V Portfolios.
These combined financial statements have been prepared for the purpose of
complying with certain rules and regulations of the Securities and Exchange
Commission.
Revenue Recognition -- All leases are classified as operating leases.
Rental revenue is recognized as earned over the terms of the leases.
F-10
<PAGE> 55
GLENBOROUGH REALTY TRUST INCORPORATED
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF
THE RANCON IV AND V PORTFOLIOS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
2. LEASING ACTIVITY
The minimum future rental revenues from leases in effect as of July 1, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------------------------------------------- -------
<S> <C>
1997 (six months).......................................... $ 4,185
1998....................................................... 10,701
1999....................................................... 8,818
2000....................................................... 7,667
2001....................................................... 6,705
2002....................................................... 5,324
Thereafter................................................. 28,258
--------
---
Total............................................ $71,658
===========
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $412
(unaudited) for the six months ended June 30, 1997 and $795 for the year ended
December 31, 1996. Certain leases contain lessee renewal options.
F-11
<PAGE> 56
PROSPECTUS
$371,202,500
<TABLE>
<S> <C> <C>
LOGO LOGO
</TABLE>
Preferred Stock, Common Stock and Warrants
------------------------
Glenborough Realty Trust Incorporated (the "Company") may from time to time
offer in one or more series or classes (i) shares or fractional shares of its
preferred stock, par value $.001 (the "Preferred Stock"), (ii) shares of its
common stock, par value $0.001 per share (the "Common Stock") and (iii) warrants
to purchase shares of Preferred Stock or Common Stock (the "Warrants") in
amounts, at prices and on terms to be determined at the time of offering, with
an aggregate public offering price of up to $371,202,500. The Preferred Stock,
Common Stock and Warrants (collectively, the "Offered Securities") may be
offered, separately or together, in separate series in amounts, at prices and on
terms to be set forth in one or more supplements to the Prospectus (each a
"Prospectus Supplement").
The specific terms of the Offered Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights, and any initial public offering
price; (ii) in the case of Common Stock, the specific title and stated value and
any initial public offering price and (iii) in the case of Warrants, the
duration, offering price, exercise price and detachability. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal Income Tax Consequences relating
to, and any listing on a securities exchange of, the Offered Securities covered
by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth or will be calculable from the information set forth in the applicable
Prospectus Supplement. See "Plan of Distribution." No Offered Securities may be
sold without delivery of the applicable Prospectus Supplement describing the
method and terms of the offering of such Offered Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is October 20, 1997.
<PAGE> 57
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING
PARTNERSHIP OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS AND ANY
APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF OR
THEREOF.
2
<PAGE> 58
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, and exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed with the Commission in accordance
with the Exchange Act can be inspected and copied at the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The address of the Commission's Web Site is
(http://www.sec.gov). In addition, the Common Stock is listed on the New York
Stock Exchange and similar information concerning the Company can be inspected
and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
The Company has filed with the Commission registration statements on Form
S-3 (the "Registration Statements") (of which this Prospectus is a part) under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Offered Securities. This Prospectus does not contain all of the information
set forth in the Registration Statements, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statements, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statements and such exhibits and schedules which may be
obtained from the Commission at its principal office in Washington, D.C., upon
payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
b. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997;
c. The Company's Current Reports on Form 8-K, filed with the
Commission on February 5, 1997, March 19, 1997, April 23, 1997, April 24,
1997, April 25, 1997, May 2, 1997, July 15, 1997, July 28, 1997, September
29, 1997 and October 17, 1997 respectively;
d. The Company's Current Reports on Form 8-K/A, filed with the
Commission on February 24, 1997, May 14, 1997, August 8, 1997 and October
17, 1997 respectively;
e. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-14162).
All documents filed by the Company and the Operating Partnership pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering of the
Offered Securities shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such
3
<PAGE> 59
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus (or
in the applicable Prospectus Supplement).
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to the Vice President, Capital Markets, Glenborough Realty Trust
Incorporated, 400 South El Camino Real, Suite 1100, San Mateo, California
94402-1708, telephone number (650) 343-9300.
4
<PAGE> 60
As used herein, the term "Company" means Glenborough Realty Trust
Incorporated, a Maryland real estate investment trust, and its consolidated
subsidiaries for the periods from and after December 31, 1995 (the date of the
merger of eight public limited partnerships and Glenborough Corporation, a
California corporation, (the "Predecessors") with and into the Company (the
"Consolidation")). This Prospectus and the documents incorporated herein contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, which statements involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
Unless otherwise indicated, ownership percentages of the Company's Common Stock
have been computed on a fully converted basis, using an exchange of Operating
Partnership units for Common Stock on a one-for-one basis.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust (a "REIT") for federal income tax purposes that owns a portfolio of 102
office, industrial, retail, multifamily and hotel properties (the "Properties")
located in 22 states throughout the country, as of the date of this Prospectus.
The Company's principal growth strategy is to capitalize on the opportunity to
acquire portfolios or single properties from public and private partnerships on
attractive terms. This strategy has evolved from the Company's predecessors'
experience since 1978 in managing real estate partnerships and their assets and,
since 1989, in acquiring management interests from third parties. In addition,
two associated companies (the "Associated Companies") provide comprehensive
asset, partnership and property management services for 55 other properties that
are not owned by the Company.
A portion of the Company's operations is conducted through a subsidiary
operating partnership (the "Operating Partnership"), in which the Company holds
a 1% interest as the sole general partner and in which the Company holds an
approximate 89% limited partner interest, as of the date of this Prospectus.
The Common Stock is listed on the New York Stock Exchange under the Symbol
"GLB." The Company commenced operations on December 31, 1995, through the merger
of eight public limited partnerships and a management company with and into the
Company. The Company's executive offices are located at 400 South El Camino
Real, Suite 1100, San Mateo, California 94402-1708 and its telephone number is
(650) 343-9300.
5
<PAGE> 61
RISK FACTORS
Prospective investors should read this entire Prospectus and the applicable
Prospectus Supplement carefully, including all appendices and supplements hereto
and thereto, and should consider carefully the following factors before
purchasing the Offered Securities offered hereby.
RISKS ASSOCIATED WITH ACQUISITIONS
Risks Associated with the Addition of a Substantial Number of New Properties
The Company is currently experiencing a period of rapid growth. Since the
Consolidation on December 31, 1995, the Company has invested approximately
$534.7 million in properties. The Company's ability to manage its growth
effectively will require it to apply successfully its experience managing its
existing portfolio to new markets and to an increased number of properties.
There can be no assurance that the Company will be able to manage these
operations effectively. The Company's inability to effectively manage its
expansion could have an adverse effect on the Company's results of operations
and financial condition.
Acquisitions Could Adversely Affect Operations or Stock Value
Consistent with its growth strategy, the Company is continually pursuing
and evaluating potential acquisition opportunities, and is from time to time
actively considering the possible acquisition of specific properties, which may
include properties managed or controlled by one of the Associated Companies or
owned by affiliated parties. It is possible that one or more of such possible
future acquisitions, if completed, could adversely affect the Company's funds
from operations or cash available for distribution, in the short term or the
long term or both, or increase the Company's debt, or be perceived negatively
among investors such that such an acquisition could be followed by a decline in
the market value of the Common Stock.
Conflict of Interest
The Company has acquired, and from time to time may acquire, properties
from partnerships that Robert Batinovich, the Company's Chief Executive Officer,
and Andrew Batinovich, the Company's President and Chief Operating Officer,
control, and in which they and members of their families have substantial
interests. It is also possible that the Company may enter into transactions to
acquire other properties controlled by these individuals or in which they or
members of their families have substantial interests in the future. These
transactions involve or will involve conflicts of interest. These transactions
may provide substantial economic benefits such as the payments or unit
issuances, relief or deferral of tax liabilities, relief of primary or secondary
liability for debt, and reduction in exposure to other property-related
liabilities. Despite the presence of appraisals or fairness opinions or review
by parties who have no interest in the transactions, the transactions will not
be the product of arm's-length negotiation and there can be no assurance that
these transactions will be as favorable to the Company as transactions that the
Company negotiates with unrelated parties or will not result in undue benefit to
Robert and Andrew Batinovich and members of their families. Neither Robert
Batinovich nor Andrew Batinovich has guaranteed that any properties acquired
from entities they control or in which they or their families have a significant
interest will be as profitable as other investments made by the Company or will
not result in losses.
Assumption of General Partner Liabilities
The Company and its predecessors have acquired a number of their properties
by acquiring partnerships that own the properties or by first acquiring general
partnership interests and at a later date acquiring the properties, and the
Company may pursue acquisitions in this manner in the future. When the Company
uses this acquisition technique, a subsidiary of the Company becomes a general
partner. As a general partner the Company's subsidiary becomes generally liable
for the debts and obligations of the partnership, including debts and
obligations that may be contingent or unknown at the time of the acquisition. In
addition, the Company's subsidiary assumes obligations under the partnership
agreements, which may include obligations to make future contributions for the
benefit of other partners. The Company undertakes detailed due diligence reviews
to ascertain the nature and extent of obligations that its subsidiary will
assume when it becomes a
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general partner, but there can be no assurance that the obligations assumed will
not exceed the Company's estimates or that the assumed liabilities will not have
an adverse effect on the Company's results of operations or financial condition.
In addition, an Associated Company may enter into management agreements pursuant
to which it assumes certain obligations as manager of properties. There can be
no assurance that these obligations will not have an adverse effect on the
Associated Companies' results of operations or financial condition, which could
adversely affect the value of the Company's preferred stock interest in those
companies.
Risks Relating to Tender Offers
The Company may, as part of its growth strategy, acquire properties and
portfolios of properties through tender offer acquisitions of interests in
public and private partnerships. Tender offers often result in competing tender
offers, as well as litigation initiated by limited partners in the subject
partnerships or by competing bidders. Due to the inherent uncertainty of
litigation, the Company could be subject to adverse judgments in substantial
amounts. As the Company has not yet attempted an acquisition through the tender
offer process, and because of competing offers and possible litigation, there
can be no assurance that, if undertaken, the Company would be successful in
acquiring properties through a tender offer or that the tender offer process
would not result in litigation and a significant judgment adverse to the
Company.
LITIGATION RELATED TO CONSOLIDATION
Recent business reorganizations sponsored by others involving the
conversion of partnerships into corporations have given rise to a number of
investor lawsuits. These lawsuits have included claims against the general
partners of the participating partnerships, the partnerships themselves and
related persons involved in the structuring of or benefiting from the conversion
or reorganization, as well as claims against the surviving entity and its
directors and officers. The lawsuits have included, among others, claims that
the structure of the reorganizations, as well as the manner in which they were
submitted for investor approval, involved violations of federal and state
securities laws, common law fraud and negligent misrepresentations, breaches of
fiduciary duty, unfair and deceptive trade practices, negligence and waste,
breaches of the partnership documents of the participating partnerships, failure
to comply with applicable reporting requirements, violations of the rules of the
NASD on suitability and fair practices, and violations of the Racketeer
Influenced and Corrupt Organizations Act. Two lawsuits have been filed
contesting the fairness of the Consolidation, one in California state court and
one in federal court. A settlement of the state court action has been approved
by the court, but objectors to the settlement have appealed that approval. The
Company and the other defendants in the state court action have filed a
responsive brief and the appeal is now pending. Plaintiffs in the federal court
action have agreed voluntarily to take the action off calendar pending
resolution of the state court action.
From time to time the Company is involved in other litigation arising out
of its business activities. It is possible that this litigation and the other
litigation previously described could result in significant losses in excess of
amounts reserved, which could have an adverse effect on the Company's results of
operations and the financial condition of the Company.
CHAPTER 11 REORGANIZATION OF PARTNERSHIP CONSOLIDATION BY SENIOR MANAGEMENT
Robert and Andrew Batinovich, two of the senior officers of the Company,
were also senior members of a management team that formed a publicly registered
limited partnership in 1986 to consolidate a number of predecessor partnerships.
That public partnership was involved in litigation with its primary creditor and
in order to prevent foreclosure filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in May of 1992. The public
partnership, the primary subsidiary of which is GPA, Ltd., which owns an
approximately 2.9% limited partner interest in the Operating Partnership along
with other substantial real estate assets, settled the litigation and obtained
confirmation of a plan of reorganization in January 1994. Investors in the
Common Stock should consider that the consolidation of partnerships into GPA,
Ltd.'s parent partnership did not achieve all of the objectives stated at the
time and should further consider the relevance of that fact to their investment
in the Common Stock of the Company.
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CERTAIN TAX RISKS
General
The Company has elected to be treated as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), commencing with its taxable year ended
December 31, 1996. No assurance can be given, however, that the Company will be
able to operate in a manner which will permit it to maintain its status as a
REIT. Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and quarterly basis) established under highly technical and
complex Code provisions for which only limited judicial or administrative
interpretation exists, and involves the determination of various factual matters
and circumstances not entirely within the Company's control. The Company
receives nonqualifying management fee income and owns nonqualifying preferred
stock in the Associated Companies. As a result, the Company may approach the
income and asset test limits imposed by the Code and could be at risk of not
satisfying those tests. In order to avoid exceeding the asset test limit, for
example, the Company may have to reduce its interest in the Associated
Companies. The Company is relying on the opinion of its tax counsel regarding
its ability to qualify as a REIT. This legal opinion is not binding on the
Internal Revenue Service ("IRS"). See "Federal Income Tax
Consequences -- Taxation of the Company."
Consequences of Failure to Qualify as a REIT
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made. See "Federal Income Tax Consequences -- Failure to
Qualify."
Even if the Company continues to qualify as a REIT, it will be subject to
certain federal, state and local taxes on its income and property. See "Federal
Income Tax Consequences -- Taxation of the Company."
Possible Changes in Tax Laws
Income tax treatment of REITs may be modified, prospectively or
retroactively, by legislative, judicial or administrative action at any time. No
assurance can be given that legislation, regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to the qualification as a REIT or the federal income tax
consequences of this qualification. In addition to any direct effects the
changes might have, the changes might also indirectly affect the market value of
all real estate investments, and consequently the ability of the Company to
realize its investment objectives.
RISKS RELATING TO REAL ESTATE
Environmental Matters
All of the Properties presently owned by the Company have been subject to
Phase I environmental assessments by independent environmental consultants. Some
of the Phase I environmental assessments recommended further investigations in
the form of Phase II environmental assessments, including soil and groundwater
sampling, and all of these investigations have been completed by the Company or
are in the process of being completed. Certain of the Properties owned by the
Company have been found to contain ACMs. The Company believes that these
materials have been adequately contained and that an ACM operations and
maintenance program has been implemented or is in the process of being
implemented for the Properties found to contain ACMs.
Some, but not all, of the properties owned by partnerships managed by the
Associated Companies have been subject to Phase I environmental assessments by
independent environmental consultants. The Associated Companies determine on a
case-by-case basis whether to obtain Phase I environmental assessments on these
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properties and whether to undertake further investigation or remediation.
Certain of these properties contain ACMs. In each case the responsible
Associated Company believes that these materials have been adequately contained
and that an ACM operations and maintenance program has been implemented for the
properties found to contain ACMs.
Six Properties previously owned by the Company were leased in whole or in
part to an operator of auto care centers which include oil change and tune-up
facilities, and ten properties previously owned by the Company were leased to
operators of convenience stores which sell petroleum-based fuels. These
properties and some of the Properties contain, and/or may have contained in the
past, underground storage tanks for the storage of petroleum products and/or
other hazardous or toxic substances which create a potential for release of
petroleum products and/or other hazardous or toxic substances. Some of the
Properties owned by the Company are adjacent to or near properties that have
contained in the past or currently contain, underground storage tanks used to
store petroleum products or other hazardous or toxic substances. Several of the
Properties have been contaminated with petroleum products or other hazardous or
toxic substances from on-site operations or operations on adjacent or nearby
properties. In addition, certain of the Properties are on, adjacent to or near
properties upon which others have engaged or may in the future engage in
activities that may release petroleum products or other hazardous or toxic
substances.
Although tenants of the Properties owned by the Company generally are
required by their leases to operate in compliance with all applicable federal,
state and local environmental laws, ordinances and regulations and to indemnify
the Company against any environmental liability arising from the tenants'
activities on the Properties, the Company could nevertheless be subject to
environmental liability relating to its management of the Properties or strict
liability by virtue of its ownership interest in the Properties and there can be
no assurance that the tenants would satisfy their indemnification obligations
under the leases. There can be no assurance that any environmental assessments
of the Properties owned by the Company, properties being considered for
acquisition by the Company, or the properties owned by the partnerships managed
by the Associated Companies have revealed all potential environmental
liabilities, that any prior owner or prior or current operator of such
properties did not create an environmental condition not known to the Company or
that an environmental condition does not otherwise exist as to any one or more
of such properties that could have an adverse effect on the Company's results of
operations and financial condition, either directly (with respect to properties
owned by the Company), or indirectly (with respect to properties owned by
partnerships managed by an Associated Company) by adversely affecting the
financial condition of the Associated Company and thus the value of the
Company's preferred stock interest in the Associated Company. Moreover, there
can be no assurance that (i) future environmental laws, ordinances or
regulations will not have an adverse effect on the Company's results of
operations and financial condition or (ii) the current environmental condition
of such properties will not be affected by tenants and occupants of such
properties, by the condition of land or operations in the vicinity of the
properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Company.
Risks Related to Ownership and Financing of Real Estate
The Company is subject to risks generally incidental to the ownership of
real estate, including changes in general economic or local conditions, changes
in supply of or demand for similar or competing properties in an area, the
impact of environmental protection laws, changes in interest rates and
availability of financing which may render the sale or financing of a property
difficult or unattractive, changes in tax, real estate and zoning laws, and the
creation of mechanics' liens or similar encumbrances placed on the property by a
lessee or other parties without the Company's knowledge and consent. Should any
of these events occur, there could be an adverse effect on the Company's results
of operations and financial condition.
Availability of Real Estate for Acquisitions
The Company's growth is dependent upon acquisitions. There can be no
assurance that properties will be available for acquisition or, if available,
that the Company will be able to purchase such properties on favorable terms. If
such acquisitions are not available it could have a negative impact on the
growth of the Company, which could have an adverse effect on the performance of
the Company's Common Stock.
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Competition for Acquisition of Real Estate
The Company faces competition from other businesses, individuals, fiduciary
accounts and plans and other entities in the acquisition, operation and sale of
its properties. Some of the Company's competitors are larger and have greater
financial resources than the Company. This competition may result in a higher
cost for properties the Company wishes to purchase.
Competition for Tenants
The Company is subject to the risk that when space becomes available at its
properties the leases may not be renewed, the space may not be let or relet, or
the terms of the renewal or reletting (including the cost of required
renovations or concessions to tenants) may be less favorable to the Company.
Although the Company has established annual property budgets that include
estimates of costs for renovation and reletting expenses that it believes are
reasonable in light of each property's situation, no assurance can be given that
these estimates will sufficiently cover these expenses. If the Company is unable
to promptly lease all or substantially all of the space at its properties, if
the rental rates are significantly lower than expected, or if the Company's
reserves for these purposes prove inadequate, then there could be an adverse
effect on the Company's results of operations and financial condition.
Tenants' Defaults
The ability of the Company to manage its assets is subject to federal
bankruptcy laws and state laws affecting creditors' rights and remedies
available to real property owners. In the event of the financial failure or
bankruptcy of a tenant, there can be no assurance that the Company could
promptly recover the tenant's premises from the tenant or from a trustee or
debtor-in-possession in any bankruptcy proceeding filed by or against that
tenant, or that the Company would receive rent in the proceeding sufficient to
cover its expenses with respect to the premises. In the event of the bankruptcy
of a tenant, the Company will be subject to the provisions of the federal
bankruptcy code, which in some instances may restrict the amount and
recoverability of claims held by the Company against the tenant. If any tenant
defaults on its obligations to the Company, there could be an adverse effect on
the Company's results of operations and financial condition.
Management, Leasing and Brokerage Risks; Lack of Control of Associated
Companies
The Company is subject to the risks associated with the property
management, leasing and brokerage businesses. These risks include the risk that
management contracts or service agreements may be terminated, that contracts
will not be renewed upon expiration or will not be renewed on terms consistent
with current terms, and that leasing and brokerage activity generally may
decline. Acquisition of properties by the Company from the Associated Companies
could result in a decrease in revenues to the Associated Companies and a
corresponding decrease in dividends received by the Company from the Associated
Companies. Each of these developments could have an adverse effect on the
Company's results of operations and financial condition.
To maintain the Company's status as a REIT while realizing income from the
Company's third-party management business, the capital stock of Glenborough
Hotel Group, a Nevada corporation ("GHG") and Glenborough Corporation, a
California corporation ("GC," and together with GHG, the "Associated Companies")
(which conduct the Company's third-party management, leasing and brokerage
businesses) is divided into two classes. All of the voting common stock of the
Associated Companies, representing 5% of the total equity of GC, and 25% of the
total equity of GHG, is held by individual stockholders. Nonvoting preferred
stock representing the remaining equity of each Associated Company is held
entirely by the Company. Although the Company holds a majority of the equity
interest in each Associated Company, the Company is not able to elect directors
of any Associated Company and, consequently, the Company has no ability to
influence the day-to-day decisions of each entity.
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Uninsured Loss
The Company or in certain instances tenants of the properties carry
comprehensive liability, fire and extended coverage with respect to the
Company's properties, with policy specification and insured limits customarily
carried for similar properties. There are, however, certain types of losses
(such as from earthquakes and floods) that may be either uninsurable or not
economically insurable. Further, certain of the properties are located in areas
that are subject to earthquake activity and floods. Should a property sustain
damage as a result of an earthquake or flood, the Company may incur losses due
to insurance deductibles, co-payments on insured losses or uninsured losses.
Should an uninsured loss occur, the Company could lose some or all of its
capital investment, cash flow and anticipated profits related to one or more
properties, which could have an adverse effect on the Company's results of
operations and financial condition.
Illiquidity of Real Estate
Real estate investments are relatively illiquid and, therefore, will tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, the Code and individual
agreements with sellers of properties place limits on the Company's ability to
sell properties, which may adversely affect returns to holders of Common Stock.
Twenty-four of the properties owned by the Operating Partnership were acquired
on terms and conditions under which they can be disposed of only in a like-kind
exchange or other non-taxable transaction.
Potential Liability Under the Americans With Disabilities Act
As of January 26, 1992, all of the Company's properties were required to be
in compliance with the Americans With Disabilities Act (the "ADA"). The ADA
generally requires that places of public accommodation be made accessible to
people with disabilities to the extent readily achievable. Compliance with the
ADA requirements could require removal of access barriers and non-compliance
could result in imposition of fines by the federal government, an award of
damages to private litigants and/or a court order to remove access barriers.
Because of the limited history of the ADA, the impact of its application to the
Company's properties, including the extent and timing of required renovations,
is uncertain. Pursuant to certain lease agreements with tenants in certain of
the "single-tenant" Properties, the tenants are obligated to comply with the ADA
provisions. If the Company's costs are greater than anticipated or tenants are
unable to meet their obligations, there could be an adverse effect on the
Company's results of operations and financial condition.
ADDITIONAL CAPITAL REQUIREMENTS
The Company's future growth depends in large part upon its ability to raise
additional capital on satisfactory terms or at all. There can be no assurance
that the Company will be able to raise sufficient capital to achieve its
objectives. If the Company were to raise additional capital through the issuance
of additional equity securities, or securities convertible into or exercisable
for equity securities, the interests of holders of the Offered Securities could
be diluted. Likewise, the Company's Board of Directors is authorized to cause
the Company to issue Preferred Stock in one or more series and to determine the
distributions and voting and other rights of the Preferred Stock. Accordingly,
the Board of Directors may authorize the issuance of Preferred Stock with
voting, distribution and other similar rights which could be dilutive to or
otherwise adversely affect the interests of holders of Offered Securities. If
the Company were to raise additional capital through debt financing, the Company
will be subject to the risks described below, among others.
LIMITATION ON OWNERSHIP OF COMMON STOCK MAY PRECLUDE ACQUISITION OF CONTROL
Provisions of the Company's Articles of Incorporation are designed to
assist the Company in maintaining its qualification as a REIT under the Code by
preventing concentrated ownership of the Company which might jeopardize REIT
qualification. Among other things, these provisions provide that (a) any
transfer or acquisition of Common Stock that would result in the
disqualification of the Company as a REIT under the Code will be void, and (b)
if any person attempts to acquire shares of Common Stock that after the
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acquisition would cause the person to own or to be deemed to own, by operation
of certain attribution rules set out in the Code, an amount of Common Stock in
excess of a predetermined limit, which, pursuant to Board action, currently is
9.9% of the outstanding shares of Common Stock (the "Ownership Limitation" and
as to the Common Stock, the transfer of which would cause any person to actually
own Common Stock in excess of the Ownership Limitation, the "Excess Shares"),
the transfer shall be void and the Common Stock subject to the transfer shall
automatically be transferred to an unaffiliated trustee for the benefit of a
charitable organization designated by the Board of Directors of the Company
until sold by the trustee to a third party or purchased by the Company. Robert
Batinovich, his spouse and children (including Andrew Batinovich) and
individuals or entities whose ownership of Common Stock is attributed to Robert
Batinovich in determining the number of shares of Common Stock owned by him for
purposes of compliance with Section 856 of the Code (the "Attributed Owners"),
are exempt from these restrictions, but are prohibited from acquiring shares of
Common Stock if, after the acquisition, they would own in excess of 9.9% of the
outstanding shares of Common Stock. This limitation on the ownership of Common
Stock may have the effect of precluding the acquisition of control of the
Company by a third party without the consent of the Board of Directors. If the
Board of Directors waives the Ownership Limitation for any person, the Ownership
Limitation shall be proportionally and automatically reduced with regard to all
other persons such that no five persons may own more than 50% of the Common
Stock (the aggregate Ownership Limitations as to all of these persons, as
adjusted, the "Adjusted Ownership Limitation"). See "Description of Common
Stock -- Restrictions on Ownership and Transfer of Common Stock" and "Federal
Income Tax Consequences."
OTHER RISKS
Debt Financing
The Company intends to incur additional indebtedness in the future,
including through borrowings under a credit facility, if a credit facility is
available, to finance property acquisitions. As a result, the Company expects to
be subject to risks associated with debt financing, including the risk that
interest rates may increase, the risk that the Company's cash flow will be
insufficient to meet required payments on its debt and the risk that the Company
may be unable to refinance or repay the debt as it comes due. The Company's
current $50 million secured revolving line of credit with Wells Fargo Bank, N.A.
provides that distributions may not exceed 90% of funds from operations and
that, in the event of a failure to pay principal or interest on borrowings
thereunder when due (subject to any applicable grace period), the Company and
its subsidiaries may not pay any distributions on the Common Stock or the
Preferred Stock. If the Company is unable to obtain acceptable financing to
repay indebtedness at maturity, the Company may have to sell properties to repay
indebtedness or properties may be foreclosed upon, which could have an adverse
effect on the Company's results of operations and financial condition.
Dependence on Executive Officers
The Company is dependent on the efforts of Robert and Andrew Batinovich,
its Chief Executive Officer and its President and Chief Operating Officer,
respectively, and of its other executive officers. The loss of the services of
any of them could have an adverse effect on the results of operations and
financial condition of the Company.
Board of Directors May Change Investment Policies
The descriptions in this Prospectus of the major policies and the various
types of investments to be made by the Company reflect only the current plans of
the Company's Board of Directors. The Company's Board of Directors may change
the investment policies of the Company without a vote of the stockholders. If
the Company changes its investment policies, the risks and potential rewards of
an investment in the Company may also change. In addition, the methods of
implementing the Company's investment policies may vary as new investment
techniques are developed.
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Effect of Market Interest Rates on Price of Common Stock
One of the factors that may influence the market price of the shares of
Common Stock in public markets will be the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in market
interest rates may lead prospective purchasers of the Common Stock to seek a
higher annual yield from their investments. Such circumstances may adversely
affect the market price of the Common Stock.
Shares Available for Future Sale
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or future conversions or exercises of securities for
future sales, including shares of Common Stock issuable upon exchange of
Operating Partnership units, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, may adversely affect the prevailing
market price for the Common Stock.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company intends to invest the net proceeds from any sale of the Offered
Securities for general corporate purposes including, without limitation, the
acquisition and development of properties and the repayment of debt. Net
proceeds from the sale of the Offered Securities initially may be temporarily
invested in short-term securities.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the year ended
December 31, 1996 and for the six-month period ended June 30, 1997 was 2.56x and
2.74x, respectively. Prior to the Consolidation, the Company's Predecessors'
combined ratio of earnings to fixed charges for 1992, 1993, 1994 and 1995 was
(0.37x), 2.67x, 2.58x and 1.41x, respectively. The ratio of earnings to fixed
charges is computed as income from operations, before minority interest, income
taxes and extraordinary items, plus fixed charges (primarily interest expense)
divided by fixed charges. The ratio of earnings to fixed charges was less than
1.0 in 1992 due to a non-recurring loss provision that did not affect cash flow.
To date, the Company has not issued any shares of preferred stock; therefore,
the ratios of earnings to combined fixed charges and preferred share dividends
are unchanged from the ratios presented in this section.
DESCRIPTION OF PREFERRED STOCK
Subject to limitations prescribed by Maryland law and the Company's
Articles of Incorporation and Articles Supplementary (collectively, the
"Charter"), the Board of Directors is authorized to issue, from the authorized
but unissued capital stock of the Company, Preferred Stock in such classes or
series as the Board of Directors may determine and to establish from time to
time the number of shares of Preferred Stock to be included in any such class or
series and to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of any such class or
series, and such other subjects or matters as may be fixed by resolution of the
Board of Directors. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of Preferred Stock will be described in the
Prospectus Supplement relating to that class or series, including a Prospectus
Supplement providing that Preferred Stock may be issuable upon the exercise of
Warrants issued by the Company. The description of Preferred Stock set forth
below and the description of the terms of a particular class or series of
Preferred Stock set forth in a Prospectus Supplement do not purport to be
complete and are qualified in their entirety by reference to the articles
supplementary relating to that class or series.
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The rights, preferences, privileges and restrictions of the Preferred Stock
of each class or series will be fixed by the articles supplementary relating to
such class or series. A Prospectus Supplement, relating to each class or series,
will specify the terms of the Preferred Stock as follows:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) Whether such Preferred Stock is cumulative or not and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred
Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) A discussion of any material federal income tax consequences
applicable to such Preferred Stock;
(11) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT;
(12) The relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such class or series of
Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(14) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
(15) Any voting rights of such Preferred Stock.
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock and Excess Stock of the Company, and to all equity
securities ranking junior to such Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of the Company;
(ii) on a parity with all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to dividends rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank senior to the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company.
The terms and conditions, if any, upon which shares of any class or series
of Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an
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adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such Preferred Stock.
All certificates representing shares of Preferred Stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of the outstanding Common Stock and Preferred Stock (or
1% if there are fewer than 2,000 stockholders) must file an affidavit with the
Company containing the information specified in the Charter within 30 days after
December 31 of each year. In addition, each stockholder shall upon demand be
required to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of shares as the Board of
Directors deems necessary to determine the Company's status as a real estate
investment trust and to insure compliance with the Ownership Limit.
The articles supplementary, if applicable, for the Offered Securities may
also contain provisions that further restrict the ownership and transfer of the
Offered Securities. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to the Offered Securities.
DESCRIPTION OF COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock or upon the exercise of Warrants
issued by the Company. This description is in all respects subject to and
qualified in its entirety by reference to the applicable provisions of the
Company's Charter and its Bylaws. The Common Stock is listed on the New York
Stock Exchange under the symbol "GLB." Registrar and Transfer Company is the
Company's transfer agent.
GENERAL
The Company's Charter authorizes the Company to issue up to 50,000,000
shares of Common Stock with a par value of $.001 per share. There were
20,174,692 shares of Common Stock issued and outstanding, and no shares of
Excess Stock were issued and outstanding as of the date of this Prospectus.
Under Maryland law, stockholders generally are not liable for the Company's
debts or obligations.
The holders of shares of Common Stock are entitled to one vote per share on
all matters voted on by stockholders, including election of directors, and,
except as provided in the Charter in respect of any other class of or series of
stock, the holders of these shares exclusively possess all voting power. The
Charter does not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding shares or series of stock,
holders of shares of Common Stock are entitled to receive distributions, when
and as declared by the Board of Directors, out of funds legally available
therefor. Upon any liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata all assets of the
Company legally available for distribution to its stockholders after payment of,
or adequate provisions for, all known debts and liabilities of the Company. All
shares of Common Stock now outstanding are fully paid and nonassessable, as will
be the shares of Common Stock offered by this Prospectus or any Prospectus
Supplement when issued. The holders of the Common Stock offered hereby will have
no preemptive rights to subscribe to additional stock or securities issued by
the Company at a subsequent date.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK
For the Company to qualify as a REIT under the Code, not more than 50% of
the value of its outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year (the
"closely-held test"). Shares of capital stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months (other
than
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the first year) or during a proportionate part of a shorter taxable year (the
"100 person test"). See "Federal Income Tax Consequences -- Taxation of the
Company -- Requirements for Qualification."
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Charter, subject to certain exceptions, provides that no
holder, other than Robert Batinovich and the individuals or entities whose
ownership of shares of Common Stock is attributed to Mr. Batinovich under the
Code (the "Attributed Owners"), may own an amount of Common Stock in excess of
the Ownership Limitation, which, pursuant to Board action, currently is 9.9% of
the outstanding shares of Common Stock. A qualified trust (as defined in the
Charter) generally may own up to 9.9% of the outstanding shares of Common Stock.
The Ownership Limitation provides that Robert Batinovich and the Attributed
Owners may hold up to 9.9% of the outstanding shares of Common Stock, including
shares which Robert Batinovich and the Attributed Owners may acquire pursuant to
an option held by GPA, Ltd. or Mr. Batinovich to cause the Company to redeem
their respective partnership interests in the Operating Partnership, assuming
GPA, Ltd. then dissolves and distributes these shares to the partners of GPA,
Ltd.
The Board of Directors may waive the Ownership Limitation if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that such ownership will not jeopardize the Company's status as a
REIT. As a condition to such waiver, the Board of Directors may require opinions
of counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving the REIT status of the Company. The Ownership Limitation
will not apply if the Board of Directors and the stockholders determine that it
is no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT. Any transfer of Common Stock that would (a)
create actual or constructive ownership of Common Stock in excess of the
Ownership Limitation, (b) result in the Company failing the 100 person test, or
(c) result in the Company failing the closely-held test, shall be null and void,
and the intended transferee will acquire no rights to the Common Stock.
The Charter also provides that Common Stock involved in a transfer or
change in capital structure that results in a person (other than Robert
Batinovich and the Attributed Owners) owning in excess of the Ownership
Limitation or would cause the Company to fail either the closely-held test or
the 100 person test will automatically be transferred to a trustee for the
benefit of a charitable organization until purchased by the Company or sold to a
third party without violation of the Ownership Limitation. While held in trust,
the Excess Shares will remain outstanding for purposes of any stockholder vote
or the determination of a quorum for such vote and the trustee will be empowered
to vote the Excess Shares. Excess Shares shall be entitled to distributions,
provided that such distributions shall be paid to a charitable organization
selected by the Board of Directors as beneficiary of the trust. The trustee may
transfer the Excess Shares to any individual (a "Permitted Transferee") whose
ownership of Common Stock would be permitted under the Ownership Limitation and
would not cause the Company to fail the closely-held test. In addition, the
Company would have the right, for a period of 90 days, to purchase all or any
portion of the Excess Shares from the trustee at the lesser of (i) where (a) the
intended transferee gave value for the Excess Shares, the price paid for the
Excess Shares by the intended transferee or (b) average of the intended
transferee did not give value for the Excess Shares, the price per share equal
to the average of the market price for the Common Stock for the five consecutive
trading days ending on the date of the purported transfer to the intended
transferee and (ii) the closing market price for the Common Stock for the five
consecutive trading days ending the date the Company exercises its option to
purchase. The intended transferee would be entitled to receive from the trustee
the lesser of (i) where (a) the intended transferee gave value for the Excess
Shares, the price paid for the Excess Shares by the intended transferee or (b)
the intended transferee did not give value for the Excess Shares, the price per
share equal to the average of the closing market price for the Common Stock for
the five consecutive trading days ending on the date of the purported transfer
to the intended transferee and (ii) the price per share received by the trustee
from the transfer of the Excess Shares to a Permitted Transferee.
The Ownership Limitation will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limitation would require an amendment to the Charter. Such amendments require
the affirmative vote of stockholders owning a majority of the outstanding Common
Stock. In addition to preserving the Company's status as a REIT, the
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Ownership Limitation may have the effect of precluding an acquisition of control
of the Company by a third party without the approval of the Board of Directors.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
All stockholders of record who own 5% or more of the value of the
outstanding Common Stock (or 1% if there are fewer than 2,000 stockholders of
record but more than 200, or 1/2% if there are 200 or fewer stockholders of
record) must file written notice with the Company containing the information
specified in the Charter by January 30 of each year. In addition, each
stockholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of Common Stock as the Board of Directors deems necessary to determine the
effect, if any, of such ownership on the Company's status as a REIT and to
ensure compliance with the Ownership Limitation. The Company intends to use its
best efforts to enforce the Ownership Limitation and will make prohibited
transferees aware of their obligation to pay over any distributions received,
will not give effect on its books to prohibited transfers, will institute
proceedings to enjoin any transfer violating the Ownership Limitation, and will
declare all votes of prohibited transferees invalid.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under
the Company's employee stock option plan). The Company may issue Warrants for
the purchase of Preferred Stock or Common Stock. Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following:
(1) The title of such Warrants;
(2) The aggregate number of such Warrants;
(3) The price or prices at which such Warrants will be issued;
(4) The designation, number of terms of the shares of Preferred Stock
or Common Stock purchasable upon exercise of such Warrants;
(5) The designation and terms of the Offered Securities, if any, with
which such Warrants are issued and the number of such Warrants issued with
each such Offered Security;
(6) The date, if any, on and after which such Warrants and the related
Preferred Stock or Common Stock will be separately transferable;
(7) The price at which each share of Preferred Stock or Common Stock
purchasable upon exercise of such Warrants may be purchased;
(8) The date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire;
(9) The minimum or maximum amount of such Warrants which may be
exercised at any one time;
(10) Information with respect to book-entry procedures, if any;
(11) A discussion of certain federal income tax consequences; and
(12) Any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
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CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
Certain provisions of the Company's Charter and Bylaws might discourage
certain types of transactions that involve an actual or threatened change in
control of the Company that might involve a premium price for the Company's
capital stock or otherwise be in the best interest of the stockholders. See
"Description of Common Stock -- Restrictions on Ownership and Transfer of Common
Stock." The issuance of shares of preferred stock or other capital stock by the
Board of Directors may also have the effect of delaying, depriving or preventing
a change in control of the Company. The Bylaws of the Company contain certain
advance notice requirements in the nomination of persons for election to the
Board of Directors which could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the Common Stock
might receive a premium for their Common Stock over the prevailing market price,
or which such holders might believe to be otherwise in their best interests.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax consequences is based
on current law and does not purport to deal with all aspects of taxation that
may be relevant to particular stockholders in light of their personal investment
or tax circumstances, or to certain types of stockholders (including insurance
companies, financial institutions and broker-dealers) subject to special
treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES.
The Company believes that since January 1, 1996, it has operated in a
manner that permits it to satisfy the requirements for taxation as a REIT under
the applicable provisions of the Code. The Company intends to continue to
operate to satisfy such requirements. No assurance can be given, however, that
such requirements will be met.
The provisions of the Code and regulations thereunder relating to
qualification and operation as a REIT are highly technical and complex. The
following sets forth the material aspects of the laws that govern the federal
income tax treatment of a REIT and its stockholders. This summary is qualified
in its entirety by the applicable Code provisions, rules and regulations
thereunder, and administrative and judicial interpretations thereof. Morrison &
Foerster LLP has acted as tax counsel to the Company in connection with the
Company's election to be taxed as a REIT.
In the opinion of Morrison & Foerster LLP, commencing with the Company's
taxable year that ended on December 31, 1996, the Company has been organized in
conformity with the requirements for qualification as a REIT, and its method of
operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, and various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Morrison &
Foerster LLP. Accordingly, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy such
requirements. See "-- Failure to Qualify."
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are satisfied, entities, such as the Company, that invest primarily in
real estate and that otherwise would be treated for federal income tax purposes
as corporations, are generally not taxed at the corporate level on their "REIT
Taxable Income" (generally the REIT's taxable income adjusted for, among other
things, the disallowance of the dividends-received deduction generally available
to corporations) that is currently distributed to stockholders. This treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and stockholder levels) that generally results from investing in
corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution to
its stockholders could be reduced.
TAXATION OF THE COMPANY
General
In any year in which the Company qualifies as a REIT, in general, it will
not be subject to federal income tax on that portion of its net income that it
distributes to stockholders. However, the Company will be subject to federal
income tax as follows: First, the Company will be taxed at regular corporate
rates on any undistributed REIT Taxable Income, including undistributed net
capital gains. (However, beginning in 1998, a REIT can elect to "pass through"
any of its taxes paid on its undistributed net capital gain to its stockholders
on a pro rata basis). Second, under certain circumstances, the Company may be
subject to the "alternative
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minimum tax" on its items of tax preference. Third, if the Company has (i) net
income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other nonqualifying income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income. Fourth, if the Company has net
income from "prohibited transactions" (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business other than property held for at least four years,
foreclosure property, and, beginning in 1998, property involuntarily converted),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), and has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of the amount
by which the Company fails the 75% gross income test or the 95% gross income
test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its ordinary income for such year,
(ii) 95% of its capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation, and the Company recognizes gain on the disposition
of such asset during the 10 year period beginning on the date on which such
asset was acquired by the Company, then, to the extent of any built-in gain at
the time of acquisition, such gain will be subject to tax at the highest regular
corporate rate.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons (the "100
person test"); (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year (the
"closely-held test"); and (7) which meets certain other tests, described below,
regarding the nature of income and assets. The Code provides that conditions (1)
to (4), inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. Conditions
(5) and (6) will not apply until after the first taxable year for which an
election is made by the Company to be taxed as a REIT. In addition, beginning in
1998, a REIT's failure to satisfy condition (6) during a taxable year will not
result in its disqualification as a REIT under the Code for such taxable year as
long as (i) the REIT satisfies the stockholder demand statement requirements
described in the succeeding paragraph and (ii) the REIT did not know, and
exercising due diligence, would not have known, whether it had failed condition
(6). Furthermore, a REIT must also report its income, for federal income tax
purposes, based on the calendar year.
In order to assist the Company in complying with the 100 person test and
the closely-held test, the Company has placed certain restrictions on the
transfer of the Common Stock and the Company's preferred stock to prevent
further concentration of stock ownership. See "Description of Common Stock --
Restrictions on Transfer." Moreover, to evidence compliance with these
requirements, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock and preferred stock. In fulfilling its
obligations to maintain records, the Company must and will demand written
statements each year from the record holders of designated percentages of its
Common Stock and preferred stock disclosing the actual owners of such Common
Stock and preferred stock. A list of those persons failing or refusing to comply
with such demand must be maintained as part of the Company's records. A
stockholder failing or refusing to comply with the Company's written demand must
submit with his or her tax returns a similar statement disclosing the actual
ownership of Common Stock and preferred stock and certain other information. In
addition, the Company's Charter provides restrictions regarding the transfer of
its shares that are intended to
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assist the Company in continuing to satisfy the share ownership requirements.
See "Description of Common Stock -- Restrictions on Ownership and Transfer of
Common Stock." Furthermore, the Company reports its income, for federal income
tax purposes, based on the calendar year.
Although the Company intends to satisfy the stockholder demand letter rules
described in the preceding paragraph, beginning in 1998, its failure to satisfy
these requirements will not result in its disqualification as a REIT but may
result in the imposition of IRS penalties against the Company.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of a partnership shall retain the same character in the
hands of a partner qualifying as a REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests, described
below. Thus, the Company's proportionate share of the assets, liabilities and
items of income of the Operating Partnership will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described below.
Asset Tests
At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items and government securities (as well as certain temporary
investments in stock or debt instruments purchased with the proceeds of new
capital raised by the Company). Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed either (i) 5% of the value of the Company's total
assets as to any one non-government issuer or (ii) 10% of the outstanding voting
securities of any one issuer. The Company's investment in real property through
its interest in the Operating Partnership constitutes qualified assets for
purposes of the 75% asset test. In addition, the Company may own 100% of
"qualified REIT subsidiaries," which are, in general, corporate subsidiaries
100% owned by a REIT. All assets, liabilities, and items of income, deduction
and credit of a qualified REIT subsidiary will be treated as owned and realized
directly by the Company.
The Company has analyzed the impact of its ownership interests in the
Associated Companies on its ability to satisfy the asset tests. Based upon its
analysis of the estimated value of the Company's total assets as well as its
estimate of the value of the respective nonvoting preferred stock interests in
the Associated Companies, the Company believes that none of such preferred stock
interests will exceed 5% of the value of the Company's total assets on the last
day of any calendar quarter in 1996. The Company intends to monitor compliance
with the 5% test on a quarterly basis and believes that it will be able to
manage its operations in a manner to comply with the tests, either by managing
the amount of its qualifying assets or reducing its interests in the Associated
Companies, although there can be no assurance that such steps will be
successful. In rendering its opinion as to the qualification of the Company as a
REIT, counsel has relied upon the Company's representation as to the value of
its assets and the value of its interests in the Associated Companies. Counsel
has discussed with the Company its valuation analysis and the future actions
available to it to comply with the 5% tests but it has not independently
verified the valuations.
Gross Income Tests
There are three separate percentage tests (two beginning in 1998) relating
to the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will retain
the same character in the hands of the Company as it has in the hands of the
partnership. See "-- Tax Aspects of the Company's Investment in the Operating
Partnerships -- General."
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i)
"rents from real property" (except as modified below);
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(ii) interest on obligations collateralized by mortgages on, or interests in,
real property; (iii) gains from the sale or other disposition of interests in
real property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Company's trade or
business ("dealer property"); (iv) dividends or other distributions on shares in
other REITs, as well as gain from the sale of such shares; (v) abatements and
refunds of real property taxes; (vi) income from the operation, and gain from
the sale, of property acquired at or in lieu of a foreclosure of the mortgage
collateralized by such property ("foreclosure property"); and (vii) commitment
fees received for agreeing to make loans collateralized by mortgages on real
property or to purchase or lease real property.
For purposes of determining whether the Company complies with the 75% test
and 95% test (described below), gross income does not include income from
prohibited transactions. See "-- Tax Aspects of the Company's Investment in the
Operating Partnership -- Sale of Properties."
In addition, rents received from a tenant will not qualify as rents from
real property in satisfying the 75% test (or the 95% test described below) if
the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "related party tenant"). In
addition, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as rents from real property. Moreover, an amount received or accrued
generally will not qualify as rents from real property (or as interest income)
for purposes of the 75% and 95% gross income tests if it is based in whole or in
part on the income or profits of any person. Rent or interest will not be
disqualified, however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, and are not otherwise
considered "rendered to the occupant." For both the related party tenant rules
and determining whether an entity qualifies as an independent contractor,
certain attribution rules of the Code apply, pursuant to which shares of a REIT
held by one entity are deemed held by another.
Under current law, if a REIT provides impermissible services to its
tenants, all of the rent from those tenants can be disqualified from satisfying
the 75% test and 95% test (described below). Beginning in 1998, rents will not
be disqualified if a REIT provides de minimis, impermissible services. For this
purpose, services provided to tenants of a property are considered de minimis
where income derived from the services rendered equals 1% or less of all income
derived from the property (threshold determined on a property-by-property
basis).
The Company will be deemed to provide certain services which are actually
provided by the Operating Partnership (which is not an independent contractor of
the Company) with respect to properties owned by the Operating Partnership. The
Company believes that the services provided by the Operating Partnership are
usually or customarily rendered in connection with the rental of space of
occupancy only, and therefore that the provision of such services will not cause
the rents received with respect to its properties to fail to qualify as rents
from real property for purposes of the 75% test and 95% test (described below).
The Company does not intend to rent to related party tenants or to charge rents
that would not qualify as rents from real property because the rents are based
on the income or profits of any person (other than rents that are based on a
fixed percentage or percentages of receipts or sales).
Pursuant to the percentage leases ("Percentage Leases"), GHG leases from
the Operating Partnership the land, buildings, improvements, furnishings, and
equipment comprising the Hotels for a five-year period with a five-year renewal
option. The Percentage Leases provide that the lessee will be obligated to pay
to the Operating Partnership (a) the greater of a fixed rent (the "Base Rent")
or a percentage rent (the "Percentage Rent") (collectively, the "Rents") and (b)
certain other amounts, including interest accrued on any late payments or
charges (the "Additional Charges"). The Percentage Rent is calculated by
multiplying fixed percentages by the gross revenues from the operations of the
Hotels in excess of certain levels. The Base Rent accrues and is required to be
paid monthly. Percentage Rent is due quarterly; however, the lessee will not be
in
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default for non-payment of Percentage Rent due in any calendar year if the
lessee pays, within 90 days of the end of the calendar year, the excess of
Percentage Rent due and unpaid over the Base Rent with respect to such year.
In order for the Base Rent, the Percentage Rent, and the Additional Charges
to constitute rents from real property, the Percentage Leases must be respected
as true leases for federal income tax purposes and not treated as service
contracts, joint ventures or some other type of arrangement. The determination
of whether the Percentage Leases are true leases depends on an analysis of all
the surrounding facts and circumstances. In making such a determination, courts
have considered a variety of factors, including the following: (a) the intent of
the parties, (b) the form of the agreement, (c) the degree of control over the
property that is retained by the property owner (e.g., whether the lessee has
substantial control over the operation of the property or whether the lessee was
required simply to use its best efforts to perform its obligations under the
agreement), and (d) the extent to which the property owner retains the risk of
loss of the property (e.g., whether the lessee bears the risk of increases in
operating expenses or the risk of damage to the property).
In addition, Section 7701(e) of the Code provides that a contract that
purports to be a service contract (or a partnership agreement) is treated
instead as a lease of property if the contract is properly treated as such,
taking into account all relevant factors, including whether or not: (a) the
service recipient is in physical possession of the property, (b) the service
recipient controls the property, (c) the service recipient has a significant
economic or possessory interest in the property (e.g., the property's use is
likely to be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the property
will decline in value, the recipient shares in any appreciation in the value of
the property, the recipient shares in savings in the property's operating costs,
or the recipient bears the risk of damage to or loss of the property), (d) the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (e) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient, and
(f) the total contract price does not substantially exceed the rental value of
the property for the contract period. Since the determination of whether a
service contract should be treated as a lease is inherently factual, the
presence or absence of any single factor may not be dispositive in every case.
Counsel is of the opinion that the Percentage Leases will be treated as
true leases for federal income tax purposes. Such opinion is based, in part, on
the following facts: (a) the Operating Partnership and the lessee intend for
their relationship to be that of a lessor and lessee and such relationship will
be documented by lease agreements, (b) the lessee has the right to exclusive
possession and use and quiet enjoyment of the Hotels during the term of the
Percentage Leases, (c) the lessee bears the cost of, and will be responsible
for, day-to-day maintenance and repair of the Hotels, other than the cost of
maintaining underground utilities, structural elements and exterior painting,
and will dictate how the Hotels are operated, maintained, and improved, (d) the
lessee bears all of the costs and expenses of operating the Hotels (including
inventory costs) during the term of the Percentage Leases (other than real
property taxes, personal property taxes on property owned by the Operating
Partnership, casualty insurance and the cost of replacement or refurbishment of
furniture, fixtures and equipment, to the extent such costs do not exceed the
allowance for such costs provided by the Operating Partnership under the
Percentage Leases), (e) the lessee will benefit from any savings in the costs of
operating the Hotels during the term of the Percentage Leases, (f) in the event
of damage or destruction to a Hotel which renders the Hotel unsuitable for
continued use, the lessee will be at economic risk because the Operating
Partnership can elect to terminate the Percentage Lease as to such Hotel, in
which event the lessee can elect to rebuild at its cost less any insurance
proceeds, or accept such termination, (g) the lessee will indemnify the
Partnership against all liabilities imposed on the Partnership during the term
of the Percentage Leases by reason of (i) injury to persons or damage to
property occurring at the Hotels or (ii) the lessee's use, management,
maintenance or repair of the Hotels, (h) the lessee is obligated to pay
substantial fixed rent for the period of use of the Hotels, and (i) the lessee
stands to incur substantial losses (or reap substantial gains) depending on how
successfully it operates the Hotels. The Company has represented that the lessee
has and will have its own employees, physically distinct and separate office
space, furniture and equipment, and directors. Further, the Company has
represented that neither the Company nor the Operating Partnership will furnish
or render services to either the lessee or its customers.
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Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Percentage Leases that discuss whether such
leases constitute true leases for federal income tax purposes. Therefore, the
opinion of counsel with respect to the relationship between the Operating
Partnership and the lessee is based upon all of the facts and circumstances, and
rulings and judicial decisions involving situations that are considered to be
analogous. Opinions of counsel are not binding upon the IRS or any court, and
there can be no assurance that the IRS will not assert successfully a contrary
position. If the Percentage Leases are recharacterized as service contracts or
partnership agreements, rather than true leases, part or all of the payments
that the Partnership receives from the lessee may not be considered rent or may
not otherwise satisfy the various requirements for qualification as rents from
real property. In that case, the Company likely would not be able to satisfy
either the 75% test or 95% test (described below) and, as a result, could lose
its REIT status.
In order for the Rents to constitute rents from real property, several
other requirements also must be satisfied. One requirement is that the Rents
attributable to personal property leased in connection with the lease of the
real property comprising a Hotel must not be greater than 15% of the Rents
received under the Percentage Lease. The Rents attributable to the personal
property in a Hotel is the amount that bears the same ratio to total rent for
the taxable year as the average of the adjusted bases of the personal property
in the Hotel at the beginning and at the end of the taxable year bears to the
average of the aggregate adjusted bases of both the real and personal property
comprising the Hotel at the beginning and at the end of such taxable year (the
"Adjusted Basis Ratio"). Management has obtained an appraisal of the personal
property at each Hotel indicating that the appraised value of the personal
property at each Hotel is less than 15% of the value at which such Hotel is
acquired. However, the Company has represented that the Operating Partnership
will in no event acquire additional personal property for a Hotel to the extent
that such acquisition would cause the Adjusted Basis Ratio for that Hotel to
exceed 15%. There can be no assurance, however, that the Service would not
assert that the personal property acquired from a particular partnership had a
value in excess of the appraised value, or that a court would not uphold such
assertion. If such a challenge were successfully asserted, the Company could
fail the 15% Adjusted Basis Ratio as to one or more of the Percentage Leases,
which in turn potentially could cause it to fail to satisfy the 75% test or the
95% (described below) and thus could lose its REIT status.
Another requirement for qualification of the Rents as rents from real
property is that the Percentage Rent must not be based in whole or in part on
the income or profits of any person. The Percentage Rent, however, will qualify
as rents from real property if it is based on percentages of receipts or sales
and the percentages (a) is fixed at the time the Percentage Leases are entered
into, (b) is not renegotiated during the term of the Percentage Leases in a
manner that has the effect of basing Percentage Rent on income or profits, and
(c) conforms with normal business practice. More generally, the Percentage Rent
will not qualify as rents from real property if, considering the Percentage
Leases and all the surrounding circumstances, the arrangement does not conform
with normal business practice, but is in reality used as a means of basing the
Percentage Rent on income or profits. Since the Percentage Rent is based on
fixed percentages of the gross revenues from the Hotels that are established in
the Percentage Leases, and the Company has represented that the percentages (i)
will not be renegotiated during the terms of the Percentage Leases in a manner
that has the effect of basing the Percentage Rent on income or profit and (ii)
conform with normal business practice, the Percentage Rent should not be
considered based in whole or in part on the income or profits of any person.
Furthermore, the Company has represented that, with respect to other hotel
properties that it acquires in the future, it will not charge rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage of gross revenue,
as described above).
As described above, a further requirement, under the related party tenant
rules, for qualification of Rents as rents from real property limits the
relationship between the Company and its tenants. In the case of a corporate
tenant, the Company must not own 10% or more of the total combined voting power
of the tenant's stock and must not own 10% or more of the total number of shares
of all classes of the tenant's stock outstanding. In the case of a tenant that
is not a corporation, the Company must not own 10% or more in interest of the
tenant's assets or net profits. The Company intends to limit its ownership
interest in GHG to
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nonvoting preferred stock which will constitute less than 10% of the total
number of outstanding shares of GHG stock. The common stock of GHG, which is the
only voting stock of GHG, will be owned by persons who are not related to the
Company within the definition in the applicable statute. The common stockholders
will have a significant economic interest in GHG and will elect the board of
directors of GHG. Based upon the foregoing, counsel is of the opinion that
rental payments from GHG will not constitute rentals from a party related to the
Company.
The Company will receive nonqualifying management fee income. As a result,
the Company may approach the income test limits and could be at risk of not
satisfying such tests and thus not qualifying as a REIT. Counsel's opinion is
based on the Company's representation that the actual amount of nonqualifying
income will not exceed such limits.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. Furthermore,
income earned on interest rate swaps and caps entered into as liability hedges
against variable rate indebtedness qualify for the 95% test (but not the 75%
test). Beginning in 1998, income earned on liability hedges against all of a
REIT's indebtedness, such as options, futures, and forward contracts, will
qualify for the 95% test (but not the 75% test). In certain cases, Treasury
Regulations treat a debt instrument and a liability hedge as a synthetic debt
instrument for all purposes of the Code. If a liability hedge entered into by a
REIT is subject to these rules, income earned thereon will operate to reduce its
interest expense, and, therefore such income will not affect the REIT's
compliance with either the 75% or 95% tests.
Even if the Company fails to satisfy one or both of the 75% or 95% tests
for any taxable year, it may still qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief provisions
will generally be available if: (i) the Company's failure to comply was due to
reasonable cause and not to willful neglect; (ii) the Company reports the nature
and amount of each item of its income included in the 75% and 95% tests on a
schedule attached to its tax return; and (iii) any incorrect information on this
schedule is not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled to
the benefit of these relief provisions. If these relief provisions apply, the
Company will, however, still be subject to a special tax upon the greater of the
amount by which it fails either the 75% or 95% test for that year.
The 30% Test. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a "prohibited transaction." In this regard, certain of the Company's
assets are subject to existing purchase options. Although the Company believes,
based on the historical experience of certain predecessor partnerships, that it
will satisfy this 30% test, if, contrary to expectations, large numbers of such
options are exercised, more than 30% of the Company's gross income in a taxable
year could be derived from a proscribed source. The Company will, however, use
its best efforts to ensure that it will continue to satisfy each of the
foregoing income requirements. Furthermore, the 30% test has been repealed
effective for tax years beginning after December 31, 1997.
ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders each
year in an amount at least equal to (A) the sum of (i) 95% of the Company's REIT
Taxable Income (computed without regard to the dividends paid deduction and the
REIT's net capital gain) and (ii) 95% of the net income (after tax), if any,
from foreclosure property, minus (B) the sum of certain items of non-cash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
distribution payment after such declaration. To the extent that the
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Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its REIT Taxable Income, as adjusted, it will be
subject to tax on the undistributed amount at regular capital gains or ordinary
corporate tax rates, as the case may be. (However, beginning in 1998, a REIT can
elect to "pass through" any of its taxes paid on its undistributed net capital
gain to its shareholders on a pro rata basis.) Furthermore, if the REIT should
fail to distribute during each calendar year at least the sum of (i) 85% of its
ordinary income for such year, (ii) 95% of its net capital gain for such year,
and (iii) any undistributed taxable income from prior periods, the REIT would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. For such purposes, dividends declared to
shareholders of record in October, November, or December of one calendar year
and paid by January 31 of the following calendar year are deemed paid as of
December 31 of the initial calendar year.
The Company believes that it has made and will make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand. Further, as described below, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. To avoid any problem with the
95% distribution requirement, the Company will closely monitor the relationship
between its REIT Taxable Income and cash flow and, if necessary, will borrow
funds (or cause the Operating Partnership or other affiliates to borrow funds)
in order to satisfy the distribution requirement. The Company (through the
Operating Partnership) may be required to borrow funds at times when market
conditions are not favorable.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the IRS, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event, to the extent of the Company's current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether the Company would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership.
General
The Company holds a direct ownership interest in the Operating Partnership.
In general, partnerships are "pass-through" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company includes its
proportionate share of the foregoing Operating Partnership items for
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purposes of the various REIT income tests and in the computation of its REIT
Taxable Income. See "-- Requirements for Qualification" and "-- Gross Income
Tests." Any resultant increase in the Company's REIT Taxable Income increases
its distribution requirements (see "-- Requirements for Qualification" and
"-- Annual Distribution Requirements"), but is not subject to federal income tax
in the hands of the Company provided that such income is distributed by the
Company to its stockholders. Moreover, for purposes of the REIT asset tests (see
"-- Requirements for Qualification" and "-- Asset Tests"), the Company includes
its proportionate share of assets held by the Operating Partnership.
Tax Allocations with Respect to Certain Properties
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property. Consequently, the partnership agreement of the Operating
Partnership requires such allocations to be made in a manner consistent with
Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets. This will tend to eliminate the Book-Tax Difference over the
life of the Operating Partnership. However, the special allocation rules under
Section 704(c) of the Code do not always entirely rectify the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the Operating Partnership may cause the company to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "-- Requirements for Qualification" and "-- Annual Distributon
Requirements." In addition, the application of Section 704(c) of the Code to the
Operating Partnership is not entirely clear and may be affected by authority
that may be promulgated in the future.
Basis in Operating Partnership Interest
The Company's adjusted tax basis in its partnership interest in the
Operating Partnership generally (i) is equal to the amount of cash and the basis
of any other property contributed to the Operating Partnership by the Company,
(ii) is increased by (a) its allocable share of the Operating Partnership's
income and (b) increases in its allocable share of indebtedness of the Operating
Partnership and (iii) is reduced, but not below zero, by the Company's allocable
share of (a) the Operating Partnership's losses and (b) the amount of cash
distributed to the Company, and by constructive distributions resulting from a
reduction in the Company's share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's losses would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition of
such losses will be deferred until such time as the recognition of such loss
would not reduce the Company's adjusted tax basis below zero. To the extent that
the Operating Partnership's distributions, or any decrease in the Company's
share of the indebtedness of the Operating Partnership (each such decrease being
considered a constructive cash distribution to the partners), would reduce the
Company's adjusted tax basis below zero, such distributions (including such
constructive distributions) constitute taxable income to the Company. Such
distributions and constructive distributions will normally be characterized as a
capital gain, and if the Company's partnership interest in the Operating
Partnership has been held for longer than the long-
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term capital gain holding period (currently one year), the distributions and
constructive distributions will constitute long-term capital gains.
Sale of Properties
Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership will be capital gain, except for any
portion of such gain that is treated as depreciation or cost recovery recapture.
The Company's share of any gain realized by the Operating Partnership on the
sale of any dealer property generally will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See "Taxation of
the Company" and "-- Requirements for Qualification" and "-- Gross Income
Tests -- The 95% Test." Under existing law, whether property is dealer property
is a question of fact that depends on all the facts and circumstances with
respect to the particular transaction. The Operating Partnership intends to hold
its properties for investment with a view to long-term appreciation, to engage
in the business of acquiring, developing, owning and operating its properties,
and to make such occasional sales of properties as are consistent with the
Company's investment objectives. Based upon such investment objectives, the
Company believes that in general the Operating Partnership's properties should
not be considered dealer property and that the amount of income from prohibited
transactions, if any, will not be material.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income. Stockholders that are corporations will not
be entitled to a dividends-received deduction. To the extent that the Company
makes distributions in excess of current and accumulated earnings and profits,
these distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's shares of Company stock
by the amount of such distribution (but not below zero), with distributions in
excess of the stockholder's tax basis taxable as capital gains (if the shares of
Company stock are held as a capital asset). In addition, any dividend declared
by the Company in October, November or December of any year and payable to a
stockholder of record on a specific date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company during January
of the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of the Company.
In general, distributions which are designated by the Company as capital
gain dividends will be taxed to stockholders as gain from the sale of assets
held for greater than 1 year (to the extent such distributions do exceed the
Company's actual net capital gain for the taxable year), without regard to the
period for which a stockholder has held his stock upon which the capital gain
dividend is paid. However, corporate stockholders may be required to treat up to
20% of certain capital gain dividends as ordinary income.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year but less than or equal to 18 months. In addition, a
maximum rate of 25% now applies to noncorporate taxpayers on certain gains
realized on the sale of real property. The 1997 Act retains the treatment of
short term capital gain or loss (generally, gain or loss attributable to capital
assets held for 1 year or less) and did not affect the taxation of capital gains
in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including REITs and partnerships (such as the Operating Partner-
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ship). Noncorporate stockholders of the Company may therefore qualify for the
reduced rate of tax on capital gain dividends paid by the Company.
Beginning in 1998, an election will be available under which a REIT may
retain its capital gains and pay tax thereon at corporate rates, and its
stockholders will be deemed to have received their pro rata share of the capital
gains and paid their pro rata share of the tax. The stockholders may also
increase the basis in their shares of the REIT's stock by the difference between
their share of such capital gains and tax. Any tax deemed paid by a stockholder
pursuant to this election will be creditable against his federal income tax
liability.
In general, any loss upon a sale or exchange of shares of Company stock by
a stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gain.
Backup Withholding
The Company will report to its domestic stockholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid and redemption proceeds unless such stockholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules.
Notwithstanding the foregoing, the Company will institute backup withholding
with respect to a stockholder when instructed to do so by the IRS. A stockholder
that does not provide the Company with his correct taxpayer identification
number may also be subject to penalties imposed by the IRS. Any amount paid as
backup withholding will be creditable against the stockholder's federal income
tax liability.
Taxation of Tax-Exempt Stockholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Revenue rulings, however, are
interpretive in nature and are subject to revocation or modification by the IRS.
Based upon the ruling and the analysis therein, distributions by the Company to
a stockholder that is a tax-exempt entity should not constitute UBTI, provided
that the tax exempt entity has not financed the acquisition of its shares of
Common Stock with "acquisition indebtedness" within the meaning of the Code, and
that the shares of the Company's stock are not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, REITs generally treat
the beneficiaries of qualified pension trusts as the beneficial owners of REIT
shares owned by such pension trusts for purposes of determining if more than 50%
of the REIT's shares are owned by five or fewer individuals. However, if a
pension trust owns more than 10% of the REIT's shares, it can be subject to UBTI
on all or a portion of REIT dividends made to it, if the Company is treated as a
"pension-held REIT." In view of the Ownership Limitation, the Company does not
expect to be treated as a "pension-held REIT." See "Description of Common
Stock -- Restrictions on Transfer." Consequently, a pension trust stockholder
should not be subject to UBTI on dividends that it receives from the Company.
However, because the Common Stock is publicly traded, no assurance can be given
to this effect.
Taxation of Foreign Stockholders
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders are complex and no attempt is made herein to provide more than a
summary of such rules. Prospective foreign investors ("Non-U.S. Stockholders")
should consult with their own tax advisors to determine the impact of federal,
state, local and any foreign income tax laws with regard to an investment in the
Company, including any reporting requirements.
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Distributions that are not attributable to gain from sales or exchanges by
the Company or the Operating Partnership of "United States real property
interests" ("USRPIs"), as defined in the Code, and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to the
extent they are made out of current or accumulated earnings and profits of the
Company. Unless such distributions are effectively connected with the Non-U.S.
Stockholder's conduct of a U.S. trade or business (or, if an income tax treaty
applies, is attributable to a U.S. permanent establishment of the Non-U.S.
Stockholder), the gross amount of the distributions will ordinarily be subject
to U.S. withholding tax at a 30% or lower treaty rate, if applicable. In
general, Non-U.S. Stockholders will not be considered engaged in a U.S. trade or
business (or, in the case of an income tax treaty, as having a U.S. permanent
establishment) solely by reason of their ownership of the Company's stock. If
income on the Company's stock is treated as effectively connected with the
Non-U.S. Stockholder's conduct of a U.S. trade or business (or, if an income tax
treaty applies, is attributable to a U.S. permanent establishment of the
Non-U.S. Stockholder), the Non-U.S. Stockholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such distributions (and may also be subject to the 30% branch profits
tax in the case of a stockholder that is a foreign corporation). The Company
expects to withhold U.S. income tax at the rate of 30% on the gross amount of
any distributions of ordinary income made to a Non-U.S. Stockholder unless (i) a
lower treaty rate applies and proper certification is provided or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that the
distribution is effectively connected with the Non-U.S. Stockholder's conduct of
a U.S. trade or business (or, if an income tax treaty applies, is attributable
to a U.S. permanent establishment of the Non-U.S. Stockholder). Under current
rules, dividends paid to an address in a country outside the United States are
generally presumed to be paid to a resident of such country for purposes of
ascertaining the requirement of withholding discussed above and the
applicability of a tax treaty rate. Under new Treasury Regulations, not
effective until January 1, 1999, however, a Non-U.S. Stockholder who seeks to
claim the benefit of an applicable treaty rate will be required to satisfy
certain certification and other requirements.
Unless the Company's stock constitutes a USRPI, distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a stockholder to the extent that such distributions do not exceed the
adjusted basis of the stockholder's shares but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's shares of the Company's capital stock, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
shares, as described below. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distributions will be subject
to withholding at the same rate as dividends. If, however, the Company's stock
is treated as a USRPI, then unless otherwise treated as a dividend for
withholding tax purposes as described below, any distributions in excess of
current or accumulated earnings and profits will generally be subject to 10%
withholding and, to the extent such distributions also exceed the adjusted basis
of a Non-U.S. Stockholder's stock, they will also give rise to gain from the
sale or exchange of the stock, the tax treatment of which is described below.
Under new Treasury Regulations not effective until January 1, 1999, in
general, the gross amount of any distribution by the Company to a Non-U.S.
Stockholder will ordinarily be subject to U.S. withholding tax at a 30% or lower
treaty rate, if applicable, unless the distribution is designated as a capital
gain dividend or as a return of basis, or is effectively connected with the
Non-U.S. Stockholder's conduct of a U.S. trade or business (or, if an income tax
treaty applies, is attributable to a U.S. permanent establishment of the
Non-U.S. Stockholder). In any event, amounts withheld may be refundable if it is
subsequently determined that such amounts are in excess of the Non-U.S.
Stockholder's U.S. tax liability.
Distributions that are designated by the Company at the time of
distribution as capital gain dividends (other than those arising from the
disposition of a USRPI) generally will not be subject to taxation, unless (i)
investment in the shares is effectively connected with the Non-U.S.
Stockholder's United States trade or business (or, if an income tax treaty
applies, it is attributable to a United States permanent establishment of the
Non-U.S. Stockholder), in which case the Non-U.S. Stockholder will be subject to
the same treatment as U.S. stockholders with respect to such gain (except that a
stockholder that is a foreign corporation may also
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be subject to the 30% branch profits tax), or (ii) the Non-U.S. Stockholder is a
non-resident alien individual whose is present in the United States for 183 days
or more during the taxable year and either has a "tax home" in the United States
or sold his or her shares under circumstances in which the sale was attributable
to a U.S. office, in which case the non-resident alien individual will be
subject to a 30% tax on the individual's capital gains.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of USRPIs
("USRPI Capital Gains"), such a properties beneficially owned by the Company
(including property held by the Operating Partnership), will be taxed to a
Non-U.S. Stockholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed
to a Non-U.S. Stockholder as gain effectively connected with a U.S. trade or
business regardless or whether such dividends are designated as capital gain
dividends. Non-U.S. Stockholders would thus be taxed at the normal capital gain
rates applicable to U.S. stockholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) on such distributions. Also, distributions of USRPI Capital Gains
may be subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder not entitled to treaty exemption or rate reduction. The Company is
required by applicable Treasury Regulations to withhold 35% of any distribution
consisting of USRPI Capital Gains. This amount may be creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares of Company
stock will generally not be taxed under FIRPTA if the shares do not constitute a
USRPI. Shares of the Company will not be considered a USRPI if the Company is a
"domestically controlled REIT," or if the shares are part of a class of stock
that is regularly traded on an established securities market and the holder
owned less 5% of the class of stock sold during a specified testing period. A
"domestically controlled REIT" is defined generally as a real estate investment
trust in which at all times during a specified testing period less than 50% in
value of the stock was held directly or indirectly by foreign persons. The
Company believes that it is a "domestically controlled REIT," and therefore the
sale of shares will not be subject to taxation under FIRPTA. If the gain on the
sale of shares were to be subject to taxation under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals),
and the purchaser of the stock may be required to withhold 10% of the purchase
price and remit such amount to the IRS. However, since the Company's Common
Stock is publicly traded, no assurance can be given to this effect.
Gain not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i)
investment in the shares is effectively connected with a U.S. trade or business
of the Non-U.S. Stockholder (or, if an income tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Stockholder), in
which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. stockholders with respect to such gain, or (ii) the Non-U.S. Stockholder is
a nonresident alien individual who was present in the U.S. for 183 days or more
during the taxable year and has a "tax home" in the U.S., in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as
U.S. stockholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals).
If the proceeds of a disposition of shares of Company stock are paid by or
through a U.S. office of a broker, the payment is subject to information
reporting and backup withholding unless the disposing Non-U.S. Stockholder
certifies as to his name, address and non-U.S. status or otherwise establishes
an exemption. Generally, U.S. information reporting and backup withholding will
not apply to a payment of disposition proceeds if the payment is made outside
the U.S. through a non-U.S. office of a non-U.S. broker. U.S. information
reporting requirements (but not backup withholding) will apply, however, to a
payment of disposition proceeds outside the U.S. if (i) the payment is made
through an office outside the U.S. of a broker that is either (a) a U.S. person,
(b) a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the U.S. or (c) a "controlled
foreign corporation" for U.S. federal income tax purposes, and (ii) the broker
fails to obtain documentary evidence that the stockholder is a
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<PAGE> 87
Non-U.S. Stockholder and that certain conditions are met or that the Non-U.S.
Stockholder otherwise is entitled to an exemption.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective investors should recognize that the present federal income tax
treatment of an investment in the Company may be modified by legislative,
judicial or administrative action at any time, and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department, resulting
in revisions or regulations and revised interpretations of established concepts
as well as statutory changes. Revisions in federal tax laws and interpretations
thereof could adversely affect the tax consequences of an investment in the
Company.
State Tax Consequences and Withholding
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Several states in which the Company may conduct business treat
REITs as ordinary corporations. The Company does not believe, however, that
stockholders will be required to file state tax returns, other than in their
respective states of residence, as a result of the ownership of shares of the
Company's capital stock. However, prospective stockholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
EACH INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE OWNERSHIP AND SALE OF COMMON
STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents, which agents may be affiliated with the Company. Any
such underwriter or agent involved in the offer and sale of the Offered
Securities will be named in the applicable Prospectus Supplement. Direct sales
to investors may be accomplished through subscription offerings or concurrent
rights offerings to the Company's stockholders and direct placements to third
parties.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions on the
New York Stock Exchange or in negotiated transactions or any combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at other negotiated prices.
Underwriters may offer and sell Offered Securities at a fixed price or
prices which may be changed, at prices related to the prevailing market prices
at the time of sale, or at negotiated prices. The Company also may offer and
sell the Offered Securities in exchange for one or more of its then outstanding
issues of debt or convertible debt securities. The Company also may, from time
to time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for whom they may act
as agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive
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<PAGE> 88
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act. Any such
indemnification agreements will be described in the applicable Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Offered Securities will be a new issue with no established trading
market, other than the Common Stock which is listed on the New York Stock
Exchange. Any shares of Common Stock sold pursuant to a Prospectus Supplement
will be listed on such exchange, subject to official notice of issuance. The
Company may elect to list any series of Preferred Stock or Warrants on any
exchange, but is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of Offered Securities, but will not
be obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market for the Offered Securities.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the U.S. to which such institution is subject, and (ii) if
the Offered Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of the Offered Securities
less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for, the Company and its
subsidiaries in the ordinary course of business.
In order to facilitate an offering of Offered Securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the Offered Securities during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the Offered Securities for their own account by
selling more Offered Securities than have been sold to them by the Company. The
underwriters may elect to cover any such short position by purchasing Offered
Securities in the open market or by exercising any over-allotment option granted
to the underwriters. In addition, such persons may stabilize or maintain the
price of the Offered Securities by bidding for or purchasing Offered Securities
in the open market and may impose penalty bids, under which selling concessions
allowed to syndicate members or other broker-dealers participating in the
offering are reclaimed if Offered Securities previously distributed in the
offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of the Offered Securities at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Offered Securities to the extent that it discourages
resales thereof. No representation is made as to the
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<PAGE> 89
magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
EXPERTS
The financial statements of the Company, the GRT Predecessor Entities,
Glenborough Hotel Group, Atlantic Pacific Assurance Company Limited and
Glenborough Inland Realty Corporation and related financial statement schedules
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, incorporated by reference herein, have been audited by Arthur Andersen
LLP, independent public accountants, to the extent and for the periods indicated
in their reports, and have been incorporated herein in reliance on such reports
given on the authority of that firm as experts in accounting and auditing.
In addition, the respective statements of revenues and certain expenses of
the Copley Properties, the Rancon IV and V Portfolios, the
Prudential-Bache/Equitec Portfolio and Bryant Lake included in this Prospectus
Supplement, to the extent and for the periods indicated in their reports, have
also been audited by Arthur Andersen LLP, independent public accountants, and
are included herein in reliance on such reports given on the authority of that
firm as experts in accounting and auditing.
In addition, the respective statements of revenues and certain expenses of
the UCT Property, the TRP Properties, the Carlsberg Properties, the CIGNA
Properties, the E&L Properties, the Lennar Properties, the Riverview Property,
the T. Rowe Price Properties, the Centerstone Property, the Advance Properties
and Citibank Park, included in various Current Reports on Form 8-K and Form
8-K/A, incorporated by reference herein, have also been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the periods
indicated in their reports, and have been incorporated herein, in reliance on
such reports given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Morrison & Foerster LLP, Palo Alto, California. In addition, the description
of the Company's qualifications and taxation as a REIT under the Code contained
in the Prospectus under the caption "Federal Income Tax Consequences" is based
upon the opinion of Morrison & Foerster LLP.
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<PAGE> 90
Inside Front Cover
Map of the United States indicating the location of owned portfolios, portfolios
controlled by the Associated Companies and proposed acquisitions.
Pie chart indicating pro forma contribution to net operating income by property
type: Retail 10%, Multi-Family 5%, Industrial 12%, Office/Flex 25%, Office 42%
and Hotel 6%.
Pie chart indicating pro forma square footage by property type: Retail 9%, Hotel
3%, Office 27%, Office/Flex 27%, Industrial 27% and Multi-Family 7%.
Inside Back Cover
Six photographs of recent and proposed property acquisitions (25 Independence
Boulevard, Warren, NJ, Frontier Executive Quarters I, Bridgewater, NJ,
Shadowridge Apartments, Vista, CA, One Parkside, San Bernardino, CA, Lakeside
Tower, San Bernardino, CA and Bryant Lake, Eden Prairie, MN).
<PAGE> 91
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............ S-3
The Company.............................. S-10
Recent Activities........................ S-13
Use of Proceeds.......................... S-19
Price Range of Common Stock and
Distribution History................... S-20
Capitalization........................... S-21
The Properties........................... S-22
Selected Historical and Pro Forma
Financial and Other Data............... S-25
Pro Forma Financial Information.......... S-28
Underwriting............................. S-43
Legal Matters............................ S-44
Experts.................................. S-44
Index to Financial Statements............ F-1
PROSPECTUS
Available Information.................... 3
Incorporation of Certain Documents by
Reference.............................. 3
The Company.............................. 5
Risk Factors............................. 6
Use of Proceeds.......................... 13
Ratio of Earnings to Fixed Charges....... 13
Description of Preferred Stock........... 13
Description of Common Stock.............. 15
Description of Warrants.................. 17
Certain Provisions of the Company's
Charter and Bylaws..................... 18
Federal Income Tax Consequences.......... 19
Plan of Distribution..................... 32
Experts.................................. 34
Legal Matters............................ 34
</TABLE>
=========================================================
=========================================================
10,000,000 SHARES
LOGO
LOGO
COMMON STOCK
------------------------
PROSPECTUS SUPPLEMENT
------------------------
BEAR, STEARNS & CO. INC. SALOMON BROTHERS INC
SMITH BARNEY INC.
BANCAMERICA ROBERTSON STEPHENS
JEFFERIES & COMPANY, INC.
MCDONALD & COMPANY SECURITIES, INC.
OCTOBER 20, 1997
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