SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14162
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 94-3211970
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real,
Suite 1100, San Mateo, California
(650) 343-9300 94402-1708
(Address of principal executive offices (Zip Code)
and telephone number)
Securities registered under Section 12(b) of the Act:
Name of Exchange
Title of each class: on which registered:
Common Stock, $.001 par value New York Stock Exchange
7.75% Series A Convertible Preferred Stock,
$.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
As of May 13, 1999, 31,672,539 shares of Common Stock ($.001 par value) and
11,500,000 shares of 7.75% Series A Convertible Preferred Stock ($.001 par
value) were outstanding.
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INDEX
GLENBOROUGH REALTY TRUST INCORPORATED
Page No.
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of Glenborough
Realty Trust Incorporated (Unaudited except for
the Consolidated Balance Sheet at December 31,
1998):
Consolidated Balance Sheets at March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 4
Consolidated Statement of Stockholders'
Equity for the three months ended March 31, 1999 5
Consolidated Statements of Cash Flows for
the three months ended March 31, 1999 and 1998 6-7
Notes to Consolidated Financial Statements 8-18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 26-27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
EXHIBIT INDEX 30
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------ ------------
ASSETS
Rental property, net of accumulated
depreciation of $76,064 and $72,941
in 1999 and 1998, respectively $1,644,620 $1,720,579
Real estate held for sale 91,618 21,860
Investments in Development 36,772 35,131
Investments in Associated Companies 8,992 8,807
Mortgage loans receivable 43,413 42,420
Cash and cash equivalents 3,808 4,357
Other assets 46,614 45,862
------------ ------------
TOTAL ASSETS $1,875,837 $1,879,016
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans $ 730,376 $ 708,578
Unsecured Series A Senior Notes 150,000 150,000
Unsecured bank line 54,307 63,519
Other liabilities 23,812 28,921
------------ ------------
Total liabilities 958,495 951,018
------------ ------------
Commitments and contingencies -- --
Minority interest 98,403 99,465
Stockholders' Equity:
Common stock, 31,689,539 and 31,758,915 shares
issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 32 32
Preferred stock, 11,500,000 shares issued
and outstanding at March 31, 1999 and
December 31, 1998 11 11
Additional paid-in capital 864,372 865,692
Deferred compensation (158) (181)
Retained earnings (deficit) (45,318) (37,021)
------------ ------------
Total stockholders' equity 818,939 828,533
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,875,837 $1,879,016
============ ============
See accompanying notes to consolidated financial statements
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GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999 and 1998
(in thousands, except per share amounts)
(Unaudited)
1999 1998
----------- -----------
REVENUE
Rental revenue $ 64,641 $ 45,963
Fees and reimbursements from affiliates 1,131 473
Interest and other income 1,659 357
Equity in earnings of Associated Companies 309 352
Net gain on sales of real estate assets 1,351 1,446
----------- -----------
Total revenue 69,091 48,591
----------- -----------
EXPENSES
Property operating expenses 22,001 14,324
General and administrative 2,222 2,222
Depreciation and amortization 15,092 10,009
Interest expense 16,540 9,145
----------- -----------
Total expenses 55,855 35,700
----------- -----------
Income from operations before minority
interest and extraordinary item 13,236 12,891
Minority interest (667) (678)
----------- -----------
Net income before extraordinary item 12,569 12,213
Extraordinary item:
Loss on early extinguishment of debt (1,991) --
----------- -----------
Net income 10,578 12,213
Preferred dividends (5,570) (3,910)
----------- -----------
Net income available to Common Stockholders $ 5,008 $ 8,303
=========== ===========
Basic Per Share Data:
Net income available to Common
Stockholders before extraordinary item $ 0.22 $ 0.26
Extraordinary item (0.06) --
----------- -----------
Net income available to Common Stockholders $ 0.16 $ 0.26
=========== ===========
Basic weighted average shares outstanding 31,764,834 31,548,706
=========== ===========
Diluted Per Share Data:
Net income available to Common
Stockholders before extraordinary item $ 0.21 $ 0.26
Extraordinary item (0.05) --
----------- -----------
Net income available to Common Stockholders $ 0.16 $ 0.26
=========== ===========
Diluted weighted average shares outstanding 36,098,374 34,372,364
=========== ===========
See accompanying notes to consolidated financial statements
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1999
(in thousands)
(Unaudited)
Common Preferred
Stock Stock
---------------- ----------------
Additional Deferred Retained
Par Par Paid-in Compen- Earnings
Shares Value Shares Value Capital sation (Deficit) Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 31,759 $ 32 11,500 $ 11 $ 865,692 $ (181) $(37,021) $828,533
Exercise of stock options 50 -- -- -- 750 -- -- 750
Conversion of Operating
Partnership units into
common stock 1 -- -- -- -- -- -- --
Common stock repurchases (120) -- -- -- (2,070) -- -- (2,070)
Amortization of deferred
compensation -- -- -- -- -- 23 -- 23
Unrealized gain on
marketable securities -- -- -- -- -- -- 34 34
Distributions -- -- -- -- -- -- (18,909) (18,909)
Net income -- -- -- -- -- -- 10,578 10,578
-------------------------------------------------------------------------------
Balance at March 31, 1999 31,690 $ 32 11,500 $ 11 $ 864,372 $ (158) $(45,318) $818,939
===============================================================================
See accompanying notes to consolidated financial statements
</TABLE>
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GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1999 and 1998
(in thousands)
(Unaudited)
1999 1998
----------- ----------
Cash flows from operating activities:
Net income $ 10,578 $ 12,213
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 15,092 10,009
Amortization of loan fees,
included in interest expense 485 418
Minority interest in income from
operations 667 678
Equity in earnings of Associated
Companies (309) (352)
Net gain on sales of real estate assets (1,351) (1,446)
Loss on early extinguishment of debt 1,991 --
Amortization of deferred compensation 23 23
Changes in certain assets and
liabilities, net (5,189) (4,771)
----------- ----------
Net cash provided by operating
activities 21,987 16,772
----------- ----------
Cash flows from investing activities:
Net proceeds from sales of real
estate assets 17,522 28,559
Additions to real estate assets (14,176) (412,585)
Investments in Development (3,488) --
Additions to mortgage loans receivable (993) (49)
Principal receipts on mortgage loans
receivable -- 1
Advances to affiliates (200) --
Distributions from Associated Companies 124 548
----------- ----------
Net cash used for investing
activities (1,211) (383,526)
----------- ----------
continued
See accompanying notes to consolidated financial statements
6
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GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -continued
For the three months ended March 31, 1999 and 1998
(in thousands)
(Unaudited)
1999 1998
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings $ 44,000 $ 159,365
Repayment of borrowings (45,514) (201,005)
Draws from (payments into ) lender
impound accounts, net 2,147 (1,445)
Proceeds from issuance of Series A
Senior Notes -- 150,000
Distributions to minority interest holders (1,729) (1,005)
Distributions to stockholders (18,909) (13,250)
Exercise of stock options 750 10
Repurchases of common stock (2,070) --
Proceeds from issuance of preferred
stock, net of offering costs -- 275,680
----------- -----------
Net cash provided by (used for)
financing activities (21,325) 368,350
----------- -----------
Net increase (decrease) in cash and cash
equivalents (549) 1,596
Cash and cash equivalents at beginning
of period 4,357 5,070
----------- -----------
Cash and cash equivalents at end of period $ 3,808 $ 6,666
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized
interest of $643 in 1999) $ 16,684 $ 7,329
=========== ===========
Supplemental disclosure of Non-Cash
Investing and Financing Activities:
Acquisition of real estate through
assumption of first trust deed
notes payable $ 14,100 $ 105,756
=========== ===========
Acquisition of real estate through
issuance of shares of common stock
and Operating Partnership units $ -- $ 116
=========== ===========
See accompanying notes to consolidated financial statements
7
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GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
March 31, 1999
Note 1. ORGANIZATION
Glenborough Realty Trust Incorporated (the "Company") was organized in the State
of Maryland on August 26, 1994. The Company has elected to qualify as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). The Company completed a consolidation with certain public
California limited partnerships and other entities (the "Consolidation") engaged
in real estate activities (the "GRT Predecessor Entities") through an exchange
of assets of the GRT Predecessor Entities for 5,753,709 shares of Common Stock
of the Company. The Consolidation occurred on December 31, 1995, and the Company
commenced operations on January 1, 1996.
Subsequent to the Consolidation on December 31, 1995, and through March 31,
1999, the following Common Stock transactions occurred: (i) 37,000 shares of
Common Stock were issued to officers and directors as stock compensation; (ii)
25,446,000 shares were issued in four separate public equity offerings; (iii)
448,172 shares were issued in connection with various acquisitions; (iv) 72,407
shares were issued in connection with the exercise of employee stock options;
(v) 52,310 shares were issued in connection with the exchange of Operating
Partnership units; (vi) 120,000 shares were repurchased by the Company (see
discussion below) and (vii) 59 shares were retired, resulting in total shares of
Common Stock issued and outstanding at March 31, 1999, of 31,689,539. Assuming
the issuance of 4,218,192 shares of Common Stock issuable upon redemption of
4,218,192 partnership units in the Operating Partnership, there would be
35,907,731 shares of Common Stock outstanding as of March 31, 1999.
In January 1998, the Company completed a public offering of 11,500,000 shares of
7 3/4% Series A Convertible Preferred Stock (the "January 1998 Convertible
Preferred Stock Offering"). The shares are convertible at any time at the option
of the holder thereof into shares of Common Stock at an initial conversion price
of $32.83 per share of Common Stock (equivalent to a conversion rate of 0.7615
shares of Common Stock for each share of Series A Convertible Preferred Stock),
subject to adjustment in certain circumstances. Shares of Preferred Stock issued
and outstanding at March 31, 1999, totaled 11,500,000.
In July 1998, the Company's Board of Directors adopted a stockholder rights plan
which is intended to protect the Company's stockholders in the event of coercive
or unfair takeover tactics, or an unsolicited attempt to acquire control of the
Company in a transaction the Board of Directors believes is not in the best
interests of the stockholders. Under the plan, the Company declared a dividend
of Rights on its Common Stock. The rights issued under the plan will be
triggered, with certain exceptions, if and when any person or group acquires, or
commences a tender offer to acquire, 15% or more of the Company's shares.
In January 1999, the Company's Board of Directors authorized the Company to
repurchase up to 3.1 million shares of its outstanding Common Stock. This
represents approximately 10% of the Company's total outstanding Common Stock.
Such purchases will be made from time to time in the open market or otherwise
and the timing will depend on market conditions and other factors. As of March
31, 1999, 120,000 shares had been repurchased at an average price of $17.21.
To maintain the Company's qualification as a REIT, no more than 50% in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will not
fail this test, the Company's Articles of Incorporation provide for certain
restrictions on the transfer of the Common Stock to prevent further
concentration of stock ownership.
The Company, through its majority owned subsidiaries, is engaged primarily in
the ownership, operation, management, leasing, acquisition, expansion and
development of various income-producing properties. The Company's major
consolidated subsidiary, in which it holds a 1% general partner interest and a
87.25% limited partner interest at March 31, 1999, is Glenborough Properties,
L.P. (the "Operating Partnership"). As of March 31, 1999, the Operating
Partnership, directly and through the subsidiaries in which it and the Company
own 100% of the ownership interests, controls a total of 181 real estate
projects.
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As of March 31, 1999, the Operating Partnership also holds 100% of the
non-voting preferred stock of the following two Associated Companies (the
"Associated Companies"):
Glenborough Corporation ("GC") is the general partner of several real estate
limited partnerships and provides asset and property management and
development services for these partnerships (the "Managed Partnerships"). It
also provides partnership administration, asset management, property
management and development services to a group of unaffiliated partnerships
which include three public 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").
Glenborough Hotel Group ("GHG") owns an approximate 36% limited partner
interest in a real estate joint venture.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the consolidated financial
position of the Company as of March 31, 1999, and December 31, 1998, and the
consolidated results of operations and cash flows of the Company for the three
months ended March 31, 1999 and 1998. All intercompany transactions, receivables
and payables have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal accruals) necessary to
present fairly the financial position and results of operations of the Company
as of March 31, 1999, and for the period then ended.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the results of operations during the reporting period. Actual results could
differ from those estimates.
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, and early
adoption is permitted. SFAS No. 133 provides comprehensive guidelines for the
recognition and measurement of derivatives and hedging activities and
specifically requires all derivatives to be recorded on the balance sheet at
fair value. Management is evaluating the effects, if any, that this
pronouncement will have on the Company's consolidated financial position,
results of operations and financial statement position.
Investments in Real Estate
Investments in real estate are stated at cost unless circumstances indicate that
cost cannot be recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Estimated fair value: (i) is based upon the
Company's plans for the continued operation of each property; and (ii) is
computed using estimated sales price, as determined by prevailing market values
for comparable properties and/or the use of capitalization rates multiplied by
annualized rental income based upon the age, construction and use of the
building. The fulfillment of the Company's plans related to each of its
properties is dependent upon, among other things, the presence of economic
conditions which will enable the Company to continue to hold and operate the
properties prior to their eventual sale. Due to uncertainties inherent in the
valuation process and in the economy, it is reasonably possible that the actual
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results of operating and disposing of the Company's properties could be
materially different than current expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
The useful lives are as follows:
Buildings and Improvements 10 to 40 years
Tenant Improvements Term of the related lease
Furniture and Equipment 5 to 7 years
Investments in Associated Companies
The Company's investments in the Associated Companies are accounted for using
the equity method, as discussed further in Note 4.
Mortgage Loans Receivable
The Company monitors the recoverability of its loans and notes receivable
through ongoing contact with the borrowers to ensure timely receipt of interest
and principal payments, and where appropriate, obtains financial information
concerning the operation of the properties. Interest on mortgage loans is
recognized as revenue as it accrues during the period the loan is outstanding.
Mortgage loans receivable will be evaluated for impairment if it becomes evident
that the borrower is unable to meet its debt service obligations in a timely
manner and cannot satisfy its payments using sources other than the operations
of the property securing the loan. If it is concluded that such circumstances
exist, then the loan will be considered to be impaired and its recorded amount
will be reduced to the fair value of the collateral securing it. Interest income
will also cease to accrue under such circumstances. Due to uncertainties
inherent in the valuation process, it is reasonably possible that the amount
ultimately realized from the Company's collection on these receivables will be
different than the recorded amounts.
Cash Equivalents
The Company considers short-term investments (including certificates of deposit)
with a maturity of three months or less at the time of investment to be cash
equivalents.
Marketable Securities
The Company records its marketable securities at fair value. Unrealized gains
and losses on securities are reported as a separate component of stockholders'
equity and realized gains and losses are included in net income.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Company, the carrying amount of debt approximates fair value.
Certain assumed debt instruments have been recorded at a premium based upon the
stated rate on the instrument and the then available borrowing rates for the
Company. Cash and cash equivalents consist of demand deposits and certificates
of deposit with financial institutions. The carrying amount of cash and cash
equivalents as well as the mortgage loans receivable described above,
approximates fair value.
Derivative Financial Instruments
The Company may use derivative financial instruments in the event that it
believes such instruments will be an effective hedge against fluctuations in
interest rates on a specific anticipated borrowing. Derivative financial
instruments such as forward rate agreements or interest rate swaps may be used
in this capacity. To the extent such instruments do not qualify as hedges, they
will be accounted for on a mark-to-market basis and recorded in earnings each
period as appropriate. The cost of terminated instruments not qualifying as
hedges will be recorded in earnings in the period they are terminated.
Instruments which qualify as hedges upon obtaining the related debt will be
recorded as a premium or discount on the related debt principal and amortized
into earnings over the life of the debt instrument. If the hedged instrument is
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retired early, the unamortized discount or premium will be included as a
component of the calculation of gain or loss on retirement.
At March 31, 1999, the Company was not a party to any open interest rate
protection agreements.
Deferred Financing and Other Fees
Fees paid in connection with the financing and leasing of the Company's
properties are amortized over the term of the related notes payable or leases
and are included in other assets.
Investments in Development Alliances
The Company, through mezzanine loans and equity contributions, invests in
various development alliances with projects currently under development. The
interest on advances and other direct project costs incurred by the Company are
capitalized to the investment during the period in which the projects are under
development. See Note 6 for further discussion.
Minority Interest
Minority interest represents the 11.75% limited partner interests in the
Operating Partnership not held by the Company.
Revenues
All leases are classified as operating leases. Rental revenue is recognized as
earned over the terms of the related leases.
For the three months ended March 31, 1999, no tenants represented 10% or more of
rental revenue of the Company.
Fees and reimbursement revenue consists of property management fees, overhead
administration fees, and transaction fees from the acquisition, disposition,
refinancing, leasing and construction supervision of real estate for an
unconsolidated affiliate.
Revenues are recognized only after the Company is contractually entitled to
receive payment, after the services for which the fee is received have been
provided, and after the ability and timing of payments are reasonably assured
and predictable.
Scheduled rent increases are based primarily on the Consumer Price Index or a
similar factor. Material incentives paid, if any, by the Company to a tenant are
amortized as a reduction of rental income over the life of the related lease.
Income Taxes
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code. As a REIT, the Company generally will not be subject to
Federal income tax to the extent that it distributes at least 95% of its REIT
taxable income to its stockholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its income
and property and to Federal income and excise taxes on its undistributed income.
Reference to 1998 Audited Financial Statements
These unaudited financial statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in the 1998 audited
financial statements.
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Note 3. INVESTMENTS IN REAL ESTATE
Acquisitions
In the first quarter of 1999, the Company acquired a 285 unit multifamily
property ("Springs of Indian Creek") located in Carrolton, Texas. The property
is the first phase of a two phase project comprising a total of 519 units. The
234 unit second phase of the project is currently under construction through one
of the Company's development alliances and is expected to be completed in the
first quarter of the year 2000. The total acquisition cost, including
capitalized costs of Phase I was approximately $20.8 million comprising: (i)
approximately $14.1 million in assumption of debt and (ii) the balance in cash.
In addition, the Company acquired a 1.45-acre parcel containing 34,500 square
feet of industrial buildings in Los Angeles, California, near the Los Angeles
International Airport. The total acquisition cost, including capitalized costs,
was approximately $3.1 million, which was paid entirely in cash. The property
has been leased to a single tenant under a 15-year triple-net lease.
Dispositions
In the first quarter of 1999, the Company sold seven properties, including five
office/flex properties and two retail properties, and a small partial interest
in a REIT. These assets were sold for an aggregate sales price of approximately
$27.3 million and generated an aggregate net gain of approximately $1,351,000.
These transactions are reflected as the net gain on sales of real estate assets
on the accompanying consolidated statement of operations for the three months
ended March 31, 1999.
Prospective Acquisitions and Dispositions
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 GC and Robert Batinovich have served as
co-general partners since March 1994, but do not hold a material equity or
economic interest (the "Pru-Bache Portfolio"). The total acquisition cost,
including capitalized costs, is expected to be approximately $49.9 million,
which is to be paid entirely in cash. The Company anticipates that the cash will
be funded with proceeds from the sales of real estate assets. 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 certain contingencies, including customary closing conditions and the
resolution of litigation relating to the proposed acquisition, to which neither
the Company nor the Operating Partnership is a party.
The Company has entered into short-term lease agreements on the hotel properties
located in Arlington, Texas, and Ontario, California, with the prospective
purchasers of these properties. These prospective purchasers have entered into
purchase agreements for these properties, with anticipated closing dates of June
30, 1999. The leases terminate on the closing date of the sale of the
properties. The net book value of the two hotel properties totals $7,832,000 at
March 31, 1999. Net income earned by the Company (before depreciation) from the
two hotels totaled $192,000 and $229,000 for the three months ended March 31,
1999 and 1998, respectively.
The Company has entered into separate definitive agreements to sell ten
properties, including three office properties, four office/flex properties, one
industrial property, one retail property and one multifamily property. These
sales are expected to close in the second quarter of 1999 for an aggregate sales
price of approximately $51 million. In addition, the Company is in active
negotiations to sell another six properties, including one office property, one
office/flex property, one industrial property and three retail properties. The
six additional properties have an aggregate net book value of approximately
$77.3 million at March 31, 1999, and are reflected as Real Estate Held For Sale
on the accompanying consolidated balance sheet as of March 31, 1999. See Note 12
for discussion of sales subsequent to March 31, 1999.
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Note 4.INVESTMENTS IN ASSOCIATED COMPANIES
The Company accounts for its investments in the Associated Companies (as defined
in Note 1) using the equity method as a substantial portion of their economic
benefits flow to the Company by virtue of its 100% non-voting preferred stock
interest in each of them, which interests constitute substantially all of their
capitalization. Two of the holders of the voting common stock of GC and one of
the holders of the voting common stock of GHG are officers of the Company;
however, the Company has no direct voting or management control of either GC or
GHG. The Company records earnings on its investments in the Associated Companies
equal to its cash flow preference, to the extent of earnings, plus its pro rata
share of remaining earnings, based on cash flow allocation percentages.
Distributions received from the Associated Companies are recorded as a reduction
of the Company's investments.
As of March 31, 1999, the Company had the following investments in the
Associated Companies (in thousands):
GC GHG Total
------- ------- ------
Investment at December 31, 1998 $ 6,800 $ 2,007 $ 8,807
Distributions (124) -- (124)
Equity in earnings (loss) 318 (9) 309
------- ------- ------
Investment at March 31, 1999 $ 6,994 $ 1,998 $ 8,992
======= ======= ======
Note 5.MORTGAGE LOANS RECEIVABLE
The Company's mortgage loans receivable consist of the following as of March 31,
1999, and December 31, 1998 (dollars in thousands):
1999 1998
---------- -----------
Note secured by an office property in Phoenix,
AZ, with a fixed interest rate of 11% and a
maturity date of November 1999. As of March 31,
1999, the Partnership is committed to additional
advances totaling $221 for tenant improvements
and other leasing costs. $ 3,629 $ 3,484
Note secured by a hotel property in Dallas, TX,
with a fixed interest rate of 9%, monthly
interest-only payments and a maturity date of
June 30, 1999 3,600 3,600
Note secured by Gateway Park land located in
Aurora, CO, with a stated fixed interest rate of
13%, quarterly interest-only payments and a
maturity date of July 2005 (see below for
further discussion) 36,184 35,336
---------- -----------
Total $ 43,413 $ 42,420
========== ===========
In 1998, the Company entered into a development alliance with The Pauls
Corporation (see Note 6). In addition to this development alliance, the Company
loaned approximately $34 million, secured by a First Mortgage, to continue the
build-out of Gateway Park. In this arrangement, the Company has rights under
certain conditions and subject to certain contingencies to purchase the
properties upon completion of development and, thus, through this arrangement,
the Company could acquire up to 2.2 million square feet of office, office/flex
and industrial space and 1,600 multifamily units over the next ten years.
Note 6. INVESTMENTS IN DEVELOPMENT
The Company has formed 4 development alliances to which it has committed a total
of approximately $43 million for the development of approximately 713,000 square
feet of office, office/flex and distribution properties and 1,710 multifamily
units in North Carolina, Colorado, Texas, New Jersey, Kansas and Michigan. As of
13
<PAGE>
March 31, 1999, the Company has advanced approximately $34 million under these
commitments. Under these development alliances, the Company has certain rights
to purchase the properties upon completion of development over the next five
years.
Note 7. SECURED AND UNSECURED LIABILITIES
The Company had the following mortgage loans, bank lines, unsecured notes and
notes payable outstanding as of March 31, 1999, and December 31, 1998 (dollars
in thousands):
1999 1998
---------- ----------
Secured loans with various lenders, net of unamortized
discount of $5,984 and $6,140 at March 31, 1999 and
December 31, 1998, respectively. All loans have a fixed
interest rate of 6.125% and a November 10, 2008
maturity date. Monthly principal and interest payments
range between $296 and $458. These loans are secured by
35 properties with an aggregate net carrying value of
$405,796 and $408,439 at March 31, 1999 and December
31, 1998, respectively. $ 234,383 $ 234,871
Secured loan with a bank with a fixed interest rate of
7.50%, monthly principal and interest payments of $443
and a maturity date of October 1, 2022. The loan is
secured by ten properties with an aggregate net
carrying value of $109,226 and $110,129 at March 31,
1999 and December 31, 1998, respectively. 58,767 58,942
Secured loan with an investment bank with a fixed
interest rate of 7.57%, monthly principal and interest
payments (based upon a 25-year amortization) of $103
and a maturity date of January 1, 2006. This loan was
paid off in March 1999 with the proceeds from a new $26
million loan discussed below. -- 13,220
Secured loans with various lenders, bearing interest at
fixed rates between 6.95% and 9.25% (approximately
$53,257 of these loans include an unamortized premium
of approximately $524 which reduces the effective
interest rate on those instruments to 6.75%), with
monthly principal and interest payments ranging between
$8 and $371 and maturing at various dates through July
1, 2008. These loans are secured by properties with an
aggregate net carrying value of $439,832 and $447,444
at March 31, 1999 and December 31, 1998, respectively. 258,545 261,938
Secured loans with various banks bearing interest at
variable rates ranging between 7.25% and 8.18% at March
31, 1999 (approximately $114,692 of these loans include
an unamortized premium of approximately $1,492 which
reduces the effective interest rate on those
instruments to 6.75%), monthly principal and interest
payments ranging between $16 and $800 and maturing at
various dates through December 22, 2000. These loans
are secured by properties with an aggregate net
carrying value of $227,756 and $179,438 at March 31,
1999 and December 31, 1998, respectively. 164,332 125,230
14
<PAGE>
1999 1998
---------- ----------
Secured loans with a lender, bearing interest at fixed
rates between 7.60% and 7.85%, with monthly principal
and interest payments ranging between $11 and $22. All
of these loans have a maturity date of December 1,
2030. These loans are secured by multifamily properties
with an aggregate net carrying value of $18,062 and
$19,060 at March 31, 1999 and December 31, 1998,
respectively. $ 14,349 $ 14,377
Unsecured $100,000 line of credit with a bank ("Credit
Facility") with a variable interest rate of LIBOR plus
1.625% (6.630% and 7.401% at March 31, 1999 and
December 31, 1998, respectively), monthly interest only
payments and a maturity date of December 22, 2000, with
one option to extend for 10 years. 54,307 63,519
Unsecured Series A Senior Notes with a fixed interest
rate of 7.625%, interest payable semiannually on March
15 and September 15, and a maturity date of March 15,
2005. 150,000 150,000
---------- ----------
Total $934,683 $922,097
========== ==========
In March 1999, the Company obtained a $26 million loan from a commercial bank
which bears interest at a variable rate of LIBOR plus 2.25% (7.25% at March 31,
1999). The loan is non-recourse and is secured by seven properties and has a
maturity date of December 22, 1999, with an option to extend for six months. The
proceeds were used to pay off a loan which was previously secured by these same
properties and to reduce other debt. Five of the seven secured properties are
currently being sold and the new loan provides flexibility for partial releases
of collateral upon the sale of a property.
In connection with the loan payoff discussed above and the payoff of another
loan upon the sale of an office/flex property, the Company incurred a loss on
early extinguishment of debt of approximately $1,991,000, which consisted of
prepayment penalties and the write-off of unamortized loan fees.
Some of the Company's properties are held in limited partnerships and limited
liability companies in order to provide bankruptcy remote borrowers for certain
lenders. Such limited partnerships and limited liability companies are included
in the consolidated financial statements of the Company in accordance with
Generally Accepted Accounting Principles ("GAAP").
The required principal payments on the Company's debt for the next five years
and thereafter, as of March 31, 1999, are as follows (in thousands):
Year Ending
December 31,
1999 $122,966
2000 166,737
2001 15,528
2002 14,393
2003 37,981
Thereafter 577,078
-------
Total $934,683
=======
15
<PAGE>
Note 8. RELATED PARTY TRANSACTIONS
Fee and reimbursement income earned by the Company from related parties totaled
$1,131,000 and $473,000 for the three months ended March 31, 1999 and 1998,
respectively, and consisted of property management fees, asset management fees
and other fee income. In addition, the Company paid GC property management fees
and salary reimbursements totaling $362,000 and $295,000 for the three months
ended March 31, 1999 and 1998, respectively, for management of a portfolio of
residential properties owned by the Company, which is included in property
operating expenses on the accompanying consolidated statements of operations.
The Company acquired from a Managed Partnership an option to acquire all of its
rights under a Lease with Option to Purchase Agreement, to acquire certain
undeveloped land located in Burlingame, California. Upon expiration of the
option period, the independent members of the Company's Board of Directors
concluded that proceeding with the development of the property would have
required that the Company incur substantial debt. Accordingly, on February 1,
1999, the Company elected not to proceed with the development and not to
exercise the option in return for the Managed Partnership's agreement to
reimburse the Company for $2,130,000 of predevelopment costs, $283,000 to be
paid in cash with the balance in a promissory note bearing interest at 10% and
due on the earlier of sale, refinance or March 31, 2002. The note also contains
a participation in profits realized by the Managed Partnership from the
development and sale of the property. The principal balance of the note is
included in Other Assets on the accompanying consolidated balance sheet as of
March 31, 1999.
Note 9.EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS
No. 128 requires the disclosure of basic earnings per share and modified the
guidance for computing diluted earnings per share. Basic earnings per share is
computed as earnings divided by weighted average shares, excluding the dilutive
effects of stock options and other potentially dilutive securities. Earnings per
share are as follows (in thousands, except for weighted average shares and per
share amounts):
Three months ended
March 31,
----------------------
1999 1998
---------- ----------
Net income available to common
Stockholders - Basic $ 5,008 $ 8,303
Minority interest 667 678
---------- ----------
Net income available to common
Stockholders - Diluted $ 5,675 $ 8,981
---------- ----------
Weighted average shares:
Basic 31,764,834 31,548,706
Stock options 115,154 456,829
Convertible Operating Partnership
units 4,218,386 2,366,829
----------- -----------
Diluted 36,098,374 34,372,364
----------- -----------
Basic earnings per share $ 0.16 $ 0.26
Diluted earnings per share $ 0.16 $ 0.26
16
<PAGE>
Note 10.STOCK COMPENSATION PLAN
In May 1996, the Company adopted an employee stock incentive plan (the "Plan")
to provide incentives to attract and retain high quality executive officers and
key employees. Certain amendments to the Plan were ratified and approved by the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders. The Plan, as amended, provides for the grant of (i) shares of
Common Stock of the Company, (ii) options, stock appreciation rights ("SARs") or
similar rights with an exercise or conversion privilege at a fixed or variable
price related to the Common Stock and/or the passage of time, the occurrence of
one or more events, or the satisfaction of performance criteria or other
conditions, or (iii) any other security with the value derived from the value of
the Common Stock of the Company or other securities issued by a related entity.
Such awards include, without limitation, options, SARs, sales or bonuses of
restricted stock, dividend equivalent rights ("DERs"), Performance Units or
Preference Shares. The total number of shares of Common Stock available under
the Plan is equal to the greater of 1,140,000 shares or 8% of the number of
shares outstanding determined as of the day immediately following the most
recent issuance of shares of Common Stock or securities convertible into shares
of Common Stock; provided that the maximum aggregate number of shares of Common
Stock available for issuance under the Plan may not be reduced. For purposes of
calculating the number of shares of Common Stock available under the Plan, all
classes of securities of the Company and its related entities that are
convertible presently or in the future by the security holder into shares of
Common Stock or which may presently or in the future be exchanged for shares of
Common Stock pursuant to redemption rights or otherwise, shall be deemed to be
outstanding shares of Common Stock. Notwithstanding the foregoing, the aggregate
number of shares as to which incentive stock options, one type of security
available under the Plan, may be granted under the Plan may not exceed 1,140,000
shares. The Company accounts for the fair value of the options and bonus grants
in accordance with APB Opinion No. 25. As of March 31, 1999, 37,000 shares of
bonus grants have been issued under the Plan. The fair value of the shares
granted have been recorded as deferred compensation in the accompanying
financial statements and will be charged to earnings ratably over the respective
vesting periods that range from 2 to 5 years. As March 31, 1999, 2,791,293
options to purchase shares of Common Stock were outstanding. The exercise price
of each incentive stock option granted is greater than or equal to the per-share
fair market value of the Common Stock on the date the option is granted and, as
such, no compensation expense has been recognized. The options vest over periods
between 1 and 6 years, and have a maximum term of 10 years.
Note 11.SEGMENT INFORMATION
The Company owns a diverse portfolio of properties comprising six product types:
office, office/flex, industrial, retail, multifamily and hotels. Each of these
product types represents a reportable segment with distinct uses and tenant
types which require the Company to employ different management strategies. Each
segment contains properties located in various regions and markets within the
United States. The office portfolio consists primarily of suburban office
buildings. The office/flex portfolio consists of properties designed for a
combination of office and warehouse uses. The industrial portfolio consists of
properties designed for warehouse, distribution and light manufacturing for
single-tenant or multi-tenant use. The retail portfolio consists primarily of
community shopping centers anchored with national or regional supermarkets or
drug stores. The properties in the multifamily portfolio are apartment buildings
with units rented to residential tenants on either a month-by-month basis or for
terms of one year or less. The Company's hotel operations are limited service
"all-suite" properties leased to and operated by third parties. Two of the
Company's hotels are in contract to be sold.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance of
its property types based on net operating income derived by subtracting rental
expenses and real estate taxes (operating expenses) from rental revenues.
Significant information used by the Company for its reportable segments as of
and for the three months ended March 31, 1999 and 1998 is as follows (in
thousands):
17
<PAGE>
<TABLE>
<CAPTION>
Multi-
1999 Office Office/Flex Industrial Retail family Hotel Total
- ---- ----------- ------------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue $ 29,836 $ 9,532 $ 4,764 $ 3,241 $ 16,670 $ 598 $ 64,641
Property operating expenses 11,512 2,849 1,115 1,176 7,255 97 24,004
=========== ============= =========== =========== ============ ============ =============
Net operating income (NOI) $ 18,324 $ 6,683 $ 3,649 $ 2,065 $ 9,415 $ 501 $ 40,637
=========== ============= =========== =========== ============ ============ =============
1998
- ----
Rental revenue $ 26,058 $ 8,579 $ 3,293 $ 2,388 $ 3,762 $ 1,883 $ 45,963
Property operating expenses 9,483 2,569 800 865 1,466 480 15,663
=========== ============= =========== =========== ============ ============ =============
Net operating income (NOI) $ 16,575 $ 6,010 $ 2,493 $ 1,523 $ 2,296 $ 1,403 $ 30,300
=========== ============= =========== =========== ============ ============ =============
</TABLE>
The following is a reconciliation of segment revenues and income to consolidated
revenues and income for the periods presented above (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
Revenues
<S> <C> <C>
Total revenue for reportable segments $ 64,641 $ 45,963
Other revenue (1) 4,450 2,628
================ ================
Total consolidated revenues $ 69,091 $ 48,591
================ ================
Net Income
NOI for reportable segments $ 40,637 $ 30,300
Elimination of internal property management fees 2,003 1,339
Unallocated amounts:
Other revenue (1) 4,450 2,628
General and administrative expenses (2,222) (2,222)
Depreciation and amortization (15,092) (10,009)
Interest expense (16,540) (9,145)
================ ================
Income from operations before minority interest and
extraordinary items $ 13,236 $ 12,891
================ ================
</TABLE>
(1) Other revenue includes fee income, interest and other income, equity in
earnings of Associated Companies and net gain on sales of real estate assets.
Note 12. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, and through the date of this filing, the Company
sold three properties, including one office property, one office/flex property
and one retail property. These properties were sold for an aggregate sales price
of $11,370,000 and generated an aggregate net gain of approximately $400,000.
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
Glenborough Realty Trust Incorporated (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of various types of income-producing properties. As of March 31,
1999, the Company owned and operated 181 income-producing properties (the
"Properties," and each a "Property"). The Properties are comprised of 54 office
Properties, 44 office/flex Properties, 31 industrial Properties, 11 retail
Properties, 38 multifamily Properties and 3 hotel Properties, located in 24
states.
The Company was incorporated in the State of Maryland on August 26, 1994. On
December 31, 1995, the Company completed a consolidation (the "Consolidation")
in which Glenborough Corporation, a California corporation, and eight public
limited partnerships (the "Partnerships") collectively, the "GRT Predecessor
Entities", merged with and into the Company. The Company (i) issued 5,753,709
shares (the "Shares") of $.001 par value Common Stock of the Company to the
Partnerships in exchange for the net assets of the Partnerships; (ii) merged
with Glenborough Corporation, with the Company being the surviving entity; (iii)
acquired an interest in three companies (the "Associated Companies"), two of
which merged on June 30, 1997, that provide asset and property management
services, as well as other services; and (iv) through a subsidiary operating
partnership, Glenborough Properties, L.P. (the "Operating Partnership"),
acquired interests in certain warehouse distribution facilities from GPA, Ltd.,
a California limited partnership ("GPA"). A portion of the Company's operations
are conducted through the Operating Partnership, of which the Company is the
sole general partner, and in which the Company holds a 87.25% limited partner
interest at March 31, 1999. The Company operates the assets acquired in the
Consolidation and in subsequent acquisitions (see further discussion below) and
intends to continue to invest in income-producing property directly and through
joint ventures. In addition, the Associated Companies may acquire general
partner interests in other real estate limited partnerships. The Company has
elected to qualify as a REIT under the Internal Revenue Code of 1986, as
amended. The common and preferred stock of the Company (the "Common Stock" and
the "Preferred Stock", respectively) are listed on the New York Stock Exchange
("NYSE") under the trading symbols "GLB" and "GLB Pr A", respectively.
Since the Consolidation, and consistent with its strategy for growth, the
Company has completed the following transactions:
Acquired 20 properties in 1996, 90 properties in 1997, 69 properties in 1998
and 2 properties in 1999. The total acquired Properties consist of an
aggregate of approximately 15.7 million rentable square feet of office,
office/flex, industrial and retail space, 9,638 multifamily units and 227
hotel suites and had aggregate acquisition costs, including capitalized
costs, of approximately $1.8 billion.
From January 1, 1996 to the date of this filing, sold 39 properties which
were comprised of two office properties, eight office/flex properties, six
industrial properties, 19 retail properties, one multifamily property and
three hotel properties, to redeploy capital into properties the Company
believes have characteristics more suited to its overall growth strategy and
operating goals.
Completed four offerings of Common Stock in October 1996, March 1997, July
1997 and October 1997 (respectively, the "October 1996 Offering," the "March
1997 Offering," the "July 1997 Offering," and the "October 1997 Offering"),
resulting in aggregate gross proceeds of approximately $562 million.
Completed an offering of 7 3/4% Series A Convertible Preferred Stock (the
"January 1998 Convertible Preferred Stock Offering") for total gross proceeds
of $287.5 million.
Issued $150 million of unsecured 7.625% Series A Senior Notes which mature on
March 15, 2005.
Entered into 4 development alliances to which the Company has made advances
of approximately $33 million and a loan (including accrued interest) of $36
million as of March 31, 1999.
The Company's principal business objectives are to achieve a stable and
increasing source of cash flow available for distribution to stockholders. By
achieving these objectives, the Company will seek to raise the value of its
shares over time.
19
<PAGE>
Results of Operations
Comparison of the three months ended March 31, 1999 to the three months ended
March 31, 1998.
Rental Revenue. Rental revenue increased $18,678,000, or 41%, to $64,641,000 for
the three months ended March 31, 1999, from $45,963,000 for the three months
ended March 31, 1998. The increase included growth in revenue from the office,
industrial, office/flex, retail and multifamily Properties of $3,778,000,
$1,471,000, $953,000, $853,000 and $12,908,000, respectively. These increases
were partially offset by a $1,285,000 decrease in revenue from the hotel
Properties due to the 1998 sales of three hotels. Rental revenue generated from
the 1996 Acquisitions and the 1997 Acquisitions (excluding properties that have
been sold) increased $247,000 for the three months ended March 31, 1999, as
compared to the three months ended March 31, 1998. Rental revenue generated from
the first quarter 1998 Acquisitions (excluding properties that have been sold)
increased $2,155,000 for the three months ended March 31, 1999, as compared to
the three months ended March 31, 1998. Rental revenue for the three months ended
March 31, 1999, also included $17,657,000 from the 1998 Acquisitions acquired
subsequent to March 31, 1998. In addition, rental revenue of $456,000 was
generated from the acquisition of two properties in 1999 (the "1999
Acquisitions"). These increases were offset by a $1,837,000 decrease in rental
revenue due to the sales of 18 properties in 1998 and 1999.
Fees and Reimbursements from Affiliates. Fees and reimbursements from affiliates
consist primarily of property management fees, asset management fees and lease
commissions paid to the Company under property and asset management agreements
with the Managed Partnerships. This revenue increased $658,000, or 139%, to
$1,131,000 for the three months ended March 31, 1999, from $473,000 for the
three months ended March 31, 1998. The increase was primarily due to transaction
fees from GC.
Interest and Other Income. Interest and other income increased $1,302,000, or
365%, to $1,659,000 for the three months ended March 31, 1999, from $357,000 for
the three months ended March 31, 1998. The increase primarily consisted of
interest income on a mortgage loan receivable secured by land located in Aurora,
Colorado which originated on June 30, 1998, and interest earned on lender
impound accounts, invested cash balances and notes receivable for tenant
improvements.
Equity in Earnings of Associated Companies. Equity in earnings from Associated
Companies decreased $43,000, or 12%, to $309,000 for the three months ended
March 31, 1999, from $352,000 for the three months ended March 31, 1998. The
decrease is primarily due to a decrease in earnings from GHG resulting from the
sales and pending sales of the Company's hotel properties which resulted in the
June 30, 1998, cancellation of GHG's hotel leases with the Company. This
decrease is partially offset by a transaction fee earned by GC from a Managed
Partnership.
Net Gain on Sales of Real Estate Assets. A net gain on sales of real estate
assets of $1,351,000 during the three months ended March 31, 1999, resulted from
the sale of five office/flex properties, two retail properties and a small
partial interest in a REIT from the Company's portfolio. The net gain on sales
of real estate assets of $1,446,000 during the three months ended March 31,
1998, resulted from the sale of one multifamily property, two industrial
properties and one office/flex property from the Company's portfolio.
Property Operating Expenses. Property operating expenses increased $7,677,000,
or 54%, to $22,001,000 for the three months ended March 31, 1999, from
$14,324,000 for the three months ended March 31, 1998. Of this increase,
$7,960,000 represents increases in property operating expenses attributable to
the 1998 Acquisitions and the 1999 Acquisitions. This increase is partially
offset by decreases in property operating expenses due to the 1998 and 1999
sales of properties.
General and Administrative Expenses. General and administrative expenses
remained constant at $2,222,000 for the three months ended March 31, 1999 and
1998. However, as a percentage of rental revenue, general and administrative
expenses decreased from 4.8% for the three months ended March 31, 1998 to 3.4%
for the three months ended March 31, 1999.
20
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased
$5,083,000, or 51%, to $15,092,000 for the three months ended March 31, 1999,
from $10,009,000 for the three months ended March 31, 1998. The increase is
primarily due to depreciation and amortization associated with the 1998
Acquisitions and 1999 Acquisitions.
Interest Expense. Interest expense increased $7,395,000, or 81%, to $16,540,000
for the three months ended March 31, 1999, from $9,145,000 for the three months
ended March 31, 1998. Substantially all of the increase was the result of higher
average borrowings during the three months ended March 31, 1999, as compared to
the three months ended March 31, 1998, due to new debt and the assumption of
debt related to the 1998 Acquisitions and 1999 Acquisitions.
Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of
$1,991,000 during the three months ended March 31, 1999, consists of prepayment
penalties and the write-off of unamortized loan fees upon the early payoff of
debt. Two loans were paid-off early when more favorable terms were obtained
through new financing (discussed below) and upon the sale of an office/flex
property.
Liquidity and Capital Resources
Cash Flows
For the three months ended March 31, 1999, cash provided by operating activities
increased by $6,660,000 to $21,987,000 as compared to $16,772,000 for the same
period in 1998. The increase is primarily due to an increase in net income
(before depreciation and amortization, minority interest, net gain on sales of
real estate assets and loss on early extinguishment of debt) of $5,590,000 due
to the 1998 Acquisitions and 1999 Acquisitions. Cash used for investing
activities decreased by $382,315,000 to $1,211,000 for the three months ended
March 31, 1999, as compared to $383,526,000 for the same period in 1998. The
decrease is primarily due to a decrease in property acquisitions in 1999 as
compared to the same period in 1998. During the three months ended March 31,
1998, the Company acquired 23 properties as compared to two properties during
the three months ended March 31, 1999. Cash from financing activities decreased
by $389,675,000 to $21,325,000 of cash used for financing activities for the
three months ended March 31, 1999, as compared to $368,350,000 of cash provided
by financing activities for the same period in 1998. This change was primarily
due to a decrease in net proceeds from the issuance of stock and proceeds from
new debt. In 1998, the Company completed an offering of Preferred Stock; there
have been no offerings in 1999. In addition, in 1998, the Company issued
$150,000,000 of unsecured Series A Senior Notes.
The Company expects to meets its short-term liquidity requirements generally
through its working capital, its Credit Facility (as defined below) and cash
generated by operations. The Company believes that its cash generated by
operations will be adequate to meet operating requirements and to make
distributions in accordance with REIT requirements in both the short and the
long-term. In addition to cash generated by operations, the Credit Facility
provides for working capital advances. However, there can be no assurance that
the Company's results of operations will not fluctuate in the future and at
times affect (i) its ability to meet its operating requirements and (ii) the
amount of its distributions.
The Company's principal sources of funding for acquisitions, development,
expansion and renovation of properties include the unsecured Credit Facility,
permanent secured debt financing, public unsecured debt financing, public and
private equity and debt issuances, the issuance of partnership units in the
Operating Partnership, proceeds from property sales and cash flow provided by
operations.
Mortgage Loans Receivable
Mortgage loans receivable increased from $42,420,000 at December 31, 1998, to
$43,413,000 at March 31, 1999. This increase was primarily due to accrued
interest on a loan made by the Company under a development alliance.
21
<PAGE>
Secured and Unsecured Financing
Mortgage loans payable increased from $708,578,000 at December 31, 1998, to
$730,376,000 at March 31, 1999. This increase resulted from the assumption of a
$14.1 million mortgage loan in connection with a 1999 Acquisition and new
financing of $26 million (as discussed below). These increases were partially
offset by the payoff of approximately $16.1 million of mortgage loans in
connection with 1999 sales of properties, refinancing of debt and scheduled
principal payments of approximately $2.2 million.
In March 1999, the Company obtained a $26 million loan from a commercial bank
which bears interest at a variable rate of LIBOR plus 2.25% (7.25% at March 31,
1999). The loan is non-recourse and is secured by seven properties and has a
maturity date of December 22, 1999, with an option to extend for six months. The
proceeds were used to pay off a loan which was previously secured by these same
properties and to reduce other debt. Five of the seven secured properties are
currently being sold and the new loan provides flexibility for partial releases
of collateral upon the sale of a property.
The Company has an unsecured line of credit provided by a commercial bank (the
"Credit Facility"). Outstanding borrowings under the Credit Facility decreased
from $63,519,000 at December 31, 1998, to $54,307,000 at March 31, 1999, due to
pay downs from proceeds from the sales of properties and refinancing of a
mortgage loan.
At March 31, 1999, the Company's total indebtedness included fixed-rate debt of
$716,043,000 and floating-rate indebtedness of $218,640,000. Approximately 64%
of the Company's total assets, comprising 110 properties, is encumbered by debt
at March 31, 1999.
It is the Company's policy to manage its exposure to fluctuations in market
interest rates through the use of fixed rate debt instruments to the extent
possible. At March 31, 1999, approximately 23% of the Company's outstanding
debt, including amounts borrowed under the Credit Facility, were subject to
variable rates. The Company may, from time to time, enter into interest rate
protection agreements intended to hedge the cost of new borrowings that are
reasonably assured of completion. It is not the Company's policy to engage in
hedging activities for previously outstanding debt instruments or for
speculative purposes. At March 31, 1999, the Company was not a party to any open
interest rate protection agreements.
Equity and Debt Offerings
In January 1999, the Operating Partnership and the Company filed a shelf
registration statement with the SEC (the "January 1999 Shelf Registration
Statement") to register $300 million of debt securities of the Operating
Partnership and to carry forward the remaining $801.2 million in equity
securities of the Company from a November 1997 shelf registration statement
(declared effective by the SEC on December 18, 1997). The January 1999 Shelf
Registration Statement was declared effective by the SEC on January 25, 1999.
Therefore, the Operating Partnership and the Company have the capacity pursuant
to the January 1999 Shelf Registration Statement to issue up to $300 million in
debt securities and $801.2 million in equity securities, respectively. The
Company currently has no plans to issue equity or debt under these shelf
registrations.
Development Alliances
The Company has formed 4 development alliances to which it has committed a total
of approximately $43 million for the development of approximately 713,000 square
feet of office, office/flex and distribution properties and 1,710 multifamily
units in North Carolina, Colorado, Texas, New Jersey, Kansas and Michigan. As of
March 31, 1999, the Company has advanced approximately $34 million under these
commitments. Under these development alliances, the Company has certain rights
to purchase the properties upon completion of development over the next five
years. In addition, the Company has loaned approximately $36 million (including
accrued interest) under another development alliance to continue the build-out
of a 1,200 acre master-planned development in Denver, Colorado.
Inflation
Substantially all of the leases at the office/flex, industrial and retail
Properties provide for pass-through to tenants of certain operating costs,
including real estate taxes, common area maintenance expenses, and insurance.
Leases at the multifamily properties generally provide for an initial term of
22
<PAGE>
one month or one year and allow for rent adjustments at the time of renewal.
Leases at the office Properties typically provide for rent adjustment and
pass-through of certain operating expenses during the term of the lease. All of
these provisions may permit the Company to increase rental rates or other
charges to tenants in response to rising prices and therefore, serve to reduce
the Company's exposure to the adverse effects of inflation.
Funds from Operations and Cash Available for Distribution
Funds from Operations, as defined by NAREIT, represents income (loss) before
minority interests and extraordinary items, adjusted for real estate related
depreciation and amortization and gains (losses) from the disposal of
properties. The Company believes that FFO is an important and widely used
measure of the financial performance of equity REITs which provides a relevant
basis for comparison among other REITs. 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, developments and other
capital expenditures. FFO does not represent net income or cash flows from
operations as defined by GAAP, and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indicator of the Company's
operating performance or as an alternative to cash flows from operating,
investing and financing activities (determined in accordance with GAAP) as a
measure of liquidity. FFO does not necessarily indicate that cash flows will be
sufficient to fund all of the Company's cash needs including principal
amortization, capital improvements and distributions to stockholders. Further,
FFO as disclosed by other REITs may not be comparable to the Company's
calculation of FFO. The Company calculates FFO in accordance with the White
Paper on FFO approved by the Board of Governors of NAREIT in March 1995.
Cash available for distribution ("CAD") represents net income (loss) before
minority interests and extraordinary items, adjusted for depreciation and
amortization including amortization of deferred financing costs and gains
(losses) from the disposal of properties, less lease commissions and recurring
capital expenditures, consisting of tenant improvements and normal expenditures
intended to extend the useful life of the property such as roof and parking lot
repairs. CAD should not be considered an alternative to net income (computed in
accordance with GAAP) as a measure of the Company's financial performance or as
an alternative 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.
Further, CAD as disclosed by other REITs may not be comparable to the Company's
calculation of CAD.
The following table sets forth the Company's calculation of FFO and CAD for the
three months ended March 31, 1999 (in thousands, except weighted average shares
and per share amounts):
March
31,
1999
---------
Net income before minority interest $ 13,236
Preferred dividend requirement (5,570)
Net gain on sales of rental properties (1,351)
Depreciation and amortization (1) 14,947
Adjustment to reflect FFO of
Associated Companies (2) 253
---------
FFO $ 21,515
=========
Amortization of deferred financing fees 485
Capital reserve (1,465)
Capital expenditures (2,573)
---------
CAD $ 17,962
=========
Distributions per share (3) $ 0.42
=========
Diluted weighted average shares
outstanding 36,098,374
===========
(1)Excludes depreciation of corporate office fixed assets.
23
<PAGE>
(2)Reflects the adjustments to FFO required to reflect the FFO of the Associated
Companies allocable to the Company. The Company's investments in the
Associated Companies are accounted for using the equity method of accounting.
(3)The distributions for the three months ended March 31, 1999, were paid on
April 15, 1999.
Forward Looking Statements; Factors That May Affect Operating Results
This Report on Form 10-Q contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934, including statements regarding the Company's
expectations, hopes, intentions, beliefs and strategies regarding the future
including the Company's belief that cash generated by operations will be
adequate to meet operating requirements and to make distributions, the Company's
expectations as to the timing of the completion of the development projects
through its development alliances and the acquisition by the Company of
properties developed through its development alliances. There can be no
assurance that the actual outcomes or results will be consistent with such
expectations, hopes, intentions, beliefs and strategies. Forward looking
statements include statements regarding potential acquisitions, the anticipated
performance of future acquisitions, recently completed acquisitions and existing
properties, and statements regarding the Company's financing activities. All
forward looking statements included in this document are based on information
available to the Company on the date hereof. It is important to note that the
Company's actual results could differ materially from those stated or implied in
such forward-looking statements.
Factors which may cause the Company's results to differ include the inability to
complete anticipated future acquisitions, defaults or non-renewal of leases,
increased interest rates and operational costs, failure to obtain necessary
outside financing, difficulties in identifying properties to acquire and in
effecting acquisitions, failure to qualify as a real estate investment trust
under the Internal Revenue Code of 1986, environmental uncertainties, risks
related to natural disasters, financial market fluctuations, changes in real
estate and zoning laws, increases in real property tax rates and other factors
discussed under the caption "Forward Looking Statements; Factors That May Affect
Operating Results" in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, and other risk factors set forth
in the Company's other Securities and Exchange Commission filings. In addition,
past performance of the Company's Common Stock is not necessarily indicative of
results that will be obtained in the future from an investment in the Company's
Common Stock. Furthermore, the Company makes distributions to stockholders if,
as and when declared by its Board of Directors, and expects to continue its
policy of paying quarterly distributions, however, there can be no assurance
that distributions will continue or be paid at any specific level.
Impact of Year 2000 Compliance Costs on Operations
State of Readiness. The Company uses a number of computer software programs and
operating systems across the entire organization. These programs and systems
primarily comprise (i) information technology systems ("IT Systems") (i.e.,
software programs and computer operating systems) that serve management
operations, and (ii) embedded systems such as devices used to control, monitor
or assist the operation of equipment and machinery systems (e.g., HVAC, fire
safety and security) at the Company's properties ("Property Systems"). To the
extent that the Company's software applications contain source code that is
unable to appropriately interpret the upcoming calendar year "2000" and beyond,
some level of modification or replacement of these applications will be
necessary.
IT Systems. Employing a team made up of internal personnel and third-party
consultants, the Company has completed its identification of IT Systems,
including hardware components, that are not yet Year 2000 compliant. To the
best of the Company's knowledge, based on available information and a
reasonable level of inquiry and investigation, the Company has completed such
upgrading of such systems that it believes are called for under the
circumstances, and in accordance with prevailing industry practice. The
Company has commenced a testing program which it anticipates will be
completed during 1999. In addition, the Company is currently communicating
24
<PAGE>
with third parties with whom it does significant business, such as financial
institutions, tenants and vendors, to determine their readiness for Year 2000
compliance.
Property Systems. Employing a team made up of internal personnel and
third-party consultants, the Company has also completed its identification of
Property Systems, including hardware components, that are not yet Year 2000
compliant. The Company has commenced such upgrading of such systems that it
believes are called for under the circumstances, based on available
information and a reasonable level of inquiry and investigation, and in
accordance with prevailing industry practice. Upon completion of such
upgrading, the Company will initiate a testing program which it anticipates
will be completed during 1999. To the best of the Company's knowledge, there
are no Property Systems, the failure of which would have a material effect on
operations.
Costs of Addressing the Company's Year 2000 Issues. Given the information known
at this time about the Company's systems that are non-compliant, coupled with
its ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, the Company does not expect Year 2000 compliance costs to
have any material adverse impact on liquidity or ongoing results of operations.
The costs of such assessment and remediation will be paid as an operating
expense.
Risks of the Company's Year 2000 Issues. In light of the Company's assessment
and upgrading efforts to date, and assuming completion of the planned, normal
course-of-business upgrades and subsequent testing, the Company believes that
any residual Year 2000 risk will be limited to non-critical business
applications and support hardware, and to short-term interruptions affecting
Property Systems which, if they occur at all, will not be material to overall
operations. The Company believes that all of its systems will be Year 2000
compliant and that compliance will not materially adversely affect its future
liquidity or results of operations or ability to service debt, but the Company
cannot give absolute assurance that this is the case.
The Company's Contingency Plans. The Company is currently developing its
contingency plans for all operations to address the most reasonably likely worst
case scenarios regarding Year 2000 compliance. Such plans, however, will
recognize material limitations on the Company's ability to plan for major
regional or industrial failures such as regional power outages or regional or
industrial communications breakdowns. The Company expects such contingency plans
to be completed during 1999.
Risk Factors
Stockholders or potential stockholders should read the "Risk Factors" section of
the Company's latest annual report on Form 10-K filed with the Securities and
Exchange Commission ("SEC") in conjunction with this quarterly report on Form
10-Q to better understand the factors affecting the Company's results of
operations and the Company's common stock share price. The fact that some of the
risk factors may be the same or similar to the Company's past filings means only
that the risks are present in multiple periods. The Company believes that many
of the risks detailed here and in the Company's other SEC filings are part of
doing business in the real estate industry and will likely be present in all
periods reported. The fact that certain risks are endemic to the industry does
not lessen the significance of the risk.
25
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Blumberg. The Company settled a class action complaint filed on February 21,
1995 in connection with the Consolidation. Certain parties objected to the
settlement, but the settlement has been approved (or review denied) by the
Superior Court of the State of California in and for San Mateo County, the
California state court of appeals, and the California Supreme Court. In August
1998 the objecting parties filed a petition for writ of certiorari in the
Supreme Court of the United States. The Company and the co-defendants filed a
brief in opposition to the petition. The Supreme Court of the United States has
not yet granted or denied the petition
The plaintiff in the case is Anthony E. Blumberg, an investor in Equitec B, one
of the Partnerships included in the Consolidation, on behalf of himself and all
others (the "Blumberg Action") similarly situated. The defendants are GC,
Glenborough Realty Corporation ("GRC"), Robert Batinovich, the Partnerships and
the Company.
The complaint alleged breaches by the defendants of their fiduciary duty and
duty of good faith and fair dealing to investors in the Partnerships. The
complaint sought injunctive relief and compensatory damages. The complaint
alleged that the valuation of Glenborough Corporation was excessive and was done
without appraisal of Glenborough Corporation's business or assets. The complaint
further alleged that the interest rate for the Notes to be issued to investors
in lieu of shares of Common Stock, if they so elected was too low for the risk
involved and that the Notes would likely sell, if at all, at a substantial
discount from their face value (as a matter entirely distinct from the
litigation and subsequent settlement, the Company, as it had the option to, paid
in full the amounts due plus interest in lieu of issuing Notes).
On October 9, 1995 the parties entered into an agreement to settle the action.
The defendants, in entering into the settlement agreement, did not acknowledge
any fault, liability or wrongdoing of any kind and continue to deny all material
allegations asserted in the litigation. Pursuant to the settlement agreement,
the defendants will be released from all claims, known or unknown, that have
been, could have been, or in the future might be asserted, relating to, among
other things, the Consolidation, the acquisition of the Company's shares
pursuant to the Consolidation, any misrepresentation or omission in the
Registration Statement on Form S-4, filed by the Company on September 1, 1994,
as amended, or the prospectus contained therein ("Prospectus/Consent
Solicitation Statement"), or the subject matter of the lawsuit. In return, the
defendants agreed to the following: (a) the inclusion of additional or expanded
disclosure in the Prospectus Consent Solicitation Statement, and (b) the
placement of certain restrictions on the sale of the stock by certain insiders
and the granting of stock options to certain insiders following consummation of
the Consolidation. Plaintiff's counsel indicated that it would request that the
court award it $850,000 in attorneys' fees, costs and expenses. In addition,
plaintiffs' counsel indicated it would request the court for an award of $5,000
payable to Anthony E. Blumberg as the class representative. The defendants
agreed not to oppose such requests.
On October 11, 1995, the court certified the class for purposes of settlement,
and scheduled a hearing to determine whether it should approve the settlement
and class counsel's application for fees. A notice of the proposed settlement
was distributed to the members of the class on November 15, 1995. The notice
specified that, in order to be heard at the hearing, any class member objecting
to the proposed settlement must, by December 15, 1995, file a notice of intent
to appear, and a detailed statement of the grounds for their objection.
Objections were received from a small number of class members. The objections
reiterated the claims in the original Blumberg complaint, and asserted that the
settlement agreement did not adequately compensate the class for releasing those
claims. One of the objections was filed by the same law firm that brought the
BEJ Action described below.
At a hearing on January 17, 1996, the court heard the arguments of the objectors
seeking to overturn the settlement, as well as the arguments of the plaintiffs
and the defendants in defense of the settlement. The court granted all parties a
period of time in which to file additional pleadings. On June 4, 1996, the court
granted approval of the settlement, finding it fundamentally fair, adequate and
reasonable to the respective parties to the settlement. However, the objectors
gave notice of their intent to appeal the June 4 decision. All parties filed
26
<PAGE>
their briefs and a hearing was held on February 3, 1998. On February 17, 1998,
the Court of Appeals rejected the objectors' contentions and upheld the
settlement. The objectors filed with the California Supreme Court a petition for
review, which was denied on May 21, 1998. On August 18, 1998, the objectors
filed a petition for writ of certiorari in the Supreme Court of the United
States. On September 18, 1998, the Company and the co-defendants filed a brief
in opposition to the petition.
The Supreme Court has not yet granted or denied the petition.
BEJ Equity Partners. On December 1, 1995, a second class action complaint
relating to the Consolidation was filed in Federal District Court for the
Northern District of California (the "BEJ Action"). The plaintiffs in the BEJ
Action have voluntarily stayed the action pending resolution of the Blumberg
Action.
The plaintiffs in the BEJ Action are BEJ Equity Partners, J/B Investment
Partners, Jesse B. Small and Sean O'Reilly as custodian f/b/o Jordan K.
O'Reilly, who as a group held limited partner interests in certain of the
Partnerships included in the Consolidation known as Outlook Properties Fund IV,
Glenborough All Suites Hotels, L.P., Glenborough Pension Investors, Equitec
Income Real Estate Investors-Equity Fund 4, Equitec Income Real Estate Investors
C and Equitec Mortgage Investors Fund IV, on behalf of themselves and all others
similarly situated. The defendants are GRC, GC, the Company, GPA, Ltd., Robert
Batinovich and Andrew Batinovich. The Partnerships are named as nominal
defendants.
This action alleges the same disclosure violations and breaches of fiduciary
duty as were alleged in the Blumberg Action. The complaint sought injunctive
relief, which was denied at a hearing on December 22, 1995. At that hearing, the
court also deferred all further proceedings in this case until after the
scheduled January 17, 1996 hearing in the Blumberg Action. Following several
stipulated extensions of time for the Company to respond to the complaint, the
Company filed a motion to dismiss the case. Plaintiffs in the BEJ Action
voluntarily stayed the action pending resolution of the Blumberg Action; such
plaintiffs can revive their lawsuit.
It is management's position that the BEJ Action, and the objections to the
settlement of the Blumberg Action, are without merit, and management intends to
pursue a vigorous defense in both matters. In view of the denial of the
objector's petition for review in the Blumberg Action, among other things, the
Company believes that it is very unlikely that this litigation would result in a
liability that would exceed the accrued liability by a material amount. However,
given the inherent uncertainties of litigation, there can be no assurance that
the ultimate outcome in these two legal proceedings will be in the Company's
favor.
Certain other claims and lawsuits have arisen against the Company in its normal
course of business. The Company believes that such other claims and lawsuits
will not have a material adverse effect on the Company's financial position,
cash flow or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended March 31, 1999.
Item 5: Other Information
Any stockholder proposal submitted with respect to the Company's 1999 Annual
Meeting of Stockholders, which proposal is submitted outside the requirements of
Rule 14a-8 under the Securities Exchange Act of 1934, will be considered
untimely for purposes of Rule 14a-4 and 14a-5 if notice thereof is received by
the Company after March 1, 1999.
27
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibit Index attached hereto is hereby incorporated by
reference to this item.
(b) Reports on Form 8-K:
On January 27, 1999, the Company filed a report on Form 8-K with
respect to Supplemental Information for the quarter ended December
31, 1998.
On April 22, 1999, the Company filed a report on Form 8-K with
respect to Supplemental Information for the quarter ended March 31,
1999.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
By: Glenborough Realty Trust Incorporated,
Date: May 14, 1999 /s/ Andrew Batinovich
---------------------
Andrew Batinovich
Director, President
and Chief Operating Officer
(Principal Operating Officer)
Date: May 14, 1999 /s/ Stephen Saul
----------------
Stephen Saul
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1999 /s/ Terri Garnick
-----------------
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Title
- ---------- -------------------------------------------------------------------
11.1 Statement re: Computation of Per Share Earnings is shown in Note 9
of the Consolidated Financial Statements of the Company in Item 1.
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Fixed Charges and Preferred Dividends.
27.1 Financial Data Schedule.
30
<PAGE>
Exhibit 12.1
GLENBOROUGH REALTY TRUST INCORPORATED
Computation of Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges and Preferred Dividends
For the five years ended December 31, 1998
and the three months ended March 31, 1999
<TABLE>
<CAPTION>
GRT Predecessor
Entities,
Combined The Company
----------------------- ------------------------------------------------------
Three
Months
Ended
Year Ended December 31, March 31
----------------------------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ------------ ------------
EARNINGS, AS DEFINED
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) before Preferred
Dividends (2) $ 1,580 $ 524 $ (1,609) $ 19,368 $ 44,602 $ 10,578
Extraordinary items -- -- 186 843 1,400 1,991
Federal & State income taxes 176 357 -- -- -- --
Minority Interest 43 -- 292 1,119 2,550 667
Fixed Charges 1,140 2,129 3,913 9,668 53,289 16,540
---------- ---------- ---------- ---------- ------------ ------------
$ 2,939 $ 3,010 $ 2,782 $ 30,998 $ 101,841 $ 29,776
---------- ---------- ---------- ---------- ------------ ------------
FIXED CHARGES AND PREFERRED
DIVIDENDS, AS DEFINED
Interest Expense $ 1,140 $ 2,129 $ 3,913 $ 9,668 $ 53,289 $ 16,540
Capitalized Interest -- -- -- -- 1,108 643
Preferred Dividends -- -- -- -- 20,620 5,570
---------- ---------- ---------- ---------- ------------ ------------
$ 1,140 $ 2,129 $ 3,913 $ 9,668 $ 75,017 $ 22,753
RATIO OF EARNINGS TO FIXED CHARGES 2.58 1.41 0.71 (1) 3.21 1.87 1.73
---------- ---------- ---------- ---------- ------------ ------------
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED DIVIDENDS 2.58 1.41 0.71 (1) 3.21 1.36 1.31
---------- ---------- ---------- ---------- ------------ ------------
</TABLE>
(1) For the twelve months ended December 31, 1996, earnings were insufficient to
cover fixed charges by $1,131.
(2) Net Income (Loss) before Preferred Dividends includes depreciation and
amortization expense.
31
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 3,808
<SECURITIES> 0
<RECEIVABLES> 43,413
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,808
<PP&E> 1,812,302
<DEPRECIATION> 76,064
<TOTAL-ASSETS> 1,875,837
<CURRENT-LIABILITIES> 2,930
<BONDS> 0
0
11
<COMMON> 32
<OTHER-SE> 818,896
<TOTAL-LIABILITY-AND-EQUITY> 1,875,837
<SALES> 0
<TOTAL-REVENUES> 69,091
<CGS> 0
<TOTAL-COSTS> 22,001
<OTHER-EXPENSES> 17,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,540
<INCOME-PRETAX> 13,236
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,236
<DISCONTINUED> 0
<EXTRAORDINARY> (1,991)
<CHANGES> 0
<NET-INCOME> 10,578
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
