SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 15, 1998 (March 27, 1998)
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 001-14162 94-3211970
(state or other (Commission (IRS Employer
jurisdiction of File Number) I.D. Number)
incorporation)
400 South E1 Camino Real, Ste. 1100, San Mateo, California 94402
(Address of principal executive offices)
Registrant's Telephone number, including area code: (650) 343-9300
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Glenborough Realty Trust Incorporated (the "Company") hereby amends Item 7 of
its Current Report on Form 8-K filed with the Securities and Exchange Commission
(the "Commission") on May 7, 1998, to file the Financial Statements and Exhibits
of the Company related to the acquisition of the Eaton and Lauth Portfolio and
the BGK Portfolio (each as defined in such Form 8-K).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Report of Independent Public Accountants 4
Combined statement of revenues and certain expenses of the
Eaton and Lauth Portfolio 5
Notes to combined statement of revenues and certain
expenses of the Eaton and Lauth Portfolio 6
Report of Independent Public Accountants 8
Combined statement of revenues and certain expenses of the
BGK Portfolio 9
Notes to combined statement of revenues and certain expenses
of the BGK Portfolio 10
(b) PRO FORMA FINANCIAL STATEMENTS
Pro forma Consolidated Balance Sheet as of December 31, 1997,
with accompanying notes and adjustments 14
Pro forma Consolidated Statement of Operations for the year ended
December 31, 1997, with accompanying notes and adjustments 23
(c) EXHIBIT
23.1 Consent of Independent Auditors 28
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
By: Glenborough Realty Trust Incorporated
Date: May 15, 1998 /s/ ANDREW BATINOVICH
Andrew Batinovich
President, Chief Operating Officer
(Principal Operating Officer)
Date: May 15, l998 /s/ TERRI GARNICK
Terri Garnick
Senior Vice President
Chief Accounting Officer, Treasurer
(Principal Accounting Officer)
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glenborough Realty Trust Incorporated:
We have audited the accompanying combined statement of revenues and certain
expenses of the Eaton and Lauth Portfolio, as defined in Note 1, for the year
ended December 31, 1997. 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 Eaton and
Lauth Portfolio.
In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the Eaton
and Lauth Portfolio for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
May 15, 1998
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GLENBOROUGH REALTY TRUST INCORPORATED
Combined Statement of Revenues and Certain Expenses of
the Eaton and Lauth Portfolio
For the Year Ended December 31, 1997
(In Thousands)
REVENUES $ 9,362
CERTAIN EXPENSES:
Operating 2,239
Real estate taxes 975
3,214
REVENUES IN EXCESS OF CERTAIN
EXPENSES $ 6,148
The accompanying notes are an integral part of this statement.
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Combined Statement of Revenues and Certain Expenses of
the Eaton and Lauth Portfolio
For the Year Ended December 31, 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Properties Acquired -- The accompanying combined statement of revenues and
certain expenses includes the operations (see "Basis of Presentation" below) of
the Eaton and Lauth Portfolio acquired by the Company from an unaffiliated third
party.
Property City State Type
Crosspoint Four Fishers IN Office
Meridian Park Carmel IN Office
The Osram Building Westfield IN Office
Cross Creek Retail Centre Indianapolis IN Retail
Geist Retail Centre Indianapolis IN Retail
Woodfield Centre Indianapolis IN Retail
Broad Ripple Retail Centre Indianapolis IN Retail
Crosscreek Apartments Indianapolis IN Multi-family
Harcourt Club Apartments Indianapolis IN Multi-family
Island Club Apartments Indianapolis IN Multi-family
Basis of Presentation -- The accompanying combined statement of revenues and
certain expenses is not intended to be a complete presentation of the actual
operations of the Eaton and Lauth Portfolio for the period presented. Certain
expenses may not be comparable to the expenses expected to be incurred by the
Company in the future operations of the Eaton and Lauth Portfolio; however, the
Company is not aware of any material factors relating to the Eaton and Lauth
Portfolio 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 Eaton and Lauth Portfolio.
The Osram Building is a single tenant building under a triple net leasing
arrangement for which the tenant is responsible for the payment of all operating
expenses. The accompanying combined statement of revenues and certain expenses
excludes these operating expenses which are paid directly by the tenant and the
corresponding revenues which otherwise would have been received from the tenant
as expense reimbursements.
This combined financial statement has been prepared for the purpose of complying
with certain rules and regulations of the Securities and Exchange Commission.
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Revenue Recognition -- All leases are classified as operating leases. Rental
revenue is recognized as earned over the terms of the leases.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
2. LEASING ACTIVITY
The minimum future rental revenues from leases in effect as of January 1, 1998
are as follows (in thousands):
Year Amount
1998 $ 3,372
1999 2,942
2000 2,086
2001 1,132
2002 659
Thereafter 2,281
Total $ 12,472
In addition to minimum rental payments, tenants pay reimbursements for their pro
rata share of specified operating expenses, which amounted to $787 for the year
ended December 31, 1997. Certain leases contain lessee renewal options.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glenborough Realty Trust Incorporated:
We have audited the accompanying combined statement of revenues and certain
expenses of the BGK Portfolio, as defined in Note 1, for the year ended December
31, 1997. 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 BGK Portfolio.
In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the BGK
Portfolio for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
May 12, 1998
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GLENBOROUGH REALTY TRUST INCORPORATED
Combined Statement of Revenues and Certain Expenses of
the BGK Portfolio
For the Year Ended December 31, 1997
(In Thousands)
REVENUES $ 6,016
CERTAIN EXPENSES:
Operating 1,405
Real estate taxes 673
-------------
2,078
-------------
REVENUES IN EXCESS OF CERTAIN
EXPENSES $ 3,938
=============
The accompanying notes are an integral part of this statement.
Page 9 of 27
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Combined Statement of Revenues and Certain Expenses of
the BGK Portfolio
For the Year Ended December 31, 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Properties Acquired -- The accompanying combined statement of revenues and
certain expenses includes the operations (see "Basis of Presentation" below) of
the BGK Portfolio acquired by the Company from an unaffiliated third party.
Property City State Type
Bronx Park I Marlborough MA Office
The Hartwood Building Lexington MA Office
Blue Ridge Office Building Braintree MA Office
Leawood Office Building Leawood KS Office
Canton Business Center Canton MA Office/Flex
Flanders Industrial Park Westborough MA Industrial
Forest Street Business Center Marlborough MA Industrial
Basis of Presentation -- The accompanying combined statement of revenues and
certain expenses is not intended to be a complete presentation of the actual
operations of the BGK Portfolio for the period presented. Certain expenses may
not be comparable to the expenses expected to be incurred by the Company in the
future operations of the BGK Portfolio; however, the Company is not aware of any
material factors relating to the BGK Portfolio 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 BGK Portfolio.
This combined financial statement has 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.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Combined Statement of Revenues and Certain Expenses of
the BGK Portfolio
For the Year Ended December 31, 1997
2. LEASING ACTIVITY
The minimum future rental revenues from leases in effect as of January 1, 1998
are as follows (in thousands):
Year Amount
1998 $ 5,608
1999 4,870
2000 3,925
2001 3,237
2002 2,548
Thereafter 4,002
Total $ 24,190
In addition to minimum rental payments, tenants pay reimbursements for their pro
rata share of specified operating expenses, which amounted to $664 for the year
ended December 31, 1997. Certain leases contain lessee renewal options.
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Pro Forma Financial Information
The following unaudited, pro forma consolidated balance sheet as of December 31,
1997 has been prepared to reflect: (i) all property acquisitions completed in
1997 and in 1998 through the date hereof as described in footnote one and two to
the Notes and Adjustments to Pro Forma Consolidated Balance Sheet as of December
31, 1997; (ii) the pending property acquisitions as described in footnote three
to the Notes and Adjustments to Pro Forma Consolidated Balance Sheet as of
December 31, 1997; (iii) the March 1998 offering of $150 million unsecured
senior notes of the Operating Partnership ("the March 1998 Offering"), the
January 1998 offering of 11,500,000 shares of Series A convertible preferred
stock ("the January 1998 Offering"), and the application of the net proceeds
therefrom; (iv) debt assumed and borrowings under a $150 million interim loan
(''the Interim Loan'') and the Company's $250 million unsecured acquisition
credit facility ("the Acquisition Credit Facility"); (v) repayment of certain
mortgage loans, the Interim Loan and a portion of the borrowings on the
Acquisition Credit Facility; and (vi) the sales of certain properties as
described in footnote five to the Notes and Adjustments to Pro Forma
Consolidated Balance Sheet as of December 31, 1997 and the use of these sales
proceeds for the repayment of related mortgage debt and for the funding of
certain property acquisitions as if each of such transactions had been completed
on December 31, 1997.
The following unaudited, pro forma consolidated statement of operations for the
year ended December 31, 1997 has been prepared to reflect: (i) all property
acquisitions completed in 1997 and in 1998 through the date hereof, as described
in footnote one and two of the Notes and Adjustments to Pro Forma Consolidated
Balance Sheet as of December 31, 1997; (ii) the pending property acquisitions as
described in footnote three to the Notes and Adjustments to Pro Forma
Consolidated Balance Sheet as of December 31, 1997; (iii) the March 1998
Offering, the January 1998 Offering, the October 1997 Offering of 11,300,000
shares of common stock, the July 1997 offering of 6,980,000 shares of common
stock, and the March 1997 offering of 3,500,000 shares of common stock and the
application of the respective net proceeds therefrom; (iv) debt assumed and
borrowings under the Interim Loan and the Acquisition Credit Facility; (v) the
repayment of certain mortgage loans, the Company's previous $50 million line of
credit, a $114 million interim unsecured loan, the Interim Loan and a portion of
the borrowings on the Acquisition Credit Facility; (vi) the sale of certain
properties in 1997 and 1998, and use of sale proceeds for the repayment of
related mortgage debt and the funding of certain property acquisitions; (vii)
the collection on the Hovpark mortgage loan receivable; and (viii) the sale of
various properties held by the partnerships managed by the Associated Companies
to the Company and to third parties, as if each of such transactions had been
completed on January 1, 1997.
These unaudited, pro forma consolidated financial statements should be read in
conjunction with the financial statements and related notes of the Company
included herein and in the Company's reports filed under the Exchange Act. In
the opinion of management, all adjustments necessary to reflect the effects of
the transactions have been made.
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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.
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Pro Forma Consolidated Balance Sheet
as of December 31, 1997
(Unaudited, Dollars in Thousands)
COMPLETED PENDING REPAYMENT OTHER
TRANSAC- ACQUISI- OF ADJUST-
HISTORICAL(1) TIONS(2) TIONS(3) DEBT(4) MENTS(5) PRO FORMA
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Rental property, net.... $813,818 $596,810 $ 66,320 $ -- $(29,789) $1,447,159
Investments in Associated
Companies............. 10,948 -- -- -- -- 10,948
Mortgage loans receivable, net 3,692 -- -- -- -- 3,692
Cash and cash equivalents 16,470 114,938 420 (150,000) 19,172 1,000
Other assets............ 20,846 1,825 -- -- -- 22,671
Total Assets..... $865,774 $713,573 $ 66,740 $(150,000) $ (10,617) $1,485,470
LIABILITIES
Mortgage loans............ $148,139 $ 137,754 $ -- $ -- $ (12,874) $ 273,019
Interim Loan.............. -- 150,000 -- (150,000) -- --
Unsecured senior notes -- 149,756 -- -- -- 149,756
Acquisition Credit Facility 80,160 (17,242) 61,091 -- -- 124,009
Other liabilities......... 11,091 1,850 420 -- -- 13,361
Total Liabilities 239,390 422,118 61,511 (150,000) (12,874) 560,145
MINORITY INTEREST......... 46,261 12,786 4,183 -- -- 63,230
STOCKHOLDERS' EQUITY
Common stock............ 31 -- -- -- -- 31
Series A Preferred Stock -- 275,500 -- -- -- 275,500
Additional paid-in capital 592,739 3,169 1,046 -- -- 596,954
Deferred compensation... (210) -- -- -- -- (210)
Retained earnings (deficit) (12,437) -- -- -- 2,257 (10,180)
Total Equity..... 580,123 278,669 1,046 -- 2,257 862,095
Total Liabilities
and Stockholders' Equity $865,774 $713,573 $ 66,740 $(150,000) $(10,617) $1,485,470
</TABLE>
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes and Adjustments to Pro Forma
Consolidated Balance Sheet
As of December 31, 1997
(Unaudited)
1. Reflects the historical consolidated balance sheet of the Company as of
December 31, 1997, which includes the acquisitions of the following properties
and property portfolios during the year ended December 31, 1997:
PURCHASE PRICE
PROPERTY (IN 000'S) DATE ACQUIRED
Marion Bass Portfolio $ 58,300 December 31, 1997
Opus Portfolio 26,900 December 22, 1997
Thousand Oaks 51,300 December 13, 1997
Bryant Lake 9,400 November 4, 1997
Copley Properties 63,700 October 24, 1997
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
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
Marion Bass Portfolio. In December 1997, the Company acquired the Marion Bass
Portfolio aggregating 1,385 units from 14 limited partnerships each of whose
general partner is Marion Bass Real Estate Group. The total acquisition cost,
including capitalized costs, was approximately $58.3 million, comprising $23.5
million of assumed debt and the balance in cash, including cash from borrowings
under the Acquisition Credit Facility. Of the 10 Marion Bass Portfolio
Properties, six are located in Charlotte, North Carolina, two are in Monroe,
North Carolina, one is in Raleigh, North Carolina and one is in Pineville, North
Carolina.
Opus Portfolio. In December 1997, the Company acquired the Opus Portfolio
aggregating 289,874 square feet from four limited liability companies affiliated
with Opus Properties, LLC. The total acquisition cost, including capitalized
costs, was approximately $27.9 million, all of which was paid in cash, including
cash from borrowings under the Acquisition Credit Facility. Four of the Opus
Portfolio Properties are located in or near Tampa, Florida, and one is located
in Denver, Colorado.
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes and Adjustments to Pro Forma
Consolidated Balance Sheet (Continued)
As of December 31, 1997
(Unaudited)
Thousand Oaks. In December 1997, the Company acquired Thousand Oaks, an office
complex consisting of three office buildings, aggregating 418,457 square feet.
The total acquisition cost, including capitalized costs, was approximately $51.3
million, which was paid entirely in cash, including cash from borrowings under
the Acquisition Credit Facility. The Thousand Oaks property includes 10 acres
suitable for the development of 182,000 square feet of office space. Thousand
Oaks is located in Memphis, Tennessee.
Bryant Lake. In November 1997, the Company acquired 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 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 voted when
the Board of Directors considered and acted to approve this acquisition. The
price paid for Bryant Lake equaled 100% of the appraised value as determined by
an independent appraiser. The total acquisition cost, including capitalized
costs, was approximately $9.4 million, comprising approximately $4.6 million in
the form of cash and the balance in the form of assumption of debt.
Copley Properties. In October 1997, the Company acquired the Copley 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 total acquisition cost, including
capitalized costs, was approximately $63.7 million, which was 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.
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 61,222 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
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes and Adjustments to Pro Forma
Consolidated Balance Sheet (Continued)
As of December 31, 1997
(Unaudited)
Advance Group for the development of selected new projects. 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 157,579 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 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 (based on an
agreed per share value of $19.075), and (iv) the balance in cash. The EFL
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,
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes and Adjustments to Pro Forma
Consolidated Balance Sheet (Continued)
As of December 31, 1997
(Unaudited)
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, 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.
Also reflects the sale of the six Atlanta Auto Care Center Properties and the
ten QuikTrip Properties for an aggregate sales price of approximately $13.1
million.
2. Reflects the completed acquisitions of the following properties and property
portfolios:
PURCHASE PRICE
(IN 000'S) DATE ACQUIRED
Eaton and Lauth Portfolio I $ 70,000 April 22, 1998
BGK Portfolio 50,200 March 27, 1998
400 El Camino Real 34,700 March 6, 1998
Capitol Center 12,300 February 27, 1998
Windsor Portfolio 429,600 January 8, 1998
Eaton and Lauth Portfolio I. In April 1998, the Company acquired the Eaton &
Lauth Portfolio (redefined as the "Eaton & Lauth Portfolio I" herein), a
portfolio of three office properties and four retail properties aggregating
417,745 square feet and three multi-family properties containing 670 units from
a number of partnerships in which affiliates of Eaton & Lauth serve as general
partners. The total acquisition cost, including capitalized costs, was
approximately $70 million, comprising: (i) approximately $32.0 million of net
assumed debt; (ii) approximately $15.9 million of equity which consists of : (a)
approximately $3.2 million in the form of 126,764 shares of Common Stock of the
Company (based on an agreed per share value of $25.00); and (b) approximately
$12.7 million in the form of 506,788 partnership units in the Operating
Partnership (based on an agreed per unit value of $25.00); and (iii) the balance
in cash. The cash portion was financed through advances under the Acquisition
Credit Facility. The Eaton and Lauth Portfolio I properties are located in
Indiana.
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes and Adjustments to Pro Forma
Consolidated Balance Sheet (Continued)
As of December 31, 1997
(Unaudited)
BGK Portfolio. In March 1998, the Company acquired the BGK Portfolio, a
portfolio of seven properties from BGK Development. The BGK Portfolio properties
aggregate 515,445 net rentable square feet, located in Boston, Massachusetts and
Kansas City, Kansas, and consist of four office properties, two industrial
properties and one office/flex property. The total acquisition cost, including
capitalized costs, was approximately $50.2 million, comprised of: (i)
approximately $13.3 million in assumption of debt; and (ii) the balance in cash,
including cash from borrowings under the Acquisition Credit Facility.
400 El Camino Real. In March 1998, the Company acquired the 400 El Camino Real
property, containing 139,109 square feet, which currently houses the Operating
Partnership's corporate headquarters from Prudential Insurance Company of
America. The 400 El Camino Real property includes a contiguous parking garage.
The total acquisition cost, including capitalized costs, was approximately $34.7
million, which was paid in cash, including cash from borrowings on the
Acquisition Credit Facility.
Capitol Center. In February 1998, the Company acquired Capitol Center, a 161,468
square foot office complex located in Des Moines, Iowa. The total acquisition
cost, including capitalized costs, was approximately $12.3 million, comprising:
(i) approximately $116,000 in the form of 3,874 partnership units in the
Operating Partnership (based on an agreed per unit value of $30.00); and (ii)
the balance in cash.
Windsor Portfolio. In January 1998, the Company acquired the Windsor Portfolio
from Windsor Realty Fund II, L.P., of which Windsor Advisor, LLC is the general
partner and DuPont Pension Fund Investments and Gid/S&S Limited Partnership are
limited partners, and other entities affiliated with Windsor Realty Fund II,
L.P. The Windsor Portfolio properties aggregate 3,383,240 net rentable square
feet, located in the eastern and mid-western United States and are concentrated
in suburban Washington, D.C., Chicago, Atlanta, Boston, Philadelphia, Tampa,
Florida and Cary, North Carolina. The total acquisition cost, including
capitalized costs, was approximately $429.6 million, comprised of: (i)
approximately $160.5 million in assumption of debt and (ii) the balance in cash,
including cash from borrowings under the Interim Loan and the Acquisition Credit
Facility.
These acquisitions were funded with approximately $69.1 million of the net
proceeds from the October 1997 Offering and the January 1998 Offering,
assumption of approximately $205.8 million of mortgage debt, approximately
$150.0 million from the proceeds of the Interim Loan, approximately $156.0
million from borrowings under the Acquisition Credit Facility, the issuance of
3,874 Operating Partnership units with an aggregate approximate value of
$116,000 (based on an agreed per unit value of $30.00), the issuance of 506,788
Operating Partnership units with an aggregate approximate value of $12.7 million
(based on an agreed per unit value of $25.00) and the issuance of 126,764 shares
of common stock with an aggregate approximate value of $3.2 million (based on an
agreed per share value of $25.00). The assumed mortgages bear interest at rates
of 7.25% to 9.25% and mature between 2001 and 2007 . The Acquisition
Page 19 of 27
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes and Adjustments to Pro Forma
Consolidated Balance Sheet (Continued)
As of December 31, 1997
(Unaudited)
Credit Facility bears interest on a sliding scale ranging from LIBOR plus 1.1%
to LIBOR plus 1.3% (assumed to be 6.788% for the year ended December 31, 1997)
and has a term of three years with an option to extend the term for 10
additional years.
The Interim Loan bears interest at LIBOR plus 1.75% (assumed to be 7.438% for
the year ended December 31, 1997) and has a term of three months with an option
to extend the term for three additional months. In connection with obtaining the
Interim Loan, the Company paid fees of $300,000, which are shown as a reduction
of cash and an increase in other assets.
Tenant security deposits of approximately $1,850,000 related to these
acquisitions are reflected as cash and other liabilities.
Also reflects approximately $275.5 million of net proceeds from the January 1998
Offering, the repayment of $68.0 million of certain mortgage debt and the
repayment of approximately $173.2 million of borrowings on the Acquisition
Credit Facility.
Also reflects the net proceeds from the March 1998 Offering of $150.0 million of
unsecured senior notes of the Operating Partnership, net of the discount of
approximately $244,000 and costs of the Offering of approximately $1.5 million.
3. Reflects the pending acquisitions of the following properties and property
portfolios:
PURCHASE
PRICE
(IN 000'S)
Eaton & Lauth Portfolio II $ 22,800
Pru-Bache Portfolio 43,500
Eaton & Lauth Portfolio II. The Company is negotiating the terms of an agreement
to acquire the Eaton & Lauth Portfolio II from a number of partnerships in which
affiliates of Eaton & Lauth serve as general partners. The total acquisition
cost, including capitalized costs, is expected to be approximately $22.8
million, comprising: (i) approximately $5.2 million of equity which will consist
of: (a) approximately $1.0 million in the form of 41,829 shares of common stock
(based on a negotiated per share value of $25.00); and (b) approximately $4.2
million in the form of 167,317 operating partnership units in the Operating
Partnership (based on a negotiated per unit value of $25.00); and (ii) the
balance in cash from borrowings under the Acquisition Credit Facility. The Eaton
& Lauth Portfolio II properties are located in the Indianapolis, Indiana area.
This acquisition is subject to a number of contingencies including the
negotiation of terms of a definitive agreement, the approval of the assumption
of loans, satisfactory completion of due diligence and customary closing
conditions. As a result, there can be no assurance that this transaction will be
completed.
Page 20 of 27
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes and Adjustments to Pro Forma
Consolidated Balance Sheet (Continued)
As of December 31, 1997
(Unaudited)
Pru-Bache 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 Properties, Inc., and in which Glenborough
Corporation and Robert Batinovich, the Company's Chairman and Chief Executive
Officer, have served as co-general partners since March of 1994, but do not hold
a material equity or economic interest. The total acquisition cost, including
capitalized costs, is expected to be approximately $43.5 million, which is to be
paid entirely in cash, including cash from borrowings on the Acquisition Credit
Facility. The Pru-Bache Portfolio comprises four office buildings aggregating
405,825 square feet and one office/flex property containing 121,645 square feet.
This acquisition is subject to a number of contingencies including approval of
the acquisition by a majority vote of the limited partners of
Prudential-Bache/Equitec Real Estate Partnership, satisfactory completion of due
diligence and customary closing conditions. As a result, there can be no
assurance that this acquisition will be completed.
These acquisitions are expected to be funded with approximately $61.1 million of
borrowings on the Acquisition Credit Facility, the issuance of approximately
167,300 Operating Partnership units with an aggregate approximate value of $4.2
million (based on a negotiated per unit value of $25.00), and the issuance of
approximately 41,800 shares of common stock with an aggregate approximate value
of $1.0 million (based on a negotiated per share value of $25.00).
Tenant security deposits of approximately $420,000 related to these acquisitions
are reflected as an increase in cash and other liabilities.
4. Reflects the full repayment of the Interim Loan with the use of proceeds from
the March 1998 Offering and working capital.
5. Reflects the sale of the Summer Breeze property, the Belshaw property, the
SkyPark property, the San Dimas property and the Sandhill property. Excludes the
sale of the Shannon Crossing property which is not expected to occur until late
in calendar 1998.
Page 21 of 27
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1997
(Unaudited, Dollars in Thousands, Except Share Data)
COMPLETED PENDING DEBT OTHER
TRANS- ACQUISI- TRANS- ADJUST-
HISTORICAL(1) ACTIONS(2) TIONS(3) ACTIONS(4) MENTS(5) PRO FORMA
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Rental revenue................... $ 61,393 $132,251 $ 9,073 $ -- $(2,144) $ 200,573
Equity in earnings of Associated
Companies...................... 2,743 -- -- -- 118 2,861
Fees, interest and other income.. 2,521 -- -- -- (50) 2,471
Total revenue.......... 66,657 132,251 9,073 -- (2,076) 205,905
OPERATING EXPENSES
Operating expenses............... 18,958 46,523 2,971 -- (577) 67,875
General and administrative....... 3,319 1,269 170 -- -- 4,758
Depreciation and amortization.... 14,873 24,667 1,456 -- (433) 40,563
Interest expense................. 9,668 37,927 4,147 (10,276) (600) 40,866
Total operating
expenses............. 46,818 110,386 8,744 (10,276) (1,610) 154,062
Income from operations before
minority interests............. 19,839 21,865 329 10,276 (466) 51,843
Minority interest................ (1,119) -- -- -- (605) (1,724)
Net income (6)................... $ 18,720 $21,865 $ 329 $10,276 $(1,071) $ 50,119
Preferred dividends.............. -- -- -- -- (22,281) (22,281)
Net income allocable to common
shareholders................... $ 18,720 $21,865 $ 329 $10,276 $(23,352) $ 27,838
Basic earnings per common
share.......................... $ 1.04 $ 0.88
Basic weighted average
common shares outstanding...... 17,982,817 31,715,849
Diluted earnings per common
share (7) $ 1.02 $ 0.84
Diluted weighted average common
shares outstanding 19,517,543 35,219,056
</TABLE>
Page 22 of 27
<PAGE>
Notes and Adjustments to Pro Forma
Consolidated Statements of Operations
For the Year Ended December 31, 1997
(Unaudited, Dollars in Thousands)
1. Reflects the historical consolidated operations of the Company for the year
ended December 31, 1997, excluding the gains on the sale of property and the
collection of a mortgage loan receivable totaling $1,491.
2. Reflects the historical operations of the Eaton & Lauth Portfolio I, BGK
Portfolio, 400 El Camino Real, Capitol Center, and Windsor Portfolio,
(collectively the "1998 Acquisitions") for the year ended December 31, 1997, as
well as the historical operations of the Marion Bass Portfolio, Opus Portfolio,
Thousand Oaks, Bryant Lake, Copley Properties, Citibank Park Property, Advance
Properties, T. Rowe Price Properties, Centerstone Property, CRI Properties,
CIGNA Properties, E&L Properties, Riverview Property, Lennar Properties and the
Scottsdale Hotel (collectively, the "1997 Acquisitions") for the portion of 1997
prior to acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(OR PORTION OF 1997 PRIOR TO ACQUISITION)
EATON & LAUTH BGK 400 EL CAPITOL WINDSOR
PORTFOLIO I PORTFOLIO CAMINO REAL CENTER PORTFOLIO
<S> <C> <C> <C> <C> <C>
Revenues ... $ 9,362 $ 6,016 $ 3,019 $ 2,369 $ 53,732
Operating (3,214) (2,078) (1,331) (1,018) (20,402)
expenses.......... $ 6,148 $ 3,938 $ 1,688 $ 1,351 $ 33,330
YEAR ENDED DECEMBER 31, 1997
(OR PORTION OF 1997 PRIOR TO ACQUISITION)
1997 COMBINED
ACQUISITIONS TOTAL
Revenues.......... $ 57,753 $ 132,251
Operating (18,480) (46,523)
expenses.......... $ 39,273 $ 85,728
</TABLE>
Page 23 of 27
<PAGE>
Notes and Adjustments to Pro Forma
Consolidated Statements of Operations (Continued)
For the Year Ended December 31, 1997
(Unaudited, Dollars in Thousands)
The results of operations of the Opus Portfolio reflect the period from the date
of completion to the end of the periods presented. All properties are single
tenant buildings under triple net leasing arrangements for which the tenant is
responsible for the payment of all operating expenses.
Also reflects estimated annual depreciation and amortization, based upon
estimated useful lives of 30 years on a straight-line basis and estimated
general and administrative expenses related to these acquisitions.
Also reflects the estimated pro forma interest on the mortgage debt assumed in
connection with the acquisition of the Eaton & Lauth Portfolio I, BGK Portfolio,
Windsor Portfolio, Marion Bass Portfolio, Advance Properties, E&L Properties and
Scottsdale Hotel, the Interim Loan and the pro forma advances under the
Acquisition Credit Facility in connection with the various 1998 and 1997
completed property acquisitions. The estimated interest on the mortgage loans
assumed is based upon an assumed weighted average rate of 7.75%. The Acquisition
Credit Facility bears interest on a sliding scale ranging from LIBOR plus 1.1%
to LIBOR plus 1.3% (assumed to be 6.788% for the year ended December 31, 1997).
A 1/8% change in LIBOR would cause the interest expense on the outstanding pro
forma balance of the Acquisition Credit Facility as of December 31, 1997 to
change by $155 on an annualized basis. The Interim Loan bears interest at LIBOR
plus 1.75% (assumed to be 7.438% for the year ended December 31, 1997.) The
Interim Loan was repaid in full with the use of proceeds from the March 1998
Offering and working capital.
3. Reflects the historical operations of the Pending Acquisitions for the year
ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
PRU-BACHE EATON & LAUTH COMBINED
PORTFOLIO PORTFOLIO II TOTAL
<S> <C> <C> <C>
Revenues.......... $ 7,138 $ 1,935 $ 9,073
Operating expenses (2,523) (448) (2,971)
$ 4,615 $ 1,487 $ 6,102
</TABLE>
Also reflects estimated annual depreciation and amortization based upon
estimated useful lives of 30 years on a straight-line basis and estimated
general and administrative expenses related to these acquisitions.
Also reflects the estimated interest on the advances under the Acquisition
Credit Facility in connection with the acquisition of the Pending Acquisitions.
The Acquisition Credit Facility bears interest on a sliding scale ranging from
LIBOR plus 1.1% to LIBOR plus 1.3% (assumed to be 6.788% for the year ended
December 31, 1997).
Page 24 of 27
<PAGE>
Notes and Adjustments to Pro Forma
Consolidated Statements of Operations (Continued)
For the Year Ended December 31, 1997
(Unaudited, Dollars in Thousands)
4. Reflects the estimated pro forma interest and the related effect on loan fee
amortization expense on the repayment of the Company's previous line of credit,
a $114,000 interim unsecured loan, certain mortgage debt, the Interim Loan and a
portion of the Acquisition Credit Facility from proceeds from the March 1998
Offering, the January 1998 Offering and the October 1997 Offering. Also reflects
the pro forma loan fee amortization expense and unused facility fees related to
the Acquisition Credit Facility. Also reflects the estimated pro forma interest
and the related effect on loan fee amortization expense on the unsecured senior
notes issued in the March 1998 Offering. These transactions result in a net
decrease in interest expense consisting of the following:
Year Ended
December 31, 1997
Interest differential $ 18,036
Interest on repayments (29,097)
Amortization of new loan fees 703
Amortization of old loan fees (105)
Unused Acquisition Credit Facility fees 187
Total $ (10,276)
The unsecured senior notes bear interest at a fixed rate of 7.625% and have a
term of seven years, unless previously redeemed.
The Interim Loan bears interest at LIBOR plus 1.75% (assumed to be 7.438% for
the year ended December 31, 1997) and has a term of three months with an option
to extend the term for three additional months.
The Acquisition Credit Facility bears interest on a sliding scale ranging from
LIBOR plus 1.1% to LIBOR plus 1.3% (assumed to be 6.788% for the year ended
December 31, 1997).
A $114,000 interim unsecured loan and the Company's previous line of credit have
no net impact on pro forma interest expense as these loans were repaid in full
with the use of proceeds from the October 1997 Offering.
The amortization of the new loan fees is based upon total estimated fees and
costs of approximately $3,688 over the respective terms of the related
Acquisition Credit Facility, the Interim Loan and the unsecured senior notes.
The unused Acquisition Credit Facility fees are based upon 0.15% of the pro
forma unused Acquisition Credit Facility capacity as of December 31, 1997 of
approximately $124,009.
Page 25 of 27
<PAGE>
Notes and Adjustments to Pro Forma
Consolidated Statements of Operations (Continued)
For the Year Ended December 31, 1997
(Unaudited, Dollars in Thousands)
5. Reflects the following adjustments:
YEAR ENDED
DECEMBER 31, 1997
Rental revenue
Elimination of revenues of Sold Properties......... $(2,144)
Equity in earnings of the Associated Companies
GHG
Addition of the Scottsdale Hotel & San Antonio Hotels $ 77
Disposition of properties from the managed portfolio (27)
GC
Elimination of revenues related to sale of properties
managed by the Associated Companies............. (1,510)
Elimination of expenses related to sale of properties
managed by the Associated Companies............. 1,667
--------
Net decrease in income.......................... 207
Provision for income taxes. (83)
--------
Net increase in equity in earnings to the Company....... $ 124
========
Fees, interest and other income
Reduction of interest due to collection of Hovpark note
receivable at 8% per annum......................... (50)
--------
Operating expenses
Elimination of expenses of Sold Properties............ $ (603)
Additional expenses of the E&L Properties............. 26
--------
Net decrease in operating expenses...................... $ (577)
========
Depreciation and amortization
Elimination of expenses of Sold Properties............ $ (433)
========
Interest expense and loan fee amortization expense reduction
due to repayment of mortgage debt from proceeds from
Sold Properties....................................... $ (600)
========
Excludes the effects of the sale of the Shannon Crossing Property which will not
occur until late 1998.
6. The pro forma taxable income before dividends paid deduction for the Company
for the year ended December 31, 1997 is calculated as follows:
YEAR ENDED
DECEMBER 31, 1997
Pro forma net income from operations....... $ 50,119
Add: GAAP basis depreciation and amortization 40,563
Less: Tax basis depreciation and amortization (28,332)
Other book-to-tax differences.............. (1,200)
---------
Pro forma taxable income................... $ 61,150
=========
7. Diluted per share amount on a historical basis reflects the dilutive effects
of outstanding stock options as of December 31, 1997 based upon the average
price per common share for the period and the dilutive effects of the conversion
of Operating Partnership units into common stock. Pro forma diluted per share
amount for the same period assumes an average price per share of $30.00. The
effect of the conversion of Series A preferred stock into common stock is
anti-dilutive.
Page 26 of 27
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation of our reports dated May 12, 1998 and May
15, 1998 included in this Form 8-K/A, into the Company's previously filed
Registration Statement File Nos. 333-40959 and 333-27677.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
San Francisco, California
May 15, 1998
Page 27 of 27
<PAGE>
